10QSB

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-QSB

(Mark One)

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

For the quarterly period ended March 31, 2007 OR

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

For the transition period from            to

Commission file number: 33-20897-D

HELIX BIOMEDIX, INC.

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

22118-20^th Avenue SE, Suite 204, Bothell, Washington 98021
(Address of principal executive offices)

(425) 402-8400
(Issuer’s telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.
Yes þ No o

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

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

	Number of Shares
Class	Outstanding at May 3, 2007
Common Stock, $0.001 par value	25,653,512

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

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

	Page
PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets (unaudited) as of March 31, 2007 and December 31, 2006		1
Condensed Statements of Operations (unaudited) for the three months ended March 31, 2007 and 2006 and for the period from inception (November 7, 1988) to March 31, 2007		2
Condensed Statements of Stockholders’ Equity (Deficit) (unaudited) for the period from inception (November 7, 1988) to March 31, 2007		3
Condensed Statements of Cash Flows (unaudited) for the three months ended March 31, 2007 and 2006 and for the period from inception (November 7, 2007) to March 31, 2007		6
Notes to Condensed Financial Statements (unaudited)		7
Item 2. Management’s Discussion and Analysis or Plan of Operation		12
Item 3. Controls and Procedures		18
PART II — OTHER INFORMATION
Item 6. Exhibits		19
Signatures		20
EXHIBIT 10.25
EXHIBIT 10.26
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

PART I — FINANCIAL INFORMATION

ITEM 1. Financial Statements.

HELIX BIOMEDIX, INC.
(A DEVELOPMENT-STAGE COMPANY)

CONDENSED BALANCE SHEETS

(Unaudited)

	March 31,			December 31,
	2007			2006
ASSETS
Current assets:
Cash and cash equivalents	$	2,645,285		$	1,276,901
Marketable securities		1,000,000			980,000
Accounts receivable, net		34,047			—
Prepaid expenses and other current assets		77,515			86,732
Total current assets		3,756,847			2,343,633
Property and equipment
Machinery and equipment		523,797			523,797
Furniture and fixtures		48,486			46,734
Leasehold improvements		43,993			43,993
		616,276			614,524
Less: accumulated depreciation		(444,498	)		(419,796	)
Property and equipment, net		171,778			194,728
Other assets:
Deposits		8,522			4,211
Antimicrobial technology, net		23,436			26,213
Licensing agreement, net		42,517			43,416
Patents pending and approved, net		425,689			441,733
Other assets, net		500,164			515,573
Total assets	$	4,428,789		$	3,053,934
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	76,421		$	65,549
Accrued payroll		54,151			108,603
Accrued expenses		103,423			27,315
Deferred revenue		44,390			54,390
Total current liabilities		278,385			255,857
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; 25,653,512 shares outstanding at March 31, 2007, 22,788,514 shares outstanding at December 31, 2006		25,654			22,788
Additional paid-in capital		29,070,148			26,908,198
Deficit accumulated during the development stage		(24,945,398	)		(24,132,909	)
Total stockholders’ equity		4,150,404			2,798,077
Total liabilities and stockholders’ equity	$	4,428,789		$	3,053,934

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

1

HELIX BIOMEDIX, INC.
(A DEVELOPMENT-STAGE COMPANY)

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Inception
	(November 7, 1988)
	to			Three months ended March 31,
	March 31, 2007			2007			2006
Revenue:
Licensing	$	357,055		$	29,494		$	5,026
Peptide sales		152,341			28,928			13,000
		509,396			58,422			18,026
Operating expenses:
Cost of peptide sales		247,329			—			5,003
Research and development		6,724,194			205,497			226,206
Depreciation and amortization		1,125,735			44,422			44,923
Accounting, legal and professional fees		2,640,614			148,477			65,658
Consulting fees		2,879,551			405			3,048
General and administrative		10,698,986			494,513			509,918
Total operating expenses		24,316,409			893,314			854,756
Loss from operations		(23,807,013	)		(834,892	)		(836,730	)
Other income (expense):
Gain on settlement of lawsuit		48,574			—			—
Gain on sale of equipment		5,276			—			—
Interest expense		(1,459,442	)		—			—
Interest income		267,207			22,403			14,461
		(1,138,385	)		22,403			14,461
Net loss	$	(24,945,398	)	$	(812,489	)	$	(822,269	)
Basic and diluted net loss per share				$	(0.03	)	$	(0.04	)
Weighted average shares outstanding					23,569,902			20,982,058

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

2

HELIX BIOMEDIX, INC.
(A DEVELOPMENT-STAGE COMPANY)

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

for the Period from Inception (November 7, 1988) to March 31, 2007

(Unaudited)

			Common Stock
															Deficit
															Accumulated
								Additional					Stock		During the		Stockholders’
			Number					Paid-in		Deferred 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:
Period	Per Share 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:
Period	Per Share 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:
Period	Per Share 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	)		—		—		—

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

3

HELIX BIOMEDIX, INC.
(A DEVELOPMENT-STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
for the Period from Inception (November 7, 1988) to March 31, 2007
(Unaudited)

(continued from prior page)			Common Stock
																	Deficit
																	Accumulated
									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:
Period	Per Share 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	)

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

4

HELIX BIOMEDIX, INC.
(A DEVELOPMENT-STAGE COMPANY)
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)
for the Period from Inception (November 7, 1988) to March 31, 2007
(Unaudited)

(continued from prior page)	Common Stock
														Deficit
														Accumulated
					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
Proceeds from 2007 Private Placement, net		2,864,998		2,866		2,140,492			—			—			—			2,143,358
Stock-based compensation		—		—		21,458			—			—			—			21,458
Net loss		—		—		—			—			—			(812,489	)		(812,489	)
Balance at March 31, 2007		25,653,512	$	25,654	$	29,070,148		$	—		$	—		$	(24,945,398	)	$	4,150,404

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

5

HELIX BIOMEDIX, INC.
(A DEVELOPMENT-STAGE COMPANY)

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Inception
	(November 7, 1988)
	to			Three months ended March 31,
	March 31, 2007			2007			2006
Cash flows from operating activities
Net loss	$	(24,945,398	)	$	(812,489	)	$	(822,269	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,125,915			44,422			44,923
Amortization of debt discount to interest expense		728,552			—			—
Stock-based compensation costs		4,624,765			21,458			186,584
Interest expense converted to common stock		231,180			—			—
Research and development		53,000			—			—
Gain on disposal of equipment		(5,276	)		—			—
Changes in assets and liabilities:
Accounts receivable		(25,347	)		(34,047	)		5,963
Inventory		—			—			(116,239	)
Prepaid expenses and other current assets		(71,505	)		9,217			17,268
Other assets		(75,912	)		(4,311	)		—
Accounts payable – related party		341,602			—			—
Accounts payable		78,755			10,872			92,461
Accrued payroll		4,548			(54,452	)		(17,868	)
Accrued expenses		227,304			76,108			(61,194	)
Deferred revenue		44,390			(10,000	)		—
Net cash used in operating activities		(17,663,427	)		(753,222	)		(670,371	)
Cash flows from investing activities
Investment in Helix Delaware		(10	)		—			—
Purchases of marketable securities		(1,330,000	)		(350,000	)		—
Proceeds from sales of marketable securities		330,000			330,000			—
Proceeds from sale of assets		9,435			—			—
Purchase of property and equipment		(754,948	)		(1,752	)		(36,731	)
Increase in capitalized patents		(654,944	)					—
Net cash used in investing activities		(2,400,467	)		(21,752	)		(36,731	)
Cash flows from financing activities
Cash received in reverse acquisition		634,497			—			—
Proceeds from notes payable		3,089,894			—			—
Proceeds from notes payable – related party		379,579			—			—
Repayments from notes payable – related party		(163,154	)		—			—
Proceeds from issuance of common stock and warrants, net		18,768,363			2,143,358			2,584,022
Net cash provided by financing activities		22,709,179			2,143,358			2,584,022
Net increase in cash and cash equivalents		2,645,285			1,368,384			1,876,920
Cash and cash equivalents at beginning of period		—			1,276,901			2,827,959
Cash and cash equivalents at end of period	$	2,645,285		$	2,645,285		$	4,704,879

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

6

HELIX BIOMEDIX, INC.
(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation and Preparation

     The unaudited condensed financial statements of Helix BioMedix, Inc. (the “Company”) as of March 31, 2007, and for the three months ended March 31, 2007 and 2006, have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required to be presented for complete financial statements. The accompanying financial statements reflect all adjustments (consisting of normal recurring items) which are, in the opinion of management, necessary for a fair presentation of the results for the interim periods presented. The preparation of these financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses. Actual results could differ from those estimates.

     The financial statements and related disclosures have been prepared with the assumption that users of the interim financial information have read or have access to the audited financial statements for the preceding fiscal year. Accordingly, these financial statements should be read in conjunction with the audited financial statements and the related notes thereto included in the Form 10-KSB for the year ended December 31, 2006 and filed with the Securities and Exchange Commission on March 26, 2007.

     The results of operations for the three months ended March 31, 2007, are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 31, 2007.

     The Company had approximately $2.6 million in cash and cash equivalents and $1.0 million in marketable securities as of March 31, 2007, and will require additional sources of capital to support its operations. The Company believes that, based upon the current status of the Company’s product development and collaboration plans, its cash and cash equivalents should be adequate to satisfy its capital needs through the next twelve months.

Reclassification

     Reclassifications of prior years’ balances have been made to conform to the current format. In an effort to provide investors with more details, certain amounts in the Condensed Statements of Cash Flows have been reclassified into individual line items. Specifically, for the three months ended March 31, 2007 and 2006, changes in accounts receivable as reported in the Condensed Statements of Cash Flows were separated from prepaid expenses and other assets. Similarly, changes in accounts payable, accrued payroll, and accrued expenses were separated into individual line items. These reclassifications had no impact on revenue, gross margin, net loss, assets or liabilities in the periods presented.

Recent Accounting Pronouncements

     Except as described below, there have been no significant changes in recent accounting pronouncements during the three months ended March 31, 2007, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-KSB for the year ended December 31, 2006.

     In June 2006, the Financial Accounting Standards Board (“FASB”) issued Interpretation No. 48 (“FIN 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

7

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

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 adopted FIN 48 effective January 1, 2007, and there is no impact to the Company’s financial statements.

Note 2. Stock-Based Compensation

Stock-Based Compensation

     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. The per share weighted-average grant date fair value of stock options granted during the three months ended March 31, 2007, was $0.62 using the Black-Scholes option pricing model with the following assumptions:

	Three Months Ended March 31,
	2007			2006
Risk-free interest rate		4.6	%		4.9	%
Expected dividend yield		0			0
Expected term in years		6.25			6.25
Expected volatility		100	%		100	%

     The risk-free rate is based on the implied yield available on U.S. Treasury zero–coupon issues with an equivalent remaining term. The Company does not anticipate declaring dividends in the foreseeable future. For the three months ended March 31, 2007, expected volatility is based on implied volatility of outstanding warrants to purchase the Company’s common stock, annualized daily historical volatility of its stock price commensurate with the expected term of the option, and other factors, including peer company data. For the three months ended March 31, 2007, 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.

     For the three months ended March 31, 2007 and 2006, stock-based compensation expense was $21,458 and $186,584, respectively.

Stock Option Plan

     The Helix BioMedix 2000 Stock Option Plan (“the 2000 Plan”) provides for the issuance of incentive and non-qualified stock options to employees, directors, officers, and consultants and is administered by non-employee directors. 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 are typically non-qualified stock options with a vesting

8

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

period ranging from immediately upon grant to quarterly over one year. Stock options granted to employees are typically incentive stock options and vest at the rate of 33.33% after one year, and 2.78% per month thereafter.

     During the first quarter of 2006, the Company granted to non-employee directors options to purchase an aggregate of 115,000 shares of common stock with a fair value of $0.70. There were no employee stock options granted and an aggregate of 120,000 non-employee director stock options granted with a fair value of $0.62 during the three months ended March 31, 2007. A summary of the Company’s stock option activity for the three months ended March 31, 2007 is presented in the following table:

						Weighted
				Weighted		Average
				Average		Remaining		Aggregate
	Shares Subject			Exercise Price		Contractual		Intrinsic
	to Options			per Share		Life (Years)		Value
Outstanding, December 31, 2006		2,918,944		$	1.29		5.82	$	60,435
Granted		120,000		$	0.76
Exercised		—
Forfeited		—
Expired		(178,750	)	$	1.22
Outstanding, March 31, 2007		2,860,194		$	1.27		6.03	$	143,240
Exercisable, March 31, 2007		2,399,290		$	1.33		5.39	$	59,340

     The aggregate intrinsic value in the table above is based on the Company’s closing stock price of $0.98 on March 31, 2007, which would have been received by the optionees had all of the options with exercise prices less than $0.98 been exercised on that date. As of March 31, 2007, total unrecognized stock-based compensation related to non-vested stock options was approximately $241,600, which is expected to be recognized over a weighted-average period of approximately seventeen months.

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

     The Company has reserved 5,355,000 shares of common stock reserved for issuance pursuant to the 2000 Plan. As of March 31, 2007, 2,494,806 shares remained available for grants. Additional information regarding options outstanding as of March 31, 2007, is as follows:

	Options Outstanding						Options Exercisable
			Weighted
			Average		Weighted				Weighted
			Remaining		Average				Average
			Contractual		Exercise				Exercise
Range of Exercise Prices	Shares		Life (Years)		Price		Shares		Price
$0.70 - $0.85		635,500		7.94	$	0.75		265,500	$	0.76
$1.00 - $1.00		799,000		5.91	$	1.00		799,000	$	1.00
$1.20 - $1.50		748,750		5.62	$	1.50		725,138	$	1.50
$1.75 - $2.00		676,944		4.84	$	1.82		609,652	$	1.82
$0.70 - $2.00		2,860,194		6.03	$	1.27		2,399,290	$	1.33

9

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

Note 3. Stockholders’ Equity

     On March 5, 2007, the Company closed a private equity financing, receiving cash of $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 $148,750 in exchange for 198,332 shares of $0.001 par value common stock.

     On March 3, 2006, the Company 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, the Company received $215,000 in exchange for 215,000 shares of $0.001 par value common stock and warrants to purchase up to 21,500 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 net proceeds of these offerings are being used to continue ongoing research and development efforts, to fund the out-licensing initiatives for the Company’s peptides and for general corporate purposes.

Note 4. Loss per Share

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

	Three months ended
	March 31,
	2007		2006
Weighted average outstanding options		2,932,638		2,610,472
Weighted average outstanding warrants		2,700,544		2,641,364

Note 5. Marketable Securities

Marketable securities consisted of the following as of March 31, 2007:

			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	$	1,000,000		—		—	$	1,000,000

10

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

Note 6. Identifiable Intangible Assets

     Identifiable intangible assets, which are included in other assets, consisted of the following as of March 31, 2007 and December 31, 2006:

	March 31,			December 31,
	2007			2006
Antimicrobial technology	$	222,187		$	222,187
Licensing agreements		61,391			61,391
Patents, pending and approved		834,301			834,301
Total identifiable intangible assets		1,117,879			1,117,879
Less accumulated amortization		(626,237	)		(606,517	)
Identifiable intangible assets, net	$	491,642		$	511,362

Note 7. Subsequent Event

     Effective as of April 18, 2007, the Company entered into a License Agreement (the “License Agreement”) with DermaVentures, LLC (“DermaVentures”), an Illinois limited liability company in which the Company owns a 25% membership interest pursuant to the DermaVentures Operating Agreement, which was approved by the Company’s Board of Directors on April 13, 2007. Pursuant to the License Agreement, the Company granted to DermaVentures a non-exclusive license under certain Company patents and related technology to formulate certain proprietary Company peptides into cosmetics and over-the-counter personal care products and to market and sell those products in North and Central America. The initial term of the License Agreement is five years. In consideration for the license, DermaVentures agreed to pay royalties to the Company on its sales of products containing proprietary Company peptides as set forth in the License Agreement.

     In addition, effective as of April 18, 2007, the Company entered into a Management Services Agreement (the “Services Agreement”) with DermaVentures and RMS Group, LLC, a member and the sole manager of DermaVentures (“RMS”). Pursuant to the Services Agreement, the Company agreed to provide certain management services to DermaVentures in exchange for a management fee of $400,000 payable as a cash flow distribution to the Company in connection with its ownership interest in DermaVentures after $1,200,000 in cash flow is distributed to RMS. The Company may terminate the Services Agreement upon 30 days prior written notice to the other parties, at which time the Company’s membership interest in DermaVentures shall be reduced to 10%; provided, however, that during the first year after the effective date, the Company may only terminate the Services Agreement for cause. Either DermaVentures or RMS may terminate the Services Agreement at any time with or without cause upon 30 days prior written notice to the Company, at which time the Company’s membership interest in DermaVentures shall be reduced to 10% unless the Company agrees to bear the costs for any necessary replacement management services thereafter.

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

Forward-Looking Statements

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

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

• statements about our product development schedule;

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

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

• other statements that are not historical facts.

     Words such as “believe,” “anticipate,” “expect”, and “intend” and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Forward-looking statements are subject to known and unknown risks and uncertainties and are based on potentially inaccurate assumptions that could cause actual results to differ materially from those expected or implied by the forward-looking statements. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the factors described in “Certain Factors That May Affect Our Business and Future Results” in our Annual Report on Form 10-KSB for the year ended December 31, 2006. Other factors besides those described in that Annual Report could also affect actual results. You should carefully consider the factors described in “Certain Factors That May Affect Our Business and Future Results” in our Annual Report for the year ended December 31, 2006 in evaluating our forward-looking statements.

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

Business Overview

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

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

     To establish a foundation for our initial commercialization efforts, we successfully identified and characterized a number of peptides that were based upon innate immunity peptide sequences 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 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.

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     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 Quarterly 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 peptides for use in cosmetics 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 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™, and specific combinations of those Replikines™ that we call Combikines™, we can increase the

13

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 ingredients for cosmetics 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™. 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™ hold commercial promise beyond the area of anti-aging skin care as they support the skin’s resiliency.

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.

Acne Anti-infective

     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.

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

Critical Accounting Policies and Estimates

     The preparation of the financial statements requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, our management evaluates its estimates and judgments including those related to revenue recognition, research and development costs, capitalized patent costs, and valuation of stock options and warrants. We base our estimates and judgments on historical experience and on

14

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. 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 our 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. 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.

Results of Operations

     As of March 31, 2007, our accumulated deficit was approximately $24.9 million. We may continue to incur substantial operational losses over the next several years. Such losses have been and may continue to be principally the result of various costs associated with our research and development programs. Revenue to date has not been material and has resulted from licensing arrangements and limited sales of peptides at, or near, cost. Our ability to achieve a consistent, profitable level of operations depends in large part on our ability to enter into royalty-bearing licenses. Even if we are successful in the aforementioned activities, our operations may not be profitable. In addition, any payments under licensing arrangements are subject to significant fluctuations in both timing and amount. Therefore, our operating results for any period may fluctuate significantly and may not be comparable to the operating results for any other period.

     Revenue for the three months ended March 31, 2007, derived primarily from royalty and peptide sales, was approximately $58,000 compared to $18,000 for the same period in 2006. Cost of peptide sales was $0 for the three months ended March 31, 2007 and approximately $5,000 for the same period in 2006. The zero cost of peptide sales for the three months ended March 31, 2007, reflected the inventory written down to its net realizable value in the second quarter of 2006.

     Research and development expenses were approximately $205,500 for the three months ended March 31, 2007 compared to approximately $226,200 for the same period in 2006. The decrease of $20,700 or 9.2% was primarily due to a reduction in stock-based compensation, partially offset by an increase in expenses related to consulting fees.

     Depreciation and amortization expenses of approximately $44,400 for the three months ended March, 31, 2007 were relatively flat compared to the same period in 2006, primarily because incremental depreciation expenses from assets purchased in 2006 were offset by other assets becoming fully depreciated.

     Accounting, legal and professional expenses were approximately $148,500 for the three months ended March 31, 2007, an increase of $82,800 or 126.1% compared to the same period in 2006. The increase was primarily

15

attributable to increased fees for our financial audit and legal fees associated with license agreement negotiations and other corporate matters.

     Consulting fees were $405 for the three months ended March 31, 2007 compared to approximately $3,000 for the same period in 2006. The decrease of approximately $2,600 was primarily attributable to consulting fees incurred in 2006 associated with the implementation of a new accounting system.

     General and administrative expenses were approximately $494,500 for the three months ended March 31, 2007 compared to $509,900 for the same period in 2006. The decrease of $15,400 or 3.0% was due primarily to a reduction in stock-based compensation expense, partially offset by increased employee costs and rent expense for additional office space.

     Other income for the three months ended March 31, 2007 was approximately $22,400 compared to approximately $14,500 for the same period in 2006, consisting of interest income for both periods. The increase in interest income in the first three months of 2007 was primarily attributable to a higher balance of cash and marketable securities in 2007 compared to 2006.

Liquidity and Capital Resources

     Since inception, we have financed our operations primarily through the private sales of debt and equity securities. Our principal sources of liquidity are cash, cash equivalents and marketable securities. At March 31, 2007, our balance of cash, cash equivalents and marketable securities totaled approximately $3.6 million, up by $1.4 million from December 31, 2006. The increase from December 31, 2006 was attributable to the proceeds that we received from a private equity financing that closed in the first quarter of 2007, partially offset by cash used in operations.

     Cash used in operating activities for the three months ended March 31, 2007, was approximately $753,000, derived principally from our net loss for the period, adjusted by non-cash expenses and changes in working capital components. Working capital uses of cash were primarily from an increase in trade receivables and decreases in accrued payroll and deferred revenue, partially offset by a decrease in prepaid expense and increases in accounts payable and accrued expenses. Cash used in operating activities for the three months ended March 31, 2006, was approximately $670,400, due primarily to the net loss for the period and inventory purchases, partially offset by adjustments of non-cash expenses.

     Cash used in investing activities during the three months ended March 31, 2007, was approximately $21,800, due primarily to purchases of marketable securities and capital equipment. Cash used in investing activities during the three months ended March 31, 2006 was approximately $36,700, due primarily to purchases of capital equipment.

     Cash provided by financing activities for the three months ended March 31, 2007, was approximately $2.1 million. On March 5, 2007, we closed a private equity financing, receiving cash of $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 $148,750 in exchange for 198,332 shares of $0.001 par value common stock.

     Cash provided by financing activities for the three months ended March 31, 2006 was approximately $2.6 million. On March 3, 2006, we announced that we closed a private equity financing, receiving cash of approximately $2.4 million in exchange for 2,383,000 shares of $0.001 par value common stock and warrants to purchase up to 238,300 additional shares of $0.001 par value common stock. The warrants have a 5-year term and a per exercise purchase price of $1.00. In a second closing held on March 10, 2006, we received $215,000 in exchange for 215,000 shares of $0.001 par value common stock and warrants to purchase up to 21,500 shares of $0.001 par value common stock. The warrants have a 5-year term and a per share exercise price of $1.00.

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

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     Our future capital requirements depend on many factors including:

• the ability to attract collaborative agreement partners;

• the ability to generate revenue under licensing agreements; and

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

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

Subsequent Event

     Effective as of April 18, 2007, we entered into a License Agreement (the “License Agreement”) with DermaVentures, LLC (“DermaVentures”), an Illinois limited liability company in which we own a 25% membership interest pursuant to the DermaVentures Operating Agreement, which was approved by our Board of Directors on April 13, 2007. Pursuant to the License Agreement, we granted to DermaVentures a non-exclusive license under certain of our patents and related technology to formulate certain of our proprietary peptides into cosmetic and over-the-counter personal care products and to market and sell those products in North and Central America. The initial term of the License Agreement is five years. In consideration for the license, DermaVentures agreed to pay us royalties on its sales of products containing our proprietary peptides as set forth in the License Agreement.

     In addition, effective as of April 18, 2007, we entered into a Management Services Agreement (the “Services Agreement”) with DermaVentures and RMS Group, LLC, a member and the sole manager of DermaVentures (“RMS”). Pursuant to the Services Agreement, we agreed to provide certain management services to DermaVentures in exchange for a management fee of $400,000 payable as a cash flow distribution to us in connection with our ownership interest in DermaVentures after $1,200,000 in cash flow is distributed to RMS. We may terminate the Services Agreement upon 30 days prior written notice to the other parties, at which time our membership interest in DermaVentures shall be reduced to 10%; provided, however, that during the first year after the effective date, we may only terminate the Services Agreement for cause. Either DermaVentures or RMS may terminate the Services Agreement at any time with or without cause upon 30 days prior written notice to us, at which time our membership interest in DermaVentures shall be reduced to 10% unless we agree to bear the costs for any necessary replacement management services thereafter.

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Certain Factors That May Affect Our Business and Future Results

     Please see our Annual Report on Form 10-KSB for the year ended December 31, 2006 for a description of some of the risks and uncertainties that we face. There have been no material changes in our risk factors from those described in that Annual Report. If any of those risks were to occur, our business, operating results and financial condition could be seriously harmed.

ITEM 3. Controls and Procedures.

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

     There has been no change during the quarter in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 6. Exhibits.

Exhibit Number
(Referenced to
Item 601 of
Regulation S-B)	Exhibit Description
10.25*	License Agreement between the Company and DermaVentures, LLC, dated effective as of April 18, 2007
10.26	Management Services Agreement between the Company, DermaVentures, LLC and RMS Group, LLC, dated effective as of April 18, 2007
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 certain portions of this exhibit pursuant to Rule 24b-2 under the Securities Exchange Act of 1934, as amended. A complete version of this exhibit has been submitted separately with the Securities and Exchange Commission.

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SIGNATURES

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

May 10, 2007

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

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EX-10.25

Exhibit 10.25

LICENSE AGREEMENT

     This License Agreement (the “Agreement”) is entered into as of April 18, 2007 between DermaVentures, LLC an Illinois limited liability company with its principle place of business at 440 S. LaSalle St., Suite 3400, Chicago, IL 60605 (“Licensee”) and Helix BioMedix, Inc., a Delaware corporation with its principle place of business at 22118 20th Avenue SE, Suite 204, Bothell, WA 98021 (“Licensor”).

RECITALS

     WHEREAS, Licensee was formed on December 21, 2006 for the purpose, without limitation, of marketing and selling skin care products;

     WHEREAS, RMS Group, LLC, an Illinois limited liability company (“RMS”) and Licensor are the sole members of DermaVentures, LLC and are bound by the terms and conditions of that certain Operating Agreement of DermaVentures, LLC dated as of January 31, 2007 (the “DermaVentures LLC Agreement”);

     WHEREAS, Licensee, Licensor, and RMS are parties to a Management Services Agreement of even date herewith (the “Management Agreement”) that specifies certain management services that Licensor will provide and imposes certain terms and conditions on the parties thereto in connection with the operation and management of Licensee under the DermaVentures LLC Agreement; and

     WHEREAS, the parties wish to enter into this Agreement to provide for the license by Licensor to Licensee of certain technology.

AGREEMENT

     1. Certain Definitions.

          1.1 An “Affiliate” of a party means an entity directly or indirectly controlling, controlled by or under common control with that party, where control means the ownership or control, directly or indirectly, of more than 50% of all of the voting power of the shares (or other securities or rights) entitled to vote for the election of directors or other governing authority, as of the date of this Agreement or hereafter during the term of this Agreement; provided that such entity shall be considered an Affiliate only for the time during which such control exists.

          1.2 “Disclosing Party” means a party hereto that discloses its Proprietary Information to the other party.

          1.3 ***.

* * * Confidential treatment requested

          1.4 “Peptide(s)” means Licensor’s proprietary bioactive peptide(s) described in Exhibit A.

          1.5 “Product” means the final, marketable cosmetic or over-the-counter personal care formulations incorporating Peptide(s) that are set forth in Exhibit B. Additional Products may be added to Exhibit B by agreement of the parties.

          1.6 “Proprietary Information” of a Disclosing Party means the following, to the extent previously, currently or subsequently disclosed to the other party hereunder or otherwise: information relating to the properties, composition, or structure of technology or the manufacture or processing thereof or machines therefor or to the Disclosing Party’s business (including, without limitation, names and expertise of employees and consultants, know-how, formulas, processes, ideas, inventions (whether patentable or not), schematics, and other technical, business, financial, customer and product development plans, forecasts, strategies and information). In particular, but without limitation, the Peptides and their properties, composition, or structure, and the Technology, are Proprietary Information of Licensor.

          1.7 “Proprietary Rights” means patent rights, copyrights, trade secret rights and all other intellectual and industrial property rights of any sort.

          1.8 “Receiving Party” means a party hereto that receives Proprietary Information of the other party.

          1.9 “Technology” means inventions (whether or not patentable), ideas, processes, formulas and know-how owned by Licensor as of the date of this Agreement and relating to the Peptides.

          1.10 “Territory” means geographic territories as listed in Exhibit C, without limitation to marketing channel or class of trade.

     2. License Grant. Subject to all the terms and limitations of this Agreement, Licensor hereby grants Licensee a license under its Proprietary Rights in the Technology. The license is limited to and may be exercised solely for the purposes of: (i) performing evaluation and testing of the Peptide to determine suitability as a functional ingredient in Products, including without limitation toxicity and effectiveness tests and trials; (ii) making Products; and (iii) marketing (including selling and offering to sell) Products to distribution customers and end consumers, in each case solely in the Territory. Licensee will not market pure Peptide or sublicense rights hereunder with respect to Peptide, but may sell Products at wholesale to other marketers within the Territory and may combine two or more Peptides into a Product for marketing under this license.

     3. License Scope. Licensee’s license is non-exclusive. Licensee may grant rights by way of sublicense through wholesale sales of Product to distribution customers to permit those customers to market Product (but not to market or otherwise distribute the Peptides other than as incorporated into Product); provided that each such Product customer is bound to all the limitations and restrictions on Licensee hereunder. Licensee shall give notice to Licensor promptly upon any such wholesale sale to a third party hereunder. No such grant of rights to a wholesale customer of Licensee may be further sublicensed; Product sold by Licensee on a wholesale basis may only be sold directly or through Affiliates of that wholesale customer to end consumers within the Territory. Notwithstanding the restrictions on sublicensing set forth in this Section 3, Licensee may extend the licenses granted above to

2

its Affiliates (for so long as they remain Affiliates), provided that all such Affiliates become bound in writing (for Licensor’s benefit) to Licensee’s obligations under this Agreement, that Licensee assumes full responsibility for compliance by such Affiliates with such obligations, and that all payments and reports from Affiliates will be made through Licensee together with Licensee’s payments and reports.

     4. Transfer of Technology. To carry out the physical transfer of Peptides to Licensee, Licensee will have the right to purchase, at Licensee’s expense, the Peptides from a manufacturer approved in advance by Licensor, such approval not to be unreasonably withheld. Licensee may also purchase the Peptides from Licensor, at Licensee’s expense, subject to availability and on terms as may be agreed between Licensee and Licensor.

     5. Improvements. Any modifications or improvements to or on the Peptides or Technology (whether or not patentable or copyrightable) that either party develops shall be owned solely by Licensor. Licensor shall have the right, at its own expense and solely in its own name, to apply for, prosecute and defend its Proprietary Rights with respect thereto. Licensor’s existing relevant patents and patent applications in the Territory are listed on Exhibit A. Licensee will promptly disclose to Licensor and hereby assigns to Licensor any modifications or improvements to or on the Peptides or Technology that may be made by or for Licensee (the “Licensee Improvements”) (provided that this provision will not be deemed to grant to Licensee any right or license not expressly granted herein, including, without limitation, any right to disclose Proprietary Information of Licensor). Licensor hereby grants back to Licensee a worldwide, royalty-free, non-exclusive, sublicensable license to fully exploit the Licensee Improvements. Licensee shall not license or otherwise grant rights in any modifications or improvements derived from or based on any Licensor Proprietary Information to third parties.

     6. Marketing Efforts. Licensee will use best commercial efforts to successfully market the Products under its license on a continuous basis. As part of such efforts, but without limitation, Licensee will spend the money, dedicate the people and resources and perform the promotional and other obligations specified in Exhibit D.

     7. Marks and Marking. Except to the extent otherwise decided by Licensor, all promotional materials and packaging of Licensee relating to the subject matter of this Agreement will include (in easily readable, non-obscured type that is of reasonable size in light of the other names and notices) any reasonable patent, patent application or other proprietary markings and notices of Licensor or its licensors. Licensor will have the right of prior approval with respect to any promotional materials, packaging or statements regarding the Peptides and Products, and the use of any mark, name, or designation of Licensor. Except as expressly provided herein, (i) Licensee will not use or register any mark, name, or designation of Licensor or its licensors anywhere in the world and (ii) Licensee has no right or license with respect to any mark, name, or designation of or used by Licensor. Use of any Licensor mark and any related goodwill will inure to Licensor’s benefit.

     8. Royalties; Audit.

          8.1 Licensee will pay Licensor a royalty of ***%.

          8.2 Royalties will be paid within 30 days of the end of each month with respect to royalty-bearing sales occurring in that month, and will be accompanied by a statement indicating the associated *** and royalties payable (including currency conversions), itemized by Product. At Licensor’s request, Licensee will also provide to Licensor records of Licensee (and its Affiliates, as applicable) that fairly reflect the *** attributable to a particular month. Royalties shall be paid by Licensee in U.S. dollars from a location in the U.S., with currency conversions calculated based upon the applicable closing exchange rates quoted by the Citigroup foreign exchange desk on the last business day

* * * Confidential treatment requested

3

of the applicable month. Any amount payable hereunder that is not paid on the date that it becomes due will bear interest, calculated based on the number of days such payment is late and compounded monthly, at a rate of the lesser of (i) 1% per month or (ii) the maximum rate permitted by applicable law.

          8.3 Licensee and its Affiliates shall keep and maintain detailed and accurate books and records with regard to *** and the calculation thereof, except to the extent that Licensor is responsible for keeping and maintaining such records pursuant to the Management Agreement. Licensor or its representatives (or, at Licensor’s option, a reputable independent certified public accounting firm selected by Licensor) shall be entitled to review and audit such books and records from time to time, but no more than once per year, during normal business hours upon reasonable notice to Licensee and at Licensor’s expense; provided that Licensee will bear any such expense if the review or audit shows an underpayment of more than 5% for any calendar month or in the aggregate.

          8.4 At Licensor’s request, the parties agree to discuss, via teleconference or other agreed-upon means, progress under this Agreement (such request not to be made for more than discussion per month during the term hereof), in connection with which Licensee shall: (i) describe any evaluation, testing, and commercialization activities with respect to the Products and any other work relating to the Peptides and Products that it has performed, or caused to be performed, since the last such report; (ii) evaluate the work performed in relation to the goals of this Agreement and Licensee’s work plans; and (iii) provide such other information as may be required by this Agreement or reasonably requested by Licensor.

     9. No Restriction on Competition. Nothing in this Agreement shall be deemed to prohibit Licensee from developing, making, using, marketing or otherwise distributing or promoting products competitive with Products produced hereunder, provided that Licensee does not breach any provision of this Agreement (including, without limitation, Section 10 (Confidentiality)) or disparage the Peptides or any Products produced hereunder.

     10. Confidentiality. Each party recognizes the importance to the other of the other’s Proprietary Information. In particular Licensee recognizes that the Peptides and Technology and other of Licensor’s Proprietary Information (and the confidential nature thereof) are critical to the business of Licensor and that Licensor would not enter into this Agreement without assurance that such technology and information and the value thereof will be protected as provided in this Section 10 and elsewhere in this Agreement. Likewise, Licensor recognizes that the product formulation and marketing methods of Licensee are valuable trades secrets of Licensee and are critical to the business of Licensee and that Licensee would not enter into this Agreement or the Management Agreement without assurance that such technology and information and the value thereof will be protected as provided in this Section 10 and elsewhere in this Agreement.

     Accordingly, each party agrees as follows:

          10.1 The Receiving Party agrees: (i) to hold the Disclosing Party’s Proprietary Information in confidence and to take reasonable precautions to protect such Proprietary Information (including, without limitation, all precautions the Receiving Party employs with respect to its confidential materials); (ii) not to divulge (except pursuant to a sublicense expressly authorized in this Agreement) any such Proprietary Information or any information derived therefrom to any third person; (iii) not to make any use whatsoever at any time of such Proprietary Information except as expressly authorized in this Agreement or the Management Agreement; and (iv) not to remove or export from the United States or reexport any such Proprietary Information or any direct product thereof (e.g., Peptides, or Products by whomever made) except in compliance with and with all licenses and approvals required under applicable U.S. and foreign export laws and regulations, including without limitation, those of the U.S. Department

* * * Confidential treatment requested

4

of Commerce. Any employee given access to any such Proprietary Information must have a legitimate “need to know” and shall be similarly bound in writing.

          10.2 Without granting any right or license, the Disclosing Party agrees that clauses (i), (ii) and (iii) of Section 10.1 shall not apply with respect to information the Receiving Party can document: (i) is in or (through no improper action or inaction by the Receiving Party or any Affiliate, agent or employee) enters the public domain (and is readily available without substantial effort); or (ii) was rightfully in its possession or known by it prior to receipt from the Disclosing Party; or (iii) was rightfully disclosed to it by another person without restriction; or (iv) was independently developed by it by persons without access to such information and without use of any Proprietary Information of the Disclosing Party. The Receiving Party must promptly notify the Disclosing Party of any information it believes comes within any circumstance listed in the immediately preceding sentence and will bear the burden of proving the existence of any such circumstance by clear and convincing evidence. In addition, the Receiving Party may make disclosures required by law, provided that the Receiving Party gives the Disclosing Party prompt written notice of such requirement prior to such disclosure, uses reasonable efforts to limit disclosure and to obtain confidential treatment or a protective order, and has allowed the Disclosing Party to participate in the proceeding. Each party’s obligations under Section 10.1 will apply only to disclosures made during the term of this Agreement; however, such obligations will continue indefinitely with respect to disclosures made during that period. The obligations under Section 10.1 will not apply to actions of Licensor in performance of its obligations under the Management Agreement.

          10.3 Immediately upon termination of this Agreement, the Receiving Party will turn over to the Disclosing Party all Proprietary Information of the Disclosing Party and all documents or media containing any such Proprietary Information and any and all copies or extracts thereof, except as may otherwise be provided in the Management Agreement or modifications or amendments thereto.

          10.4 The Receiving Party acknowledges and agrees that due to the unique nature of the Disclosing Party’s Proprietary Information, there can be no adequate remedy at law for any breach of its obligations hereunder, that any such breach may allow the Receiving Party or third parties to unfairly compete with the Disclosing Party resulting in irreparable harm to the Disclosing Party, and therefore, that upon any such breach or any threat thereof, the Disclosing Party shall be entitled to appropriate equitable relief (without the posting of any bond) in addition to whatever remedies it might have at law and to be indemnified by the Receiving Party from any loss or harm, including, without limitation, lost profits and attorney’s fees, in connection with any breach or enforcement of the Receiving Party’s obligations hereunder or the unauthorized use or release of any such Proprietary Information. The Receiving Party will notify the Disclosing Party in writing immediately upon the occurrence of any such unauthorized release or other breach. Any breach of this Section 10 will constitute a material breach of this Agreement.

     11. Patent Matters.

          11.1 Licensor retains the sole right and discretion to file and prosecute patent applications and maintain patents in the Territory relating to the Peptides and Technology and any improvements made by Licensor.

          11.2 If Licensee becomes aware of any product or activity of any third party that may involve infringement or violation of any Licensor patent or other Proprietary Right in the Territory, then Licensee shall promptly notify Licensor in writing of such actual or potential infringement or violation. Licensor may in its discretion take or not take whatever action it believes is appropriate in response to any actual or potential infringement or violation of a Licensor patent or other Proprietary Right; if Licensor

5

elects to take action, Licensee will fully cooperate therewith at Licensor’s expense, including joining as a party if necessary.

          11.3 If Licensor initiates and prosecutes any action under Section 11.2, all legal expense (including court costs and attorneys’ fees) shall be borne by Licensor and Licensor shall be entitled to all amounts awarded by way of judgment, settlement or compromise.

          11.4 Licensee understands that Licensor has not conducted comprehensive patent searches in the Territory. Licensor and Licensee agree to work cooperatively regarding issues concerning patents and Proprietary Rights and similar matters and to exercise reasonable business judgment in carrying out the objectives of this Agreement to avoid exposing either party to liability under patent or similar laws in the Territory. Each party represents and warrants that it is not aware of infringement or potential infringement issues that have not been communicated to the other in writing before execution of this Agreement.

     12. Term and Termination.

          12.1 This Agreement will remain in effect for 5 years from the date first set forth above unless terminated pursuant to Section 12.2. This Agreement will automatically renew for successive one-year terms unless either party provides notice of termination to the other party at least 60 days before the end of the then-current term.

          12.2 If a party materially breaches a material provision of this Agreement, the other party hereto may terminate this Agreement upon 30 days’ notice (or 10 days’ notice in the case of nonpayment) unless the breach is cured within the notice period. If Licensor materially breaches a material provision of the DermaVentures LLC Agreement or the Management Agreement, Licensee may terminate this Agreement, subject to the notice and cure provision set forth above in this Section 12.2. If either Licensee or RMS materially breaches a material provision of the DermaVentures LLC Agreement or the Management Agreement, Licensor may terminate this Agreement upon 30 days’ notice to Licensee and the breaching entity (or 10 days’ notice in the case of nonpayment) unless the breach is cured within the notice period.

          12.3 In the event of any termination of this Agreement, all the rights and licenses granted Licensee under this Agreement and Licensee’s obligation under Section 6 shall terminate and Licensor’s obligations to negotiate or provide goods, services, facilities, technology or information shall cease but all other provisions of this Agreement will continue in accordance with their terms. A sublicense will survive termination and continue according to its terms provided that: (i) it was properly granted; (ii) Licensor will have no obligation thereunder except to permit Licensee to continue to obtain the Peptides from an approved manufacturer to the extent necessary to manufacture the Product that it is obligated to deliver pursuant to the surviving sublicense; (iii) all the restrictions and limitations of this Agreement shall apply to the sublicensee as though this Agreement continued in effect; (iv) Licensor shall receive all consideration due in connection with the sublicense; and (v) in addition to any termination rights under the sublicense agreement, Licensor shall be entitled to terminate such sublicense on the same basis as is provided herein for termination of this Agreement. Except in the case of a termination by Licensor pursuant to Section 12.2, Licensee will have one year to sell Products in its inventory as of the date of termination, provided that the terms of the preceding sentence shall apply to such sublicenses by Licensee.

          12.4 Neither party shall incur any liability whatsoever for any damage, loss or expenses of any kind suffered or incurred by the other arising from or incident to any termination of this

6

Agreement (or any part thereof) by such party which complies with the terms of the Agreement whether or not such party is aware of any such damage, loss or expenses.

          12.5 Termination is not the sole remedy under this Agreement and, whether or not termination is effected, all other remedies will remain available.

     13. INCIDENTAL AND CONSEQUENTIAL DAMAGES. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, NEITHER PARTY WILL BE LIABLE UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT. THE LIMITATIONS IN THIS SECTION 13 SHALL NOT APPLY TO BREACHES OF SECTION 10 (CONFIDENTIALITY) OR TO ACTIONS OF LICENSEE BEYOND THE SCOPE OF THE LICENSE GRANT HEREUNDER. THIS SECTION DOES NOT LIMIT LIABILITY FOR BODILY INJURY OF A PERSON.

     14. LIMITATION OF OBLIGATIONS AND LIABILITY. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE, NEITHER LICENSOR NOR LICENSEE WILL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER OF THIS AGREEMENT UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY FOR COST OF PROCUREMENT OF SUBSTITUTE GOODS, SERVICES, TECHNOLOGY OR RIGHTS OR FOR ANY AMOUNTS AGGREGATING IN EXCESS OF AMOUNTS PAID TO LICENSOR HEREUNDER IN THE 12-MONTH PERIOD BEFORE THE CAUSE OF ACTION AROSE. THIS SECTION DOES NOT LIMIT LIABILITY (A) FOR BODILY INJURY OF A PERSON OR FOR ACTS OF GROSS NEGLIGENCE OR BAD FAITH BY EITHER PARTY OR (B) IN THE EVENT AND TO THE EXTENT OF ANY BREACH BY LICENSEE OF SECTION 2 OR SECTION 3 HEREOF.

     15. Insurance.

          15.1 During the term of this Agreement, each party shall maintain commercial general liability insurance in amounts not less than $ *** per occurrence and $ *** 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. The general liability insurance shall include worldwide coverage. The liability policies required under this Section 15 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 15 shall not be construed to create a limit of a party’s liability hereunder.

          15.2 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 15 days prior to any 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 15-day period, the other party shall have the right to terminate this Agreement effective at the end of such 15-day period without any additional waiting periods.

          15.3 Each party shall maintain such commercial general liability insurance beyond the expiration or termination of this Agreement during the period that any Products are commercially marketed, distributed or sold under this Agreement.

* * * Confidential treatment requested

7

     16. Export Control. Licensee shall comply with and shall, at Licensor’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. or elsewhere by Licensee or its agents of any Products (or any set or system or containing Products) or any Technology or other technology or information it obtains or learns pursuant to this Agreement (or any direct product thereof).

     17. Independent Contractors. The parties are independent contractors for purposes of this Agreement and neither has any right or authority to bind the other in any way, except as provided in the Management Agreement.

     18. Assignment. The rights and obligations of the parties under this Agreement may not be assigned or transferred without the consent of the other party (and any attempt to do so will be void), except that: (i) rights to payment of money may be assigned; and (ii) this Agreement and the rights and obligations hereunder may be assigned by Licensor to an acquiror of all or substantially all of its assets, business or capital stock. For purposes of this Section 18, any change in the ownership of, or power to vote, a majority of the outstanding equity interests in Licensee, any sale, lease, distribution or other disposition of all or substantially all of Licensee’s assets, or any dissolution or termination of Licensee, shall in each case constitute an assignment of the rights and obligations of Licensee hereunder.

     19. WARRANTY DISCLAIMER. EXCEPT AS EXPRESSLY PROVIDED IN SECTION 11, LICENSOR MAKES NO WARRANTY WITH RESPECT TO ANY TECHNOLOGY, GOODS, SERVICES, RIGHTS OR OTHER SUBJECT MATTER OF THIS AGREEMENT AND HEREBY DISCLAIMS WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NONINFRINGEMENT WITH RESPECT TO ANY AND ALL OF THE FOREGOING.

     20. Miscellaneous.

          20.1 Amendment and Waiver. Except as otherwise expressly provided herein, any provision of this Agreement may be amended and the observance of any provision of this Agreement may be waived (either generally or any particular instance and either retroactively or prospectively) only with the written consent of the parties.

          20.2 Governing Law; Legal Actions; Attorneys’ Fees. This Agreement shall be governed by and construed under the laws of the State of Washington and the United States without regard to conflicts of laws provisions thereof and without regard to the United Nations Convention on Contracts for the International Sale of Goods. Jurisdiction and venue for actions related to the subject matter hereof shall lie in the state and federal courts located in King County, Washington and Cook County, Illinois only. Both parties consent to the jurisdiction of such courts and agree that process may be served in the manner provided herein for giving of notices or otherwise as allowed by Washington or Illinois or U.S. federal law. In any action or proceeding to enforce rights under this Agreement, the prevailing party shall be entitled to recover its reasonable costs and attorneys’ fees.

          20.3 Headings. Headings and captions are for convenience only and are not to be used in the interpretation of this Agreement.

          20.4 Notices. All notices, requests, and other communications hereunder shall be in writing. Any notice, request, or other communication hereunder shall be deemed duly given: (a) when delivered personally to the recipient; (b) 1 business day after being sent to the recipient by reputable overnight courier service (charges prepaid); (c) 1 business day after being sent to the recipient by fax or

8

email; or (d) 4 business days after being mailed to the recipient by certified or registered mail, return receipt requested and postage prepaid, and addressed to the intended recipient as set forth below:

If to Licensee:		If to Licensor:
Address:	440 S. LaSalle St., Suite 3400 Chicago, IL 60605	Address:	22118 20th Ave. SE Suite 204 Bothell, WA 98021
Fax:	***	Fax:	(425) 806-2999
Email:	***	Email:	***
Attn:	***	Attn:	***

Either party may change the address or other contact information to which notices, requests, and other communications hereunder are to be delivered by giving the other party notice in the manner set forth herein.

          20.5 Entire Agreement. This Agreement, the DermaVentures LLC Agreement, the Management Agreement, and any agreements, exhibits or schedules referenced or attached hereto and thereto constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof. In the event of any conflict between this Agreement and the DermaVentures LLC Agreement, this Agreement shall prevail.

          20.6 Force Majeure. Neither party hereto shall be responsible for any failure to perform its obligations under this Agreement (other than obligations to pay money or obligations under Section 10 (Confidentiality)) if such failure is caused by acts of God, war, strikes, revolutions, lack or failure of transportation facilities, laws or governmental regulations or other causes that are beyond the reasonable control of such party. Obligations hereunder, however, shall in no event be excused but shall be suspended only until the cessation of any cause of such failure. In the event that such force majeure should obstruct performance of this Agreement for more than six (6) months, the parties hereto shall consult with each other to determine whether this Agreement should be modified. The party facing an event of force majeure shall use diligent commercial efforts in order to remedy that situation as well as to minimize its effects. A case of force majeure shall be notified to the other party within 5 days after its occurrence.

          20.7 Severability. If any provision of this Agreement is held illegal, invalid or unenforceable by a court of competent jurisdiction, that provision will be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable.

          20.8 No Implied License. Each party recognizes that Licensor grants no license, by implication or otherwise, except for the licenses expressly set forth in this Agreement.

          20.9 Basis of Bargain. Each party recognizes and agrees that the warranty disclaimers and liability and remedy limitations in this Agreement are material bargained for bases of this Agreement

* * * Confidential treatment requested

9

and that they have been taken into account and reflected in determining the consideration to be given by each party under this Agreement and in the decision by each party to enter into this Agreement.

[Signature page follows]

10

     The parties have entered into this Agreement as of the date first written above.

LICENSEE:	LICENSOR:
DERMAVENTURES, LLC	HELIX BIOMEDIX, INC.
By: RMS Group, LLC, its sole Manager
By: BKB Partners, LLC, its sole Manager
By: /s/ Ralph Katz	By: /s/ R. Stephen Beatty
Name: Ralph Katz	Name: R. Stephen Beatty
Title: Manager	Title: President and Chief Executive Officer

EXHIBIT A

PEPTIDES, PATENTS AND PATENT APPLICATIONS

Peptides

Name	P-No.	Primary Sequence
***	***	***

Patents and Patent Applications

***

* * * Confidential treatment requested

EXHIBIT B

PRODUCTS AND SETS / SYSTEMS CONTAINING PEPTIDES

A. P.A.C. Perfect (Peptide-powered Acne Control) Treatment Essence — [***]

     P.A.C. Perfect Treatment Essence may be marketed as part of a set containing the following additional products not containing any Peptide: [***] (the “P.A.C. Perfect Set”). ***.

* * * Confidential treatment requested

EXHIBIT C

TERRITORY

North America
Central America

EXHIBIT D

MARKETING AND ADVERTISING PERFORMANCE COMMITMENTS

Licensee commits to investing at least $ *** in marketing and advertising by September 30, 2008 and each year thereafter with any investment beyond $ *** in a given year being credited to the next year. This effort includes, but is not limited to advertising production costs, advertising expenditures, website marketing, call center sales support, and fulfillment center customer service support. In the event, that Licencee determines it must re-make the advertising production, it can request an additional 90 days. In the event that Licensee changes its marketing strategy, parties can, by mutual agreement, changes the Licensee’s performance commitment to a minimum sales commitment.

* * * Confidential treatment requested

EX-10.26

Exhibit 10.26

MANAGEMENT SERVICES AGREEMENT

     This Management Services Agreement (this “Agreement”) is made and effective as of the 18th day of April, 2007 (“Effective Date”) by and among Helix BioMedix, Inc., a Delaware corporation (“Helix”); RMS Group, LLC, an Illinois limited liability company (“RMS”); and DermaVentures, LLC, an Illinois limited liability company (“DermaVentures”).

RECITALS

     WHEREAS, DermaVentures was formed on December 21, 2006 for the purpose, without limitation, of marketing and selling skin care products (the “Business”);

     WHEREAS, RMS and Helix are the sole members of DermaVentures and are bound by the terms and conditions of that certain Operating Agreement of DermaVentures, LLC dated as of January 31, 2007(the “DermaVentures LLC Agreement”);

WHEREAS, RMS is the sole manager of DermaVentures;

     WHEREAS, Helix has licensed a proprietary bioactive peptide to DermaVentures pursuant to the terms of that certain License Agreement by and between Helix and DermaVentures of even date herewith (the “License Agreement”); and

     WHEREAS, the parties wish to enter into this Agreement to specify certain management services that Helix will provide and to impose certain terms and conditions on the parties in connection with the operation and management of DermaVentures under the DermaVentures LLC Agreement;

     WHEREAS, the parties agree and acknowledge that Helix’s provision of services under this Agreement may not be compensated unless and until DermaVentures achieves a significant measure of profitability and may effectively constitute a significant investment by Helix in furtherance of DermaVentures’ commercial success;

     NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is acknowledged by all parties hereto, the parties agree as follows:

1. Management Services. The parties acknowledge that RMS is designated as the sole manager of DermaVentures under the DermaVentures LLC Agreement. RMS hereby delegates certain management duties to an “Executive Manager” (as defined below) and to Helix, as described in Sections 1.1 and 1.2 hereof, respectively. The services to be performed by Helix under Section 1.2 shall be referred to collectively as the “Management Services.”

     1.1 Executive Manager. RMS shall designate a single individual to act as the DermaVentures’ Executive Manager. The Executive Manager shall be responsible for, among other things, reviewing and approving the scope of Management Services (as defined below) to be provided by Helix hereunder. Prior to taking any material action in connection with the performance of Management Services hereunder, Helix shall obtain the approval of the Executive Manager, such approval not to be unreasonably withheld.

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     1.2 Management Services. Helix is hereby authorized and shall use commercially reasonable efforts to provide the Management Services listed on the Service Chart attached hereto as Exhibit A in connection with the operation of DermaVentures, as such Service Chart may be amended from time to time by the parties in writing, and for which Management Services Helix may, in its sole discretion, utilize one or more third-party service providers.

2. Expenses.

     2.1 Helix. Helix shall be solely responsible for (i) all expenses incurred by Helix in connection with its provision of the Management Services hereunder and (ii) any expenses incurred by DermaVentures which are solely attributable to its relationship with Helix hereunder in an aggregate amount in any given fiscal year in excess of $25,000, including, with respect to clause (ii) above, any incremental expenses for legal or audit/accounting services in excess of $7,500 each in any given fiscal year. To the extent Helix incurs any other expenses on behalf of DermaVentures, Helix shall submit a claim for reimbursement thereof to DermaVentures and DermaVentures shall promptly reimburse such amount, provided such expenses have been approved in advance by the Executive Manager.

     2.2 DermaVentures. Except as set forth in Section 2.1 above, DermaVentures shall be solely responsible for any and all expenses incurred in connection with the Business, including, without limitation, (i) any expenses incurred by DermaVentures which are solely attributable to its relationship with Helix hereunder in an aggregate amount in any given fiscal year up to $25,000, (ii) up to $80,000 each fiscal year in reasonable costs and expenses associated with one or more consultants engaged by or on behalf of DermaVentures provided that such engagement is approved in advance by the Executive Manager and (iii) up to $15,000 to purchase a new management process software program (the “Software”) selected by Helix in order to perform certain Management Services hereunder, if approved in advance by the Executive Manager. The Software, if so acquired, shall be the sole property of DermaVentures and shall be used exclusively for the benefit of DermaVentures.

3. Management Fee and Other DermaVentures Allocations.

     3.1 Management Fee. Upon the Effective Date, Helix shall be entitled to receive from DermaVentures a management fee in the aggregate amount of $400,000 (the “Management Fee”), payable by DermaVentures in cash; provided, however, that such Management Fee shall be paid on or after the date (the “Return Date”) on which RMS has received cumulative Cash Flow distributions from DermaVentures in the aggregate amount of $1,200,000. For purposes of this Section 3, the terms “Cash Flow” and “Profits” are defined in the DermaVentures LLC Agreement. The parties specifically acknowledge and agree that the right of Helix to receive the Management Fee is as compensation for its Management Services provided hereunder up through the Return Date but that the Management Fee is not subject to any service related or other condition. The parties further acknowledge and agree that the Management Fee shall not become an obligation or otherwise become a debt of DermaVentures unless and until the condition set forth in the first sentence of this Section 3.1 is met and shall only be paid pursuant to Section 3.2 below, and shall be compensation in full for all services delivered to DermaVentures by Helix through the Return Date and shall constitute any payment due to Helix in satisfaction of Helix’s membership interest in DermaVentures out of Cash Flow through that

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Return Date. It is further agreed and acknowledged that any further compensation due to Helix for Management Services shall be satisfied by its share of Cash Flow or Profits, as a member of DermaVentures, payable by DermaVentures as distributions to DermaVentures’ members after the Return Date.

     3.2 Other DermaVentures LLC Allocations. Notwithstanding anything contained in the DermaVentures LLC Agreement to the contrary, (a) following the Return Date DermaVentures shall make all Cash Flow distributions and allocate all Profits entirely to Helix until such distributions and allocations equal $400,000 in the aggregate; and (b) in each fiscal year DermaVentures shall make Cash Flow distributions to each of its members in an amount equal to at least 35% of the Profits allocated to each such member during such year, provided such distributions do not materially impair the ability of DermaVentures to continue operation of its business.

4. Limitations and Restrictions.

     4.1 Significant Actions. In recognition that Helix’s provision of services under this Agreement may effectively constitute a significant investment in DermaVentures’ commercial success and notwithstanding anything contained in the DermaVentures LLC Agreement to the contrary, during the term of this Agreement DermaVentures shall seek the express written approval by Helix before causing (i) any material change in the Business, (ii) any amendment of the Articles of Organization of DermaVentures and (iii) the appointment or replacement of the Manager of DermaVentures. Helix expressly agrees that such written approval shall not be unreasonably withheld and that its determination as to whether to grant such approval shall be communicated to the Executive Manager within thirty days of the request for such approval. The failure by DermaVentures to obtain Helix’s approval shall not foreclose its ability to proceed with its proposed action, but in the event that Helix reasonably fails to provide such approval and DermaVentures determines to proceed with its proposed action notwithstanding its failure to secure Helix’s approval, Helix shall have the right to terminate this Agreement pursuant to the terms contained in Section 10.1 below.

     4.2 10% Floor. Notwithstanding anything contained in the DermaVentures LLC Agreement to the contrary, as long as Helix is a member of DermaVentures and continues to perform its Management Services under this Agreement, Helix’s Percentage (as defined in the DermaVentures LLC Agreement) shall not be reduced below 10% as a result of any issuance of new or additional units by DermaVentures; provided, however, that this Section 4.2 shall no longer apply (i) once DermaVentures has raised a minimum of $2,000,000 in additional equity financing after the Effective Date or (ii) upon the consummation of a transaction pursuant to a Change of Control Offer (as defined below).

5. Change of Control. Notwithstanding anything contained in the DermaVentures LLC Agreement to the contrary, as long as Helix is providing Management Services to DermaVentures under this Agreement or any extension or modification thereto, in the event of a decision by RMS to permit any party to acquire a majority of the outstanding units of DermaVentures or to acquire substantially all of DermaVentures’ assets, whether structured as a purchase, equity exchange, merger, liquidation or other transaction (a “Change of Control Offer”), the parties agree to follow the steps set forth in Sections 5.1 through 5.3 below:

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     5.1 RMS shall promptly provide written notice to Helix upon the initiation or entertainment by RMS or DermaVentures of negotiations with respect to a Change of Control Offer.

     5.2 Helix shall have a period of 60 days, commencing upon receipt of the notice described in Section 5.1, to make a Change of Control Offer (the “Helix Offer”). The date on which Helix delivers the Helix Offer is referred to as the “Helix Offer Date.”

     5.3 DermaVentures shall have a period of 90 days commencing from the Helix Offer Date to obtain a competing offer. If DermaVentures is able to obtain a competing offer that is not materially equivalent to the Helix Offer and which in DermaVentures’ reasonable discretion is superior to the Helix Offer whether due to price, structure, or some other way, DermaVentures shall have an additional thirty days in which to reject the Helix Offer and accept the Change of Control Offer. If DermaVentures is unable to obtain a competing offer that is not materially equivalent and superior to the Helix Offer within the ninety day period or the Change of Control Offer is rejected or the 60-day period following receipt of the Change of Control offer lapses, and DermaVentures does not reject the Helix Offer in writing, DermaVentures shall be deemed to have accepted the Helix Offer, and Helix and DermaVentures shall thereafter promptly consummate the transaction. If DermaVentures does not obtain a Change of Control Offer that is materially different and superior to the Helix Offer and rejects the Helix Offer, DermaVentures shall be foreclosed from seeking or accepting any Change of Control Offer from any party other than Helix for a period of 180 days.

     5.4 Subject to the provisions of Section 3 hereof, any consideration to be paid to members of DermaVentures upon the consummation of a transaction pursuant to a Change of Control Offer shall be paid to all members of DermaVentures in proportion to their respective Percentages (as defined in the DermaVentures LLC Agreement).

6. Representations and Warranties. Each of DermaVentures and RMS hereby represents and warrants to Helix that:

     6.1 No Consents Required. No consent, approval, or authorization of any third party, including any member of RMS, is required which has not yet been obtained in connection with the execution of this Agreement by each of DermaVentures and RMS and the performance of their respective obligations hereunder, and each of DermaVentures and RMS has all necessary power and authority to enter into and perform their respective obligations under this Agreement.

     6.2 Good Standing. Each of RMS and DermaVentures is a limited liability company duly established, validly existing and in good standing under the laws of the State of Illinois.

7. Default and Remedies.

     7.1 Events of Default. The following shall be deemed to constitute a default under this Agreement:

a. Any material default of the DermaVentures LLC Agreement;

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b.	Any material default of the License Agreement; or
c.	Any failure to perform any required obligation under this Agreement.

     7.2 Cure Period. In the event of a default as described in Section 8.1, the non-defaulting party shall give written notice of the default to the defaulting party, in which case the defaulting party shall have a period of 30 days (the “Cure Period”) in which to cure such default. If the default is not cured within the Cure Period, then the non-defaulting party may pursue any remedies available under this Agreement and applicable law.

8. Term. Helix shall commence providing the Services on the Effective Date and continue to provide the Services until the termination of this Agreement pursuant to Section 10 below.

9. Disclaimer of Warranties; Cooperation.

     9.1 Disclaimer of Warranties. EXCEPT AS EXPRESSLY PROVIDED HEREIN, HELIX PROVIDES THE MANAGEMENT SERVICES HEREUNDER “AS IS” AND MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT THERETO.

     9.2 Good Faith Cooperation; Consents. The parties will use good faith efforts to cooperate with each other in all matters relating to this Agreement. Such cooperation shall include exchanging information and obtaining all third-party consents, licenses, sublicenses or approvals necessary to permit each party to perform its obligations hereunder.

10. Termination; Survival.

     10.1 Termination by DermaVentures/RMS. Either DermaVentures or RMS may terminate this Agreement and/or the obligation of Helix to perform any or all of the Management Services at any time, for any reason or for no reason, upon thirty (30) days prior written notice to Helix. Upon such termination, RMS shall be obligated to provide or secure the provision of equivalent services. Helix shall have the option of bearing the costs of such services, in which case it shall retain its full twenty-five percent (25%) membership interest in DermaVentures. If Helix declines to bear the costs of such services, all costs of such services shall be borne solely by DermaVentures and Helix hereby agrees that its membership interest in DermaVentures shall be reduced to ten percent (10%).

     10.2 Termination by Helix. During the first year after the Effective Date, Helix may only terminate this Agreement and/or its obligation to provide some or all of the Management Services for cause upon thirty (30) days prior written notice to RMS and DermaVentures. Thereafter, Helix may terminate this Agreement and/or its obligation to provide some or all of the Management Services, for any reason or for no reason, upon thirty (30) days prior written notice to RMS and DermaVentures. If Helix terminates this Agreement or its provision of all, or substantially all, of the Management Services, then its Percentage measure of its Membership Interest in DermaVentures shall be reduced to 10%.

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     10.3 Survival. Any and all provisions of this Agreement which, by its or their nature, would reasonably be expected to apply after the termination of this Agreement or the termination of any obligation to perform services hereunder shall survive and be enforceable after such termination, including, but not limited to, Sections 2.2, 3, 4.2, 5, 9, 11 and 12.

     11. Limitation of Liability. NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR ANY LOST PROFITS, LOSS OF DATA, LOSS OF USE, COST OF COVER, BUSINESS INTERRUPTION OR OTHER SPECIAL, INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES, HOWEVER CAUSED, UNDER ANY THEORY OF LIABILITY, ARISING FROM THE PERFORMANCE OF, OR RELATING TO, THIS AGREEMENT.

12. Miscellaneous.

     12.1 Entire Agreement. This Agreement, the DermaVentures LLC Agreement, the License Agreement, and any agreements, exhibits or schedules referenced or attached hereto and thereto constitute the entire agreement between the parties with respect to the subject matter hereof and thereof and shall supersede all prior written and oral and all contemporaneous oral agreements and understandings with respect to the subject matter hereof and thereof. In the event of any conflict between this Agreement and the DermaVentures LLC Agreement, this Agreement shall prevail.

     12.2 Governing Law. This Agreement shall be construed in accordance with the laws of the State of Washington, excluding its conflict of law rules. The parties hereby consent to jurisdiction and venue in the state and Federal courts sitting in the State of Washington. If either party employs attorneys to enforce any rights arising out of or relating to this Agreement, the prevailing party shall be entitled to recover reasonable attorneys’ fees.

     12.3 Notices. Notices, offers, requests, or other communications required or permitted to be given by any party pursuant to the terms of this Agreement shall be given in writing to the respective parties at the following addresses:

if to Helix:	Helix BioMedix, Inc.
	22118 10th Avenue S.E., Suite 204
	Bothell, WA 98021
	Attention: President
	Fax: (425) 806-2999
if to RMS or to DermaVentures:
	c/o RMS Group, LLC
	440 S. LaSalle St., Suite 3400 Chicago, IL 60605
	Attn:     Ralph Katz
	Fax:      (312) 260-5523

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or to such other address as the party to whom notice is given may have previously furnished to the other in writing as provided herein. Any notice involving nonperformance or termination shall be sent by hand delivery, recognized overnight courier or, within the United States, may also be sent via certified mail, return receipt requested. All other notices may also be sent by fax, confirmed by first class mail. All notices shall be deemed to have been given and received on the earlier of actual delivery or three (3) days from the date of postmark.

     12.4 Nonassignability. No party may, directly or indirectly, in whole or in part, whether by operation of law or otherwise, assign or transfer this Agreement, without the other parties’ prior written consent, and any attempted assignment, transfer or delegation without such prior written consent shall be void. For purposes of this Section 12.4, any change in the ownership of, or power to vote, a majority of the outstanding membership interests in DermaVentures, any sale, lease, distribution or other disposition of all or substantially all of DermaVentures’ assets, or any dissolution or termination of DermaVentures, shall in each case constitute an assignment of the rights and obligations of DermaVentures hereunder.

     12.5 Severability. If any term or other provision of this Agreement is determined by a court, administrative agency or arbitrator to be invalid, illegal or incapable of being enforced by any rule of law or public policy, all other conditions and provisions of this Agreement will nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that transactions contemplated hereby are fulfilled to the fullest extent possible.

     12.6 Amendment. No change or amendment will be made to this Agreement, including the Service Chart, except by an instrument in writing signed on behalf of each of the parties hereto.

     12.7 Headings. The headings and subheadings used in this Agreement are for ease of reference only and are not to be given substantive or interpretive effect.

     12.8 No Hire. During the term of this Agreement and for a period of one (1) year thereafter, each of the parties hereby covenants and agrees not to hire any employee or contractor of any of the other parties hereto without such other party’s prior written consent.

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     IN WITNESS WHEREOF, each of the parties has caused this Agreement to be executed by its duly authorized representatives on the date first written above.

Helix BioMedix, Inc.

a Delaware corporation

By:    /s/ R. Stephen Beatty

Its:    President and Chief Executive Officer

RMS Group, LLC,

an Illinois limited liability company

By: BKB Partners, LLC, its sole Manager

By:    /s/ Ralph Katz

Its:    Manager

DermaVentures, LLC,

an Illinois limited liability company

By: RMS Group, LLC, its sole Manager

By: BKB Partners, LLC, its sole Manager

By:    /s/ Ralph Katz

Its:   Manager

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EXHIBIT A

HELIX SERVICE CHART

Service Category	Additional Description of Service	Start/End Date
Bookkeeping	Creation of general ledger /chart of accounts. Accounts payable / management of cash assets / financial reporting	Ongoing
Managing third party formulators	Oversight of contractors	Ongoing
Managing third party manufacturers	Supply chain and finance service provided by Helix to include cost accounting, MRP, purchasing. Oversight of product change notifications or new product development issues.	Ongoing
Managing relationship with communications agencies / suppliers	Oversight of contractors and suppliers. Additional Helix support of AP and cash flow management.	Ongoing
Managing third party call-in centers	Oversight of contractors (marketing associates and suppliers). Helix provides AP and other accounting support.	Ongoing
Managing banking relationships	Helix finance to support establishment of DV merchant accounts, receipt and booking of revenues, keeping books.	Ongoing
Fulfillment services	Identify fulfillment house and integrate various functions (call center sales, Internet sales, customer service, contract manufacturing, merchant account) with fulfillment house.	Ongoing
General Administrative	Identification of support services including, but not limited to legal and audit (to be approved and paid by DV, but engaged by Helix service team). Telephone and computer maintenance, clerical support.	Ongoing

A-1

EX-31.1

Exhibit 31.1

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

I, R. Stephen Beatty, certify that:

1.	I have reviewed this Quarterly Report on Form 10-QSB of Helix BioMedix, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the 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: May 10, 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 Quarterly Report on Form 10-QSB of Helix BioMedix, Inc.;
2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the 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: May 10, 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 Quarterly Report on Form 10-QSB of the Company for the quarterly period ended March 31, 2007 (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 March 31, 2007.

Date: May 10, 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 Quarterly Report on Form 10-QSB of the Company for the quarterly period ended March 31, 2007 (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 March 31, 2007.

Date: May 10, 2007

/s/ David H. Kirske  

David H. Kirske 

Vice President and Chief Financial Officer