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 June 30, 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 August 2, 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 June 30, 2007 and December 31, 2006		1
Condensed Statements of Operations (unaudited) for the three and six months ended June 30, 2007 and 2006 and for the period from inception (November 7, 1988) to June 30, 2007		2
Condensed Statements of Stockholders’ Equity (Deficit) (unaudited) for the period from inception (November 7, 1988) to June 30, 2007		3
Condensed Statements of Cash Flows (unaudited) for the six months ended June 30, 2007 and for the period from inception (November 7, 1988) to June 30, 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		19
PART II — OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders		20
Item 6. Exhibits		20
Signatures		21
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)

	June 30,			December 31,
	2007			2006
ASSETS
Current assets:
Cash and cash equivalents	$	988,623		$	1,276,901
Marketable securities		1,754,971			980,000
Inventory		34,799			—
Accounts receivable, net		77,148			—
Accounts receivable from related party		64,456			—
Prepaid expenses and other current assets		74,068			93,342
Total current assets		2,994,065			2,350,243
Property and equipment
Machinery and equipment		521,936			523,797
Furniture and fixtures		48,486			46,734
Leasehold improvements		43,993			43,993
		614,415			614,524
Less: accumulated depreciation		(466,457	)		(419,796	)
Property and equipment, net		147,958			194,728
Other assets:
Deposits		8,522			4,211
Antimicrobial technology, net		20,659			26,213
Licensing agreement, net		41,619			43,416
Patents pending and approved, net		409,642			441,733
Other assets, net		480,442			515,573
Total assets	$	3,622,465		$	3,060,544
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	118,099		$	65,549
Accrued payroll		27,015			108,603
Accrued expenses		51,023			27,315
Deferred revenue		51,000			61,000
Total current liabilities		247,137			262,467
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 June 30, 2007, 22,788,514 shares outstanding at December 31, 2006		25,654			22,788
Additional paid-in capital		29,126,234			26,908,198
Deficit accumulated during the development stage		(25,776,560	)		(24,132,909	)
Total stockholders’ equity		3,375,328		$	2,798,077
Total liabilities and stockholders’ equity	$	3,622,465		$	3,060,544

     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 June 30, 2007			Three months ended June 30,						Six months ended June 30,
				2007			2006			2007			2006
Revenue:
Licensing	$	373,802		$	16,747		$	30,073		$	46,241		$	35,099
Peptide sales		211,848			59,507			—			88,435			13,000
Peptide sales to related party		64,400			64,400			—			64,400			—
Total revenue		650,050			140,654			30,073			199,076			48,099
Operating expenses:
Cost of peptide sales		257,750			10,421			151,368			10,421			156,371
Research and development		6,926,652			202,458			267,879			407,955			494,085
Depreciation and amortization		1,169,277			43,542			45,413			87,964			90,336
Accounting, legal and professional fees		2,774,360			133,746			70,763			282,223			136,421
Consulting fees		2,883,104			3,553			1,881			3,958			4,929
General and administrative		11,302,560			603,574			698,471			1,098,087			1,208,389
Total operating expenses		25,313,703			997,294			1,235,775			1,890,608			2,090,531
Loss from operations		(24,663,653	)		(856,640	)		(1,205,702	)		(1,691,532	)		(2,042,432	)
Other income (expense):
Gain on settlement of lawsuit		48,574			—			—			—			—
Gain on sale of equipment		5,276			—			—			—			—
Interest expense		(1,459,442	)		—			—			—			—
Interest income		292,685			25,478			21,183			47,881			35,644
		(1,112,907	)		25,478			21,183			47,881			35,644
Net loss	$	(25,776,560	)	$	(831,162	)	$	(1,184,519	)	$	(1,643,651	)	$	(2,006,788	)
Basic and diluted net loss per share				$	(0.03	)	$	(0.05	)	$	(0.07	)	$	(0.09	)
Weighted average shares outstanding					25,653,512			22,788,514			24,617,463			21,890,276

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 June 30, 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 June 30, 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 June 30, 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		—		—		77,544			—			—			—			77,544
Net loss		—		—		—			—			—			(1,643,651	)		(1,643,651	)
Balance at June 30, 2007		25,653,512	$	25,654	$	29,126,234		$	—		$	—		$	(25,776,560	)	$	3,375,328

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			Six months ended June 30,
	June 30, 2007			2007			2006
Cash Flows from Operating Activities
Net loss	$	(25,776,560	)	$	(1,643,651	)	$	(2,006,788	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		1,169,458			87,964			90,336
Amortization of debt discount to interest expense		728,552			—			—
Stock-based compensation costs		4,680,851			77,544			425,179
Interest expense converted to common stock		231,180			—			—
Research and development		53,000			—			—
Loss (gain) on disposal of equipment		(5,276	)		—			3,588
Changes in operating assets and liabilities:
Accounts receivable		(68,448	)		(77,148	)		(11,837	)
Accounts receivable from related party		(64,456	)		(64,456	)		—
Inventory		(34,799	)		(34,799	)		35,316
Prepaid expenses and other current assets		(68,059	)		19,274			34,540
Other assets		(75,912	)		(4,311	)		3,291
Accounts payable – related party		341,602			—			—
Accounts payable		120,433			52,550			15,108
Accrued payroll		(22,588	)		(81,588	)		(28,540	)
Accrued expenses		174,904			23,708			(82,359	)
Deferred revenue		51,000			(10,000	)		—
Net cash used in operating activities		(18,565,118	)		(1,654,913	)		(1,522,166	)
Cash Flows from investing activities
Investment in Helix Delaware		(10	)
Purchases of marketable securities		(2,280,000	)		(1,300,000	)		—
Proceeds from sales of marketable securities		525,029			525,029			—
Proceeds from sale of assets		9,435			—			—
Purchase of property and equipment		(754,948	)		(1,752	)		(38,037	)
Increase in capitalized patents		(654,944	)		—			—
Net cash used in investing activities		(3,155,438	)		(776,723	)		(38,037	)
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 (decrease) in cash and cash equivalents		988,623			(288,278	)		1,023,819
Cash and cash equivalents at beginning of period		—			1,276,901			2,827,959
Cash and cash equivalents at end of period	$	988,623		$	988,623		$	3,851,778

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 June 30, 2007, and for the three and six months ended June 30, 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 and six months ended June 30, 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 $989,000 in cash and cash equivalents and $1.8 million in marketable securities as of June 30, 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, cash equivalents and marketable securities should be adequate to satisfy its capital needs at least through the next twelve months. The Company will need substantial funding to further develop its existing programs, including its pharmaceutical program. Accordingly, the Company intends to seek additional funding through available means, which may include debt and/or equity financing.

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 and six months ended June 30, 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. On the Condensed Balance Sheets, cost of sales related to deferred revenue has been reclassified to the assets section and presented on the prepaid expenses and other current assets line item. These reclassifications had no material impact on the financial results in the periods presented.

Recent Accounting Pronouncements

     Except as described below, there have been no significant changes in recent accounting pronouncements during the six months ended June 30, 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 and disclosure for uncertainty in income taxes recognized in the financial statements in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes.” The Interpretation prescribes a recognition threshold a tax position is required to meet before being recognized in the financial statements. It also provides guidance on de-recognition, measurement, classification, interest and penalties, accounting for interim periods, disclosure and transition. Under FIN 48, an entity may only recognize or continue to recognize tax positions that meet a “more

7

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

likely than not” threshold. The Company adopted FIN 48 effective January 1, 2007. The adoption of FIN 48 did not have a material impact on 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. In accordance with the provisions of SFAS 123R, compensation expense is recognized only for those options expected to vest. The per share weighted-average fair value of stock options granted during the three and six months ended June 30, 2006, was $0.98 and $0.78, respectively. There were no stock options granted during the three months ended June 30, 2007. The per share weighted-average grant date fair value of stock options granted during the six months ended June 30, 2007, was $0.62 using the Black-Scholes option pricing model with the following assumptions:

	Three Months Ended					Six Months Ended
	June 30, 2007		June 30, 2006			June 30, 2007			June 30, 2006
Risk-free interest rate		—		5.06	%		4.58	%		4.97	%
Expected dividend yield		—		0			0			0
Expected term in years		—		6.25			6.25			6.25
Expected volatility		—		100	%		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. 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. 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. The Company applies an estimated forfeiture rate that is derived from historical employee termination behavior.

     For the three months ended June 30, 2007 and 2006, stock-based compensation expense was approximately $56,100 and $238,600, respectively. For the six months ended June 30, 2007 and 2006, stock-based compensation expense was approximately $77,500 and $425,200, 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 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.

     A summary of the Company’s stock option activity for the six months ended June 30, 2007 is presented in the following table:

8

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

						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		(11,250	)	$	0.76
Expired		(178,750	)	$	1.22
Outstanding, June 30, 2007		2,848,944		$	1.27		5.68	$	0.00
Exercisable, June 30, 2007		2,517,000		$	1.32		5.21	$	0.00

     The aggregate intrinsic value in the table above is based on the Company’s closing stock price of $0.70 on June 30, 2007, which would have been received by the optionees had all of the options with exercise prices less than $0.70 been exercised on that date. As of June 30, 2007, total unrecognized stock-based compensation related to non-vested stock options was approximately $177,900, which is expected to be recognized over a weighted-average period of approximately sixteen months.

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

     The Company has 5,355,000 shares of common stock reserved for issuance pursuant to the 2000 Plan. As of June 30, 2007, 2,506,056 shares remained available for grants. Additional information regarding options outstanding as of June 30, 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		624,250		7.60	$	0.75		337,167	$	0.76
$1.00 - $1.00		799,000		5.66	$	1.00		799,000	$	1.00
$1.20 - $1.50		748,750		5.08	$	1.50		729,305	$	1.50
$1.75 - $2.00		676,944		4.59	$	1.82		651,528	$	1.82
$0.70 - $2.00		2,848,944		5.68	$	1.27		2,517,000	$	1.32

Note 3. Stockholders’ Equity

     On March 5, 2007, the Company closed a private equity financing, receiving cash of approximately $2.0 million in exchange for 2,666,666 shares of $0.001 par value common stock. In a second closing held on March 26, 2007, the Company received cash of $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.

9

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

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 June 30,				Six months ended June 30,
	2007		2006		2007		2006
Weighted average outstanding options		2,856,362		2,680,723		2,894,289		2,645,791
Weighted average outstanding warrants		2,700,544		2,852,357		2,700,544		2,747,443

Note 5. Marketable Securities

Marketable securities consisted of the following as of June 30, 2007:

			Gross		Gross
			Unrealized		Unrealized		Amortized
	Market Value		Gains		Losses		Cost
Corporate and municipal auction or floating rate securities with contractual maturities of 8 years to 39 years	$	1,754,971		—		—	$	1,754,971

Note 6. Identifiable Intangible Assets

     Identifiable intangible assets, which are included in other assets, consisted of the following as of June 30, 2007, and December 31, 2006:

	June 30,			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		(645,959	)		(606,517	)
Identifiable intangible assets, net	$	471,920		$	511,362

Note 7. Related-Party Transactions

     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 patents and related technology to formulate certain of the Company’s proprietary 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 the Company royalties on its sales of products containing the Company’s proprietary 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.

10

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

     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.

     During the three months ended June 30, 2007, the Company sold $64,400 of peptides to DermaVentures. The inventory sold in this transaction had zero cost as it was written down to its estimated net realizable value in the second quarter of 2006.

Note 8. Purchase Commitments

     On August 2, 2007, the Company entered into an agreement with a vendor for the purchase of a certain peptide over a period of eighteen months from the agreement date. The aggregate consideration for orders under this agreement over the eighteen-month period is $234,000.

11

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

     Helix BioMedix, Inc., is a biopharmaceutical company with an extensive library of diverse bioactive peptides and patents covering six distinct classes and hundreds of thousands of peptide sequences. Our mission is to enrich clinical practice and the patient/consumer experience by developing topically-applied products which offer the health, beauty and safety benefits of advanced bioactive small molecule technology. Our vision is to be recognized as the world leader in the identification, qualification and commercialization of natural and synthetic peptide technology.

     We are developing short, small-chain peptides with anti-infective, anti-inflammatory, cell proliferation, and migration properties. These peptides are targeted for use as ingredients in cosmetics and new 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 as well as the management of various other dermatoses.

     To establish a foundation for our initial commercialization efforts, we successfully identified and characterized a number of peptides that are 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 activity than those peptides found in nature.

     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

12

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 directly participate in the development of validated products that apply our peptide technology. The first such product was developed through a license agreement with DermaVentures, LLC (“DermaVentures”), a related party, and is planned for market introduction in the second half of 2007.

     Internally, our strategy moving forward is to develop products with the intent of positioning ourselves closer to the consumer end of the product development life cycle. We believe that this closer alignment to the end product has the potential to provide higher royalty revenues as compared to licensing peptides for use as ingredients within a product. For example, we are currently developing a skin care system that is planned for future introduction into the marketplace through partnerships with certain personal care marketing companies.

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 indicate additional treatment benefits and a higher level of consumer satisfaction associated with formulations that contain our peptide.

     There are currently a number of product development initiatives incorporating this 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 may obviate the need for benzyol peroxide, an ingredient that is limited in application due to regulatory restrictions in certain markets. This peptide is scheduled for introduction in the second half of 2007 in an acne treatment system that is positioned for the North American Hispanic market. This new system is proposed to be beneficial for richer skin tones that are more prone to discoloration associated with irritating chemicals such as benzyol peroxide. The peptide is also featured in an expanding line of anti-acne products marketed through natural food and health channels of distribution.

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 has been formulated into various cosmetic skin care products that are currently in the marketplace or pending introduction in late 2007.

13

     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 benefits derived from peptide applications in cosmetic anti-aging skin products. We have entered into an evaluation initiative with a leading supplier of ingredients for cosmetics to qualify these new peptide technologies. This evaluation is coming to an end and we are considering opportunities for the license of these peptides.

     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.

     It is our intention to advance our anti-infective programs through a combination of partnering and in-house development. We have initiated this strategy by engaging a consulting firm with the aim of contacting potential partners during 2007.

     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 certain of 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.

14

Related-Party Transactions

     Effective as of April 18, 2007, we entered into a License Agreement (the “License Agreement”) with 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 patents and related technology to formulate certain proprietary 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 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.

Critical Accounting Policies and Estimates

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

• Revenue Recognition. We 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.

15

Results of Operations

     As of June 30, 2007, our accumulated deficit was approximately $25.8 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 June 30, 2007, was approximately $140,700, an increase of $110,600 from the same period in 2006. For the first six months of 2007, revenue increased by approximately $151,000 to $199,100 from the same period in 2006. Of the total revenue for the three and six months ended June 30, 2007, $64,400 was from sales of peptides to DermaVentures, a related party. The increase in revenue for the three months ended June 30, 2007, primarily consisted of increased peptide sales at cost, partially offset by a reduction in licensing revenue. For the six months ended June 30, 2007, revenue increases were attributable to an increase in both peptides sales as well as licensing revenue.

     Cost of peptide sales was approximately $10,400 for the three and six months ended June 30, 2007, compared to $151,400 for the three months ended June 30, 2006, and $156,400 for the six months ended June 30, 2006. Cost of peptide sales to DermaVentures, a related party, was zero for the three and six months ended June 30, 2007. The decrease in cost of peptide sales for the three and six months ended June 30, 2007, was a result of $151,400 of inventory previously written down to its estimated net realizable value in the second quarter of 2006. As we replenish inventory, we anticipate that future sales of peptides will result in a higher cost of sales than the level we have experienced during the three and six months ended June 30, 2007.

     Research and development (“R&D”) expenses were approximately $202,500 for the three months ended June 30, 2007 compared to approximately $267,900 for the same period in 2006. For the six months ended June 30, 2007, R&D expenses were approximately $408,000 compared to $494,100 for the same period in 2006. The decrease of $65,400, or 24.4%, and $86,100, or 17.4%, in R&D expenses for the three months and six months ended June 30, 2007, respectively, was primarily due to a reduction in employee-related costs, lower spending in lab supplies and external studies, and decreased stock-based compensation, partially offset by an increase in expenses related to R&D consulting fees. We expect R&D expenses during the remainder of 2007 to remain generally in line with levels experienced during the first six months of 2007.

     Depreciation and amortization expenses were approximately $43,500 for the three months ended June 30, 2007, a decrease of $1,900 from the same period in 2006. For the six months ended June 30, 2007, depreciation and amortization expenses decreased by $2,400 to $88,000 compared to the first six months of 2006. The slight decrease in depreciation and amortization expenses in the three and six months ended June 30, 2007, compared to the same periods in 2006 was primarily because incremental depreciation expenses from assets purchased in 2007 were offset by other assets becoming fully depreciated. We expect depreciation and amortization expenses for the remainder of 2007 to remain relatively consistent with those in the first half of the year.

     Accounting, legal and professional expenses were approximately $133,700 for the three months ended June 30, 2007, an increase of $63,000, or 89.0%, compared to $70,700 for the three months ended June 30, 2006. Accounting, legal and professional expenses were approximately $282,200 for the six months ended June 30, 2007, an increase of $145,800, or 106.9%, compared to $136,400 for the same period in 2006. The increase in the three and six months ended June 30, 2007, was primarily attributable to increased audit fees and legal costs associated with the outlicensing of our technology.

     Consulting fees were relatively flat for the three and six months ended June 30, 2007, compared to the three and six months ended June 30, 2006. Consulting fees were approximately $3,600 and $4,000 for the three and six months ended June 30, 2007, respectively, compared to approximately $1,900 and $4,900 for the respective periods in 2006.

     General and administrative (“G&A”) expenses were approximately $603,600 for the three months ended June 30, 2007 compared to approximately $698,500 for the same period in 2006. For the six months ended June 30, 2007, G&A expenses were approximately $1.1 million compared to $1.2 million for the same period in 2006. The decrease of approximately $94,900, or 13.6%, and $110,300, or 9.1%, in G&A expenses for the three months and

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six months ended June 30, 2007, respectively, was primarily due to decreased stock-based compensation, partially offset by an increase in compliance costs associated with the Sarbanes-Oxley Act of 2002. We anticipate G&A expenses during the remainder of 2007 to increase as a result of compliance costs associated with the Sarbanes-Oxley Act of 2002.

     Other income, comprised primarily of interest income, increased by $4,300, or 20.3%, to $25,500 for the three months ended June 30, 2007 compared to $21,200 for the same period in 2006. For the six months ended June 30, 2007, other income increased by $12,200, or 34.3%, to $47,900 compared to $35,700 for the same period in 2006. The increase in other income was primarily attributable to higher interest rates and a higher balance of 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 June 30, 2007, our balance of cash, cash equivalents and marketable securities totaled approximately $2.7 million, up by $486,700 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 during the first six months of 2007. We believe that our cash, cash equivalents and marketable securities will be sufficient to fund our operations at planned levels at least through the next twelve months.

     Cash used in operating activities for the six months ended June 30, 2007, was approximately $1.7 million, 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 increases in trade receivables and inventory, 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 six months ended June 30, 2006, was approximately $1.5 million, due primarily to the net loss for the period and decreases in accrued payroll and accrued expenses, partially offset by adjustments of non-cash expenses, and decreases in inventory and prepaid assets.

     Cash used in investing activities during the six months ended June 30, 2007, was approximately $776,700, due primarily to purchases of marketable securities and capital equipment. Cash used in investing activities during the six months ended June 30, 2006 was approximately $38,000, due primarily to purchases of capital equipment.

     Cash provided by financing activities for the six months ended June 30, 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 six months ended June 30, 2006 was approximately $2.6 million. On March 3, 2006, we closed a private equity financing, receiving cash of approximately $2.4 million in exchange for 2,383,000 shares of $0.001 par value common stock and warrants to purchase up to 238,300 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 sustain and 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, cash equivalents and marketable securities will be sufficient to meet our cash requirements at least 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.

     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

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• 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.

Purchase Commitments

     On August 2, 2007, we entered into an agreement with a vendor for the purchase of a certain peptide over a period of eighteen months from the agreement date. The aggregate consideration for orders under this agreement over the eighteen-month period is $234,000.

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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 4. Submission of Matters to a Vote of Security Holders

     Our Annual Meeting of Stockholders was held on May 17, 2007, at which there were two matters submitted to a vote of security holders:

1. To elect three Class I directors to serve until the 2010 Annual Meeting of Stockholders or until such directors’ successors are elected and qualified:

Nominee	For		Withheld
Randall L-W. Caudill		14,661,907		104,845
Richard M. Cohen		14,729,807		36,945
Barry L. Seidman		14,621,055		145,697

2. To ratify the appointment of KPMG LLP as our independent registered public accounting firm for the fiscal year ending December 31, 2007:

For	Against	Abstain
14,691,676	2,000	73,076

ITEM 6. Exhibits.

Exhibit Number
(Referenced to
Item 601 of
Regulation S-B)	Exhibit Description
2.1	Proposal for Approval of Reincorporation of Helix BioMedix, Inc., a Colorado corporation, from Colorado to Delaware (incorporated by reference from Exhibit 2 to the Company’s Form 10-KSB for the year ended December 31, 2000)
3.1	Certificate of Ownership and Merger of Helix BioMedix, Inc. a Delaware corporation and Helix BioMedix, Inc., a Louisiana corporation (incorporated by reference from Exhibit 2 to the Company’s Form 10-KSB for the year ended December 31, 2000)
3.2	Certificate of Incorporation of Helix BioMedix, Inc. (incorporated by reference from Exhibit 3-a to the Company’s Form 10-KSB for the year ended December 31, 2000)
3.3	Certificate of Amendment to the Certificate of Incorporation of Helix BioMedix, Inc. (incorporated by reference from Exhibit 3.3 to the Company’s Form 10-KSB/A for the year ended December 31, 2002)
3.4	Bylaws of Helix BioMedix, Inc. (incorporated by reference from Exhibit 3-b to the Company’s Form 10-KSB for the year ended December 31, 2000)
31.1	Certification of the Company’s Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
31.2	Certification of the Company’s Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
32.1	Certification of the Company’s Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
32.2	Certification of the Company’s Chief Financial Officer Pursuant to 18 U.S.C. Section 1350

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SIGNATURES

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

August 9, 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-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: August 9, 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: August 9, 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 June 30, 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 June 30, 2007.

Date: August 9, 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 June 30, 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 June 30, 2007.

Date: August 9, 2007

/s/ David H. Kirske  

David H. Kirske 

Vice President and Chief Financial Officer