10KSB

UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

Form 10-KSB

(Mark One)
þ	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2006
o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from          to

Commission File No. 33-20897-D

HELIX BIOMEDIX, INC.

(Name of small business issuer in its charter)

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

22118-20th Avenue Southeast, Suite 204, Bothell, Washington 98021

(Address of principal executive offices)

(425) 402-8400

(Issuer’s telephone number)

Securities registered under Section 12(b) of the Exchange Act:

Not Applicable

Securities registered under Section 12(g) of the Exchange Act:

None

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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

Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form and no disclosure will be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB.  þ

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 issuer’s revenues for its most recent fiscal year. $70,940

As of March 8, 2007, there were 22,788,514 shares of common stock, $0.001 par value, of Helix BioMedix, Inc. issued and outstanding. Based on the closing sales price on March 8, 2007, the aggregate market value of the common stock held by non-affiliates of the registrant was $11,630,258.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Proxy Statement relating to the registrant’s 2007 Annual Meeting of Stockholders to be held on May 17, 2007 are incorporated by reference into Part III of this Annual Report.

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

HELIX BIOMEDIX, INC.
FORM 10-KSB

TABLE OF CONTENTS

			Page
PART I
	Item 1.	Description of Business		2
	Item 2.	Description of Property		15
	Item 3.	Legal Proceedings		16
	Item 4.	Submission of Matters to a Vote of Security Holders		16
PART II
	Item 5.	Market for Common Equity and Related Stockholder Matters		16
	Item 6.	Management’s Discussion and Analysis or Plan of Operation		16
	Item 7.	Financial Statements		22
	Item 8.	Changes In and Disagreements With Accountants on Accounting and Financial Disclosure		51
	Item 8A.	Controls and Procedures		51
	Item 8B.	Other Information		51
PART III
	Item 9.	Directors, Executive Officers, Promoters, Control Persons and Corporate Governance; Compliance With Section 16(a) of the Exchange Act		51
	Item 10.	Executive Compensation		51
	Item 11.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		51
	Item 12.	Certain Relationships and Related Transactions, and Director Independence		52
	Item 13.	Exhibits		53
	Item 14.	Principal Accountant Fees and Services		55
EXHIBIT 10.17(b)
EXHIBIT 10.24
EXHIBIT 23.1
EXHIBIT 23.2
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I

Forward-Looking Statements

Our disclosure and analysis in this Annual 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 Item 1, “Business — Certain Factors That May Affect Our Business and Future Results” in this Annual Report. Other factors besides those described in this Annual Report could also affect actual results. You should carefully consider the factors described in Item 1, “Business — Certain Factors That May Affect Our Business and Future Results” 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 Annual Report. We undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Annual 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 Annual Report.

ITEM 1.   BUSINESS

Overview

We are a bioactive peptide-based biopharmaceutical company. Our objective is to develop and commercialize consumer and pharmaceutical products containing our high value peptides and peptide fragments that have proven cosmetic and therapeutic potential carefully selected from our extensive library of patented bioactive peptides.

We have initially targeted using small chain or short amino acid fragments of our peptides with anti-infective, anti-inflammatory, cell proliferation, and migration properties as ingredients in cosmetics and potential topical therapeutics. Possible uses include anti-aging skin care, acne treatment, wound healing, and treatment of athlete’s foot and other fungal infections of the skin and hair including the management of various dermatoses.

To establish a foundation for our initial commercialization efforts, we successfully identified and isolated a number of peptides in the innate human immune system that have potential cosmetic and therapeutic benefits. However, peptides of the innate immune system are molecularly inappropriate for direct application in personal care or pharmaceutical products. By re-engineering these peptides using bioactive, synthetic small amino sequences, we believe that we have created commercially attractive alternatives that provide even greater benefits than those peptides found in nature.

In addition to our primary focus on peptides for use in cosmetic skin care and dermatological therapies, we believe our peptide library also promises new opportunities in certain therapeutic and industrial product categories

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such as oral care, biocides, and animal health. We view these additional applications as out-licensing opportunities with commercial or academic entities that specialize in those fields.

Our business was incorporated on February 2, 1988, and until 2000, we operated primarily as a technology development company, generating a portfolio of intellectual property focused on identifying and developing synthetic bioactive peptides. In 2000, we entered the commercialization stage of our business development plan with an increased emphasis on applying and commercializing the extensive library of patented bioactive peptides that we have developed.

Our website is located at www.helixbiomedix.com. Information contained on our website is not part of, and is not incorporated into, this Annual Report. Our filings with the SEC are available without charge on our website.

Consumer Programs

In 2004, we initiated license agreements with personal care contract manufacturers and materials suppliers for inclusion of certain of our proprietary cosmetics peptides in anti-acne and anti-aging skin care products. We rely on these industry supplier licensees to develop new product opportunities that incorporate our peptides and to create both awareness and demand for our technology among their personal care customer companies.

We believe our peptide technology further holds potential as a technology platform for personal care industry leaders. We collaborate directly with leading personal care companies to identify opportunities for strengthening their brand position with proprietary products featuring our peptide technology.

In 2006, we initiated our first efforts to create turn-key, validated products containing our peptide technology. We plan to introduce these new products into the marketplace through partnerships with personal care marketing companies. The first such product is scheduled for launch in the second half of 2007.

Anti-Acne Programs

We believe one of our lead cosmetic peptides promises significant advantages for skin care competitors in the over-the-counter acne treatment market. This proprietary peptide may be formulated into products with certain over-the-counter anti-acne ingredients for improvement in blemish-clearing benefits. The skin care benefits of this peptide derive from its ability to bind to a pro-inflammatory substance on the cell wall of the acne-causing bacteria. This pro-inflammatory substance is known to cause much of the redness associated with acne breakouts but, when bound to our peptide, is rendered inactive. Laboratory and clinical testing confirm the additional treatment benefits and higher level of consumer satisfaction associated with formulations that contain our peptide.

There are currently a number of product development initiatives incorporating our peptide into anti-acne formulations. We believe the use of this peptide is advantageous for globally marketed anti-acne products, not only because it supports more favorable outcomes with salicylic acid — based treatment products, but because it obviates the need for benzyol peroxide, an ingredient that is limited in application due to regulatory restrictions in certain markets as well as its potential harshness on sensitive skin.

Anti-Aging Programs

We have identified and qualified a number of peptides that target changes in the appearance of skin associated with the aging process. Because there are anti-aging skin benefits that derive from the skin’s natural healing process, much of the anti-aging aspect of our peptide library has been derived from the screening processes associated with our pharmaceutical wound healing programs.

Peptides that target improvement in the appearance of aging skin may affect one or more of the age-related skin characteristics: lines and wrinkles, loss of elasticity, loss of firmness and definition, appearance of darkened areas or general unevenness of skin tone, rough texture, and thinning of the skin.

One of our lead anti-aging peptides targets several aspects of support for the skin’s structural matrix. This peptide has been demonstrated to accelerate the migration of cells from the skin’s uppermost layer to strengthen areas prone to lines and wrinkles and to impart a smoother, firmer appearance. This peptide has been clinically demonstrated to provide equivalent benefits to the leading prescription anti-aging products, but without the risk of

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irritation associated with aggressive retinoids. This peptide is being formulated into various cosmetic skin care products that are anticipated to launch in the second half of 2007.

We believe that, through the isolation of peptides derived from naturally recurring sequences that we call Replikines^tm, and specific combinations of those Replikines^tm that we call Combikines^tm, we can increase the benefits derived from peptide applications in cosmetic anti-aging skin products. We have entered into an evaluation and development initiative with a leading supplier of cosmetic ingredients to qualify these new peptide technologies and hope to bring them to market in 2008. Recently identified peptide opportunities for our anti-aging portfolio include a group of synthetic peptides that we have branded as Modukines^tm. These peptides work to interrupt processes that accelerate the undesirable changes in skin associated with aging, including the accelerated breakdown of collagen and elastin, the skin’s key structural components. We believe several of these Modukines^tm hold commercial promise beyond the area of anti-aging skin care as they support the skin’s resiliency.

We are also working to identify opportunities for peptides to interrupt the pathways that lead to undesirable discoloring and mottled skin tone. This effort is especially timely as hydroquinone, one of the key ingredients used for such cosmetic benefits in the United States, has recently been withdrawn from the market, creating a need that we believe may be safely and effectively addressed with peptides that we are currently developing.

We have identified numerous opportunities for the addition of peptides into therapeutic moisturizers and shampoos in support of the healthy appearance and comfort of skin and scalp. Potential benefits of adding certain peptides to cosmetically therapeutic moisturizers and hair care products include resistance to secondary infection associated with compromised skin, restoration of healthy appearance to cracked, flaky feet that do not respond to ordinary moisturizers, reduced flaking, and improved comfort associated with conditions of the scalp.

While our primary product focus is currently on advanced cosmetic and over-the-counter treatment of skin and hair, we have also identified other categories where our peptides may offer product benefits. For example, we continue to seek partnership opportunities for development and licensing opportunities in the areas of oral care and odor management.

Pharmaceutical Programs

We are developing a novel, broad-spectrum, topical anti-infective for the treatment of skin and wound infections and the prevention of Staphylococcus aureus (S. aureus) infections including those caused by MRSA (Methicillin Resistant S. aureus). These programs are based upon a first-in-class family of molecules known as lipohexapeptides (or small molecule peptides) that we developed to specifically combine the attributes of small molecule natural products with the advantages of antimicrobial peptides. This new class of anti-infective peptide has demonstrated significant improvement in activity, both in vitro and in vivo, over traditional antimicrobial peptides.

As with traditional antimicrobial peptides, our lead lipohexapeptides are rapidly cidal, fail to engender resistance in vitro, are readily synthesized and do not exhibit cross-resistance with other antibiotics. However, these molecules also have the advantage of being more stable, more active, safer, and more cost-effective to manufacture than traditional antimicrobial peptides. In addition, primarily due to acylation (addition of a lipid), these molecules are significantly more active in complex biological environments such as serum or wound fluid. As a result, lipohexapeptides exhibit potent activity in animal infection models.

In pre-clinical testing our lead molecules exhibited broad-spectrum antimicrobial activity against significant bacterial pathogens such as S. aureus, Streptococcus pyogenes, and Pseudomonas aeruginosa, and also pathogenic fungi such as Candida and Trichophyton species. This activity was maintained against antibiotic-resistant organisms such as MRSA and Vancomycin Resistant Enterococci. Our lead molecules have demonstrated significant activity in both bacterial and fungal animal infection models. In a S. aureus abraded skin infection model, our lead lipohexapeptides significantly reduced the number of bacteria following three days of once-daily dosing, and in many cases, our peptide eradicated the pathogen. In a guinea pig dermatophytosis model, our lead peptide candidates significantly reduced pathogen count and delivered clinical benefits comparable to Terbinafine, a drug approved by the Food and Drug Administration (FDA) for onchomycosis. In both animal models, toxicity was not significantly different from that without peptides.

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Acne Anti-infective

The National Institute of Arthritis, Musculoskeletal and Skin Disorders estimate that 17 million people are affected by acne in the United States every year. Acne is the most common skin disorder of adolescence and early adulthood (ages 11-30), affecting 80% of that demographic. Generally, mild to moderate cases are treated with topical medications, with more severe cases being treated with systemic or a combination of topical and systemic therapies. The global market for prescription anti-acne products is currently estimated to be $2.0 billion, and the largest segment of this is attributed to topical medications. While topical antibiotics such as Clindamycin make up a large part of this market, providing significant clinical benefit, the emergence of resistance to antibiotics such as Clindamycin occurred as early as 1979.

Our lipohexapeptide program is specifically directed at developing small, stable, and highly potent antimicrobials capable of delivering therapeutic benefit within the clinical environment. These molecules overcome the specific challenges typically associated with acne such as the ability to work in an oil and serum environment and the ability to kill organisms deep within a pore. The efficacy observed in the dermatophytosis model described above demonstrates the penetration and antimicrobial effects of these molecules in the hair follicle of the host.

MRSA

There is an ever-increasing global problem of antimicrobial resistance. This phenomenon has been well documented by the Centers for Disease Control and Prevention, which recently identified a 28.5% increase in S.aureus oxacillin (methicillin) resistance in hospitals taking part in the National Nosocomial Infections Surveillance system from 1992-2003. Their report concludes that action is necessary to control the spread of this organism, and, to this end, several European countries have been successful in identifying and treating colonized patients quickly. The ability of lipohexapeptides to safely and effectively kill S.aureus in an abraded skin infection model, and the fact that this class of molecule exhibits potent activity against both methicillin and mupirocin (current therapy) resistant strains, support its development potential. The broad spectrum of activity exhibited by lipohexapeptides also enables possible application to chronic wounds, burn wounds, and trauma wounds in which multiple pathogens can cause significant morbidity and mortality. The market for such topical anti-infectives is currently estimated to be $1.5 billion per year.

Topical fungal infections

Trichophyton species are the major cause of a significant number of fungal skin infections including, athlete’s foot, tinea capitis (scalp ringworm), and onychomycosis (nail fungus). Up to 70% of Americans have athlete’s foot at any given time, 13% of US school children (85% of children in many other countries) test positive for tinea capitis, and 22-40% of Americans 51-100 years of age have onychomycosis. These disease conditions have contributed to the worldwide sales for prescription topical antifungals exceeding $1 billion in 2006, with a similar level of sales for over-the-counter products addressing these conditions. Our pre-clinical data have shown that our lead molecules are capable of treating Trichophyton infections and hold great promise for multiple dermatological indications.

Competition

The cosmetic, biotechnology, and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary products. Many participants in these industries, as well as academic institutions and other research organizations, are actively engaged in the discovery, research and development of products that could compete with our products under development. They may also compete with us in recruiting and retaining skilled scientific talent.

We believe that we face two broad classes of competitors:

•  other companies developing therapies based upon peptide technology; and

•  companies using other technologies to address the same disease conditions that we are targeting.

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We are currently aware of several companies that are utilizing peptide-based technologies for antimicrobial applications including: Agennix, Inc., AM Pharma Holdings, Genarea Corporation, Inimex Pharmaceuticals, and Migenix, Inc.

Even if our peptide technology proves successful, we might not be able to be competitive in this rapidly advancing area of technology. Some of our potential competitors have more financial and other resources, larger research and development staffs, and more experience than we do in researching, developing, and testing products. Some of these companies also have more experience than we do in conducting clinical trials, obtaining FDA and other regulatory approvals, and manufacturing, marketing, and distributing medical and consumer products. Smaller companies may successfully compete with us by establishing collaborative relationships with larger companies or academic institutions. Our competitors may succeed in developing, obtaining patent protection for or commercializing their products more rapidly than us. A competing company developing, or acquiring rights to, a more effective therapeutic product for the same diseases targeted by us, or one that offers significantly lower costs of treatment, could render our products noncompetitive or obsolete.

Suppliers

We believe that there are several readily available sources of amino acids used for our peptides. We do not plan to manufacture peptides on a commercial scale. However, in support of the development process required to advance our licensing strategy, we have produced and maintain a small, inexpensive peptide inventory. In planning for commercial-scale production, we have sought collaborations with several credible, experienced manufacturers specializing in the production of peptides. With their assistance, we have developed production and cost plans that will support the inclusion of our peptides in a wide range of both consumer and clinical products. We believe several of these contract manufacturers are capable of scaling peptide synthesis to support all of our projected volume and configuration requirements.

Intellectual Property Rights

We have developed a proprietary library containing a broad and diverse array of synthetic bioactive peptides. Our peptide library not only includes multiple proprietary peptides, but also includes various compositions of and methods of using those peptides. We believe that our patents and patent applications provide broad and early patent coverage that offers important competitive advantages that no other competitor can provide.

We currently hold nine patents issued in the United States, two provisional United States applications, and three non-provisional United States applications. We also have ten issued foreign patents and two Patent Cooperation Treaty (PCT) applications pending. These patents and patent applications describe six distinct classes of peptides, comprising more than 100,000 unique peptide sequences. The control of a patent-protected library comprising several distinct classes of peptides distinguishes us from our competitors, many of whom are attempting to develop only a single class of peptides for multiple applications. The breadth of our library offers scientists an exceptionally wide range of options in matching optimal peptides with individual product or therapeutic requirements.

We rely on a combination of patent, trademark, copyright, and trade secret laws to protect our proprietary technologies and products. We aggressively seek U.S. and international patent protection applicable to our peptide technologies. We also rely on trade secret protection for our confidential and proprietary information and in-license technologies we view as necessary to our business plan.

With respect to proprietary know-how that is not patentable, we have chosen to rely on trade secret protection and confidentiality agreements to protect our interests. We have taken security measures to protect our proprietary know-how, technologies, and confidential data, and continue to explore further methods of protection. We require all employees, consultants, and collaborators to enter into confidentiality agreements, and employees and consultants enter into invention assignment agreements with us. We cannot assure you, however, that these agreements will provide meaningful protection or adequate remedies for any breach or that our trade secrets will not otherwise become known or be independently discovered by our competitors.

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In the case of a strategic partnership or other collaborative arrangement which requires the sharing of data, our policy is to disclose to our partner, under controlled circumstances, only data that is relevant to the partnership or arrangement during the contractual term of the strategic partnership or collaborative arrangement, subject to a duty of confidentiality on the part of our partner or collaborator. Disputes may arise as to the ownership and corresponding rights to know-how and inventions resulting from research by us, and our corporate partners, licensors, scientific collaborators, and consultants. We cannot assure you that we will be able to maintain our proprietary position or that third parties will not circumvent any proprietary protection we have. Our failure to maintain exclusive or other rights to these technologies could harm our competitive position.

To continue developing and commercializing our current and future products, we may license intellectual property from commercial or academic entities to obtain the rights to technology that is required for our discovery, research, development, and commercialization activities.

Regulation

Federal, state and local governmental authorities in the United States and other countries regulate, among other things, the testing, production, distribution and sale of prescription and over-the-counter drugs and cosmetics. In the United States, the Food and Drug Administration, or the FDA, acting under the Food Drug and Cosmetic Act, or FDCA, and other federal statutes and FDA implementing regulations, regulates products primarily on the basis of their intended use, as determined by the labeling claims made for the product.

Although under our licensing strategy our collaborators will bear the majority of regulatory compliance burden, our ability to successfully out-license and collaborate with others on our product candidates requires that we understand the regulations and restrictions on commercialization of cosmetic and drug products.

FDA regulation of cosmetics

The FDCA defines cosmetics as products and their components intended to be rubbed, poured, sprinkled, or sprayed on, introduced into, or otherwise applied to the human body or any part thereof for cleansing, beautifying, promoting attractiveness, or altering the appearance. Cosmetic products are not subject to FDA pre-market approval authority, although the FDA can take enforcement action for marketed cosmetic products that are adulterated or misbranded, including violations of product safety requirements, use and quantity of ingredients, labeling and promotion and methods of manufacture. Additionally, the FDA monitors compliance of cosmetic products through random inspections of cosmetic manufacturers and distributors. The labeling of cosmetic products is subject to the requirements of the FDCA, the Fair Packaging and Labeling Act and other FDA regulations.

Our licensing strategy with cosmetics manufacturers requires that we operate within the confines of cosmetic intended uses when developing and partnering for the commercialization of relevant products.

FDA regulation of drug products

The FDCA defines drugs as products intended to cure, mitigate, treat or prevent a disease or to affect the structure or any function of the human body. In comparison to cosmetics, drug products are subject to more comprehensive safety and effectiveness requirements of the FDCA and its implementing regulations. The FDA and its counterparts in other countries extensively regulate the pre-clinical and clinical testing, approval, manufacturing, labeling, storage, record-keeping, reporting, advertising, promotion, import, export, marketing, and distribution, among other things, of drug products. If we or our collaborators do not comply with applicable requirements, we may be fined, our products may be recalled or seized, our clinical trials may be suspended or terminated, our production may be partially or totally suspended, the government may refuse to approve related marketing applications, and we may be subject to an injunction, and/or criminally prosecuted.

The steps required before a new drug may be marketed in the United States include (i) pre-clinical laboratory and animal testing, (ii) submission to the FDA of an Investigational New Drug, or IND, application which must become effective before clinical trials may commence, (iii) adequate and well-controlled clinical trials to establish the safety and efficacy of the drug, (iv) submission to the FDA of a New Drug Application, or NDA, and (v) FDA approval of the NDA prior to any commercial sale or shipment of the drug. Pre-clinical testing is generally

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conducted on laboratory animals to evaluate the potential safety and the efficacy of a drug. The results of these studies are submitted to the FDA as a part of an IND, which must be approved before clinical trials in humans can begin. Typically, clinical evaluation involves a time consuming and costly three-phase process. In Phase I, clinical trials are conducted with a small number of subjects to determine the early safety profile, the pattern of drug distribution and metabolism. In Phase II, clinical trials are conducted with groups of patients afflicted with a specific disease to determine preliminary efficacy, optimal dosages and expanded evidence of safety. In Phase III, large-scale, multi-center, comparative trials are conducted with patients afflicted with a target disease to provide sufficient data to demonstrate the efficacy and safety required by the FDA. The FDA closely monitors the progress of each of the three phases of clinical trials and may, at its discretion, re-evaluate, alter, suspend or terminate the testing based upon the data that have been accumulated to that point and its assessment of the risk/benefit ratio to the patient.

This testing, the preparation of necessary applications, the processing of those applications by the FDA, and potential review of the applications by an FDA advisory panel of outside experts are expensive, and typically take many years to complete. The FDA may not act quickly or favorably in reviewing these applications, or may deny approval altogether, and we or our collaborators may encounter significant difficulties or costs in our efforts to obtain FDA approval.

We believe that certain of our lipohexapeptide product candidates for treatment of topical skin infections may require complete NDA preparation by our collaborators, as may certain of our Over The Counter (OTC) drug product candidates. To date, we have not conducted human clinical trials of our lipohexapeptides.

The OTC monograph system

While FDA approval is generally required before a new drug product may be marketed in the U.S., many OTC drugs are exempt from the FDA’s pre-marketing approval requirements. In 1972, the FDA instituted the ongoing OTC Drug Review to evaluate the safety and effectiveness of OTC drug ingredients in the market. Through this process, the FDA issues monographs for therapeutic product categories that set forth the specific active ingredients, dosages, strengths, indications for use, warnings and labeling statements for OTC drug ingredients that the FDA will consider generally recognized as safe and effective for OTC use and therefore not subject to pre-market approval.

For most categories of OTC drugs not yet subject to a final monograph, the FDA usually permits such drugs to continue to be marketed until a final monograph becomes effective, unless the drug will pose a potential health hazard to consumers.

Drugs subject to final monographs, as well as drugs that are subject only to proposed monographs, are subject to various FDA regulations concerning, for example, manufacturing in accordance with cGMPs, general and specific labeling requirements and prohibitions against promotion for conditions other than those stated in the labeling. Drug manufacturing facilities are subject to FDA inspection, and failure to comply with applicable regulatory requirements may lead to administrative or judicially imposed penalties.

Our anti-acne and certain topical antimicrobial product candidates may be regulated under the OTC monograph system by the FDA.

We are also subject to regulation by the Occupational Safety & Health Administration (OSHA), and the Environmental Protection Agency (EPA), and to various laws, and regulations relating to safe working conditions, laboratory, and manufacturing practices, and the use, and disposal of hazardous or potentially hazardous substances, including radioactive compounds used in connection with our research, and development activities, and we may in the future be subject to other federal, state or local laws or regulations. OSHA, the EPA or other regulatory agencies may promulgate regulations that may affect our research and development programs. We are also subject to regulation by the Department of Transportation, and to various laws and regulations relating to the shipping of cells, and other similar items. We are unable to predict whether any agency will adopt any regulation that could limit or impede our operations.

Depending on the circumstances, failure to meet these other applicable regulatory requirements can result in criminal prosecution, fines or other penalties, injunctions, recall or seizure of products, partial or total suspension of

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production, denial or withdrawal of pre-marketing product approval or refusal to allow us to enter into supply contracts, including government contracts.

Sales of cosmetics and drug products outside the United States are subject to foreign regulatory requirements that vary widely from country to country. Whether or not we or our collaborators have obtained FDA approval, we must obtain approval of a product by comparable regulatory authorities of foreign countries prior to the commencement of marketing the product in those countries. The time required to obtain this approval may be longer or shorter than that required for FDA approval. The foreign regulatory approval process includes all the risks associated with FDA regulation set forth above, as well as country-specific regulations, including in some countries price controls.

During the fiscal years ended December 31, 2005 and 2006, we expended approximately $834,200 and $988,500, respectively, on our research and development programs.

To date, we have not incurred any substantial costs to comply with environmental laws or regulations.

Personnel

As of December 31, 2006, we employed eight personnel, all on a full-time basis, including three employees involved in research. None of our employees is covered by a collective bargaining agreement. We have never experienced employment-related work stoppages and consider our employee relations to be positive.

Certain Factors That May Affect Our Business and Future Results

You should carefully consider the risks described below, together with all other information included in this Annual Report on Form 10-KSB, in evaluating our company. If any of the following risks actually occur, our financial condition or operating results could be harmed. In such case, investors may lose part or all of their investment.

We will need to raise additional capital to fund our operations and our failure to obtain funding when needed may force us to delay, reduce or eliminate our product development programs or collaboration efforts.

Developing products and conducting pre-clinical testing of antimicrobial peptide technologies requires substantial amounts of capital. To date, we have raised capital primarily through private equity financings. If we are unable to timely obtain additional funding, we may never obtain the results necessary to commercialize any of our products. We will need to raise additional capital to, among other things:

•  commercialize our product candidates;

•  fund our pre-clinical studies;

•  continue our research and development activities;

•  finance our general and administrative expenses; and

•  prepare, file, prosecute, maintain, enforce, and defend patent and other proprietary rights.

Our net cash used in operations has exceeded our cash generated from operations for each year since our inception. For example, we used approximately $3.0 million in operating activities for the year ended December 31, 2006, and approximately $2.8 million in 2005. After giving effect to our recent private placements of common stock which raised approximately $2.0 million and $148,750 and closed on March 5, 2007, and March 26, 2007, respectively, we believe that based upon the current status of our product development, and collaboration plans, our cash and cash equivalents and marketable securities should be adequate to satisfy our capital needs through at least the next twelve months. However, our future funding requirements will depend on many factors, including, among other things:

•  our ability to enter into revenue producing agreements;

•  the progress, expansion, and cost of our pre-clinical, and research and development activities;

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•  any future decisions we may make about the scope and prioritization of the programs we pursue;

•  the development of new product candidates or uses for our antimicrobial peptide technologies;

•  changes in regulatory policies or laws that affect our operations; and

•  competing technological and market developments.

If we raise additional funds by issuing equity securities, further dilution to stockholders may result, and new investors could have rights superior to holders of shares of our currently issued, and outstanding common stock. In addition, debt financing, if available, may include restrictive covenants. If adequate funds are not available to us, we may have to liquidate some or all of our assets or delay, reduce the scope of or eliminate some portion or all of our development programs. We also may have to license to other companies our products or technologies that we would prefer to develop, and commercialize ourselves.

We expect to continue to incur substantial losses and we may never achieve profitability.

We are a development stage company and have incurred significant operating losses since we began operations in November 1988, including a net loss of approximately $3.8 million for the year ended December 31, 2006, and we may never become profitable. As of December 31, 2006, we had a deficit accumulated during the development stage of approximately $24.1 million. These losses have resulted principally from costs incurred in our research and development programs, and from our general and administrative expenses. We intend to make substantial expenditures to further develop and commercialize our product candidates, and expect that our rate of spending may accelerate as the result of the increased costs, and expenses associated with expanded in-house research and development of our lead candidates, out-licensing initiatives, clinical trials, regulatory approvals, and commercialization of our antimicrobial peptide technologies. We plan to identify lead peptides demonstrating the potential for commercially viable products. Development of these products will require extensive in-vitro and in-vivo testing. This testing, as well as the extension of existing pre-clinical testing, will require the establishment of strategic partnerships with third parties. Because of the numerous risks and uncertainties associated with our product development efforts, we are unable to predict when we may become profitable, if at all. If we are unable to achieve and then maintain profitability, the market value of our common stock will likely decline.

We are at an early stage of product development and do not yet have commercially marketable products to provide material revenue.

Although we have been developing our antimicrobial peptide technology since 1988, we remain a development stage company and to date have generated no material revenue from product sales. Our strategic plan contemplates the development of both pharmaceutical and non-pharmaceutical products, and applications for our proprietary peptides. However, there can be no assurance that products will be commercialized in either field as a result of continued development programs or from joint efforts with any future collaborative partner. The failure to develop safe, commercially viable pharmaceutical or non-pharmaceutical applications for our technology will have a material adverse effect on our business, operating results, and financial condition.

We need to enter strategic alliances with third parties to develop, test, and produce commercially viable products.

A key element of our strategy is to enhance development programs and fund capital requirements, in part, by entering into collaborative agreements with cosmetic, pharmaceutical, and other biotechnology companies. We also plan to explore collaborations with non-pharmaceutical companies, and opportunities for incorporating our antimicrobial peptides into non-clinical applications such as cosmetics and biocides. Although the development of such alliances is one of our objectives, there can be no assurance that we will succeed in attracting substantial collaborative partners who can materially assist in the development and commercialization of our technology. The development of commercially viable products from our technology will likely require the technical collaboration and financial assistance of other, significantly larger third parties, to bear most of the costs of pre-clinical and clinical testing, regulatory approval, manufacturing, and marketing prior to commercial sale. Even if we are successful in attracting collaborative partners, and those collaborations yield commercially viable products, our

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receipt of revenue will be substantially dependent upon the decisions made by, and the manufacturing, and marketing resources of these strategic partners. Further, there can be no assurance that our interests will coincide with those of any future collaborative partner, that such a partner will not develop, independently or with third parties, products that could compete with those products contemplated by any agreement we may have with that partner, or that disagreements over rights, technology or other proprietary interests will not occur. The failure to develop strategic business alliances that facilitate the development, testing, and commercialization of our products will have a material adverse effect on its business, operating results, and financial condition.

Because of the specialized nature of our business, the termination of relationships with key management and scientific personnel or the inability to recruit and retain additional personnel could prevent us from developing our technologies and obtaining financing.

The competition for qualified personnel in the biotechnology field is intense, and we rely heavily on our ability to attract, and retain qualified scientific, technical, and managerial personnel. We are highly dependent upon R. Stephen Beatty, our President and Chief Executive Officer, Dr. Timothy Falla, our Vice President and Chief Scientific Officer, and Lori Bush, our Chief Operating Officer. Our future success depends, in part, upon our ability to attract, retain, and motivate highly skilled employees. In order to commercialize our products successfully, we will be required to expand our workforce, possibly in the areas of business development, and sales and marketing. These activities will require the addition of new personnel, including management, and the development of additional expertise by existing management personnel. We face competition for qualified individuals from numerous biotechnology companies, as well as academic, and other research institutions. To the extent we are unable to attract and retain any of these individuals on favorable terms, our business may be adversely affected.

We rely on collaborators to assist in the research and development activities necessary for the commercialization of our product candidates. If our collaborators do not perform as expected, we may not be able to commercialize our product candidates.

We intend to continue to develop alliances with third-party collaborators to develop and market our current and future product candidates. We may not be able to attract third-party collaborators to develop and market product candidates, and may lack the capital and resources necessary to develop its product candidates alone. If we are unable to locate collaborators, or if our collaborators do not prioritize and commit substantial resources to programs associated with our product candidates, we may be unable to commercialize its product candidates, which would limit our ability to generate revenue and become profitable.

We face substantial competition in our product development efforts from personal care, pharmaceutical and biotechnology companies, universities and other not-for-profit institutions.

We face significant competition in our attempts to develop applications of our antimicrobial peptide technology from entities that have substantially greater research and product development capabilities, and financial, scientific, marketing, and human resources. These entities include cosmetic, pharmaceutical and biotechnology companies, as well as universities and not-for-profit institutions. We expect that competition in the development of products analogous to our antimicrobial peptide technology will intensify. Our competitors may succeed in developing products earlier than we do, entering into successful collaborations before us, obtaining approvals from the U.S. Food and Drug Administration (FDA) or other regulatory agencies for such products before us, or developing products that are more effective than those we develop or propose to develop. The success of any one competitor in these or other respects will have a material adverse effect on our business, operating results, and financial condition.

We face product liability risks and may not be able to obtain adequate insurance to protect against losses.

The current use of any of our products, including in pre-clinical trials, and the sale of any of our products exposes us to liability claims. These claims might be made directly by consumers and our corporate collaborators or others selling such products. We may experience financial losses in the future due to product liability claims. We have expanded our insurance coverage to include the sale of commercial products. However, we may be unable to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect against losses. If a successful

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product liability claim or a series of claims is brought against us for uninsured liabilities or in excess of insured liabilities, our assets may be insufficient to cover such claims and our business operations could be impaired.

If we are unable to protect our proprietary rights, we may not be able to compete effectively.

Our success depends in part on obtaining, maintaining, and enforcing our patents and other proprietary rights. We believe we own, or have rights under licenses to, issued patents and pending patent applications that are necessary to commercialize our antimicrobial peptides. However, the patents on which we rely may be challenged and invalidated, and our patent applications may not result in issued patents. Moreover, our patents and patent applications may not be sufficiently broad to prevent others from practicing our technologies or developing competing products. We also face the risk that others may independently develop similar or alternative technologies or may design around our proprietary and patented technologies.

The patent positions of pharmaceutical and biotechnology companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in biotechnology patents has emerged to date in the United States. Furthermore, the application, and enforcement of patent laws and regulations in foreign countries is even more uncertain. Accordingly, we cannot assure you that we will be able to effectively file, protect or defend our proprietary rights in the United States or in foreign jurisdictions on a consistent basis.

Third parties may successfully challenge the validity of our patents. We will only be able to protect our technologies from unauthorized use by third parties to the extent that valid and enforceable patents or other proprietary rights cover them. Because the issuance of a patent is not conclusive of its validity or enforceability, we cannot assure you how much protection, if any, will be given to our patents if we attempt to enforce them or if others challenge their validity in court. It is possible that a competitor may successfully challenge our patents or that a challenge will result in limiting the coverage of our patents. If the outcome of litigation is adverse to us, third parties may be able to use our technologies without payment to us.

In addition, it is possible that competitors may infringe upon our patents or successfully avoid them through design innovation. We may initiate litigation to police unauthorized use of our proprietary rights. However, the cost of litigation to uphold the validity of our patents and to prevent infringement could be substantial, and the litigation will consume time and other resources. Some of our competitors may be better able to sustain the costs of complex patent litigation because they have substantially greater resources. Moreover, if a court decides that our patents are not valid, we will not have the right to stop others from using our inventions. There is also the risk that, even if the validity of our patents were upheld, a court may refuse to stop others on the ground that their activities do not infringe upon our patents. Because protecting our intellectual property is difficult and expensive, we may be unable to prevent misappropriation of our proprietary rights.

We also rely on certain proprietary trade secrets and know-how, especially where we believe patent protection is not appropriate or obtainable. Trade secrets and know-how, however, are difficult to protect. We have taken measures to protect our unpatented trade secrets and know-how, including the use of confidentiality and invention assignment agreements with our employees, consultants and contractors. It is possible, however, that these persons may unintentionally or willingly breach the agreements or that our competitors may independently develop or otherwise discover our trade secrets and know-how.

If the use of our technologies conflicts with the rights of others, we could be subject to expensive litigation or be required to obtain licenses from others to develop or market antimicrobial peptides.

Our competitors or others may have or acquire patent rights that they could enforce against us. If they do so, we may be required to alter our antimicrobial peptide technology, pay licensing fees or cease activities. If our antimicrobial peptide technology conflicts with patent rights of others, third parties could bring legal action against us or our licensees, suppliers, customers or potential collaborators, claiming damages, and seeking to enjoin manufacturing and marketing of the affected products. If these legal actions are successful, in addition to any potential liability for damages, we might have to obtain a license in order to continue to manufacture or market the affected products. A required license under the related patent may not be available on acceptable terms, if at all.

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We may be unaware that the use of our technology conflicts with pending or issued patents. Because patent applications can take many years to issue, there may be currently pending applications, unknown to us, that may later result in issued patents upon which our antimicrobial peptide technology or antimicrobial peptides may infringe. There could also be existing patents of which we are unaware upon which our antimicrobial peptide technology or antimicrobial peptides may infringe. In addition, if third parties file patent applications or obtain patents claiming technology also claimed by us in pending applications, we may have to participate in interference proceedings in the U.S. Patent and Trademark Office to determine priority of invention. If third parties file oppositions in foreign countries, we may also have to participate in opposition proceedings in foreign tribunals to defend the patentability of the filed foreign patent applications. We may have to participate in interference proceedings involving our issued patents or our pending applications.

A third party may claim that we infringe upon its proprietary rights.

If a third party claims that we infringe upon its proprietary rights, any of the following may occur:

•  we may become liable for substantial damages for past infringement if a court decides that our technology infringes upon a competitor’s patent;

•  a court may prohibit us from selling or licensing our product without a license from the patent holder, which may not be available on commercially acceptable terms, if at all, or which may require us to pay substantial royalties or grant cross licenses to our patents; and

•  we may have to redesign our technology or product candidate so that it does not infringe upon others’ patent rights, which may not be possible or could require substantial funds or time.

If any of these events occurs, our business will suffer and the market price of our common stock will likely decline.

Our rights to use peptides and technologies licensed to us by third parties are not within our control and we may not be able to implement our antimicrobial peptide technology without these peptides and technologies.

We have licensed patents and other rights, which are necessary to our antimicrobial peptide technology and antimicrobial peptides. Our business will significantly suffer if these licenses terminate, if the licensors fail to abide by the terms of the license or fail to prevent infringement by third parties or if the licensed patents or other rights are found to be invalid. We have in-licensed several peptide patents and patent applications from the University of British Columbia. These licenses terminate upon the expiration of the last licensed patent, and may also be terminated in the event of a material breach.

If we violate the terms of our licenses, or otherwise lose our rights to these peptides, patents or patent applications, we may be unable to continue development of our antimicrobial peptide technology. Our licensors or others may dispute the scope of our rights under any of these licenses. Additionally, the licensors under these licenses might breach the terms of their respective agreements or fail to prevent infringement of the licensed patents by third parties. Loss of any of these licenses for any reason could materially harm our financial condition and operating results.

If our principal stockholders, executive officers and directors choose to act together, they may be able to control our management and operations, acting in their own best interests and not necessarily those of other stockholders.

Our executive officers, directors, principal stockholders, and entities affiliated with them, beneficially own in the aggregate approximately 38.9% of our outstanding common stock and common stock equivalents as of December 31, 2006. This significant concentration of share ownership may adversely affect the trading price for our common stock because investors often perceive disadvantages in owning stock in companies with controlling stockholders. These stockholders, acting together, will have the ability to exert substantial influence over all matters requiring approval by our stockholders, including the election and removal of directors, and any proposed merger,

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consolidation or sale of all or substantially all of our assets. In addition, they could dictate the management of our business and affairs.

This concentration of ownership could have the effect of delaying, deferring or preventing a change in control or impeding a merger or consolidation, takeover or other business combination that could be favorable to you.

Future sales of our common stock could negatively affect our stock price.

If our common stockholders sell substantial amounts of common stock in the public market, or the market perceives that such sales may occur, the market price of our common stock could decline.

In addition, we will need to raise substantial additional capital in the future to fund our operations. If we raise additional funds by issuing equity securities, our stock price may decline and our existing stockholders may experience significant dilution.

Our common stock may experience extreme price and volume fluctuations, which could lead to costly litigation for us and make an investment in us less appealing.

The market price of our common stock has and may continue to fluctuate substantially due to a variety of factors, including:

•  announcements about our collaborators or licensees;

•  announcements of technological innovations or new products or services by us or our competitors;

•  announcements concerning our competitors or the biotechnology industry in general;

•  new regulatory pronouncements and changes in regulatory guidelines;

•  general and industry-specific economic conditions;

•  additions or departures of our key personnel;

•  changes in financial estimates or recommendations by securities analysts;

•  variations in our quarterly results; and

•  changes in accounting principles.

The market prices of the securities of biotechnology companies, particularly companies like ours without consistent product revenue and earnings, have been highly volatile, and are likely to remain highly volatile in the future. This volatility has often been unrelated to the operating performance of particular companies. In the past, companies that experience volatility in the market price of their securities have often faced class action securities litigation. Moreover, market prices for stocks of biotechnology-related and technology companies frequently reach levels that bear no relationship to the operating performance of these companies. These market prices generally are not sustainable, and are highly volatile. Whether or not meritorious, litigation brought against us could result in substantial costs, divert our management’s attention and resources, and harm our financial condition and results of operations.

Our certificate of incorporation, bylaws, and stockholder rights agreement may delay or prevent a change in our management.

Our amended and restated certificate of incorporation, bylaws, and stockholder rights agreement contain provisions that could delay or prevent a change in our board of directors and management teams. Some of these provisions:

•  authorize the issuance of preferred stock that can be created and issued by the board of directors without prior stockholder approval, commonly referred to as “blank check” preferred stock, with rights senior to those of our common stock;

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•  authorize our board of directors to issue dilutive shares of common stock upon certain events; and

•  provide for a classified board of directors.

These provisions could make it more difficult for common stockholders to replace members of the board of directors. Because our board of directors is responsible for appointing the members of our management team, these provisions could in turn affect any attempt to replace the current management team.

Executive Officers

Name	Age		Position
R. Stephen Beatty		57	President and Chief Executive Officer
Lori H. Bush		50	Chief Operating Officer
Timothy J. Falla, Ph.D.		41	Vice President and Chief Scientific Officer
David H. Kirske		53	Vice President and Chief Financial Officer

R. Stephen Beatty has served as our President and Chief Executive Officer and as a member of our board of directors since May 1999. Prior to joining us, Mr. Beatty established and operated Beatty Finance, Inc., a private financial services company (“Beatty Finance”). Mr. Beatty is currently President and a director of Beatty Finance but does not have day-to-day responsibilities in those capacities. Mr. Beatty holds a B.S. in Mathematics from the University of South Alabama and an M.B.A. from the University of New Orleans.

Lori H. Bush joined us in October 2006 and serves as our Chief Operating Officer. Prior to joining the company, Ms. Bush was President of Nu Skin, the multi-national personal care products division of Nu Skin Enterprises where she continues to chair their Professional Advisory Board. Prior to her position at Nu Skin, Ms. Bush held the positions of Executive Director, Worldwide Skin Care Ventures for the Johnson and Johnson Consumer Products Companies, and Vice President, Professional Marketing for Neutrogena, a Johnson and Johnson Company. She currently sits on the board of directors of Matrixx Initiatives, Inc. Ms. Bush earned her B.S. from The Ohio State University and M.B.A. from Temple University.

Timothy J. Falla, Ph.D. has served as our Vice President and Chief Scientific Officer since June 2001. From 1998 until 2001, Dr. Falla was Principal Scientist with IntraBiotics Pharmaceuticals, Inc. where he led a multi-disciplinary scientific research team focused on antibacterial drug discovery and development. Dr. Falla holds a B.S. in Applied Biology from the University of Wales, and a Ph.D. in Molecular Biology and Infectious Disease from Oxford University and the University of Wales.

David H. Kirske has served as our Vice President and Chief Financial Officer since July 2004. From June 2001 to December 2003, Mr. Kirske served as an independent consultant to several biotechnology companies. From January 1999 to June 2001, he was the Corporate Controller for F5 Networks, Inc., a provider of integrated Internet traffic management solutions. Mr. Kirske was the Corporate Controller and Treasurer for Redhook Ale Brewery, Incorporated, a specialty manufacturer of craft beers, from 1993 to January 1999. Mr. Kirske holds a B.A. in Business Administration from the University of Puget Sound.

Other Information

We make available on our website, free of charge, copies of our annual report on Form 10-KSB, quarterly reports on Form 10-QSB, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after filing or furnishing the information to the SEC. The Internet address for the information is www.helixbiomedix.com.

ITEM 2.   DESCRIPTION OF PROPERTY

We currently lease approximately 8,500 square feet of laboratory and office space in Bothell, Washington. The lease expires in November 2009 and includes an option to extend the term of the lease for three years.

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ITEM 3.   LEGAL PROCEEDINGS

None

ITEM 4.   SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS

None

PART II

ITEM 5.   MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information

Our common stock has been quoted on the OTC Bulletin Board under the symbol “HXBM” since 1999. Prior to this date our common stock did not trade publicly. The following table summarizes our common stock’s high and low sales prices for the periods indicated as reported by the OTC Bulletin Board. These quotations reflect inter-dealer prices, without retail markups, markdowns or commissions, and may not represent actual transactions.

	Year Ended December 31,
	2006				2005
	High		Low		High		Low
First Quarter	$	1.01	$	0.72	$	2.05	$	1.45
Second Quarter	$	1.46	$	0.86	$	1.75	$	1.40
Third Quarter	$	1.10	$	0.85	$	1.50	$	0.90
Fourth Quarter	$	1.01	$	0.70	$	1.07	$	0.65

As of February 28, 2007, we had 905 holders of record, and approximately 1,200 beneficial stockholders of our common stock. Such holders include any brokers or clearing agencies as holders of record but exclude the individual stockholders whose shares are held by brokers or clearing agencies.

Dividend Policy

We have never declared or paid cash dividends on our capital stock. We currently intend to retain any future earnings to fund the development and growth of our business, and do not anticipate paying any cash dividends in the foreseeable future. Any future determination relating to our dividend policy will be made by our board of directors.

ITEM 6.   MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

For a discussion of forward-looking statements and important factors that could cause results to differ materially from the forward-looking statements in this Annual Report, see Part I, “Forward-Looking Statements,” and Item 1, “Business — Certain Factors That May Affect Our Business and Future Results.”

Management Discussion and Analysis Overview

In Management’s Discussion and Analysis or Plan of Operation, we explain the financial condition, changes in financial condition and results of operations of our company, including, among other things:

•  an overview of our business;

•  results of operations and why those results are different from prior years; and

•  the capital resources that we currently have and possible sources of additional funding for future capital requirements.

Business Overview

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. All

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of our pharmaceutical products 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 on the two areas of application discussed below. Our business strategy is to develop and out-license the rights to use proprietary peptides in distinct fields of application to third parties. We have developed several peptide sequences in two broad areas of application, which consist of:

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

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

Due to the early stage of development of each of our peptide sequences in our pharmaceutical programs, we are unable to estimate the total costs and timing to complete development. Additionally, we currently anticipate out-licensing our product candidates and the final development will depend on the efforts of third parties. The timing of our being able to enter into any licensing agreements resulting in significant payments to us is uncertain. Thus we lack the experience necessary to determine when material cash flows from our projects will materialize, if at all.

Results of Operations

As of December 31, 2006, our accumulated deficit was approximately $24.1 million. We may incur substantial additional operating losses over the next several years. Such losses have been and may continue to be principally the result of various costs associated with our discovery, research and development programs and the purchase of technology. Substantially all of our working capital in recent years has resulted from equity financings. Our ability to achieve a consistent, profitable level of operations depends in large part on our ability to enter into revenue generating out-license arrangements. Even if we are successful in the aforementioned activities, our operations may not be profitable. In addition, 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.

Years Ended December 31, 2006 and December 31, 2005

Revenue for the year ended December 31, 2006 was approximately $70,900 compared to approximately $108,400 in the prior year, a decrease of 34.6%. The decrease in revenue is primarily attributable to a decrease in peptide sales. Revenues in 2007 will be dependent on our ability to enter into collaborative and licensing arrangements with third parties.

Cost of sales for the year ended December 31, 2006 was approximately $163,000 compared to approximately $84,300 in the prior year, an increase of 93.4%. The increase in cost of sales is primarily attributable to inventory being written down approximately $151,400 to net realizable value in 2006.

Research and development expenses were approximately $988,500 for the year ended December 31, 2006 compared to approximately $834,200 in the prior year, an increase of 18.5%. The increase is attributable primarily to the adoption of FAS123R in 2006, which resulted in approximately $87,100 of incremental expense, and certain external studies conducted in 2006 which were not conducted in 2005.

Depreciation and amortization expenses were approximately $180,800 for the year ended December 31, 2006 compared to approximately $175,100 in the prior year, an increase of 3.3%. The increase is primarily attributable to additional equipment purchased in 2006 to support our research and development efforts.

Accounting, legal, and professional expenses were approximately $318,100 for the year ended December 31, 2006 compared to approximately $300,900 in the prior year, an increase of 5.7%. The increase is primarily attributable to legal fees associated with the protection of existing patents and the application for new patents.

Consulting fees were approximately $14,800 for the year ended December 31, 2006 compared to approximately $133,500 in the prior year, a decrease of 88.9%. The decrease in consulting fees is associated

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primarily with services required in 2005 relating to the implementation of a new financial reporting system and to services provided to support financing for the company.

General and administrative expenses were approximately $2.3 million for the year ended December 31, 2006 compared to approximately $1.9 million in the prior year, an increase of 21.2%. The increase in general and administrative expenses is primarily attributable to costs associated with the addition of two board members, stock compensation expense required under FAS123R, which resulted in approximately $304,100 of incremental expense, the hiring of a Chief Operating Officer, and severance payments related to the departure of the Vice President of Business Development as of October 15, 2006.

Interest income was approximately $74,600 for the year ended December 31, 2006 compared to approximately $46,100 for the prior year, an increase of 61.8%. The increase in interest income was primarily due to a higher average cash balance and a higher average interest rate in 2006.

Years Ended December 31, 2005 and December 31, 2004

Revenue for the year ended December 31, 2005 was approximately $108,400 compared to approximately $93,700 in the prior year, an increase of 15.7%. The increase in revenue was primarily attributable to peptide sales, at cost.

Cost of sales for the year ended December 31, 2005 was approximately $84,300 compared to no cost of sales in 2004. This was primarily attributable to the sale of peptides to two customers in 2005.

Research and development expenses were approximately $834,200 for the year ended December 31, 2005 compared to approximately $915,200 in the prior year, a decrease of 8.9%. The decrease was primarily attributable to the costs of certain external studies conducted in 2004, which were not conducted in 2005.

Depreciation and amortization expenses were approximately $175,100 for the year ended December 31, 2005 compared to approximately $160,600 in the prior year, an increase of 9.0%. The increase was primarily attributable to additional equipment purchased in 2005 to support our research and development efforts.

Accounting, legal, and professional expenses were approximately $300,900 for the year ended December 31, 2005 compared to approximately $312,600 in the prior year, a decrease of 3.7%. The decrease was attributable to lower professional fees in 2005.

Consulting fees were approximately $133,500 for the year ended December 31, 2005 compared to approximately $128,000 in the prior year, an increase of 4.3%. The increase in consulting fees was associated primarily with services required in 2005 relating to the implementation of a new financial reporting system.

General and administrative expenses were approximately $1.9 million for the year ended December 31, 2005 compared to approximately $1.7 million in the prior year, an increase of 11.0%. The increase in general and administrative expenses was primarily attributable to costs associated with bonuses paid to certain officers in 2005 totaling $120,000 in consideration of services rendered for the two prior years.

Interest income was approximately $46,100 for the year ended December 31, 2005 compared to approximately $22,100 for the prior year, an increase of 108.6%. The increase in interest income was primarily due to higher levels of cash invested during 2005 compared to 2004.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through the private sale of debt and equity securities. On March 5, 2007, we closed a private equity financing, receiving cash of approximately $2.0 million in exchange for 2,666,666 shares of $0.001 par value common stock.

In a second closing held on March 26, 2007, we received cash of approximately $148,750 in exchange for 198,332 shares of $0.001 par value common stock.

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On March 3, 2006, 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 shares of $0.001 par value common stock. The warrants have a 5-year term and a per share 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 warrant 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 purchase price of $1.00.

On February 28, 2005, we announced that we closed the initial closing of a private equity financing, receiving 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 purchase price of $1.50. In a second closing held on March 2, 2005, we received $175,000 in exchange for 116,666 shares of common stock.

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

•  2001/2002 Warrants (warrants to purchase shares of our common stock issued as part of the units described in the private placement memorandum dated May 2001): We 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 our common stock issued as part of the units described in the private placement memorandum dated September 2002, and amended December 2002): We 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 our common stock issued as part of the units described in the private placement memorandum dated November 2003): We 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 our common stock issued as part of the units described in the private placement memorandum dated March 2004): We 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, we closed the tender offer to exchange certain of our outstanding warrants. In this transaction, we received proceeds in the amount of approximately $1.3 million and issued 4,960,918 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.

We will need to raise additional capital in order to grow our business operations. As of December 31, 2006, we had cash and cash equivalents and marketable securities of approximately $2.3 million, compared to approximately $2.8 million as of December 31, 2005. 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 and marketable securities will be sufficient to meet our cash requirements through 2007 based on current expense levels. We will need substantial additional funding to further develop our existing programs, including 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.

19

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 our financial statements requires us to make estimates and assumptions that affect the reported amounts of 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 recognize revenue from the sale of peptides when title transfers to the customer, typically upon shipment. 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 contract terms when third-party results are reliably measured and collection is reasonably assured. Payments received for which the earnings process is not complete are classified as deferred revenue.

•  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.

Stock options and warrants issued to non-employees are accounted for using the fair value method prescribed by Emerging Issues Task Force (EITF) Issue No. 96-18 and EITF Issue No. 00-18.

We adopted SFAS 123R using the modified-prospective-transition method. Under this method, compensation cost recognized for the year ended December 31, 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

20

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.

Recent Accounting Pronouncements

In June 2006, the FASB issued Interpretation (FIN) No. 48, Accounting for Income Tax Uncertainties, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. The Interpretation prescribes a recognition threshold of more-likely-than-not and a measurement attribute on all tax positions taken or expected to be taken in a tax return in order to be recognized in the financial statements. In making this assessment, a company must determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based solely on the technical merits of the position and that the tax position will be examined by appropriate taxing authority that would have full knowledge of all relevant information. Once the recognition threshold is met, the tax position is then measured to determine the actual amount of benefit to recognize in the financial statements. In addition, the recognition threshold of more-likely-than-not must continue to be met in each reporting period to support continued recognition of the tax benefit. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the financial reporting period in which that threshold is no longer met. We are currently assessing the expected impact of this Interpretation on our financial statements.

In the fourth quarter of 2006, we adopted the U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 108, Quantifying Misstatements in Current Year Financial Statements, which provides interpretive guidance on how the effects of prior year misstatements should be considered in quantifying current year financial statement misstatements. The interpretations in SAB No. 108, which expresses the SEC’s staff views, were issued to address the diversity in the practice of quantifying financial statement misstatements and the potential under current practice for a build up of improper amounts on the balance sheet. The SEC staff indicated that companies should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in material misstatement. The adoption of this interpretation did not have an impact on our financial statements.

21

ITEM 7.   FINANCIAL STATEMENTS

	Page
Index to Financial Statements
Report of KPMG LLP, Independent Registered Public Accounting Firm		23
Report of Prior Independent Registered Public Accounting Firm		24
Balance Sheets as of December 31, 2006 and 2005		25
Statements of Operations for the years ended December 31, 2006 and December 31, 2005 and for the period from inception (November 7, 1988) to December 31, 2006		26
Statements of Stockholders’ Equity (Deficit) for the period from inception (November 7, 1988) to December 31, 2006		27
Statements of Cash Flows for the years ended December 31, 2006 and December 31, 2005 and for the period from inception (November 7, 1988) to December 31, 2006		30
Notes to Financial Statements		31

22

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Helix BioMedix, Inc.

We have audited the accompanying balance sheets of Helix BioMedix, Inc. (a development stage company) as of December 31, 2006 and 2005, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended and for the period from November 7, 1988 (inception) to December 31, 2006. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The cumulative statements of operations, stockholders’ equity (deficit), and cash flows for the period November 7, 1988 (inception) to December 31, 2006 include amounts for the period from November 7, 1988 (inception) to December 31, 1988 and for each of the years in the thirteen-year period ending December 31, 2001, which were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the period November 7, 1988 through December 31, 2001, is based solely on the report of other auditors.

We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Helix BioMedix, Inc. (a development stage company) as of December 31, 2006 and 2005, and the results of its operations and its cash flows for the years then ended and for the period November 7, 1988 (inception) to December 31, 2006, in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 1 to the financial statements, Helix BioMedix, Inc. (a development stage company) adopted Financial Accounting Standards Board Statement of Financial Accounting Standards No. 123(R), Share-Based Payment, effective January 1, 2006.

/s/  KPMG LLP

Seattle, Washington

March 26, 2007

23

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Helix BioMedix, Inc.

Bothell, Washington

We have audited the accompanying statements of operations, cash flows, and changes in stockholders’ equity (deficit) of Helix BioMedix, Inc. (a development stage company) related to the period from inception (November 7, 1988) to December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the auditing standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance that the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects the results of operations, cash flows, and changes in stockholders’ equity (deficit) of Helix BioMedix, Inc. for the period from inception (November 7, 1988) to December 31, 2001, in conformity with accounting principles generally accepted in the United States of America.

/s/  COMISKEY & COMPANY

PROFESSIONAL CORPORATION

Denver, Colorado

February 1, 2002

24

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

	December 31,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	1,276,901		$	2,827,959
Marketable securities		980,000			—
Accounts receivable		—			18,988
Inventory		—			35,316
Prepaid expenses and other current assets		86,732			101,363
Total current assets		2,343,633			2,983,626
Property and equipment:
Machinery and equipment		523,797			448,883
Furniture and fixtures		46,734			14,627
Leasehold improvements		43,993			28,215
		614,524			491,725
Less: accumulated depreciation		(419,796	)		(323,662	)
Property and equipment, net		194,728			168,063
Other assets:
Deposits		4,211			10
Antimicrobial technology, net		26,213			37,322
Licensing agreements, net		43,416			47,011
Patents pending and approved, net		441,733			505,908
		515,573			590,251
Total assets	$	3,053,934		$	3,741,940
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	65,549		$	57,993
Accrued payroll		59,000			—
Accrued expenses		76,918			166,366
Deferred revenue		54,390			—
Total current liabilities		255,857			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; 22,788,514 shares outstanding at December 31, 2006; 20,190,514 shares outstanding at December 31, 2005		22,788			20,190
Additional paid-in capital		26,908,198			23,906,974
Deferred stock compensation		—			(105,000	)
Deficit accumulated during the development stage		(24,132,909	)		(20,304,583	)
Total stockholders’ equity		2,798,077			3,517,581
Total liabilities and stockholders’ equity	$	3,053,934		$	3,741,940

See accompanying notes to financial statements.

25

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS

For the Years ended December 31, 2006 and 2005 and

for the Period from Inception (November 7, 1988) to December 31, 2006

	Inception
	(November 7, 1988)			For the Years Ended
	to December 31,			December 31,
	2006			2006			2005
Revenue	$	450,974		$	70,940		$	108,408
Operating expenses:
Cost of peptide sales		247,329			162,991			84,338
Research and development		6,518,697			988,451			834,231
Depreciation and amortization		1,081,313			180,755			175,136
Accounting, legal and professional		2,492,137			318,113			300,895
Consulting fees		2,879,146			14,767			133,518
General and administrative		10,204,473			2,307,620			1,903,615
Total operating expenses		23,423,095			3,972,697			3,431,733
Loss from operations		(22,972,121	)		(3,901,757	)		(3,323,325	)
Other (income) expense:
Gain on settlement of lawsuit		(48,574	)		—			—
(Gain) loss on sale of equipment		(5,276	)		1,177			—
Interest expense		1,459,442			—			—
Interest income		(244,804	)		(74,608	)		(46,086	)
		1,160,788			(73,431	)		(46,086	)
Net loss	$	(24,132,909	)	$	(3,828,326	)	$	(3,277,239	)
Basic and diluted net loss per share				$	(0.17	)	$	(0.18	)
Weighted average shares outstanding					22,343,087			17,858,807

See accompanying notes to financial statements.

26

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the Years ended December 31, 2006 and 2005 and

for the Period from Inception (November 7, 1988) to December 31, 2006

												Deficit
												Accumulated
	Common Stock					Additional		Deferred		Stock		During the		Stockholders’
	Number					Paid-in		Stock		Subscription		Development		Equity
	of Shares			Amount		Capital		Compensation		Receivable		Stage		(Deficit)
Initial capitalization on November 7, 1988		1,000,000		$	66,486	$	—	$	—	$	—	$	—	$	66,486
Restated for recapitalization of the private company		(370,000	)		—		—		—		—		—		—
Reverse acquisition of Helix BioMedix, Inc. by Cartel Acquisitions, Inc. on March 20, 1989		151,262			855,292		—		—		—		—		855,292
Issuance of stock for current or prior services:

	Per Share
Period	Amount
December 1992	$2.50	5,600	14,000	—	—	—	—	14,000
May 1993	$5.00	8,000	40,000	—	—	—	—	40,000
December 1993	$2.50	9,490	23,724	—	—	—	—	23,724
March 1998	$1.00	4,900	4,900	—	—	—	—	4,900
December 1998	$1.00	3,100	3,100	—	—	—	—	3,100
September 1999	$0.70	40,000	28,000	—	—	—	—	28,000
September 1999	$1.25	73,215	91,519	—	—	—	—	91,519
		144,305	205,243	—	—	—	—	205,243
Issuance of stock for settlement of debt on account payable:

	Per Share
Period	Amount
May 1993	$5.00	4,000	20,000	—	—	—	—	20,000
September 1993	$2.50	184,000	460,000	—	—	—	—	460,000
April 1995	$2.50	41,732	104,331	—	—	—	—	104,331
April 1995	$2.41	80,000	192,943	—	—	—	—	192,943
September 1995	$2.50	14,731	36,828	—	—	—	—	36,828
September 1997	$1.00	110,976	110,976	—	—	—	—	110,976
December 1997	$1.00-$2.50	326,785	780,025	—	—	—	—	780,025
March 1998	$1.00	3,100	3,100	—	—	—	—	3,100
June 1998	$1.00	1,395	1,395	—	—	—	—	1,395
September 1998	$1.00	2,500	2,500	—	—	—	—	2,500
September 1999	$1.25	2,000	2,500	—	—	—	—	2,500
		771,219	1,714,598	—	—	—	—	1,714,598
Fractional shares issued in connection with 1 for 500 reverse split		29	—	—	—	—	—	—
Issuance of stock for cash:

	Per Share
Period	Amount
March & December 1994	$2.50	16,000	40,000	—	—		—	—	40,000
April 1995	$2.50	4,800	12,000	—	—		—	—	12,000
March 1998	$1.00	10,000	10,000	—	—		—	—	10,000
		30,800	62,000	—	—		—	—	62,000
Issuance of common stock as consideration in cooperative endeavor agreement, in November 1995		10,000	25,000	—	—		—	—	25,000
Issuance of stock options in 1995		—	—	137,400	—		—	—	137,400
Issuance of stock for cash in private placement, during July-September 1999, at $0.70 per share, net of offering costs of $107,195		2,890,643	1,916,255	—	—		—	—	1,916,255
Escrow of stock for consulting agreement, in September 1999, at $0.70 per share		—	42,000	—	(42,000	)	—	—	—
Compensation and deferred compensation recorded for options granted, in December 1999		—	—	50,875	(44,000	)	—	—	6,875
Deferred compensation for stock awards in December 1999		—	87,225	—	(87,225	)	—	—	—

See accompanying notes to financial statements.

27

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) — (Continued)

For the Years ended December 31, 2006 and 2005 and

for the Period from Inception (November 7, 1988) to December 31, 2006

													Deficit
													Accumulated
	Common Stock						Additional		Deferred		Stock		During the		Stockholders’
	Number						Paid-in		Stock		Subscription		Development		Equity
	of Shares			Amount			Capital		Compensation		Receivable		Stage		(Deficit)
Stock and options issued for services in January 2000		1,250			3,125			4,500		—		—		—		7,625
Amortization of deferred compensation costs		—			—			—		21,000		—		—		21,000
Retirement of share issued in December 1999		(250	)		(313	)		—		—		—		—		(313	)
Shares issued and options vested in connection with employment agreements, March 2000		267,445			700,000			—		41,306		—		—		741,306
Director shares and options issued:

	Per Share
Period	Amount
March 2000	$4.05	7,747	18,399		12,976		—		—	—		31,375
June 2000	$3.17	8,750	16,953		10,828		—		—	—		27,781
September 2000	$4.61	8,750	24,063		16,297		—		—	—		40,360
		25,247	59,415		40,101		—		—	—		99,516
Revaluation of deferred compensation and options vested in connection with employment agreement in June 2000		—	(27,919	)	33,784		16,396		—	—		22,261
Options vested in connection with employment agreement, shares issued for services, and revaluation of options due to suspension of exercise date, in September 2000		41,000	2,313		85,000		51,012		—	—		138,325
Options issued in connection with two consulting agreements, in October 2000		—	—		100,000		(75,000	)	—	—		25,000
Directors shares and options issued in September 2000, at $2.36 per share		8,659	13,259		7,197		—		—	—		20,456
Options vested in connection with employment agreements, and shares issued for services, in September 2000		4,987	8,104		4,613		43,511		—	—		56,228
Compensation adjustment to variable plan options in December 2000		—	—		(83,828	)	—		—	—		(83,828	)
Exercise of options at $1.00 per share		45,000	112,500		(67,500	)	—		—	—		45,000
Exercise of option at $0.50 per share		600	1,500		(1,200	)	—		—	—		300
Adjustment to par value stock for Delaware re-incorporation		—	(5,841,061	)	5,841,061		—		—	—		—
Amortization of deferred compensation		—	—		—		75,000		—	—		75,000
Issuance of stock for services, in October 2001, at $2.00 per share		25,000	25		49,975		—		—	—		50,000
Issuance of stock for licensing arrangement October 2001, at $0.75 per share		97,500	98		73,027		—		—	—		73,125
Compensation adjustment for options and warrants in 2001		—	—		328,310		—		—	—		328,310
Value of detachable warrants issued with convertible notes payable		—	—		216,100		—		—	—		216,100
Net loss for the period from inception on November 7, 1988 to December 31, 2001		—	—		—		—		—	(7,560,663	)	(7,560,663	)
Balance at December 31, 2001		5,144,696	5,145		6,819,415		—		—	(7,560,663	)	(736,103	)

See accompanying notes to financial statements.

28

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT) — (Continued)

For the Years ended December 31, 2006 and 2005 and

for the Period from Inception (November 7, 1988) to December 31, 2006

														Deficit
														Accumulated
	Common Stock				Additional			Deferred			Stock			During the			Stockholders’
	Number				Paid-in			Stock			Subscription			Development			Equity
	of Shares		Amount		Capital			Compensation			Receivable			Stage			(Deficit)
Issuance of common stock for services rendered, at $0.80 per share on November 21, 2002		18,000		18		14,382			—			—			—			14,400
Conversion of convertible notes payable into equity, at $1.00 per share Principle		3,082,500		3,083		3,079,417			—			—			—			3,082,500
Accrued interest		231,180		231		230,949			—			—			—			231,180
		8,476,376		8,477		10,144,163			—			—			(7,560,663	)		2,591,977
Private placement of common stock (with common stock warrants equal to 60%), at $1.00 per share, September to December 2002		1,560,000		1,560		1,558,440			—			(135,000	)		—			1,425,000
Compensation adjustments for warrants in 2002		—		—		440,331			—			—			—			440,331
Value of detachable warrants issued with convertible notes payable		—		—		512,452			—			—			—			512,452
Net loss for the year		—		—		—			—			—			(3,161,904	)		(3,161,904	)
Balance at December 31, 2002		10,036,376		10,037		12,655,386			—			(135,000	)		(10,722,567	)		1,807,856
Exercise of warrants at $1.00 per share		80,500		81		80,419			—			—			—			80,500
Private placement of common stock (with common stock warrants, equal to 60%) at $1.00 per share, net of issuance costs, January to March 2003		2,172,494		2,172		2,159,213			—			—			—			2,161,385
Deferred stock compensation, net		—		—		630,000			(525,000	)		—			—			105,000
Proceeds from warrant exchange at $0.50 per warrant		—		—		1,176,550			—			—			—			1,176,550
Repayment of subscription receivable		—		—		—			—			135,000			—			135,000
Options and warrants issued for services						663,407												663,407
Net loss for the year		—		—		—			—			—			(3,195,503	)		(3,195,503	)
Balance at December 31, 2003		12,289,370		12,290		17,364,975			(525,000	)		—			(13,918,070	)		2,934,195
Exercise of warrants at $0.25 per share		60,000		60		14,940			—			—			—			15,000
Private placement of common stock (with common stock warrants equal to 35% at $2.00 per share, net of issuance cost), March to May 2004		1,184,000		1,183		2,346,793			—			—			—			2,347,976
Proceeds from 2003 warrant exchange at $0.50 per warrant		—		—		30,000			—			—			—			30,000
Deferred stock compensation		—		—		—			210,000			—			—			210,000
Options issued for services		—		—		251,137			—			—			—			251,137
Net loss for the year		—		—		—			—			—			(3,109,274	)		(3,109,274	)
Balance at December 31, 2004		13,533,370		13,533		20,007,845			(315,000	)		—			(17,027,344	)		2,679,034
Exercise of warrants issued for services at $1.00 per share		16,050		16		(16	)		—			—			—			—
Warrant Exchange, net		4,960,918		4,961		1,332,124			—			—			—			1,337,085
Proceeds from 2005 Private Placement, net		1,665,167		1,665		2,478,324			—			—			—			2,479,989
Deferred stock compensation, stock and stock options issued for services		15,009		15		88,697			210,000			—			—			298,712
Net loss for the year		—		—		—			—			—			(3,277,239	)		(3,277,239	)
Balance at December 31, 2005		20,190,514		20,190		23,906,974			(105,000	)		—			(20,304,583	)		3,517,581
Adjustment to reclassify deferred compensation to additional paid in capital upon adoption of FAS123R		—		—		(105,000	)		105,000			—			—			—
Proceeds from 2006 Private Placement, net		2,598,000		2,598		2,581,423			—			—			—			2,584,021
Stock based compensation		—		—		524,801			—			—			—			524,801
Net loss for the year		—		—		—			—			—			(3,828,326	)		(3,828,326	)
Balance at December 31, 2006		22,788,514	$	22,788	$	26,908,198		$	—		$	—		$	(24,132,909	)	$	2,798,077

See accompanying notes to financial statements.

29

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS

For the Years ended December 31, 2006 and 2005 and

For the Period from Inception (November 7, 1988) to December 31, 2006

	Inception
	(November 7, 1988)			For the Years Ended
	to December 31,			December 31,
	2006			2006			2005
Cash Flows from Operating Activities
Net loss	$	(24,132,909	)	$	(3,828,326	)	$	(3,277,239	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,081,493			180,755			175,136
Amortization of debt discount		728,552			—			—
Stock-based compensation costs		4,603,307			524,801			298,712
Interest expense converted to common stock		231,180			—			—
Research and development		53,000			—			—
(Gain) loss on sale of assets		(5,276	)		1,177			—
Changes in operating assets and liabilities:
Accounts receivable		8,700			18,988			(10,288	)
Inventory		—			35,316			(35,316	)
Prepaid expenses and other current assets		(80,722	)		14,631			(10,292	)
Other assets		(71,601	)		(4,201	)		—
Accounts payable — related party		341,602			—			—
Accounts payable		67,883			7,556			(4,060	)
Accrued payroll		59,000			59,000			—
Accrued expenses		151,196			(89,448	)		40,373
Deferred revenue		54,390			54,390			—
Net cash used in operating activities		(16,910,205	)		(3,025,361	)		(2,822,974	)
Cash Flows from Investing Activities
Investment in Helix Delaware		(10	)		—			—
Purchases of marketable securities		(980,000	)		(980,000	)		—
Proceeds from sale of assets		9,435			535			1,500
Purchase of property and equipment		(753,196	)		(130,253	)		(53,144	)
Increase in capitalized patents		(654,944	)		—			(22,525	)
Net cash used in investing activities		(2,378,715	)		(1,109,718	)		(74,169	)
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	)		—			—
Issuance of stock and warrants for cash, net		16,625,005			2,584,021			3,817,074
Net cash provided by financing activities		20,565,821			2,584,021			3,817,074
Net (decrease) increase in cash and cash equivalents		1,276,901			(1,551,058	)		919,931
Cash and cash equivalents at beginning of period		—			2,827,959			1,908,028
Cash and cash equivalents at end of period	$	1,276,901		$	1,276,901		$	2,827,959

See accompanying notes to financial statements.

30

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS

for the Period from Inception (November 7, 1988) to December 31, 2006

Note 1.   Summary of Significant Accounting Policies

Description of Entity

Helix BioMedix, Inc. was originally formed under the laws of the State of Colorado on February 2, 1988 under the name Cartel Acquisitions, Inc. On March 20, 1989, the Company acquired 100% of the outstanding shares of Helix BioMedix, Inc., a Louisiana corporation (“BioMedix of Louisiana”), in exchange for 151,262 shares of the Company’s common stock. Cartel Acquisitions, Inc. acquired the shares of BioMedix of Louisiana from Helix International Corporation (“Helix”). BioMedix of Louisiana was incorporated on November 7, 1988 as a separate corporate entity from Helix International, Inc. to develop therapeutic biopharmaceuticals for animal and human health care. On November 1, 2000, the Company incorporated, as a wholly owned subsidiary, Helix BioMedix, Inc., in the State of Delaware (“Helix-Delaware”) for the purpose of merging into Helix-Delaware, with Helix-Delaware as the surviving corporation. This merger is reflected in the accompanying financial statements with an effective date of December 29, 2000.

Unless otherwise noted, all references herein to the “Company” refer to Helix BioMedix, Inc., a Delaware corporation, and its predecessors.

Development Stage Activities

Since 1988, the Company has been engaged in conducting research in the field of antimicrobial peptides, both internally and in conjunction with research and development arrangements with various academic and commercial organizations. During this period, the Company acquired the ownership and rights to various peptide patents and related technology. The Company is developing diverse commercial (non-FDA) and clinical (FDA) applications for its library of peptides.

Prior to September 1999, the Company’s research and development activities were constrained by patent related uncertainties and by limited working capital, with most of its financing during that time being advanced by its majority shareholder. In September 1999, the Company raised $2.0 million in an equity private placement through the sale of approximately 2.9 million common shares and stock purchase warrants.

Shortly thereafter, the Company entered into various employment and consulting agreements and a restructuring of the board of directors occurred. The Company granted various compensatory options and share issuances to employees and consultants during the fourth quarter of 1999 and the year 2000.

During 2001, the Company raised approximately $2.0 million in a private placement of convertible debt and detachable common stock warrants. The Company relocated its corporate headquarters from Louisiana to Bothell, Washington, leasing both office and laboratory facilities in the new location. The Company also hired research and administrative personnel, assembled a Scientific Advisory Board and entered into a license agreement with the University of British Columbia.

During 2002, the Company amended the terms of its 2001 private placement of debt. Among other changes, the notes were amended to require automatic conversion into shares of common stock in the event of an equity financing of at least $1.5 million by December 31, 2002. The Company raised an additional $1.1 million through the first half of 2002 by issuing notes with detachable warrants under the amended private placement of debt. Beginning in September 2002, the Company began an equity financing consisting of a private placement of common stock, with detachable warrants equal to 60% of the common stock investments, raising a total of $1.6 million by year end. This amount included $135,000 of stock subscriptions receivable. The convertible notes and accrued interest totaling $3.3 million were converted into 3,313,680 shares of common stock at a per share price of $1.00 on December 31, 2002. As a continuation of the September 2002 equity financing and under the same terms, the Company raised an additional $2.2 million through March 31, 2003.

31

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

In December 2003, the Company initiated a warrant exchange program pursuant to which holders of certain warrants issued by the Company in October 1999, and expiring on October 18, 2004, and having a per share exercise price of $3.25 could exchange such warrants for new warrants that (i) expire on October 31, 2006; (ii) provide for cashless exercises; and (iii) reduce the per share exercise price from $3.25 to $2.25. Consideration for the exchange was $0.50 per warrant share and surrender of the old warrants prior to December 26, 2003. The exchange program generated proceeds to the Company of $1.2 million.

During 2004, in a private placement of common stock, the Company received $2.3 million in exchange for 1,184,000 shares of common stock and detachable warrants for the purchase of an additional 414,400 shares of common stock. The warrants issued in this financing have a term of five years and are exercisable at $2.00 per share.

On February 28, 2005, the Company announced that it has closed the initial closing of a private placement of common stock, receiving cash of $2.3 million in exchange for 1,548,501 shares of common stock and warrants to purchase up to 125,000 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 $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 $1.3 million and issued 4,960,918 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.

On March 3, 2006, the Company closed a private equity financing, receiving cash of $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 shares of $0.001 par value common stock. The warrants have a 5-year term and a per share purchase price of $1.00.

32

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

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 warrant 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 purchase price of $1.00. The Company received a total of $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.

On March 5, 2007, the Company closed a private equity financing, receiving cash of approximately $2.0 million in exchange for 2,666,666 shares of $0.001 par value common stock.

In a second closing held on March 26, 2007, the Company received cash of approximately $148,750 in exchange for 198,332 shares of $0.001 par value common stock.

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

Management believes progress has been made with respect to the licensing of the Company’s peptide technology and business development efforts. However, the Company’s cost to license its peptide technology and conduct its business development efforts and other operating activities have exceeded its revenues each year since inception. Also, the Company’s net cash used in operations has exceeded its cash generated from operations for each year since its inception. For example, the Company used approximately $3.0 million of cash in operating activities for the year ended December 31, 2006 and approximately $2.8 million in 2005. Based upon the private placement offering discussed above and the current status of the Company’s product development and collaboration plans, its cash and cash equivalents should be adequate to satisfy the Company’s capital needs through 2007. However, additional funding through equity securities or other means will be necessary to meet the Company’s cash requirements beyond 2007.

Use of Estimates

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the United States of America requires the Company’s management to make estimates and assumptions that affect the amounts reported in these financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the carrying amount of property, plant and equipment, and intangibles; valuation allowances for receivables, inventories and deferred income tax assets; and valuation of share-based compensation. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments with a maturity at date of purchase of three months or less to be cash equivalents. The Company regularly maintains cash balances in excess of the FDIC insured limitation of $100,000. As of December 31, 2006, the Company’s cash balances exceeded the FDIC insured limit by approximately $1.2 million.

Marketable Securities

The Company classifies the marketable securities as available-for-sale. Marketable securities, consisting of corporate and municipal auction or floating rate securities, are reported at fair value with the related unrealized gains and losses included as a component of accumulated other comprehensive income (loss) in stockholders’ equity. Realized gains, losses, and declines in value of securities judged to be other than temporary are included in other income (expense). The cost of investments for purposes of computing realized and unrealized gains and losses is based on the specific identification method. Auction or floating rate securities are classified as current assets because they represent investments that are available to fund current operations.

33

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

Property and Equipment

Property and equipment, which includes laboratory equipment, furniture and leasehold improvements, are stated at cost. Depreciation of equipment is provided using the straight-line basis over three to five years. Leasehold improvements are amortized over the lesser of the economic useful lives of the improvements or the term of the related lease. Repair and maintenance costs are expensed as incurred.

Intangibles

Acquired patents and costs for issued patents, consisting primarily of legal fees, are capitalized. Amortization is taken on the straight-line method over the life of the patents of 17 to 20 years.

Antimicrobial technology, which was purchased in conjunction with the patents, has been capitalized at the basis of the debt issued for it. This technology is being amortized ratably over twenty years.

Impairment of Long-Lived Assets

Long-lived assets including property and equipment are reviewed for possible impairment whenever significant events or changes in circumstances, including changes in the Company’s business strategy and plans, indicate that an impairment may have occurred. An impairment is indicated when the sum of the expected future undiscounted net cash flows identifiable to that asset or asset group is less than its carrying value. Impairment losses are determined from actual or estimated fair values, which are based on market values, net realizable values or projections of discounted net cash flows, as appropriate. No impairment of long-lived assets has been recognized in the accompanying financial statements.

Revenue Recognition

The Company has generated limited revenue from the sale and licensing of peptides. Revenue from the sale of peptides is generally recognized when title transfers to the customer, typically upon shipment. Revenue is recognized from licensing fees when delivery has occurred and no future obligations exist. Revenue may occur from royalties from licensees and are recorded as earned in accordance with the contract terms when third-party results are reliably measured and collection is reasonably assured. Nonrefundable fees received from companies that enter into a contract for the purpose of evaluating our peptides are deferred until the terms of the contract has been satisfied.

Research and Development

Research and development costs, including personnel costs, supplies, and other indirect costs and costs associated with collaborative agreements, are expensed as incurred. In instances where the Company enters into agreements with third parties for research and development activities, costs are expensed as incurred.

Income Taxes

Deferred income taxes are provided based on the estimated future tax effects of carryforwards and temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those carryforwards and temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets when it is more likely than not that such deferred tax assets will not be realized. Primary temporary differences relate to net operating loss carryforwards and research and development credit carryforwards, which are subject to a full valuation allowance.

34

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

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 or from other contracts to issue 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:

	December 31,
	2006		2005
Weighted average outstanding options		2,709,728		2,592,000
Weighted average outstanding warrants		2,777,811		2,580,744

Fair Value of Financial Instruments

The fair value of all reported assets and liabilities representing financial instruments (none of which is held for trading purposes) approximates the carrying value of such instruments due to their short-term maturity or repricing.

Stock-Based Compensation

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 to employees 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 to employees that had an exercise price equal to the market value of the underlying common stock on the date of grant.

Stock options and warrants issued to non-employees are accounted for using the fair value method prescribed by Emerging Issues Task Force (EITF) Issue No. 96-18 and EITF Issue No. 00-18.

The Company adopted SFAS 123R using the modified-prospective-transition method. Under this method, compensation cost recognized for the year ended December 31, 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 $391,200 was recognized in the statement of operations for the year ended December 31, 2006.

35

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

The following table presents the impact of the Company’s adoption of FAS 123R on selected line items from the Company’s financial statements for the year ended December 31, 2006:

	Year Ended
	December 31, 2006
	As Reported			If Reported
	Following			Following
	FAS123(R)			APB 25
Loss from operations	$	(3,901,757	)	$	(3,510,511	)
Net loss	$	(3,828,326	)	$	(3,437,080	)
Basic and diluted net loss per share	$	(0.17	)	$	(0.15	)

There were 415,000 and 245,000 stock options granted during the years ended December 31, 2006 and 2005, respectively. The per share weighted-average grant date fair value of stock options granted during the years ended December 31, 2006 and 2005 was $0.68 and $1.38, respectively, using the Black-Scholes option pricing model with the following assumptions:

	Year Ended December 31,
	2006			2005
Risk-free interest rate		4.83	%		4.29	%
Expected dividend yield		0			0
Expected term in years		6.25			6.25
Expected volatility		100	%		100	%

The risk-free interest 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 year ended December 31, 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 year ended December 31, 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.

36

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

The following table shows the pro forma effect on the Company’s net loss and net loss per share for the year ended December 31, 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:

	Year Ended
	December 31,
	2005
Net loss
As reported	$	(3,277,239	)
Add: Stock-based employee compensation expense included in reported net loss		210,000
Deduct: Stock-based employee compensation expense determined under fair value based method for all awards		(724,898	)
Pro forma net loss	$	(3,792,137	)
Net loss per share-basic and diluted
As reported	$	(0.18	)
Pro forma net loss	$	(0.21	)

Recently Issued Accounting Pronouncements

In June 2006, the Financial Accounting Standards Board issued Interpretation (FIN) No. 48, Accounting for Income Tax Uncertainties, which clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. The Interpretation prescribes a recognition threshold of more-likely-than-not and a measurement attribute on all tax positions taken or expected to be taken in a tax return in order to be recognized in the financial statements. In making this assessment, a company must determine whether it is more-likely-than-not that a tax position will be sustained upon examination, including resolution of any related appeals or litigation processes, based solely on the technical merits of the position and that the tax position will be examined by appropriate taxing authority that would have full knowledge of all relevant information. Once the recognition threshold is met, the tax position is then measured to determine the actual amount of benefit to recognize in the financial statements. In addition, the recognition threshold of more-likely-than-not must continue to be met in each reporting period to support continued recognition of the tax benefit. Tax positions that previously failed to meet the more-likely-than-not recognition threshold should be recognized in the first financial reporting period in which that threshold is met. Previously recognized tax positions that no longer meet the more-likely-than-not recognition threshold should be derecognized in the financial reporting period in which that threshold is no longer met. The Company is currently assessing the expected impact of this Interpretation on its financial statements.

In the fourth quarter of 2006, we adopted the U.S. Securities and Exchange Commission (SEC) Staff Accounting Bulletin (SAB) No. 108, Quantifying Misstatements in Current Year Financial Statements, which provides interpretive guidance on how the effects of prior year misstatements should be considered in quantifying current year financial statement misstatements. The interpretations in SAB No. 108, which expresses the SEC’s staff views, were issued to address the diversity in the practice of quantifying financial statement misstatements and the potential under current practice for a build up of improper amounts on the balance sheet. The SEC staff indicated that companies should quantify errors using both a balance sheet and an income statement approach and evaluate whether either approach results in material misstatement. The adoption of this interpretation did not have an impact on the Company’s financial statements.

37

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

Note 2.  Notes Payable

In June 2001, the Company commenced the sale of 6% unsecured promissory notes. The notes had an initial maturity date of May 31, 2002 at which time the holder had the option of converting principal and interest to stock. The offering of promissory notes included warrants to purchase common shares initially having a total value of 25% of the principal amount of the notes based on a per share purchase price of the lower of either (a) $1.50 per share or (b) the per share price of the next equity offering. The warrants have a term of ten years. As of December 31, 2001, the Company raised proceeds of $1,980,000 and had recorded $216,100 in paid in capital from the issuance of related common stock purchase warrants, which is considered a debt discount. The effective interest rate on the outstanding promissory notes, when compared to the valuation of the common stock purchase warrant incentives and debt issue cost, was 16.9% for the year ended December 31, 2001.

In March 2002, the Company amended the terms of the existing debt offering as follows: (a) the offering size was increased from 2.8 million to $3.5 million; (b) the maturity date of the notes was extended to December 31, 2002; (c) the notes were amended to require conversion into shares of common stock in the event of an equity financing in a single or series of related transactions of at least $1.5 million (the “subsequent financing”) on or before December 31, 2002; and (d) the warrant coverage was increased to a minimum of 35% of the principal amount in the event the subsequent financing was completed before August 31, 2002; 40% in the event the subsequent financing was completed before December 31, 2002; and 45% in the event the subsequent financing was completed after December 31, 2002. Purchasers prior to the date of the offering changes were given an opportunity to rescind their agreement and obtain a refund of principal plus accrued interest or accept the revised terms. Refunds for approximately $55,000 were subsequently made. During the year ended December 31, 2002, the Company raised an additional $1,157,500 from the convertible debt offering. As noted below, the Company also raised $1.6 million in an equity financing as of December 31, 2002. Accordingly, the convertible notes, totaling $3.1 million, together with the related accrued interest of $231,180, were converted into 3,313,680 shares of common stock, at a per share price of $1.00, on December 31, 2002.

The number of warrants from the convertible debt financing totaled 1,233,000 shares, equaling 40% of the total principal balance of $3,082,500. The warrants were originally valued based on the $1.50 strike price and were revalued at the time of conversion based on the final strike price of $1.00. The total value of the warrants during 2002 resulted in additional debt discount of approximately $512,000. The total amortization of debt discount to interest expense during 2002 totaled $643,000. The effective interest rate on the outstanding promissory notes, when compared to the valuation of the common stock purchase warrant incentives and debt issue cost, was 24.4% for the year ended December 31, 2002.

Note 3.  Marketable securities

Marketable securities consisted of the following as of December 31, 2006:

			Gross		Gross
	Market		Unrealized		Unrealized		Amortized
	Value		Gains		Losses		Cost
Corporate and municipal auction or floating rate securities with contractual maturities of 9 years to 38 years	$	980,000		—		—	$	980,000

The Company held no marketable securities as of December 31, 2005.

38

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

Note 4.  Identifiable Intangible Assets

Identifiable intangible assets, which are included in other assets, consisted of the following as of December 31, 2006 and 2005:

	2006			2005
Antimicrobial technology	$	222,187		$	222,187
Licensing agreements		61,391			61,391
Patents pending and approved		834,301			834,301
		1,117,879			1,117,879
Less accumulated amortization		(606,517	)		(527,638	)
Identifiable intangible assets, net	$	511,362		$	590,241

Aggregate amortization for identifiable intangible assets was $78,879 and $78,339 for 2006 and 2005, respectively. Scheduled amortization charges from identifiable assets as of December 31, 2006 are as follows:

	Antimicrobial		Licensing		Patents Pending
Year	Technology		Agreements		and Approved		Total
2007		11,109		3,595		64,175		78,879
2008		11,109		3,595		64,175		78,879
2009		3,995		3,595		64,175		71,765
2010		—		3,595		64,175		67,770
2011		—		3,595		64,175		67,770
Thereafter	$	—	$	25,441	$	120,858	$	146,299

Note 5.  Stockholders’ Equity

Preferred Stock

The board of directors (“the Board”) may authorize the issuance of preferred stock from time to time in one or more series and each series shall have such voting, redemption, liquidation and dividend rights as the Board may deem advisable. As of December 31, 2006, no preferred series shares had been designated by the Board.

Stock Split

On December 29, 1993, the Company underwent a 1-for-500 reverse stock split. All share and per share amounts in these financial statements have been retroactively restated to reflect this reverse split.

Stockholder Rights Agreement

On August 15, 2003, the Board approved the adoption of a Stockholder Rights Agreement pursuant to which all of the Company’s stockholders as of September 15, 2003 (the “Record Date”) received rights to purchase shares of a new series of Preferred Stock. The rights will be distributed as a non-taxable dividend and will expire ten years from the record date. The rights will be exercisable only if a person or group acquires 15 percent or more of the Company’s common stock or announces a tender offer for 15 percent or more of the common stock. If a person acquires 15 percent or more of common stock, all rights holders, except the buyer, will be entitled to acquire the Company’s common stock at a discount. The effect will be to discourage acquisitions of more than 15 percent of the Company’s common stock without negotiations with the Board.

39

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

Options

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

There were 250,000 employee stock options granted and 165,000 non-employee director stock options granted during the year ended December 31, 2006. There were 50,000 employee stock options granted and 195,000 non-employee direction stock options granted during the year ended December 31, 2005. A summary of the Company’s stock option activity for the years ended December 31, 2006 and 2005 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, 2004		2,426,166		$	1.35
Granted		245,000		$	1.66
Exercised		—			—
Forfeited		(79,166	)	$	1.38
Expired		—			—
Outstanding, December 31, 2005		2,592,000		$	1.38
Granted		415,000		$	0.83
Exercised		—			—
Forfeited		(88,056	)	$	1.80
Expired		—			—
Outstanding, December 31, 2006		2,918,944		$	1.29		5.82	$	60,435
Exercisable, December 31, 2006		2,503,248		$	1.32		5.25	$	29,985

40

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

The aggregate intrinsic value in the table above is based on the Company’s closing stock price of $0.87 on December 29, 2006, which would have been received by the optionees had all of the options with exercise prices less than $0.87 been exercised on that date. As of December 31, 2006, total unrecognized stock-based compensation related to nonvested stock options was approximately $277,445, which is expected to be recognized over a weighted average period of approximately 1.66 years. The Company has a policy of issuing new shares to satisfy share option exercises.

As of December 31, 2006, there were 5,355,000 shares of common stock reserved for issuance pursuant to the 2000 Plan. As of December 31, 2006, 2,436,056 shares remained available for grants. Additional information regarding options outstanding as of December 31, 2006, is as follows:

		Options Outstanding
				Weighted				Options Exercisable
				Average		Weighted				Weighted
				Remaining		Average				Average
				Contractual		Exercise				Exercise
Range of Exercise Prices		Shares		Life (Years)		Price		Shares		Price
$	0.70 - $0.85		530,500		7.80	$	0.76		258,000	$	0.75
$	1.00 - $1.00		899,000		5.50	$	1.00		899,000	$	1.00
$	1.20 - $1.75		797,500		6.00	$	1.50		769,722	$	1.50
$	1.80 - $2.00		691,944		4.50	$	1.82		576,527	$	1.82
$	0.70 - $2.00		2,918,944		5.82	$	1.29		2,503,248	$	1.32

41

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

Common Stock Purchase Warrants

Information concerning outstanding common stock purchase warrants is set forth below:

	December 31,
	2006							2005
				Price		Wghtd.					Price		Wghtd.
	Number			Range		Avg.		Number			Range		Avg.
Warrants issued to employees and non-employees for services		1,713,669		$	0.25-$6.00	$	1.54		1,723,669		$	0.25-$6.00	$	1.54
Granted		25,000		$	1.20	$	1.20		—			—		—
Exercised		—			—		—		(10,000	)	$	1.00	$	1.00
Expired/Cancelled		(18,750	)	$	1.20	$	1.20		—			—		—
Remaining warrants issued in connection with 1999 equity financing		—			—		—		—			—		—
Expired 2004		—			—		—		—			—		—
Exchanged		—			—		—		—			—		—
Remaining warrants issued in connection with 2003 warrant exchange		146,250		$	2.25	$	2.25		2,413,100		$	2.25	$	2.25
Expired 2006		(146,250	)	$	2.25	$	2.25
Exchanged in the 2005 Warrant Exchange		—			—		—		(2,266,850	)	$	2.25	$	2.25
Remaining warrants issued in connection with 2001 convertible debt financing		308,000		$	1.00	$	1.00		1,153,000		$	1.00	$	1.00
Exchanged in the 2005 Warrant Exchange		—			—		—		(845,000	)	$	1.00	$	1.00
Remaining warrants issued in connection with 2002 and 2003 equity financings		258,600		$	1.00	$	1.00		2,248,200		$	1.00	$	1.00
Exercised		—			—		—		(12,000	)	$	1.00	$	1.00
Exchanged in the 2005 Warrant Exchange		—			—		—		(1,977,600	)	$	1.00	$	1.00
Remaining warrants issued in connection with 2004 equity financing		29,225		$	2.00	$	2.00		414,400		$	2.00	$	2.00
Exchanged in the 2005 Warrant Exchange		—			—		—		(385,175	)	$	2.00	$	2.00
Warrants issued in connection with 2005 equity financing		125,000		$	1.50	$	1.50		125,000		$	1.50	$	1.50
Warrants issued in connection with 2006 equity financing		259,800		$	1.00	$	1.00		—			—		—
Total outstanding warrants		2,700,544		$	0.25-$6.00	$	1.38		2,580,744		$	0.25-$6.00	$	1.47

In 2006, the Company granted warrants to purchase up to 25,000 shares of common stock to a consultant for services, and warrants with respect to 18,750 of these shares were cancelled during 2006. In 2006, approximately $4,700 of expense was recognized as general and administrative expenses related to the warrants.

Stock Offerings

In December 2003, the Company initiated a warrant exchange program pursuant to which holders of certain warrants issued by the Company in October 1999 and expiring on October 18, 2004, and having a per share exercise price of $3.25 could exchange such warrants for new warrants that (i) expire on October 31, 2006; (ii) provide for cashless exercises; and (iii) reduce the per share exercise price from $3.25 to $2.25. Consideration for the exchange

42

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

was $0.50 per warrant share and surrender of the old warrants prior to December 26, 2003. The exchange program generated proceeds to the Company of $1.2 million.

During 2004, in a private placement equity financing, the Company received $2.3 million in exchange for 1,184,000 shares of common stock and detachable warrants for the purchase of an additional 414,400 shares of common stock. The warrants issued in this financing have a term of five years and are exercisable at $2.00 per share.

On February 28, 2005, the Company closed the initial closing of a private equity financing, receiving cash of $2.3 million in exchange for 1,548,501 shares of common stock and warrants to purchase up to 125,000 shares of common stock. The warrants have a 5-year term and a per share purchase 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 $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 May 31, 2005, the Company closed a tender offer to redeem certain of its outstanding warrants. In this transaction the Company received proceeds of a$1.3 million and issued 4,960,918 shares of common stock in exchange for the cancellation of warrants that provided for the purchase of 5.5 million shares of common stock.

On March 3, 2006, the Company closed a private equity financing, receiving cash of $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 shares of $0.001 par value common stock. The warrants have a 5-year term and a per share purchase 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 warrant 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 purchase price of $1.00. The Company received a total of $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.

On March 5, 2007, the Company closed a private equity financing, receiving cash of approximately $2.0 million in exchange for 2,666,666 shares of $0.001 par value common stock.

In a second closing held on March 26, 2007, the Company received cash of approximately $148,750 in exchange for 198,332 shares of $0.001 par value common stock.

401(k) Plan

Effective June 30, 2005, the Company implemented a defined contribution plan, which includes a matching contribution from the Company, which totaled $33,790 and $28,351, respectively, in 2006 and 2005.

Employee Equity Compensation Costs

In 2003, certain employment contracts previously approved by the board of directors resulted in a compensation charge of $386,920, as they granted variable options. In December 2003, the Company revised substantially all agreements to fix the option terms. Remaining deferred compensation related to these options totaled $0 at December 31, 2006.

Stockholders’ Equity and Comprehensive Income

SFAS No. 130 requires companies to present comprehensive income (consisting primarily of net income items plus other direct equity changes and credits) and its components as part of the basic financial statements. The Company’s financial statements do not contain any changes in equity that are required to be reported separately in comprehensive income.

43

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

Note 6.   Income Taxes

Significant components of the Company’s gross deferred tax assets and liabilities as of December 31, 2006 and 2005 are as follows:

	2006			2005
Gross deferred tax assets (liabilities):
Net operating loss carry forwards	$	6,154,000		$	5,109,400
Research and development credits		86,100			97,400
Stock compensation		533,100			482,300
Accrued expenses		9,500			14,700
Fixed and intangible assets		4,200			—
Gross deferred tax assets		6,786,900			5,703,800
Less valuation allowance		(6,786,900	)		(5,690,400	)
Net deferred tax assets		—			13,400
Deferred tax liabilities
Fixed and intangible assets		—			(13,400	)
Net deferred tax assets/liabilities	$	—		$	—

Due to the uncertainty of the Company’s ability to generate taxable income to realize its net deferred tax assets at December 31, 2006 and 2005, a full valuation allowance has been recognized for financial reporting purposes. The Company’s valuation allowance for deferred tax assets increased by $1,096,500 during the year ended December 31, 2006. The increase in the deferred tax assets in 2006 was primarily the result of increasing net operating loss carry forwards during the year.

At December 31, 2006, the Company had federal net operating loss carryforwards of approximately $18.1 million for income tax reporting purposes, which expire from 2007 to 2026 and research and development tax credit carryforwards of approximately $86,100, which expire from 2007 to 2021. The decrease in research and development tax credit carryforwards is the result of these credits beginning to expire in 2005. The Company’s ability to utilize the carry forwards may be limited in the event of an ownership change as defined in current income tax regulations.

Note 7.  Related Party Transactions

The Company has entered into certain contractual agreements as follows:

  (a)   With University of British Columbia

The Company entered into a License Agreement (“License”) with the University of British Columbia (“UBC”) commencing October 1, 2001 (the “Commencement Date”) whereby UBC granted to the Company an exclusive, worldwide license to use and sublicense certain defined “Technology” and any improvements within a specified field of use and including the right to manufacture, distribute and sell products utilizing the Technology. The License terminates on October 1, 2021 or upon the expiration of the last patent applied for and obtained pursuant to certain provisions of the License, unless terminated earlier in accordance with the terms of the License. Dr. Robert E.W. Hancock, Ph.D., a member of the Company’s Scientific Advisory Board, is the lead investigator and inventor of the UBC patents and patent applications. The Technology is comprised primarily of three broad patents for antimicrobial peptides and related methods of use. The License extends to the Company’s affiliates. In exchange for the exclusive, worldwide license granted under the License, the Company agreed to pay UBC a royalty of 3.5% of

44

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

revenue generated from the Technology and any improvements related thereto. The Company agreed to pay graduated minimum annual royalties of $10,000 upon the fifth anniversary, $20,000 upon the 6th anniversary, and $25,000 upon the 7th and all subsequent anniversaries of the Commencement Date. As called for by the License, the Company has issued to UBC or its assigns 97,500 shares of the Company’s common stock, options to purchase up to 152,500 common shares at $1.50 per share, and $61,391 in cash, such cash payment constituting reimbursement of UBC for expenses related to the licensed patents. The options have a term of ten years and were fully vested upon grant. The agreement also requires the Company to reimburse UBC for all further costs incurred with respect to the patents, including maintenance fees.

  (b)   With Katz-Miller Ventures, LLC

Katz-Miller Ventures, LLC (“Katz-Miller”) is a former consultant to the Company. The principal members of Katz-Miller are Ralph Katz and Jeffrey Miller. Mr. Katz is a former director of the Company and Mr. Miller is a current director of the Company. The Company first entered into a consulting agreement with Katz-Miller on October 1, 1999. In May 2001, the Company entered into an Amended and Restated Consulting Agreement with Katz-Miller. The Amended and Restated Consulting Agreement modifies the terms of compensation for services rendered under the prior agreement by providing for a cash payment of $80,000, a short term loan of $80,000, and issuance of warrants to purchase shares of common stock as follows: (i) up to 50,000 at $1.50 per share; (ii) up to 50,000 at $3.00 per share; (iii) up to 50,000 at $4.50 per share; and (iv) up to 50,000 at $6.00 per share. All warrants were fully vested upon issuance and will expire on June 30, 2011. In the aggregate under the consulting agreements described in this paragraph, the Company has paid Katz-Miller $80,000, and issued Katz-Miller 280,000 shares of its common stock and 200,000 warrants as described above. The Company did not pay any consideration under the consulting agreements described in this paragraph in 2005 or 2006. See also “Ralph Katz,” below.

  (c)   With Dunsford Hill Capital Partners, Inc.

Dunsford Hill Capital Partners, Inc. (“Dunsford Hill”) is owned and controlled by Randall L-W. Caudill, Ph.D. Dr. Caudill also serves as a Director of the Company. Dunsford Hill provides consulting services to the Company on strategic, management and financial issues. The Company first entered into a consulting agreement with Dunsford Hill in October 2000. Under this agreement, the Company issued to Dunsford Hill a warrant to purchase up to 80,000 shares of common stock at $1.50 per share, which was fully vested upon grant. This warrant expires on November 27, 2011. The original consulting agreement has been amended and extended by subsequent agreements, which extend the term of the original agreement and provide for additional compensation. Under the May 30, 2001 Amended and Restated Consulting Agreement with Dunsford Hill, the Company paid additional compensation in the form of warrants to purchase an aggregate of up to 120,000 shares of common stock at $1.50 per share, thereby eliminating certain conditions precedent that were contained in the earlier agreement. These warrants were fully vested upon grant and expire on May 30, 2011. Under the August 15, 2002 Second Amended and Restated Consulting Agreement, the Company agreed to make cash payments totaling $72,000 payable in installments and issue warrants to purchase up to 50,000 shares of common stock at the lower of $1.50 or the price of the next equity financing; a warrant to purchase 50,000 shares of common stock at $1.00 per share was issued to Dunsford Hill in accordance with this provision, and was fully vested upon issuance. This warrant expires on August 15, 2012. The Company did not pay any consideration under the agreements described in this paragraph in 2005 or 2006.

  (d)   With Paisley Group, LLC

Carlyn J. Steiner, who served as a member of the Company’s board of directors from December 2000 until April 2004, controls the activities of the Paisley Group, LLC. The Paisley Group has provided the Company with financial consulting services, including consulting in conjunction with the Company’s 2001 private placement of convertible debt and detachable common stock warrants. The Company first entered into a consulting agreement with the Paisley Group in October 2000. Under this agreement, the Company issued to the Paisley Group a warrant

45

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

to purchase up to 80,000 shares of common stock at $1.50 per share, which was fully vested upon grant. This warrant expires on November 27, 2011. The original consulting agreement has been amended and extended by subsequent agreements, which extend the term of the original agreement and provide for additional compensation. Under the May 30, 2001 Amended and Restated Consulting Agreement with the Paisley Group, the Company agreed to pay additional compensation in the form of warrants to purchase an aggregate of 120,000 shares of common stock at $1.50 per share, thereby eliminating certain conditions precedent that were contained in the earlier agreement. These warrants were fully vested upon grant, and expire on May 30, 2011. Under the August 15, 2002 Second Amended and Restated Consulting Agreement, the Company agreed to cash payments totaling $72,000 payable in installments and warrants to purchase an up to 100,000 shares of common stock at the lower of $1.50 or the price of the next equity financing; a warrant to purchase 100,000 shares of common stock at $1.00 per share was issued to the Paisley Group in accordance with this provision, and was fully vested upon issuance. This warrant expires on August 15, 2012. The Company did not pay any consideration under the agreements described in this paragraph in 2005 or 2006.

  (e)   With Robert E.W. Hancock, Ph.D.

On June 18, 2001, the Company entered into a consulting agreement with Dr. Robert E.W. Hancock, Ph.D. Under this agreement, Dr. Hancock was engaged to serve as a member of the Company’s Scientific Advisory Board for a period of three years, as an expert consultant in the area of antimicrobial peptides. Additionally, under this agreement Dr. Hancock was engaged to assist the Company in its efforts to license certain intellectual property from the University of British Columbia. Dr. Hancock is the lead investigator and inventor of the UBC patents and patent applications. The Company entered into a license agreement with UBC in October 2001, as described above. Pursuant to the June 18, 2001 agreement, the Company paid $2,000 to Dr. Hancock for each month of services thereunder, or $86,000 in the aggregate, $24,000 of which was paid for services provided in 2004. Also pursuant to this agreement, the Company granted Dr. Hancock warrants to purchase: (i) up to 10,000 shares of common stock at $1.50 per share, which warrant expires on June 19, 2011; (ii) up to 10,000 shares of common stock at $1.00 per share, which warrant expires on June 1, 2012; (iii) up to 10,000 shares of common stock at $1.00 per share, which warrant expires on June 1, 2013; and (iv) a warrant to purchase up to 250,000 shares of common stock at $1.50 per share, which warrant expires on June 18, 2011 and was issued in consideration for Dr. Hancock’s efforts in connection with the execution of the agreement with UBC described above. Each warrant to purchase up to 10,000 shares described in this paragraph was fully vested upon grant, and the warrant to purchase up to 250,000 shares has vested in full.

On January 17, 2005, the Company entered into a new agreement with Dr. Hancock under which he serves on the Scientific Advisory Board and in a consulting capacity. This agreement terminates on December 31, 2008 unless terminated earlier in accordance with its terms. Either party on 10 days’ written notice may terminate it at any time. Pursuant to this agreement, the Company agreed to pay Dr. Hancock $2,000 per month for each month of services provided in 2005, and paid Dr. Hancock $24,000 for those services. Also pursuant to this agreement, the Company granted Dr. Hancock an option to purchase up to 30,000 shares of common stock at $1.85 per share. This option vests quarterly in equal installments over a three-year period, commencing January 18, 2005, and the option expires on January 18, 2015.

On July 1, 2006, the Company entered into a new agreement with Dr. Hancock under which he serves on the Scientific Advisory Board and in a consulting capacity. This agreement terminates on July 1, 2007 unless terminated earlier in accordance with its terms. It may be terminated at any time by either party on 10 days’ written notice. Pursuant to this agreement, the Company agreed to pay Dr. Hancock $2,000 per month for each month of services provided in 2006, and paid Dr. Hancock $12,000 for those services.

46

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

  (f)   With Ralph Katz

Ralph Katz served on the Company’s board of directors from December 2000 until his resignation in May 2002. From October 2002 through March 2004, the Company engaged Mr. Katz as a consultant to provide professional services in the areas of strategic and financial planning. In return for services performed, he was issued a warrant to purchase up to 100,000 shares of common stock at an exercise price of $1.00 per share, which was fully vested upon issuance. This option expires on October 1, 2012.

In August 2004, the Company engaged Mr. Katz to provide advice regarding financing initiatives, to identify and develop out-licensing opportunities and to design and implement an investor relations program. Pursuant to that agreement Mr. Katz was granted an option to purchase up to 75,000 shares of common stock, with an exercise price of $1.80; 25,000 shares thereunder were fully vested upon grant, and 50,000 vested one year later. This option expires on August 12, 2009. In addition to the foregoing and in connection with the same services, Mr. Katz was granted an option to purchase up to 25,000 shares of common stock at $2.00 per share, which was fully vested upon grant. This option expires on March 17, 2009. No consideration was paid to Mr. Katz under the agreement described in this paragraph in 2005 or 2006.

  (g)   Employment Agreements

As of December 31, 2006, the Company had employment contracts with four executive officers. The Company entered into a three-year employment contract with R. Stephen Beatty as President and Chief Executive Officer, commencing July 1, 2003.

Pursuant to the agreement, Mr. Beatty receives an annual base salary in the amount of $340,000, and was issued an option to purchase up to 324,000 shares of common stock at $1.00 per share, vesting in six equal installments on January 1, 2004, July 1, 2004, January 1, 2005, July 1, 2005, January 1, 2006, and July 1, 2006. This option expires on June 30, 2013. Pursuant to the agreement, he was also issued a warrant to purchase up to 60,000 shares of common stock at $0.25 per share, which he has since exercised in full. Upon termination of the employment relationship by the Company without cause or by Mr. Beatty with good reason (each as defined in the employment agreement), the Company is obligated to pay to Mr. Beatty any unpaid annual base salary, any amount due but not paid under any of our incentive compensation plans, earned but unused vacation and bonuses due, if any, for services already performed to the effective date of termination of the employment relationship, and monthly severance payments equivalent to six (6) months’ base salary.

The Company entered into a three-year employment agreement with Dr. Timothy Falla, its Chief Scientific Officer, commencing July 1, 2003. Pursuant to the agreement Dr. Falla receives an annual base salary in the amount of $240,000 and was issued an option to purchase 180,000 shares of common stock at $1.00 per share, vesting in six equal installments on January 1, 2004, July 1, 2004, January 1, 2005, July 1, 2005, January 1, 2006, and July 1, 2006. This option expires on June 30, 2013. Pursuant to the agreement, he was also issued a warrant to purchase up to 50,000 shares of common stock at $0.25 per share. This warrant is exercisable so long as Dr. Falla is an employee of the Company. Upon termination of the employment relationship by the Company without cause or by Dr. Falla for good reason (each as defined in the employment agreement), the Company is obligated to pay to Dr. Falla any unpaid annual base salary, any amount due but not paid under any of our incentive compensation plans, earned but unused vacation and bonuses due, if any, for services already performed to the effective date of termination of employment, and monthly severance payments equivalent to three (3) months’ base salary.

Effective as of July 1, 2004, the Company entered into an employment letter agreement with David Kirske, its Vice President and Chief Financial Officer. Pursuant to the agreement, Mr. Kirske is paid an annual base salary in the amount of $180,000. Also pursuant to this agreement, Mr. Kirske was granted an option to purchase 180,000 shares of common stock at $1.80 per share, vesting every six months, in six equal installments, with the first installment vesting on December 31, 2004. This option expires on August 12, 2014. Upon termination of the

47

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

employment relationship by the Company without cause (as defined in the letter agreement) during the first three years of Mr. Kirske’s employment, the Company is obligated to pay to Mr. Kirske monthly severance payments equivalent to six (6) months’ base salary.

Effective as of October 1, 2006, the Company entered into an employment letter agreement with Lori Bush, its Chief Operating Officer. Pursuant to the agreement, Ms. Bush is paid an annual base salary in the amount of $250,000. Also pursuant to this agreement, Ms. Bush was granted an option to purchase 250,000 shares of common stock at $0.75 per share. 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. This option expires on December 21, 2016. Ms. Bush is also eligible to receive, pursuant to this agreement, options to purchase up to an additional 250,000 shares of the Company’s common stock upon achievement by the Company of certain revenue targets. Those revenue targets were not deemed probable of achievement as of December 31, 2006. Upon termination of the employment relationship under this agreement by the Company without cause (as defined in the letter agreement) during the first three years of Ms. Bush’s employment, the Company is obligated to pay to Ms. Bush monthly severance payments equivalent to six (6) months’ base salary.

Effective as of July 1, 2004, the Company entered into an employment letter agreement with David Drajeske, its Vice President of Business Development. Pursuant to the agreement, Mr. Drajeske was paid an annual base salary equal to $150,000, and received a $25,000 signing bonus. Also pursuant to this agreement, Mr. Drajeske was granted an option to purchase 180,000 shares of common stock at $1.80 per share, vesting every six months, in six equal installments, with the first installment vesting on December 31, 2004. This option expires on August 12, 2014. Upon termination of the employment relationship under this agreement by the Company without cause (as defined in the letter agreement), the Company is obligated to pay to Mr. Drajeske monthly severance payments equivalent to six (6) months base salary.

On October 12, 2006, the Company entered into a Separation Agreement and Release (the “Separation Agreement”) with Mr. Drajeske whereby the Company and Mr. Drajeske agreed to (a) terminate the employment letter and (b) discontinue Mr. Drajeske’s employment relationship effective as of October 13, 2006 (the “Resignation Date”). Pursuant to the terms of the Separation Agreement, the Company agreed to pay Mr. Drajeske a severance payment in the aggregate amount of $100,000, payable in six equal monthly installments. In exchange, pursuant to the Company’s standard separation policy, Mr. Drajeske agreed, among other things, to release the Company from certain claims and for a period of one year following the Resignation Date, to not solicit any licensor to or customer of the Company or any licensee of the Company’s products, in each case that is known to Mr., Drajeske, with respect to any business, products or services that are competitive to the products or services offered by the Company or under development as of the Resignation Date. In addition, Mr. Drajeske agreed to not solicit any of the Company’s employees for a period of two years following the Resignation Date.

48

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

Note 8.   Supplemental Disclosure of Cash Flow Information

	Inception
	(November 7,
	1988) to
	December 31,		Years Ended December 31,
	2006		2006		2005
Deferred stock compensation	$	525,000		—	$	—
Stock issued to acquire patents		66,486		—		—
Debt issued to acquire technology		200,000		—		—
Bridge loans outstanding at acquisition		200,000		—		—
Patent costs included in accounts payable		99,859		—		—
Accounts payable converted to notes		704,559		—		—
Accrued interest converted to notes		403,453		—		—
Notes converted to equity		4,722,048		—		—
Accrued interest converted to equity		231,180		—		—
Detachable warrants issued with notes payable		728,552		—		—
Issuance of stock for services provided		14,400		—		—
Purchase of property included in accrued expenses		224,458		—		—
Stock subscription receivable		135,000		—		—
Cash paid for interest		105,430		—		—
Accounts receivable from sale of equipment		10,200		—		—

Note 9.   Long Term Leases

The Company leases office and laboratory space under an operating lease expiring in November 2009 which includes an option to extend the term of the lease for three years. Rent expense including operating costs for the years ended December 31, 2006 and 2005 was $67,475 and $59,253, respectively. The following is a schedule of future annual minimum lease payments under the lease obligations as of December 31, 2006:

2007	$	72,950
2008	$	75,139
2009	$	70,763
Total	$	218,852

Note 10.   License Agreement

The Company entered into a License Agreement (“License”) with the University of British Columbia (“UBC”) commencing October 1, 2001, (the “Commencement Date”), whereby UBC granted to the Company an exclusive, worldwide license to use and sublicense certain defined “Technology” and any improvements within a specified field of use and including the right to manufacture, distribute and sell products utilizing the Technology. The License terminates on October 1, 2021 or upon the expiration of the last patent applied for and obtained pursuant to certain provisions of the License, unless terminated earlier in accordance with the terms of the License. Dr. Robert E.W. Hancock, Ph.D., a member of the Company’s Scientific Advisory Board, is the lead investigator and inventor of the UBC patents and patent applications. The Technology is comprised primarily of three broad patents for antimicrobial peptides and related methods of use. The License extends to the Company’s affiliates. In exchange for the exclusive, worldwide license granted under the License, the Company agreed to pay UBC a royalty of 3.5% of revenue generated from the Technology and any improvements related thereto. The Company agreed to pay

49

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO FINANCIAL STATEMENTS — (Continued)

graduated minimum annual royalties of $10,000 upon the 5th anniversary, $20,000 upon the 6th anniversary, and $25,000 upon the 7th and all subsequent anniversaries of the Commencement Date. As called for by the License, the Company has issued to UBC or its assigns 97,500 shares of the Company’s common stock, options to purchase up to 152,500 common shares at $1.50 per share, and $61,391 in cash, such cash payment constituting reimbursement of UBC for expenses related to the licensed patents. The options have a term of ten years and were fully vested upon grant. The agreement also requires the Company to reimburse UBC for all further costs incurred with respect to the patents, including maintenance fees.

50

ITEM 8.   CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None

ITEM 8A.   CONTROLS AND PROCEDURES

As of the end of the period covered by this Annual 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 last fiscal 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.

ITEM 8B.   OTHER INFORMATION

None

PART III

ITEM 9.   DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Certain information required by this Item is contained in part in the section captioned “Proposal No. 1 — Election of Directors” in the Proxy Statement for the Helix BioMedix, Inc. Annual Meeting of Stockholders scheduled to be held on May 17, 2007, and such information is incorporated herein by reference.

The remaining information required by this Item is set forth in Part I of this report under Item 1, “Business — Executive Officers.”

ITEM 10.   EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference from the information contained in the sections captioned “Compensation of Executive Officers” and “Proposal No. 1 — Election of Directors” of the Proxy Statement for the Helix BioMedix, Inc. Annual Meeting of Stockholders scheduled to be held on May 17, 2007.

ITEM 11.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Certain information required by this Item is incorporated by reference from the information contained in the section captioned “Security Ownership of Certain Beneficial Owners and Management” of the Proxy Statement for the Helix BioMedix, Inc. Annual Meeting of Stockholders scheduled to be held on May 17, 2007.

51

Securities Authorized For Issuance Under Equity Compensation Plans

The following table lists our equity compensation plans, including individual compensation arrangements, under which equity securities are authorized for issuance as of December 31, 2006:

					Number of Securities
			Weighted-Average		Remaining Available for Future
	Number of Securities to be		Exercise		Issuance Under Equity
	Issued Upon Exercise of		Price of Outstanding		Compensation Plans (Excluding
	Outstanding Options,		Options,		Securities Reflected
	Warrants and Rights		Warrants and Rights		in Column(a))
Equity compensation plans approved by security holders		2,918,944	$	1.29		2,436,056
Equity compensation plans not approved by security holders(1)		2,700,544	$	1.38		—
Total		5,619,488	$	1.33		2,436,056

(1) Consists of warrants to purchase common stock issued to certain employees and consultants in connection with services rendered and to certain shareholders in connection with financing activities.

ITEM 12.   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by this Item is incorporated by reference from the information contained in the sections captioned “Certain Relationships and Related Transactions” and “Proposal No. 1 — Election of Directors” of the Proxy Statement for the Helix BioMedix, Inc. Annual Meeting of Stockholders scheduled to be held on May 17, 2007.

52

ITEM 13.   EXHIBITS

Exhibit
No.			Description and Location
	2	.1	Proposal for Approval of Reincorporation of Helix BioMedix, Inc., a Colorado corporation, from Colorado to Delaware (incorporated by reference from Exhibit 2 to the Company’s Form 10-KSB for the year ended December 31, 2000)
	3	.1	Certificate of Ownership and Merger of Helix BioMedix, Inc. a Delaware corporation and Helix BioMedix, Inc., a Louisiana corporation (incorporated by reference from Exhibit 2 to the Company’s Form 10-KSB for the year ended December 31, 2000)
	3	.2	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	.3	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	.4	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	.1	R. Stephen Beatty Employment Agreement dated July 1, 2001 (incorporated by reference from Exhibit 10.1 to the Company’s Form 10-KSB for the year ended December 31, 2001)
	10	.2	Tim Falla Employment Agreement dated June 15, 2001 (incorporated by reference from Exhibit 10.3 to the Company’s Form 10-KSB for the year ended December 31, 2001)
	10	.3	Helix BioMedix, Inc. Amended and Restated 2000 Stock Option Plan (incorporated by reference from Exhibit 10.3 to the Company’s Form 10-KSB/A for the year ended December 31, 2002)
	10	.4	Employment Agreement dated September 24, 2003, effective July 1, 2003, between the Company and Tim Falla (incorporated by reference from Exhibit 10.8 to the Company’s Form 10-KSB for the year ended December 31, 2003)
	10	.5	Employment Agreement dated September 24, 2003, effective July 1, 2003, between the Company and R. Stephen Beatty (incorporated by reference from Exhibit 10.9 to the Company’s Form 10-KSB for the year ended December 31, 2003)
	10	.6	Letter Agreement dated May 19, 2003 between the Company and Parker Sroufe (incorporated by reference from Exhibit 10.10 to the Company’s Form 10-KSB for the year ended December 31, 2003)
	10	.7	Separation Agreement and Release dated November 26, 2003 between the Company and Kerry Palmer (incorporated by reference from Exhibit 10.11 to the Company’s Form 10-KSB for the year ended December 31, 2003)
	10	.8	Amendment to Employment Agreement dated December 10, 2003 between the Company and Timothy Falla (incorporated by reference from Exhibit 10.12 to the Company’s Form 10-KSB for the year ended December 31, 2003)
	10	.8(a)	Second Amendment to Employment Agreement dated effective as of June 30, 2006 between the Company and Timothy Falla (incorporated by reference from Exhibit 10.8(a) to the Company’s Form 10-QSB for the fiscal quarter ended September 30, 2006)
	10	.9	Amendment to Employment Agreement dated December 10, 2003 between the Company and R. Stephen Beatty (incorporated by reference from Exhibit 10.12 to the Company’s Form 10-KSB for the year ended December 31, 2003)
	10	.9(a)	Second Amendment to Employment Agreement dated effective as of June 30, 2006 between the Company and R. Stephen Beatty (incorporated by reference from Exhibit 10.9(a) to the Company’s Form 10-QSB for the fiscal quarter ended September 30, 2006)
	10	.10	Employment Agreement between David H. Kirske dated July 2, 2004 (incorporated by reference from Exhibit 10.1 to the Company’s Form 10-QSB for the fiscal quarter ended September 30, 2004)
	10	.11	Employment Agreement between David Drajeske dated August 12 (incorporated by reference from Exhibit 10.2 to the Company’s Form 10-QSB for the fiscal quarter ended September 30, 2004)
	10	.12	TPI Licensing Agreement dated September 5, 2001 (incorporated by reference from Exhibit 10.4 to the Company’s Form 10-KSB for the year ended December 31, 2001)
	10	.13	University of British Columbia License Agreement dated October 1, 2001 (incorporated by reference from Exhibit 10.5 to the Company’s Form 10-KSB for the year ended December 31, 2001)

53

Exhibit
No.			Description and Location
	10	.14	Amended and Restated Consulting Agreement between the Company and Dunsford Hill Capital Partners dated May 30, 2001 (incorporated by reference from Exhibit 10.7 to the Company’s Form 10-KSB for the year ended December 31, 2001)
	10	.15	Second Amended and Restated Consulting Agreement between the Company and Dunsford Hill Capital Partners dated August 15, 2002 (incorporated by reference from Exhibit 10.13 to the Company’s Form 10-KSB/A for the year ended December 31, 2002)
	10	.16	Hancock Consulting Agreement dated June 18, 2001 (incorporated by reference from Exhibit 10.9 to the Company’s Form 10-KSB for the year ended December 31, 2001)
	10	.17	Lease between the Company and Teachers Insurance & Annuity Association of America, Inc. dated August 14, 2001 (incorporated by reference from Exhibit 10.11 to the Company’s Form 10-KSB for the year ended December 31, 2001)
	10	.17(a)	First Amendment to Lease between the Company and Teachers Insurance and Annuity Association of America, Inc. dated December 6, 2005 (incorporated by reference from Exhibit 10.17(a) to the Company’s Form 10-KSB for the year ended December 31, 2005)
	10	.17(b)	Second Amendment to Lease between the Company and Teachers Insurance and Annuity Association of America, Inc. dated October 4, 2006
	10	.18	Rights Agreement dated August 21, 2003 (incorporated by reference from Exhibit 10.27 to the Company’s Form 10-KSB for the year ended December 31, 2003)
	10	.19	Acceptance and Acknowledgement of Appointment dated January 4, 2004 (incorporated by reference from Exhibit 10.28 to the Company’s Form 10-KSB for the year ended December 31, 2003)
	10	.20	License Agreement between the Company and E.I. du Pont de Nemours dated March 9, 2004 (incorporated by reference from Exhibit 99.1 to the Company’s Form 8-K dated March 16, 2004)
	10	.21*	Joint Marketing Agreement between the Company and Body Blue Inc. dated November 2, 2004 (incorporated by reference from Exhibit 10.21 to the Company’s Form 10-KSB for the year ended December 31, 2004)
	10	.21(a)*	First Amendment to Joint Marketing Agreement between the Company and Body Blue Inc. dated February 13, 2006 (incorporated by reference from Exhibit 10.21(a) to the Company’s Form 10-KSB for the year ended December 31, 2005)
	10	.22	Employment letter agreement dated effective as of October 1, 2006 between the Company and Lori Bush (incorporated by reference from Exhibit 10.22 to the Company’s Form 10-QSB for the fiscal quarter ended September 30, 2006)
	10	.23	Separation Agreement and Release dated October 12, 2006 between the Company and David Drajeske (incorporated by reference from Exhibit 10.23 to the Company’s Form 10-QSB for the fiscal quarter ended September 30, 2006)
	10	.24*	Non-Exclusive License Agreement between the Company and Grant Industries, Inc. dated December 12, 2006
	14	.0	Code of Ethics adopted August 11, 2003 (incorporated by reference from Exhibit 14.0 to the Company’s Form 10-KSB for the year ended December 31, 2003)
	23	.1	Consent of KPMG LLP
	23	.2	Consent of Comiskey and Company
	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

* Confidential treatment has been requested for confidential commercial and financial information, pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended.

54

ITEM 14.   PRINCIPAL ACCOUNTANT FEES AND SERVICES

The information required by this Item is incorporated by reference from the information contained in the section captioned “Principal Accountant Fees and Services” of the Proxy Statement for the Helix BioMedix, Inc. Annual Meeting of Stockholders scheduled to be held on May 17, 2007.

55

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HELIX BIOMEDIX, INC.

(Registrant)

By:  /s/  R. Stephen Beatty

R. Stephen Beatty

President, Chief Executive Officer

(Principal Executive Officer)

Date: March 26, 2007

By:  /s/  David H. Kirske

David H. Kirske

Vice President and Chief Financial Officer

(Principal Financial Officer and Principal

Accounting Officer)

Date: March 26, 2007

POWER OF ATTORNEY

Each person whose signature appears below hereby constitutes and appoints each of R. Stephen Beatty and David H. Kirske his or her true and lawful attorney-in-fact and agent, with full power to act, and with full power of substitution and resubstitution, to execute in his or her name and on his or her behalf, individually and in each capacity stated below, any and all amendments and supplements to this Annual Report, and any and all other instruments necessary or incidental in connection herewith, and to file the same with the Securities and Exchange Commission.

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Signature	Title	Date
/s/  R. STEPHEN BEATTY R. Stephen Beatty	President, Chief Executive Officer and Director	March 26, 2007
/s/  WESTON ANSON Weston Anson	Director	March 26, 2007
/s/  RANDALL L-W. CAUDILL, PH.D. Randall L-W. Caudill, Ph.D.	Director	March 26, 2007
/s/  RICHARD M. COHEN Richard M. Cohen	Director	March 26, 2007
/s/  JOHN C. FIDDES, PH.D. John C. Fiddes, Ph.D.	Director	March 26, 2007

56

Signature	Title	Date
/s/  JEFFREY A. MILLER, PH.D. Jeffrey A. Miller, Ph.D.	Director	March 26, 2007
/s/  DAVID O’CONNOR David O’Connor	Director	March 26, 2007
/s/  BARRY L. SEIDMAN Barry L. Seidman	Director	March 26, 2007
/s/  DANIEL O. WILDS Daniel O. Wilds	Director	March 26, 2007

57

EX-10.17B

Exhibit 10.17b

SECOND AMENDMENT TO LEASE

     This SECOND AMENDMENT TO LEASE (this “Second Amendment”) is made as of October 4^th, 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 20^th 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 20^th 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 terras 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 l(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 l(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 (36^th) 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 l (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 l (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 (1^st) 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 (1^st) paragraph and a “(b)” at the beginning of the second (2^nd) 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 (l)(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 (l)(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:	/s/ Derek Landry
	Derek Landry
Its:	Director

Tenant:         Helix BioMedix, Inc., a Delaware corporation

By:	/s/ David Kirske
	David Kirske
Its:	CFO

Exhibit A
The Expansion Space

     Office = 2,246
Warehouse = 0
     Total = 2,246 rsf

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: 10/04/04

	/s/ Kari Mcgowan
(SEAL)	(Signature)
	Kari Mcgowan
	(Print Name) Notary Public, in and for the State of, CA residing at Newport Beach My Commission Expires 12/02/09

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 CFO of Helix BioMedix, Inc. to be the free and voluntary act of such party for the uses and purposes mentioned in the instrument.

          Dated: 9-21-06

	/s/ Karen A. Martinez
(SEAL)	(Signature)
	Karen A. Maitiner
	(Print Name) Notary Public, in and for the State of WA, residing at Snohomish WA My Commission Expires 7-17-10

EX-10.24

Exhibit 10.24

NON-EXCLUSIVE LICENSE AGREEMENT

          This Non-Exclusive License Agreement (the “Agreement”) is entered into and effective as of December 12, 2006 (“Effective Date”), by and between Helix BioMedix, Inc. a Delaware corporation with its principal place of business at 22122 — 20th Avenue SE, Bothell, WA 98021 (“Licensor”), and Grant Industries, Inc. a New Jersey corporation with its principal place of business at 103 Main Avenue, Elmwood Park, NJ 07407 (“Licensee”). Licensor and Licensee each may be referred to in this Agreement individually as a “Party” or collectively as the “Parties.”

RECITALS

          WHEREAS, Licensor has developed a library of proprietary bioactive peptides; and

          WHEREAS, Licensee desires to obtain a non-exclusive license to market, sell and distribute certain of such peptides, either alone or in conjunction with other products, upon the terms and conditions hereinafter set forth.

AGREEMENT

          NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties, intending to be legally bound, do agree as follows:

1 – DEFINITIONS

          For the purposes of this Agreement, the following words and phrases shall have the following meanings:

          1.1 “Affiliate” means any entity that directly or indirectly through one or more intermediaries, controls, is controlled by or is under common control with another entity. For purposes of this definition only, “control”, and, with correlative meanings, the terms “controlled by” and “under common control with” shall mean (a) the possession, directly or indirectly, of the power to direct the management or policies of a party, whether through the ownership of voting securities or by contract relating to voting rights or corporate governance, or (b) the ownership, directly or indirectly, of more than twenty-five percent (25%) of the voting securities or other ownership interest of a party; provided that, if local law restricts foreign ownership, control will be established by direct or indirect ownership of the maximum ownership percentage that may, under such local law, be owned by foreign interests.

          1.2 “Applicable Law” means the applicable laws, rules, and regulations, including any rules, regulations, guidelines, or other requirements of the Regulatory Authorities, that may be in effect from time to time in the Territory.

Confidential treatment has been requested for portions of this exhibit. This exhibit omits the information subject to the confidential treatment request. Omissions are designated as [***]. A complete version of this exhibit has been filed separately with the Securities and Exchange Commission.

1

          1.3 “Confidential Information” means the terms and conditions of this Agreement, all non-public information related to the Peptides, all Know-How, and all other information, data, reports and other records that a Party to this Agreement receives from the other Party to this Agreement.

          1.4 “GAAP” means United States generally accepted accounting principles consistently applied.

          1.5 “Know-How” means trade secrets, knowledge, information, expertise, data, materials and know-how that are owned, have been developed and/or created or are developed during the term of this Agreement by or for the Licensor related to the research, development, use or manufacture of the Peptides.

          1.6 “Market” means the cosmetic- and over-the-counter- personal-care products market.

          1.7 “Net Revenue” means [***].

          1.8 “Patents” means the patents and patent applications set forth in Exhibit A.

          1.9 “Peptides” means Licensor’s proprietary bioactive peptides described in Exhibit A attached to this Agreement. Licensor may add peptides that are proprietary to Licensor to Exhibit A at its sole discretion.

          1.10 “Premix” means a formulation other than a final formulation that is manufactured by Licensee and that incorporates any single Peptide (as defined above), regardless of what ingredients (of Licensee or any third party) other than Peptide may be included in such formulation.

          1.11 “Regulatory Authorities” means any applicable governmental entities regulating or otherwise exercising authority in the Territory.

          1.12 “Royalties” means the royalties payable by Licensee set forth in Exhibit C, which shall be paid in accordance with Section 3.

          1.13 “Sublicensee” means any third party to which rights hereunder are sublicensed in accordance with Section 2.2 (including any further sublicensees of a sublicensee).

          1.14 “Territory” means the countries or other geographic areas set forth in Exhibit B, as such exhibit may be amended from time to time pursuant to the terms hereof.

2 – LICENSE GRANT

          2.1 License. Subject to the terms and conditions of this Agreement, Licensor hereby grants to Licensee a non-exclusive right and license, under the Patents and the Know-How, to (i) purchase the Peptides in pure form, at Licensee’s expense, from [***] or another manufacturer

[***] Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

2

approved in advance by Licensor in writing (or from Licensor, subject to availability and on terms as may be agreed between Licensee and Licensor); (ii) formulate the Peptides into Premix; provided that no Premix may contain more than one Peptide; and (iii) market, sell and distribute the Premix to manufacturers in the Market in accordance with Section 2.2, in each case in the Territory and for commercial purposes only. The licenses granted herein shall be non-exclusive, and Licensee acknowledges and agrees that Licensor intends to grant the same or similar rights to other parties.

          2.2 Sublicense. Subject to the terms and conditions of this Agreement, Licensee may grant rights to third parties that purchase Premix from Licensee to (i) market, sell and distribute such Premix to manufacturers in the Market and (ii) incorporate such Premix into final products within the Market and market, sell and distribute such final products, in each case in the Territory and for commercial purposes only. Licensee shall notify Licensor of the identity of each Sublicensee promptly after any sublicense of rights is made hereunder. Licensee shall recommend in writing to each Sublicensee that Peptide (considered in pure form) be present in any final formulation at a concentration level not less than those set forth in Exhibit A with respect to each Peptide, and as agreed between the Parties with respect to any Peptide that may be added to Exhibit A pursuant to Section 1.9. Further, Licensee shall use its best efforts to prevent any use, sale, marketing or distribution of Premix or any product containing Premix by any third party in a manner inconsistent with the terms or intent of this Agreement, and failing such prevention, to promptly notify Licensor of any such inconsistent use, sale, marketing or distribution by a third party.

          2.3 No Other Rights. Except as expressly set forth in this Agreement, Licensor shall retain all right, title and interest in and to the Patents, the Peptides and all Know-How, and nothing in this Agreement shall be construed to confer any rights upon Licensee by implication, estoppel or otherwise other than as expressly set forth in this Agreement.

          2.4 Modification of Territory. Exhibit B may be amended from time to time upon request by Licensee and with the consent of Licensor, which consent shall not be unreasonably withheld. Without limiting the generality of the foregoing, Licensor’s withholding of consent shall be deemed reasonable as to a country or geographic region if at the time of the request by Licensee, Licensor is or is considering doing business (directly or indirectly) with respect to such country or geographic region, which business involves or may involve any Peptide.

          2.5 No Assignment of Improvements. For avoidance of doubt, Licensee does not assign or otherwise transfer to Licensor hereunder any right, title or interest in or to any improvements or inventions relating to, based upon, or derived from the Peptides that may be made by Licensee in connection with its performance under this Agreement.

3 – PAYMENTS

          3.1 Royalties. Within thirty (30) days after the end of each calendar month during the term of this Agreement, Licensee shall provide to Licensor records that fairly reflect the Net

[***] Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

3

Revenue attributable to such calendar month and the concentration of Peptide in any Premix from which such Net Revenue was derived. The Royalties owing on the basis of such records shall be invoiced to Licensee by Licensor and shall be paid by Licensee within thirty (30) days of the date of each invoice.

          3.2 Minimum Royalties. Licensee agrees to comply with the minimum Royalty payment obligations set forth in Exhibit C hereto during the term of this Agreement.

          3.3 Payment Method. All amounts payable by Licensee to Licensor pursuant to this Agreement shall be paid in U.S. dollars by wire transfer in immediately available funds to an account designated by Licensor. Any payments or portions thereof due hereunder which are not paid on the date such payments are due under this Agreement shall bear interest at a rate equal to the lesser of (i) the prime rate as published in The Wall Street Journal, Western Edition, on the first day of each calendar month in which such payments are overdue, plus seven percentage points, or if less, (ii) the maximum rate permitted by law, calculated on the number of days such payment is delinquent, compounded monthly.

4 – REPORTS

          4.1 Progress Reports. Each month during the term, the Parties shall discuss via teleconference or other agreed-upon means the progress of the Agreement, in connection with which Licensee shall (a) describe any commercialization activities with respect to the Peptides and any other work relating to the Peptides that it has performed, or caused to be performed, since the last such report, (b) evaluate the work performed in relation to the goals of this Agreement and Licensee’s work plans and (c) provide such other information as may be required by this Agreement or reasonably requested by Licensor relating to such activities.

          4.2 Record Retention. Licensee shall maintain complete and accurate books, records and accounts that fairly reflect Peptide concentrations and quantities sold by customer in sufficient detail and in accordance with GAAP to confirm Licensee’s compliance with the terms and conditions of this Agreement and the accuracy of any payments required hereunder, which books, records and accounts shall be retained by Licensee until the later of (i) three (3) years after the end of the period to which such books, records and accounts pertain and (ii) such longer period as may be required under Applicable Law.

          4.3 Audit. Licensor shall have the right to have an independent certified public accounting firm of nationally recognized standing, reasonably acceptable to Licensee, have access during normal business hours, and upon reasonable prior written notice, to such records of the Licensee as may be reasonably necessary to verify compliance by Licensee with the terms and conditions of this Agreement and the accuracy of any payments required hereunder for any calendar month ending not more than forty-eight (48) months prior to the date of such request; provided, however, that Licensor shall not have the right to conduct more than one such audit in any twelve (12)-month period. Licensor shall bear the cost of such audit unless the audit reveals a variance in any payments required hereunder of more than 5%, in which case Licensee shall bear the cost of the audit.

[***] Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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          4.4 Payment of Additional Amounts. If, based on the results of an audit, additional payments are owed by Licensee, it shall make such additional payments, with interest from the date originally due at the rate of 1% per month, within thirty (30) days after the date on which the accounting firm’s written report is delivered to Licensee.

          4.5 Confidentiality. Licensor shall treat all information subject to review under this Section 4 in accordance with the confidentiality provisions of Section 6 of this Agreement.

5 – INFRINGEMENT

          5.1 Infringement. In the event that Licensee learns of (i) any infringement of any of the Patents or (ii) any misappropriation of any of the Know-How, Licensee shall promptly inform Licensor in writing and Licensor may elect to initiate and prosecute legal proceedings with respect thereto at Licensor’s cost and expense. In the event that Licensor elects not to pursue such legal proceedings, Licensee shall have the right to do so at Licensee’s cost and expense.

          5.2 Cooperation. In any infringement suit instituted by Licensor or Licensee pursuant to this Agreement, Licensor or Licensee as the case may be shall, at the other Party’s request and expense, cooperate in all reasonable respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples, specimens and the like.

6 – CONFIDENTIAL INFORMATION

          6.1 Confidential Information. Each Party (“Receiving Party”) shall treat the terms and conditions of this Agreement and all of the Confidential Information that it receives from the other Party (“Disclosing Party”) as secret, confidential, and proprietary of the Disclosing Party and shall not disclose or use such Confidential Information of the Disclosing Party without the prior written consent of the Disclosing Party for any purpose except as expressly permitted under this Agreement. The Receiving Party shall develop and implement such procedures as may be required to prevent the intentional or negligent disclosure to third parties of such Confidential Information of the Disclosing Party, including, but not limited to, requiring each of its employees having access to Confidential Information of the Disclosing Party to enter into a proprietary information agreement consistent with, and no less protective of the Disclosing Party’s rights in the Confidential Information than, the terms set forth in this Section 6 and in this Agreement. Notwithstanding the foregoing, each Party shall have the right to disclose Confidential Information as required by law (using reasonable best efforts to redact, where permitted by law), and to its auditors, accountants, potential investors and potential acquirers under appropriate non-disclosure agreements.

          6.2 Exclusions. Notwithstanding the foregoing, nothing in this Agreement shall prevent the disclosure or use by the Receiving Party of the Disclosing Party’s Confidential Information that:

[***] Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

5

(a) prior to the transmittal thereof to the Receiving Party was of general public knowledge;

(b) becomes, subsequent to the time of transmittal to the Receiving Party, a matter of general public knowledge otherwise than as a consequence of a breach by the Receiving Party of any obligation under this Agreement;

(c) is made public by the Disclosing Party;

(d) was in the possession of the Receiving Party in documentary form prior to the time of disclosure thereof to the Receiving Party by the Disclosing Party, and is held by the Receiving Party free of any obligation of confidence to the Disclosing Party or any third party; or

(e) is received in good faith from a third party having the right to disclose it, who did not obtain such Confidential Information from the Disclosing Party and who imposes no obligation of secrecy on the Receiving Party with respect to such Confidential Information.

7 – REPRESENTATIONS AND WARRANTIES

          7.1 Representations and Warranties of Licensor. Licensor represents and warrants that: (i) there are no actions or claims pending, nor to the best of its knowledge, threatened, against Licensor alleging infringement of any patent, copyright, trademark or other intellectual property right relative to the Peptides; (ii) the grant of rights and licenses by Licensor to Licensee under this Agreement is not inconsistent with the terms and conditions of any obligations of Licensor; (iii) no authorization or consent is required for Licensor to grant the rights and licenses under this Agreement or for Licensor to enter into this Agreement; and (iv) Licensor is duly organized and in good standing in its state of incorporation.

          7.2 Representations and Warranties of Licensee. Licensee represents and warrants that: (i) the grant of rights and licenses by Licensee to Licensor under this Agreement is not inconsistent with the terms and conditions of any obligations of Licensee; (ii) no authorization or consent is required for Licensee to grant the rights and licenses under this Agreement or for Licensee to enter into this Agreement; and (iii) Licensee is duly organized and in good standing in its state of incorporation.

8 – DISCLAIMER OF WARRANTIES / LIMITATIONS OF LIABILITY

          8.1 Disclaimer of Warranties. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY OR ITS DIRECTORS, OFFICERS, STOCKHOLDERS, EMPLOYEES, AGENTS OR AFFILIATES MAKES ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF PATENTS, ISSUED OR PENDING, NON-INFRINGEMENT OR THE ABSENCE OF LATENT OR OTHER DEFECTS, WHETHER OR NOT DISCOVERABLE. NOTHING IN

[***] Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

6

THIS AGREEMENT SHALL BE CONSTRUED AS A REPRESENTATION MADE OR WARRANTY GIVEN BY LICENSOR THAT THE PRACTICE BY LICENSEE OF THE LICENSE GRANTED HEREUNDER SHALL NOT INFRINGE THE INTELLECTUAL PROPERTY OF ANY THIRD PARTY.

          8.2 Limitation of Remedies. EXCEPT FOR EITHER PARTY’S OBLIGATIONS UNDER SECTION 9 (INDEMNIFICATION) OR A BREACH OF A PARTY’S OBLIGATIONS UNDER SECTION 6 (CONFIDENTIAL INFORMATION) IN NO EVENT SHALL EITHER PARTY OR ITS DIRECTORS, OFFICERS, STOCKHOLDERS, EMPLOYEES, AGENTS OR AFFILIATES BE LIABLE FOR INCIDENTAL OR CONSEQUENTIAL DAMAGES OF ANY KIND, INCLUDING ECONOMIC DAMAGE OR INJURY TO PROPERTY OR LOST PROFITS, REGARDLESS OF WHETHER SUCH PARTY SHALL BE ADVISED, SHALL HAVE OTHER REASON TO KNOW, OR IN FACT SHALL KNOW OF THE POSSIBILITY OF THE FOREGOING.

          8.3 Limitation of Liability. EXCEPT FOR EITHER PARTY’S OBLIGATIONS UNDER SECTION 9 (INDEMNIFICATION) OR A BREACH OF A PARTY’S OBLIGATIONS UNDER SECTION 6 (CONFIDENTIAL INFORMATION), THE MAXIMUM TOTAL LIABILITY OF ONE PARTY TO THE OTHER FOR ANY AND ALL CLAIMS RELATING TO OR ARISING UNDER THIS AGREEMENT WILL BE LIMITED TO THE TOTAL AMOUNTS PAID UNDER THIS AGREEMENT.

EACH PARTY ACKNOWLEDGES THAT THE OTHER PARTY RELIED UPON THE INCLUSION OF THE LIMITATIONS OF REMEDIES AND LIABILITY SET FORTH IN THIS SECTION 8 IN CONSIDERATION OF ENTERING INTO THIS AGREEMENT.

9 – INDEMNIFICATION

          9.1 By Licensee. Licensee shall at all times during the term of this Agreement and thereafter indemnify defend and hold Licensor and its directors, officers, stockholders, employees, agents and affiliates (collectively, “Licensor Indemnitees”) harmless against any and all liabilities, losses, fines, penalties, damages, expenses of any kind whatsoever, including legal expenses and reasonable attorneys’ fees (collectively, “Losses”) that arise out of any claim, action, demand, suit, or proceeding brought against a Licensor Indemnitee by any third party after the Effective Date, to the extent attributable to or resulting from Licensee’s production, manufacture, testing, marketing, sale, distribution, use, consumption, advertisement or promotion of Licensee’s products or services (including, without limitation, any products that contain, incorporate or are based on Peptides). Licensee’s indemnification obligations under this Section 9.1 shall not apply to any Losses to the extent that they are directly attributable to the grossly negligent activities or intentional misconduct of any of the Licensor Indemnitees.

          9.2 By Licensor. Licensor shall at all times during the term of this Agreement and thereafter indemnify defend and hold Licensee and its directors, officers, stockholders, employees, agents and affiliates (collectively, “Licensee Indemnitees”) harmless against any and all Losses that arise out of any claim, action, suit, or proceeding brought against a Licensee Indemnitee by any third party after the Effective Date, to the extent attributable to or resulting

[***] Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

7

from personal injury or death caused by a Peptide considered in isolation (and not attributable to or resulting from the combination of any Peptide(s) with any other substance or material or any act or omission of Licensee or a Sublicensee). Licensor’s indemnification obligations under this Section 9.2 shall not apply to any Losses to the extent that they are directly attributable to the grossly negligent activities or intentional misconduct of any of the Licensee Indemnitees.

          9.3 Certain Procedures Regarding Indemnification. All claims for indemnification under this Agreement shall be made as follows:

(a) In the event a third-party claim, action, suit, or proceeding is made against a party entitled to indemnification under this Section 9 (the “Indemnitee”) for which the Indemnitee would be entitled to indemnification hereunder (a “Claim”), the Indemnitee shall notify the Indemnitor of such Claim, specifying the nature and the amount of the Claim (the “Claim Notice”). The Claim Notice must be delivered promptly after the Indemnitee becomes aware of the Claim, provided that the failure of the Indemnitee to comply with such requirement shall not relieve the party required to indemnify a person under Section 9 (the “Indemnitor”) of its obligations hereunder unless the Indemnitor is materially prejudiced in the defense of the Claim due to such failure on the part of the Indemnitee. The Indemnitor shall have the right to undertake and control the defense of any Claim at its expense through counsel of its own choosing (subject to the Indemnitee’s consent to such counsel, which consent may not be unreasonably withheld or delayed). If the Indemnitor undertakes the defense of a Claim: (i) the Indemnitor shall not permit to exist any lien, encumbrance or other adverse charge upon any asset of the Indemnitee; (ii) the Indemnitor may not settle such action without first obtaining the written consent of the Indemnitee, which consent will not be unreasonably withheld or delayed, except for settlements solely covering monetary matters for which the Indemnitor acknowledges responsibility for payment; and (iii) the Indemnitor shall permit the Indemnitee (at the Indemnitee’s sole cost and expense) to participate in such settlement or defense through counsel chosen by the Indemnitee.

(b) The Indemnitee agrees to preserve and provide access to all evidence in its possession or control that may be useful in defending against a Claim and to provide reasonable cooperation in the defense thereof or in the prosecution of any action against a third party in connection therewith at the Indemnitor’s expense. The Indemnitor’s defense of any Claim or demand shall not constitute an admission or concession of liability therefor or otherwise operate in derogation of any rights the Indemnitor may have against the Indemnitee or any third party. So long as the Indemnitor is reasonably contesting any such Claim in good faith, the Indemnitee shall not pay or settle any such Claim.

(c) If the Indemnitor elects not to undertake the defense of the Claim, the Indemnitee shall have the right to assume the defense of the Claim through counsel of its own choosing and contest, settle or compromise the Claim in the exercise of its exclusive discretion at the expense of the Indemnitor. All reasonable expenses incurred by the Indemnitee pursuant to this Section 9.3(c) shall be reimbursed by the Indemnitor within twenty (20) days of receipt of competent written evidence of such expenses.

[***] Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

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10 – INSURANCE

          10.1 General Liability. During the term of this Agreement, each Party shall maintain commercial general liability insurance in amounts not less than [***] dollars ($[***]) per occurrence and [***] dollars ($[***]) annual aggregate from an underwriter who has an A.M. Best rating of A-VII or better, and naming the other Party as an additional insured. Such commercial general liability insurance shall include but not be limited to contractual and product liability coverage for each Party’s indemnification obligations under Section 9 of this Agreement. The general liability insurance shall include worldwide coverage, including defense of claims and incidents outside of the United States and its territories. The liability policies required under this Section 10 shall be written as primary and non-contributing to not in excess of any coverage the other Party may choose to maintain. The minimum amounts of insurance coverage required under this Section 10 shall not be construed to create a limit of each Party’s liability with respect to its indemnification obligations under Section 9 of this Agreement.

          10.2 Notification. Each Party shall provide the other Party with written evidence of such insurance at any time during the term of this Agreement promptly upon the request of the other Party. Each Party shall provide the other Party with written notice at least fifteen (15) days prior to the cancellation, non-renewal or material change in such insurance. If a Party does not obtain replacement insurance providing comparable coverage prior to the expiration of such fifteen (15) day period, the other Party shall have the right to terminate this Agreement effective at the end of such fifteen (15) day period without notice or any additional waiting periods.

          10.3 Term of Insurance. Each Party shall maintain such commercial general liability insurance beyond the expiration or termination of this Agreement during the period that any products containing, incorporating or based on any Peptide are commercially marketed, distributed or sold by Licensee or any Sublicensee.

11 – EXPORT CONTROLS

     Licensee shall comply with and shall, at Seller’s request, demonstrate such compliance with, the U.S. Foreign Corrupt Practices Act and all applicable export laws, restrictions, and regulations of any U.S. or foreign agency or authority, and shall obtain, and bear all expenses relating to, any necessary licenses and/or exemptions with respect to the export from the U.S. by Licensee or its agents of any Peptide (or any product or material containing, incorporating or based on any Peptide) or any technology or information it obtains or learns pursuant to this Agreement (or any direct product thereof).

12 – MARKS

          12.1 Non-Use of Marks. Licensee shall not use the names, logos, trademarks or service marks of Licensor nor any adaptation thereof in any advertising, promotional or sales literature without Licensor’s prior written consent, except that Licensee may state that it is

[***] Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

9

licensed by Licensor hereunder and may identify the inventors of Licensor’s patents and/or patent applications.

13 – TERMINATION

          13.1 Term. The term of the Agreement shall begin on the Effective Date and shall continue for three (3) years, unless terminated at an earlier date pursuant to the terms and conditions set forth below in this Section 13. This Agreement shall automatically renew for successive one (1) year terms provided the Minimum Royalty Payment requirements set forth in Exhibit C are achieved in the prior year and unless either Party provides written notice to the other Party at least sixty (60) days prior to the end of the applicable term.

          13.2 Termination for Breach. Upon any material breach of any provision of this Agreement by a Party (the “Breaching Party”), the other Party (the “Non-Breaching Party”) shall have a right to give written notice thereof (“Notice of Default”) to the Breaching Party. If the Breaching Party does not cure such material breach within thirty (30) days after the date of the Notice of Default, the Non-Breaching Party shall have the right to terminate this Agreement by a second written notice (“Notice of Termination”) to the Breaching Party. If the Non-Breaching Party sends a Notice of Termination to the Breaching Party, this Agreement will automatically terminate on the date of such Notice of Termination. Termination of the Agreement by Licensor under this Section 13.2 shall not relieve Licensee of its obligation to pay any Royalties or other fees owing at the time of termination, if any, and shall not impair any accrued right of Licensor hereunder.

          13.3 Termination for Bankruptcy. To the extent permitted by applicable law, each Party shall have the right to immediately terminate this Agreement by giving written notice to the other Party, in the event the other Party: (i) provides notice of its intent to file (or does actually file without providing said notice) a petition in bankruptcy; (ii) attempts to make an assignment hereof for the benefit of creditors or otherwise; (iii) discontinues or dissolves its business; or (iv) if a receiver is appointed for it.

          13.4 Effect of Termination. Upon termination or expiration of this Agreement for any reason: (i) the rights granted to Licensee hereunder shall immediately terminate; and (ii) nothing herein shall be construed to release any party from any obligation that matured prior to the effective date of such termination.

          13.5 Survival. Sections 2.3, 3, 4.2, 4.5, 6, 8, 9, 15 and 17 of this Agreement shall survive the termination or expiration of this Agreement.

14 – NOTICES AND OTHER COMMUNICATIONS

          Any notice or other communication pursuant to this Agreement shall be sufficiently made or given if sent to such Party by certified first class mail, return receipt requested, postage

[***] Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

10

prepaid, by reputable overnight courier, or by facsimile (with confirmation emission) addressed to it at its address below or as it shall designate by written notice given to the other Party:

In the case of Licensor:

Helix BioMedix, Inc.
22122 — 20th Avenue SE
Bothell, WA 98021
Fax: (425) 806-2999
Attn: President

In the case of Licensee:

Grant Industries
103 Main Avenue
Elmwood Park, NJ 07407
Fax:
Attn: President

          All notices sent by first class mail shall be deemed to have been given four (4) business days after deposit, all notices sent by overnight courier or facsimile shall be deemed to have been given one (1) business day after deposit or transmission, as applicable.

15 – DISPUTE RESOLUTION

          Any controversy or claim arising out of or relating to this Agreement, or the breach thereof, shall be settled by arbitration conducted in New York, New York and administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, either Party may, without waiving any remedy under this Agreement, seek from any court having jurisdiction thereof any interim or provisional relief that is necessary to protect the rights or property of that Party from immediate and irreparable injury, loss, or damage.

16 – PRESS RELEASES

          Neither Party shall issue any press release or other similar public communication relating to this Agreement unless approved in advance and in writing by the other Party, which approval shall not be unreasonably withheld or delayed, except for those communications required by Applicable Law.

[***] Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

11

17 – MISCELLANEOUS PROVISIONS

          18.1 Force Majeure. Neither Party shall be held liable or responsible to the other Party or be deemed to have defaulted under or breached this Agreement for failure to delay in fulfilling or performing any term of this Agreement when such failure of delay is caused by or results from events beyond the reasonable control of the non-performing Party, including fires, floods, embargoes, shortages, epidemics, quarantines, war, acts of terrorism, acts of war (whether war be declared or not), insurrections, riots, civil commotion, strikes, lockouts or other labor disturbances, acts of God or acts, omissions or delays in acting by any governmental authority. The non-performing Party shall notify the other Party of such force majeure within ten (10) days after such occurrence by giving written notice to the other Party stating the nature of the event, its anticipated duration, and any action being taken to avoid or minimize its effect. The suspension of performance shall be of no greater scope and no longer duration than is necessary.

          18.2 Assignment. Without the prior written consent of the other Party, neither Party shall sell, transfer, assign, delegate, pledge or otherwise dispose of, whether voluntarily, involuntarily, by operation of law or otherwise, this Agreement or any of its rights or duties hereunder; provided, however, that Licensor may assign or transfer this Agreement or any of its rights or obligations hereunder without the consent of the Licensee to any third party with which it may merge or consolidate, or to which it may transfer all or substantially all of its assets. Any purported assignment or transfer in violation of this Section 18.2 shall be void ab initio and of no force or effect.

          18.3 Severability. If any provision of this Agreement is held to be illegal, invalid or unenforceable under any present or future law, and if the rights or obligations of either Party under this Agreement will not be materially and adversely affected thereby, (a) such provision shall be fully severable, (b) this Agreement shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provisions or by its severance herefrom, and (d) in lieu of such illegal, invalid or unenforceable provision there shall be added automatically as a part of this Agreement a legal, valid and enforceable provisions as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and reasonably acceptable to the Parties herein. To the fullest extent permitted by applicable law, each Party hereby waives any provision of law that would render any provision prohibited or unenforceable in any respect.

          18.4 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without giving effect to the conflicts of law provisions thereof.

          18.5 Entire Agreement. This Agreement sets forth and constitutes the entire agreement and understanding between the Parties with respect to the subject matter hereof and all prior agreements, understating, promises and representations, whether written or oral, with respect thereto are superseded hereby. Each Party confirms that it is not relying on any representations or warranties of the other Party except as specifically set forth herein. No amendment, modification, release or discharge shall be binding upon the Parties unless in writing and duly executed by authorized representatives of both Parties.

[***] Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

12

          18.6 No Waiver. Any term or condition of this Agreement may be waived at any time by the Party that is entitled to the benefit hereof, but no such waiver shall be effective unless set forth in a written instrument duly executed by or on behalf of the Party waiving such term or condition. The waiver by either Party hereto of any right hereunder or of the failure to perform or of a breach by the other Party shall not be deemed a waiver of any other right hereunder or of any other breach or failure by said other Party whether of a similar nature or otherwise.

          18.7 Attorneys Fees; Equitable Remedies. If either Party brings an action to enforce any rights arising out of or relating to this Agreement, the prevailing Party in such action shall be entitled to recover from the losing Party its reasonable fees, costs and expenses in connection with such action, including reasonable attorneys’ fees. The Parties acknowledge and agree that any breach of this Agreement will cause irreparable harm to the non-breaching party, which shall entitle the non-breaching Party to injunctive relief in addition to all other available legal remedies.

          18.8 No Benefit to Third Parties. The representations, warranties, covenants and agreement set forth in this Agreement are for the sole benefit of the Parties hereto and their successors and permitted assigns, and they shall not be construed as conferring any rights on any other parties.

          18.9 Further Assurances. Each Party shall duly execute and deliver, or cause to be duly executed and delivered, such further instruments and do and cause to be done such further acts and things, including the filing of such assignments, agreements, documents and instruments, as may be necessary or as the other Party may reasonably request in connection with this Agreement or to carry out more effectively the provisions and purposes, or to better assure and confirm unto such other Party its rights and remedies under this Agreement.

          18.10 Construction. Except where the context otherwise requires, wherever used, the singular shall include the plural, the plural the singular, the use of any gender shall be applicable to all genders and the word “or” is used in the inclusive sense (and/or). The captions of this Agreement are for convenience of reference only and in no way define, describe, extend or limit the scope or intent of this Agreement or the intent of any provision contained in this Agreement. The term “including” as used here mean including, without limiting the generality of any description preceding such term. The language of this Agreement shall be deemed to be the language mutually chosen by the Parties and no rule of strict construction shall be applied against either Party hereto.

[Signature page follows]

[***] Certain information has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

13

          IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by their duly authorized representatives as of the date set forth above.

HELIX BIOMEDIX, INC.		GRANT INDUSTRIES
(“Licensor”)		(“Licensee”)
By:	/s/ R. Stephen Beatty	By:	/s/ David Granatell
Name:	R. Stephen Beatty	Name:	David Granatell
Title:	President	Title:	Executive Director

[SIGNATURE PAGE TO NON-EXCLUSIVE LICENSE AGREEMENT]

EXHIBIT A

Patents, Peptides, and Minimum Recommended Concentrations

Patents:

[***]

Peptides:

[***]

Minimum Recommended Concentrations (for final, marketable formulations after dilution of
Premix):

[***]

Maximum percentage of Peptide in Premix product: [***]%.

[***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT B

Territory

[***]

[***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EXHIBIT C

Royalty Rates and Minimums

Royalties

Licensee shall pay to Licensor Royalties in the amount of [***] percent ([***]%) of all Net Revenue, in accordance with the terms set forth in the Agreement.

Minimum Royalty Payments:

Licensor shall have the right to terminate this Agreement and/or remove a Peptide from Exhibit A (at Licensor’s option) if Licensee fails to make the following minimum royalty payments for the applicable calendar year during the term of this Agreement:

[***]

Should Licensor exercise its right to terminate this Agreement or remove a Peptide from Exhibit A due to Licensee’s failure to meet minimum royalty payments, Licensee may, during the one-year period following notice from Licensor to Licensee of such termination or removal, continue to sell Premix (or Premix containing such removed Peptide, as the case may be) solely to Sublicensees existing as of the date of such notice, subject to the other terms of this Agreement.

[***] Certain information on this page has been omitted and filed separately with the Securities and Exchange Commission. Confidential treatment has been requested with respect to the omitted portions.

EX-23.1

Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Helix BioMedix, Inc.

We consent to the incorporation by reference in the registration statement (No. 333-136192) on Form S-8 of Helix BioMedix, Inc. of our report dated March 26, 2007, with respect to the balance sheets of Helix BioMedix, Inc. (a development stage company) as of December 31, 2006 and 2005, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended and for the period from November 7, 1988 (inception) to December 31, 2006, which report appears in the December 31, 2006 annual report on Form 10-KSB of Helix BioMedix, Inc. The cumulative statements of operations, stockholders’ equity (deficit), and cash flows for the period November 7, 1988 (inception) to December 31, 2006 include amounts for the period from November 7, 1988 (inception) to December 31, 1988 and for each of the years in the thirteen-year period ending December 31, 2001, which were audited by other auditors whose report has been furnished to us, and our opinion, insofar as it relates to the amounts included for the period November 7, 1988 through December 31, 2001, is based solely on the report of other auditors.

Our report refers to Helix BioMedix, Inc.’s adoption of Financial Accounting Standards Board Statement of Financial Accounting Standards No 123(R), Share-Based Payment, effective January 1, 2006.

/s/	KPMG LLP
Seattle, Washington March 26, 2007

EX-23.2

Exhibit 23.2

Consent of Independent Registered Public Accounting Firm

The Board of Directors
Helix BioMedix, Inc.

We consent to the incorporation by reference in the registration statement (No. 333-136192) on Form S-8 of Helix BioMedix, Inc. of our report dated February 1, 2002, with respect to the statements of operations, cash flows, and changes in stockholders’ equity (deficit) of Helix BioMedix, Inc. (a development stage company) related to the period from inception (November 7, 1988) to December 31, 2001, which report appears in the annual report on Form 10-KSB of Helix BioMedix, Inc. for the fiscal year ended December 31, 2006.

/S/COMISKEY & COMPANY
PROFESSIONAL CORPORATION

Denver, Colorado
March 26, 2007

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 Annual Report on Form 10-KSB 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 small business issuer as of, and for, the periods presented in this report;
4.	The small business issuer’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 small business issuer 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 small business issuer, 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 small business issuer’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 small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’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 small business issuer’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 small business issuer’s internal control over financial reporting.

Date: March 26, 2007

/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 Annual Report on Form 10-KSB 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 small business issuer as of, and for, the periods presented in this report;
4.	The small business issuer’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 small business issuer 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 small business issuer, 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 small business issuer’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 small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and

5. The small business issuer’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’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 small business issuer’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 small business issuer’s internal control over financial reporting.

Date: March 26, 2007

/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 Annual Report on Form 10-KSB of the Company for the year ended December 31, 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 December 31, 2006.

Date: March 26, 2007

/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 Annual Report on Form 10-KSB of the Company for the year ended December 31, 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 December 31, 2006.

Date: March 26, 2007

/s/ David H. Kirske  

David H. Kirske 

Vice President and Chief Financial Officer