- Quarterly Report (10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2011

¨	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.

(Exact name of registrant as specified in its charter)

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

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

(Address of principal executive offices)

(425) 402-8400

(Registrant’s telephone number, including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer ¨	Non-accelerated filer ¨	Smaller reporting company x
		(Do not check if a smaller reporting company)

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

As of October 31, 2011, 49,720,255 shares of the registrant’s common stock were issued and outstanding.

HELIX BIOMEDIX, INC.

FORM 10-Q

TABLE OF CONTENTS

	Page
PART I - FINANCIAL INFORMATION

Item 1. Financial Statements	1

Condensed Balance Sheets (unaudited)	1

Condensed Statements of Operations (unaudited)	2

Condensed Statements of Stockholders’ Equity (Deficit) (unaudited)	3

Condensed Statements of Cash Flows (unaudited)	4

Notes to Condensed Financial Statements (unaudited)	5

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3. Quantitative and Qualitative Disclosure About Market Risk	18

Item 4. Controls and Procedures	18

PART II - OTHER INFORMATION

Item 1A. Risk Factors	19

Item 6. Exhibits	20

Signatures	21

PART I - FINANCIAL INFORMATION

ITEM 1.

Financial Statements.

HELIX BIOMEDIX, INC.

CONDENSED BALANCE SHEETS

(Unaudited)

	September 30, 2011			December 31, 2010
ASSETS
Current assets:
Cash and cash equivalents	$	2,067,262		$	4,044,309
Accounts receivable, net		254,246			235,149
Accounts receivable, affiliated company, net		256,805			52,795
Inventory		356,087			278,392
Prepaid expenses and other current assets		44,725			63,471
Total current assets		2,979,125			4,674,116
Property and equipment, net		35,721			44,178
Intangible assets, net		163,240			214,068
Other long term assets		19,886			29,179
Investment in affiliated company		234,495			266,941
Total assets	$	3,432,467		$	5,228,482

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	75,942		$	130,489
Accrued compensation and benefits		36,099			30,285
Accrued expenses		44,496			102,123
Deferred gross profit, affiliated company		171,577			50,479
Deferred rent, current		6,574			4,847
Total current liabilities		334,688			318,223
Deferred rent, non-current		30,597			35,815
Total liabilities		365,285			354,038
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; 49,720,255 shares outstanding at September 30, 2011, and December 31, 2010		49,721			49,721
Additional paid-in capital		48,525,949			48,392,985
Accumulated deficit		(45,508,488	)		(43,568,262	)
Total stockholders’ equity		3,067,182			4,874,444
Total liabilities and stockholders’ equity	$	3,432,467		$	5,228,482

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

HELIX BIOMEDIX, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Revenue:
Licensing fees	$	176,922		$	48,007		$	513,322		$	253,525
Peptide and consumer product sales		100,884			45,673			576,165			240,271
Consumer product sales to affiliated company		116,901			—			355,951			—
Total revenue		394,707			93,680			1,445,438			493,796

Cost of revenue:
Cost of peptide and consumer product sales		70,834			29,037			409,829			178,271
Cost of consumer product sales to affiliated company		56,961			—			191,486			—
Total cost of revenue		127,795			29,037			601,315			178,271

Gross profit		266,912			64,643			844,123			315,525
Operating expenses:
Research and development		109,221			196,752			425,131			572,617
Marketing and business development		225,732			193,027			674,187			480,016
General and administrative		327,162			431,202			1,043,843			1,138,062
Accounting, legal and professional fees		168,043			107,263			477,676			414,038
Depreciation and amortization		27,845			28,430			82,609			86,803
Total operating expenses		858,003			956,674			2,703,446			2,691,536
Loss from operations		(591,091	)		(892,031	)		(1,859,323	)		(2,376,011	)

Other income (expense):
Interest income		704			1,027			2,836			2,386
Interest expense on convertible notes payable		—			(38,796	)		—			(103,069	)
Interest expense on convertible notes payable, related party		—			(156,274	)		—			(426,553	)
Accretion of discount on convertible notes payable		—			(10,675	)		—			(29,861	)
Accretion of discount on convertible notes payable, related party		—			(18,427	)		—			(51,604	)
Equity in loss of affiliated company		(23,373	)		(4,013	)		(74,446	)		(4,013	)
Change in fair value of option to purchase interest in affiliated company		8,143			—			(9,293	)		—
Other income (expense), net		(14,526	)		(227,158	)		(80,903	)		(612,714	)
Net loss and comprehensive loss	$	(605,617	)	$	(1,119,189	)	$	(1,940,226	)	$	(2,988,725	)
Basic and diluted net loss per share	$	(0.01	)	$	(0.04	)	$	(0.04	)	$	(0.12	)
Weighted average shares outstanding		49,720,255			25,653,512			49,720,255			25,653,512

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

HELIX BIOMEDIX, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the Year Ended December 31, 2010 and for the Nine Months Ended September 30, 2011

(Unaudited)

	Common Stock				Additional
	Number of Shares		Amount		Paid-in Capital		Accumulated Deficit			Stockholders’ Equity (Deficit)
Balance at December 31, 2009		25,653,512	$	25,654	$	30,663,081	$	(35,857,460	)	$	(5,168,725	)
Stock-based compensation		—		—		188,920		—			188,920
Relative fair value of detachable warrants issued with convertible notes payable		—		—		77,300		—			77,300
Proceeds from warrant exercises, net		4,852,000		4,852		2,151,415		—			2,156,267
Issuance of stock from conversion of notes payable		18,215,012		18,215		10,910,806		—			10,929,021
Proceeds from private placement, net		999,731		1,000		594,497		—			595,497
Debt conversion inducement expense		—		—		3,806,966		—			3,806,966
Net loss		—		—		—		(7,710,802	)		(7,710,802	)
Balance at December 31, 2010		49,720,255		49,721		48,392,985		(43,568,262	)		4,874,444
Stock-based compensation		—		—		132,964		—			132,964
Net loss		—		—		—		(1,940,226	)		(1,940,226	)
Balance at September 30, 2010		49,720,255	$	49,721	$	48,525,949	$	(45,508,488	)	$	3,067,182

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

HELIX BIOMEDIX, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended September 30,
	2011			2010
Cash flows from operating activities
Net loss	$	(1,940,226	)	$	(2,988,725	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		82,609			86,803
Stock-based compensation expense		132,964			168,132
Interest expense on convertible notes payable		—			103,069
Interest expense on convertible notes payable, related party		—			426,553
Accretion of discount on convertible notes payable		—			29,861
Accretion of discount on convertible notes payable, related party		—			51,604
Equity in loss of affiliated company		74,446			4,013
Change in fair value of option to purchase interest in affiliated company		9,293			—
Changes in assets and liabilities:
Accounts receivable, net		(19,097	)		8,668
Accounts receivable, affiliated company, net		(204,010	)		—
Inventory		(77,695	)		(85,283	)
Prepaid expenses and other current assets		18,746			(80,684	)
Accounts payable		(54,547	)		1,925
Accrued compensation and benefits		5,814			18,511
Other accrued expenses		(61,118	)		19,894
Deferred gross profit, affiliated company		121,098			70,798
Net cash used in operating activities		(1,911,723	)		(2,164,861	)

Cash flows from investing activities
Website development and purchases of property and equipment		(23,324	)		(2,546	)
Investment in affiliated company		(42,000	)		(350,000	)
Net cash used in investing activities		(65,324	)		(352,546	)

Cash flows from financing activities
Proceeds from issuance of convertible notes payable and detachable warrants		—			550,000
Proceeds from issuance of convertible notes payable and detachable warrants, related party		—			2,650,000
Net cash provided by financing activities		—			3,200,000
Net increase in cash and cash equivalents		(1,977,047	)		682,593
Cash and cash equivalents at beginning of period		4,044,309			1,344,719
Cash and cash equivalents at end of period	$	2,067,262		$	2,027,312

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

HELIX BIOMEDIX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Summary of Significant Accounting Policies

Basis of Presentation and Preparation

The accompanying unaudited condensed financial statements of Helix BioMedix, Inc. (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted for interim financial information in accordance with the SEC rules and regulations for quarterly reporting. These condensed financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2010, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 24, 2011.

Use of Estimates

The preparation of the Company’s financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods. In the opinion of management, the accompanying unaudited condensed financial statements include all normal recurring accruals and adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods indicated. Significant items subject to such estimates and assumptions include, but are not limited to, revenue recognition, impairments of long-lived assets, and valuation of receivable allowances, inventories, deferred income tax assets, stock-based compensation and option to purchase interest in affiliated company. Actual results could differ from those estimates.

The results of operations for the three and nine months ended September 30, 2011 are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 31, 2011.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04 (ASU 2011-4), Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs to provide a uniform framework for fair value measurements and related disclosures between U.S. GAAP and International Financial Reporting Standards (IFRS). Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 requires prospective application for interim and annual periods beginning on or after December 15, 2011. The Company is currently evaluating the impact that ASU 2011-04 will have on its financial position and results of operations.

In June 2011, the FASB issued ASU No. 2011-05 (ASU 2011-05), Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU No. 2011-05 amends existing guidance by allowing an entity the option to present the components of net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. ASU No. 2011-05 requires retrospective application and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company believes the adoption of this guidance concerns disclosure only and will not have a material impact on its financial position or results of operations.

Note 2. Fair Value of Financial Instruments

The inputs used to measure fair value are summarized in the three broad levels listed below:

•

Level 1 — Quoted prices in active markets for identical securities;

•

Level 2 — Other significant observable inputs (including quoted prices in active markets for similar securities); and

•

Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining fair value of investments).

HELIX BIOMEDIX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The following table sets forth the financial assets and liabilities that are measured at fair value on a recurring basis at September 30, 2011, by level within the fair value hierarchy. As required by ASC 820-10, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.

	September 30, 2011		Quoted Prices in Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds	$	1,783,209	$	1,783,209	$	—	$	—
Option to purchase interest in affiliated company	$	11,364		—		—	$	11,364

Option to Purchase Interest in Affiliated Company. The Company estimated the fair value of the option to purchase the remaining interest in an affiliated company to be $11,364 and $20,657 at September 30, 2011 and December 31, 2010, respectively, using the multiple of earnings method based on a number of factors and assumptions regarding the affiliated company’s potential future revenue and projected earnings before interest, tax, depreciation and amortization (EBITDA). The increase in fair value of $8,143 in the three months ended September 30, 2011 and decrease in fair value of $9,293 in the nine months ended September 30, 2011 were recorded in the statement of operations for the respective periods.

Financial Instruments. The carrying amount of the Company’s cash, accounts receivable, accounts payable, accrued compensation and benefits, and accrued expenses approximated their estimated fair values at September 30, 2011 and December 31, 2010 because of the short-term nature of these instruments.

Note 3. Inventory

Inventory consisted of the following as of September 30, 2011 and December 31, 2010:

	September 30, 2011		December 31, 2010
Work in process	$	115,273	$	66,365
Finished goods		240,814		212,027
	$	356,087	$	278,392

Note 4. Property and Equipment

Property and equipment consisted of the following as of September 30, 2011 and December 31, 2010:

	September 30, 2011			December 31, 2010
Machinery and equipment	$	568,727		$	569,809
Website development costs		63,175			42,520
Furniture and fixtures		50,441			55,614
Leasehold improvements		43,993			43,993
		726,336			711,936
Less accumulated depreciation		(690,615	)		(667,758	)
Property and equipment, net	$	35,721		$	44,178

Aggregate depreciation expense for property and equipment for the three months ended September 30, 2011 and 2010 was $10,902 and $11,487, respectively, and was $31,781 and $35,975 for the nine months ended September 30, 2011 and 2010, respectively. During the first nine months of 2011, the Company disposed of certain fixed assets totaling $8,924, all of which were fully depreciated. There was no gain or loss associated with the disposal.

HELIX BIOMEDIX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Note 5. Intangible Assets

Identifiable intangible assets consisted of the following as of September 30, 2011 and December 31, 2010:

	September 30, 2011			December 31, 2010
Antimicrobial technology	$	222,187		$	222,187
Licensing agreements		61,391			61,391
Patents, pending and approved		834,301			834,301
Total intangible assets		1,117,879			1,117,879
Less accumulated amortization		(954,639	)		(903,811	)
Intangible assets, net	$	163,240		$	214,068

Amortization expense for intangible assets for each of the three months ended September 30, 2011 and 2010 was $16,943, and was $50,828 for each of the nine months ended September 30, 2011 and 2010.

Note 6. Investment in Affiliated Company

In July 2010, the Company obtained a 30% membership interest in NuGlow Cosmaceuticals, LLC (NuGlow), a direct-response company selling specialty skin care products, in exchange for a capital contribution of $350,000. In connection with NuGlow’s capital raise in September 2011, the Company contributed an additional $42,000 to maintain its 30% interest in NuGlow. The Company’s cumulative investment in NuGlow is accounted for as an equity investment and is adjusted at each reporting period to reflect the Company’s share of NuGlow’s net earnings, losses, contributions and any profit distributions. Additionally, at each reporting period, the Company assesses its investment in NuGlow to determine whether events or changes in circumstances indicate that the carrying amount may not be recoverable. The primary factors the Company considers in its determination are NuGlow’s financial condition and operating performance. If the decline in value is deemed to be other than temporary, the Company would recognize an impairment loss.

For the three and nine months ended September 30, 2011, the Company recorded a loss of $23,373 and $74,446, respectively, to “Equity in loss of affiliated company” which reflected its share of NuGlow’s net loss during those periods. The carrying value of the Company’s investment in NuGlow was $234,495 and $266,941 at September 30, 2011 and December 31, 2010, respectively.

NuGlow’s condensed balance sheets at September 30, 2011 and December 31, 2010 and statements of operations for the three and nine months ended September 30, 2011 and 2010 are as follows:

NuGlow’s Condensed Balance Sheets	September 30, 2011 (Unaudited)			December 31, 2010 (Unaudited)

Assets
Cash	$	31,964		$	75,147
Accounts receivable, net		25,533			2,574
Inventory		339,475			140,443
Prepaid expenses and other current assets		2,602			11,455
Total assets	$	399,574		$	229,619

Liabilities and members’ equity
Accounts payable and current liabilities	$	339,147		$	61,041
Members’ equity		514,661			374,661
Accumulated deficit		(454,234	)		(206,083	)
Total liabilities and members’ equity	$	399,574		$	229,619

HELIX BIOMEDIX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

	Three months ended September 30, (Unaudited)						Nine months ended September 30, (Unaudited)
NuGlow’s Condensed Statements of Operations	2011			2010			2011			2010
Revenue	$	264,139		$	11,133		$	756,023		$	42,400
Cost of goods sold		(118,660	)		(5,493	)		(317,024	)		(12,597	)
Operating expenses		(223,388	)		(19,016	)		(687,150	)		(30,592	)
Net loss	$	(77,909	)	$	(13,376	)	$	(248,151	)	$	(789	)

Note 7. Other Long-Term Assets

Other assets consisted of the following as of September 30, 2011 and December 31, 2010:

	September 30, 2011		December 31, 2010
Deposits	$	8,522	$	8,522
Option to purchase interest in affiliated company		11,364		20,657
Other assets	$	19,886	$	29,179

Note 8. Deferred Gross Profit, Affiliated Company

Deferred gross profit from an affiliated company consisted of the following as of September 30, 2011 and December 31, 2010:

	September 30, 2011		December 31, 2010
Deferred revenue, affiliated company	$	318,391	$	115,527
Deferred cost of revenue, affiliated company		146,814		65,048
Deferred gross profit, affiliated company	$	171,577	$	50,479

Note 9. Stock-Based Compensation

2011 Stock Option Plan

On February 10, 2011, the Company’s board of directors adopted, and on May 25, 2011, the Company’s stockholders approved, the Helix BioMedix, Inc. 2011 Stock Option Plan (the 2011 Plan). The 2011 Plan provides for the grant of incentive stock options to employees and non-statutory stock options to employees, non-employee directors and consultants. The 2011 Plan is administered by the board of directors, which has the authority to select the individuals to whom awards are to be granted, the number of awards granted, and the vesting schedule. A total of 12,000,000 shares of common stock are reserved for issuance under the 2011 Plan. Options granted under the 2011 Plan to employees generally vest over a three-year period with 1/3 of the shares vesting after one year from the date of grant and 1/36 of the shares vesting monthly thereafter. Option awards to non-employee directors may vest fully upon grant or quarterly over one year. All option awards have a maximum term of ten years and exercise prices equal to the closing market price of the Company’s common stock on the grant date.

2000 Stock Option Plan

In 2000, the Company’s stockholders approved the Helix BioMedix 2000 Stock Option Plan (the 2000 Plan). The 2000 Plan provided for the granting of incentive stock options to employees and nonqualified stock options to employees, directors and consultants. Options granted under the 2000 Plan generally became exercisable over periods ranging from one to three years, had a maximum term of ten years and exercise prices equal to the closing market price of the Company’s common stock on the grant date. Effective November 6, 2010, additional option awards under the 2000 Plan were discontinued and new option awards were granted under the 2011 Plan. Remaining authorized shares under the 2000 Plan that were not subject to outstanding awards as of November 6, 2010 were then cancelled. The 2000 Plan will remain in effect as to any outstanding options granted prior to November 6, 2010.

HELIX BIOMEDIX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Stock Option Activities

During the three and nine months ended September 30, 2011, the Company granted options to purchase an aggregate of 87,000 and 257,000 shares of common stock, respectively, under the 2011 Plan with a weighted-average grant date fair value of $0.13 and $0.21 per share, respectively. During the three and nine months ended September 30, 2010, the Company granted options to purchase 250,000 and 785,000 shares of common stock, respectively, under the 2000 Plan with a weighted-average grant date fair value of $0.31 and $0.28 per share, respectively. Fair value for options granted was calculated using the Black-Scholes option pricing model with the following assumptions:

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Risk-free interest rate		0.90% – 1.17%		1.41%		0.90% – 2.17%		1.41% – 2.77%
Expected dividend yield		0		0		0		0
Expected terms in years		5.0 – 6.0		5.0		5.0 – 6.0		5.0 – 6.0
Expected volatility		116%		106%		112% – 118%		98% – 106%

The risk-free rate is based on the implied yield available on U.S. Treasury zero–coupon issues with an equivalent remaining term. The Company does not anticipate declaring dividends in the foreseeable future. For the three and nine months ended September 30, 2011 and 2010, the Company calculated expected volatility based on the annualized daily historical volatility of the Company’s stock price commensurate with the expected term of the option and other factors, including peer company data. The Company estimates the expected term as the average of the vesting period and the contractual term. The Company will continue to use this method of estimation until it has sufficient historical data to provide reasonable estimates of expected lives of stock options. 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 pricing model and, ultimately, the expense that will be recognized over the life of the option. The Company recognizes compensation expense for only the portion of options that is expected to vest. Therefore, the Company applies an estimated forfeiture rate that is derived from historical employee termination behavior. Forfeiture rates are revised in subsequent periods if actual forfeitures differ from those estimates.

The amount of stock-based compensation expense recognized in the three months ended September 30, 2011 and 2010 related to stock options was $14,015 and $104,269, respectively, and for the nine months ended September 30, 2011 and 2010 was $132,964 and $168,132, respectively. Stock-based compensation for the first nine months of 2011 included an expense of $52,478 related to modifications of options held by three departing members of the board of directors. As of September 30, 2011, total unrecognized stock-based compensation related to non-vested stock options was approximately $59,636, which is expected to be recognized over a weighted-average period of approximately 1.6 years.

A summary of the Company’s stock compensation expense for the three and nine months ended September 30, 2011 and 2010 is as follows:

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Research and development	$	607	$	2,708	$	39,091	$	7,178
Marketing and business development		4,150		9,602		12,919		26,220
General and administrative		9,258		91,959		80,954		134,734
Total stock-based compensation	$	14,015	$	104,269	$	132,964	$	168,132

A summary of the Company’s stock option activity for the nine months ended September 30, 2011 is presented in the following table:

	Shares Subject to Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding, December 31, 2010		3,868,950		$	0.91
Granted		257,000		$	0.24
Exercised		—			—
Forfeited		(38,543	)	$	0.37
Expired		(708,200	)	$	1.56
Outstanding, September 30, 2011		3,379,207		$	0.73		3.94	$	10,200
Exercisable, September 30, 2011		3,084,760		$	0.77		3.69	$	1,500

HELIX BIOMEDIX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

The aggregate intrinsic value in the table above is based on the Company’s closing stock price of $0.25 on September 30, 2011. The intrinsic value is calculated as the difference between the closing stock price and the exercise price of the stock options as of September 30, 2011, had all of the options with exercise prices less than $0.25 been exercised on that date.

As of September 30, 2011, there were 12,000,000 shares of common stock reserved for issuance pursuant to the 2011 Plan, of which 11,743,000 shares remained available for future grants. Additional information regarding options outstanding as of September 30, 2011, is as follows:

	Options Outstanding						Options Exercisable
Range of Exercise Prices	Shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
$0.15 – $0.40		1,123,957		6.22	$	0.32		829,788	$	0.34
$0.49 – $0.76		815,000		4.68	$	0.58		814,722	$	0.58
$0.77 – $0.85		245,000		4.61	$	0.82		245,000	$	0.82
$1.00 – $1.80		1,195,250		1.14	$	1.18		1,195,250	$	1.18
$0.15 – $1.80		3,379,207		3.94	$	0.73		3,084,760	$	0.77

Note 10. Net Loss per Share

Net 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 September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Weighted average outstanding options		3,368,522		3,760,380		3,724,864		3,582,257
Weighted average outstanding warrants		1,793,530		4,952,319		2,203,861		4,773,656

Note 11. Concentration of Risks

The Company maintains a portion of its cash balance in one financial institution which at times may exceed federally insured limits. As of September 30, 2011, the Company maintained approximately $1,783,209 at major financial institutions in money market accounts insured by the Federal Deposit Insurance Corporation up to $250,000 per account or the Securities Investor Protection Corporation up to $500,000 per account. To date the Company has not experienced any losses in its money market accounts.

A significant portion of the Company’s revenue is derived from a concentrated number of customers. The following individual customers accounted for 10% or more of revenue for the three and nine months ended September 30, 2011 and 2010:

	Three months ended September 30,						Nine months ended September 30,
	2011			2010			2011			2010
Customer A		36	%		87	%		33	%		71	%
Customer B		26	%		—			22	%		17	%
Customer C		30	%		—			25	%		—

Note 12. Liquidity and Capital Resources

For the nine months ended September 30, 2011, the Company incurred a net loss of $1,940,226. At September 30, 2011, the Company had $2,067,262 in cash and cash equivalents. For the nine months ended September 30, 2011, cash used in operations was $1,911,723 and cash used in investing activities was $65,324, consisting of additional capital contribution into NuGlow, payments for website development costs and purchases of capital assets.

HELIX BIOMEDIX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS - (Continued)

(Unaudited)

Based on the current status of the Company’s operating and product commercialization development plans, the Company estimates that its existing cash and cash equivalents will be sufficient to fund its operations, continue with work towards its prescription (Rx) product development and support the continued expansion of its consumer program through the remainder of 2011. The Company will need substantial additional capital in order to maintain the current level of operations, continue commercialization of its technology and advance its pharmaceutical programs beyond 2011. Accordingly, the Company will need to raise additional funding, which may include debt and/or equity financing. However, there is no assurance that additional funding will be available on favorable terms, if at all. If the Company is unable to obtain the necessary additional funding, the Company may not be able to satisfy its existing obligations or may be required to severely reduce the scope of its operations, which would significantly impede its ability to proceed with current operational plans and could lead to the discontinuation of its business.

The amount of capital the Company will need in the future will depend on many factors, including the amount of revenue generated by the Company, capital expenditures and hiring plans to accommodate future growth, research and development plans, future demand for the Company’s products and technology, and general economic conditions.

ITEM 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Forward-Looking Statements

Our disclosure and analysis in this Quarterly Report on Form 10-Q 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 “may,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “could,” “future,” “target,” 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. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the factors described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010. You should carefully consider these factors 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. Except as required by law, 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 (SEC) after the date of this Quarterly Report.

This information should be read in conjunction with the unaudited condensed financial statements and the notes included in Item 1 of Part I of this Quarterly Report and the audited financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2010.

Business Overview

We are a biopharmaceutical company with an extensive proprietary library of structurally diverse bioactive peptides and patents covering hundreds of thousands of peptide sequences. Our mission is to enrich clinical practice and the patient/consumer experience by developing and commercializing topically applied products which offer the benefits of our advanced bioactive small molecule peptide technology. Our vision is to be recognized as the world leader in the identification, qualification and commercialization of natural and synthetic peptides.

Our business strategy is to develop our peptide and small molecule portfolio to derive revenue from a broad base of opportunities including licensing to third parties rights to use select proprietary peptides in specific fields of application and commercializing our own branded products. Over the longer term, we intend to pursue applications for products using our technology in medical devices and pharmaceutical preparations. We have developed numerous peptides with unique sequences for use in the following two areas of application:

•

Consumer skin care products — we have developed a range of peptides and small molecule technologies capable of improving different aspects of the skin’s appearance, texture, tone and barrier function and are marketing these peptides as innovative ingredients for cosmetic use; and

•

Prescription (Rx) products — certain of our peptides have demonstrated promising results in the areas of infection control, wound healing and immune modulation and are being developed for Rx applications.

Our Rx focus is on prescription-only topical preparations that would be subject to a shorter regulatory approval process under Section 510(k) of the Food, Drug and Cosmetic Act (510(k) devices). We continue to explore possible sources of funding to support further in-house development work on our pharmaceutical programs, which we believe will enhance potential partnership opportunities with pharmaceutical companies.

We generate revenue through license agreements with skin care product manufacturers as well as by selling proprietary branded skin care products through distribution channels and through our dedicated e-commerce websites.

Critical Accounting Policies and Estimates

The preparation of our financial statements in conformity with United States Generally Accepted Accounting Principles (U.S. GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting period . Actual results may differ from those estimates and judgments under different assumptions and conditions. We have discussed the critical accounting policies and estimates that we used in the preparation of our financial statements in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of the Operations – Critical Accounting Policies and Estimates,” in our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on March 24, 2011. There have been no material changes to those critical accounting policies or the underlying accounting estimates or judgments.

Results of Operations

Our total revenue for the three and nine months ended September 30, 2011 increased by 321.3% and 192.7%, respectively, as compared to the same periods in 2010, principally attributable to increased royalty revenue and sales of proprietary branded consumer products.

Our net loss for the third quarter of 2011 was approximately $606,000, or $0.01 per share, compared to a net loss of approximately $1.1 million, or $0.04 per share, for the same period in 2010. Our net loss for the first nine months of 2011 was approximately $1.9 million, or $0.04 per share, compared to a net loss of approximately $3.0 million, or $0.12 per share, for the same period in 2010. The decrease in net loss for both the three and nine months ended September 30, 2011 was principally due to increases in revenue and gross profit, as well as a decrease in interest expense. The decrease in our net loss per share for the three and nine months ended September 30, 2011 was also in part attributable to an increase in the weighted average number of shares of our common stock outstanding resulting from the amendment, conversion and exercise of convertible notes payable and warrants and the consummation of an equity financing in the fourth quarter of 2010.

As of September 30, 2011, our accumulated deficit was approximately $45,508,000. We may continue to incur substantial operating losses over the next several years based on the estimated costs associated with our current level of operations and continued commercialization of our technology being greater than our anticipated revenue.

Revenue

Revenue in the three and nine months ended September 30, 2011 and 2010 consisted primarily of license fees, peptide sales and consumer product sales as summarized in the table below.

	Three months ended September 30,							Nine months ended September 30,
	2011		2010		Change			2011		2010		Change
License fees	$	176,922	$	48,007		268.5	%	$	513,322	$	253,525		102.5	%
Peptide and consumer product sales		100,884		45,673		120.9	%		576,165		240,271		139.8	%
Consumer product sales to affiliated company		116,901		—	NM				355,951		—	NM
Total revenue	$	394,707	$	93,680		321.3	%	$	1,445,438	$	493,796		192.7	%

______________

NM – Not meaningful

Total revenue increased by approximately $301,000, or 321.3%, for the three months ended September 30, 2011 compared to the same period last year, and by approximately $952,000, or 192.7%, for the first nine months of 2011 compared to the same period in the prior year. License fees, which are derived from royalty arrangements, increased by approximately $129,000, or 268.5%, for the three months ended September 30, 2011 compared to the same period in 2010, and by approximately $260,000, or 102.5%, in the first nine months of 2011 compared to the same period in the previous year. These increases resulted from higher sales of products containing our peptides by our licensees during the three and nine months ended September 30, 2011 as well as from the timing of royalty revenue recognition due to a change in royalty reporting frequency from semi-annually to quarterly for one licensee.

Peptide and consumer product sales increased by approximately $55,000, or 120.9%, for the three months ended September 30, 2011 compared to the same period in the previous year and by approximately $336,000, or 139.8%, for the first nine months of 2011 compared to the same period in the previous year. The increases in peptide sales of 80.8% and 60.4% for the three and nine months ended September 30, 2011, respectively, compared to the same periods in the prior year, resulted from increased repeat sales to our existing customers. The increases in consumer product sales of 543.1% and 535.7% for the three and nine months ended September 30, 2011, respectively, compared to the same periods in the prior year, were attributable to growth in both distributor and direct sales.

Consumer product sales to affiliated company consisted of products sold under private labels to NuGlow Cosmaceuticals, LLC (NuGlow), a direct- response company in which we have maintained an equity investment since July 2010, which markets and sells specialty skin care products.

Cost of Revenue and Gross Margin

Cost of revenue consists of cost of peptides and materials associated with consumer products sold. Gross profit is the difference between revenue and cost of revenue, and gross margin is gross profit expressed as a percentage of total revenue. Revenue mix affects our gross margin because our margins from license fees are higher than our margins from peptide and consumer products sales.

Cost of revenue and gross profit for the three and nine months ended September 30, 2011 and 2010 are summarized in the table below.

	Three months ended September 30,									Nine months ended September 30,
	2011			2010			Change			2011			2010			Change
Cost of peptides and consumer product sales	$	70,834		$	29,037			143.9	%	$	409,829		$	178,271			129.9	%
Percentage of total revenue		17.9	%		31.0	%					28.4	%		36.1	%
Percentage of related revenue		70.2	%		63.6	%					71.1	%		74.2	%
Cost of consumer product sales to affiliated company		56,961			—		NM				191,486			—		NM
Percentage of total revenue		14.4	%		—						13.2	%		—
Percentage of related revenue		48.7	%		—						53.8	%		—
Total cost of revenue	$	127,795		$	29,037			340.1	%	$	601,315		$	178,271			237.3	%
Gross profit	$	266,912		$	64,643			312.9	%	$	844,123		$	315,525			167.5	%

_____________

NM – Not meaningful

Cost of peptide and consumer product sales increased by approximately $42,000, or 143.9%, for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 and by approximately $232,000, or 129.9%, for the first nine months of 2011 compared to the same period in the previous year. The cost of peptides for the three and nine months ended September 30, 2011 increased by 136.7% and 58.9%, respectively, as compared to the same periods in the prior year. Fluctuations in the peptide costs may be disproportionate from those of related peptide sales from period to period due to the types of peptides sold. Gross margin on peptide and consumer product sales decreased to 29.8% for the three months ended September 30, 2011 compared to 36.4% for the three months ended September 30, 2010, and increased to 28.9% for the nine months ended September 30, 2011 compared to 25.8% for the same period in the prior year. The fluctuations in gross margin related to peptide and consumer product sales were due primarily to the product mix. Sales of certain types of peptide yield a more favorable gross margin, and, in general, consumer product sales generate a higher margin than peptide sales. Our overall gross margin may also be influenced by customer mix, as peptides sold to licensees generate lower margins compared to sales to non-licensees, and, similarly, consumer products sold to distributors result in lower margins compared to sales to direct customers.

Research and Development

Research and development (R&D) expenses consist primarily of compensation and benefit expenses, stock-based compensation expense, cost of external studies and trials, and contract and other outside service fees related to our R&D activities. R&D expenses for the three and nine months ended September 30, 2011 and 2010 are summarized in the table below.

	Three months ended September 30,									Nine months ended September 30,
	2011			2010			Change			2011			2010			Change
Research and development	$	109,221		$	196,752			(44.5	)%	$	425,131		$	572,617			(25.8	)%
Percentage of total revenue		27.7	%		210.0	%					29.4	%		116.0	%

R&D expenses decreased by approximately $88,000, or 44.5%, for the three months ended September 30, 2011 compared to the three months ended September 30, 2010, and by approximately $147,000, or 25.8%, for the nine months ended September 30, 2011 compared to the same period in 2010. The decreases in R&D expenses for the three and nine months ended September 30, 2011 were primarily attributable to lower spending on external trials and studies and reduced employee compensation resulting from the departure of our former Vice President and Chief Scientific Officer in February 2011. For the remainder of 2011, we anticipate R&D expenses to remain consistent with the level experienced in the third quarter of 2011.

Marketing and Business Development

Marketing and business development (M&BD) expenses consist primarily of compensation and benefit expenses, stock-based compensation expense, consulting fees and various marketing costs. M&BD expenses for the three and nine months ended September 30, 2011 and 2010 are summarized in the table below.

	Three months ended September 30,									Nine months ended September 30,
	2011			2010			Change			2011			2010			Change
Marketing and business development	$	225,732		$	193,027			16.9	%	$	674,187		$	480,016			40.5	%
Percentage of total revenue		57.2	%		206.0	%					46.6	%		97.2	%

M&BD expenses increased by approximately $33,000, or 16.9%, for the three months ended September 30, 2011 compared to the three months ended September 30, 2010, and by approximately $194,000, or 40.5%, for the nine months ended September 30, 2011 compared to the same period in 2010. The increases for the three and nine months ended September 30, 2011 were primarily driven by higher advertising expense and employee compensation due to additional headcount. We anticipate M&BD expenses to increase in absolute dollars for the remainder of 2011 as we expect to incur increased expenses on advertising, market testing and promotions for our current products as well as for new skin care products we plan to introduce into the market in the near future.

General and Administrative

General and administrative (G&A) expenses consist primarily of salaries and benefit expenses, stock-based compensation expense, consulting fees and general corporate expenditures. G&A expenses for the three and nine months ended September 30, 2011 and 2010 are summarized in the table below.

	Three months ended September 30,									Nine months ended September 30,
	2011			2010			Change			2011			2010			Change
General and administrative	$	327,162		$	431,202			(24.1	)%	$	1,043,843		$	1,138,062			(8.3	)%
Percentage of total revenue		82.9	%		460.3	%					72.2	%		230.5	%

G&A expenses decreased by approximately $104,000, or 24.1%, for the three months ended September 30, 2011 compared to the three months ended September 30, 2010, and by approximately $94,000, or 8.3%, for the nine months ended September 30, 2011 compared to the same period in 2010. The decreases for the three and nine months ended September 30, 2011 were primarily due to decreases in general corporate expenses and stock-based compensation expense associated with options granted to consultants. We anticipate G&A expenses for the remainder of 2011 to be consistent with the average quarterly level experienced in the first nine months of 2011.

Accounting, Legal and Professional Fees

Accounting, legal and professional fees for the three and nine months ended September 30, 2011 and 2010 are summarized in the table below.

	Three months ended September 30,									Nine months ended September 30,
	2011			2010			Change			2011			2010			Change
Accounting, legal and professional fees	$	168,043		$	107,263			56.7	%	$	477,676		$	414,038			15.4	%
Percentage of total revenue		42.6	%		114.5	%					33.0	%		83.8	%

Accounting, legal and professional fees increased by approximately $61,000, or 56.7%, for the three months ended September 30, 2011 compared to the three months ended September 30, 2010, and increased by approximately $64,000, or 15.4%, for the nine months ended September 30, 2011 compared to the same period in 2010. The increase for the three months ended September 30, 2011 was due primarily to higher spending in legal fees associated with intellectual property protection. The increase for the nine months ended September 30, 2011 was principally attributable to increases in legal fees associated with intellectual property protection and accounting fees related to tax services.

For the remainder of 2011, we anticipate accounting, legal and professional fees to increase compared to the average quarterly level experienced in the first nine months of 2011 as we expect to incur higher legal expenses related to distribution and licensing agreements and intellectual property protection.

Depreciation and Amortization

Depreciation and amortization expenses for the three and nine months ended September 30, 2011 and 2010 are summarized in the table below.

	Three months ended September 30,									Nine months ended September 30,
	2011			2010			Change			2011			2010			Change
Depreciation and amortization	$	27,845		$	28,430			(2.1	)%	$	82,609		$	86,803			(4.8	)%
Percentage of total revenue		7.1	%		30.3	%					5.7	%		17.6	%

Depreciation and amortization expenses decreased by approximately $1,000, or 2.1%, for the three months ended September 30, 2011 compared to the three months ended September 30, 2010, and by approximately $4,000, or 4.8%, for the nine months ended September 30, 2011 compared to the same period in 2010. The decreases for the three and nine months ended September 30, 2011 were primarily due to reduced depreciation from assets becoming fully depreciated. For the remainder of 2011, we expect depreciation and amortization expenses to be consistent with the average quarterly level experienced in the first nine months of 2011.

Other Income (Expense), Net

Other income (expense), net consists of interest income, interest expense related to our prior outstanding convertible notes payable and accretion of discount on the convertible notes payable.

Other income (expense), net for the three and nine months ended September 30, 2011 and 2010 is summarized in the table below.

	Three months ended September 30,									Nine months ended September 30,
	2011			2010			Change			2011			2010			Change
Interest income	$	704		$	1,027			(31.5	)%	$	2,836		$	2,386			18.9	%
Interest expense on convertible notes payable		—			(38,796	)		(100.0	)%		—			(103,069	)		(100.0	)%
Interest expense on convertible notes payable, related party		—			(156,274	)		(100.0	)%		—			(426,553	)		(100.0	)%
Accretion of discount on convertible notes payable		—			(10,675	)		(100.0	)%		—			(29,861	)		(100.0	)%
Accretion of discount on convertible notes payable, related party		—			(18,427	)		(100.0	)%		—			(51,604	)		(100.0	)%
Equity in loss of affiliated company		(23,373	)		(4,013	)		482.4	%		(74,446	)		(4,013	)		1755.1	%
Change in fair value of option to purchase interest in affiliated company		8,143			—		NM				(9,293	)		—		NM
Other income (expense), net	$	(14,526	)	$	(227,158	)		(93.6	)%	$	(80,903	)	$	(612,714	)		(86.7	)%

______________

NM – Not meaningful

Interest Income. Interest income was fairly consistent for the three and nine months ended September 30, 2011 compared to the same periods in the previous year. For the remainder of 2011, we expect interest income to be lower than the average quarterly level experienced in the first nine months of 2011 due to our decreasing balance in cash and cash equivalents.

Interest Expense on Convertible Notes Payable, Including Related Party, and Accretion of Discount on Convertible Notes Payable, Including Related Party . For the three and nine months ended September 30, 2010, interest expense and accretion of debt discount related to our then outstanding convertible notes payable, including related party, were approximately $224,000 and $611,000, respectively. During the fourth quarter of 2010, all of these convertible notes payable were converted into equity or repaid, and, as a result, we did not incur further interest or debt discount expense thereafter.

Equity in Loss of Affiliated Company. Equity in loss of affiliated company increased by approximately $19,000, or 482.4%, for the three months ended September 30, 2011 compared to the three months ended September 30, 2010, and by approximately $70,000, or 1755.1%, for the nine months ended September 30, 2011 compared to the same period in 2010. Equity in loss of affiliated company represented our share of NuGlow’s net loss for the periods presented. As we did not invest in NuGlow until July 2010, we did not experience any gain or loss related to an affiliated company during the first six months of 2010.

Change in Value of Option to Purchase Interest in Affiliated Company. For the three months ended September 30, 2011, we recorded a gain of approximately $8,000, and for the nine months ended September 30, 2011, we recorded a loss of approximately $9,000 to reflect the change in fair value of our option to purchase the remaining interest in NuGlow.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily through the private sale of debt and equity securities. Our principal sources of liquidity are cash and cash equivalents. As of September 30, 2011, we had approximately $2,067,000 in cash and cash equivalents, compared to approximately $4,044,000 in cash and cash equivalents at December 31, 2010. The decrease in cash and cash equivalents from December 31, 2010 was primarily attributable to cash used in operations, additional capital contribution in NuGlow, website development and purchases of capital assets totaling approximately $1,977,000.

Cash Flows from Operating Activities

Cash used in operating activities for the nine months ended September 30, 2011 and 2010 was approximately $1,912,000 and $2,165,000, respectively, and in each case derived primarily from the net loss for the period plus the net effect of non-cash expenses. Our operating cash flows are also influenced by our working capital needs to support growth, in particular fluctuations in inventory, accounts receivable, accounts payable and other current assets and liabilities. We continue to experience negative cash flows from operating activities due to the cash requirements to maintain our current level of operations while supporting activities to expand our product lines and revenue base.

For the nine months ended September 30, 2011, changes in accounts receivable, inventory, accounts payable and accrued expenses used approximately $416,000 of cash, while changes in prepaid expenses, accrued compensation and benefits, and deferred gross profit from an affiliated company provided approximately $146,000 of cash. During the nine months ended September 30, 2010, changes in inventory and prepaid expenses used approximately $166,000 of cash while changes in accounts receivable, accrued compensation and benefits, accrued expenses and deferred revenue provided approximately $120,000 of cash.

Cash Flows from Investing Activities

For the nine months ended September 30, 2011, cash used in investing activities of approximately $65,000 was related to an additional capital contribution in NuGlow and payments for website development costs and purchases of capital assets, while cash used of approximately $353,000 during the same period in 2010 resulted from a capital contribution of $350,000 in NuGlow and purchases of capital assets of approximately $3,000.

Cash Flows from Financing Activities

For the nine months ended September 30, 2011, there was no cash provided by financing activities. For the nine months ended September 30, 2010, cash provided by financing activities was $3,200,000, which represented the aggregate proceeds from our issuance of convertible promissory notes and warrants in March and May 2010.

Based on the current status of our operating and product commercialization development plans, we estimate that our existing cash and cash equivalents will be sufficient to fund our operations, continue with work towards our Rx product development and support the continued expansion of our consumer program through the remainder of 2011. We will need substantial additional capital in order to maintain the current level of operations, continue commercialization of our technology and advance our pharmaceutical programs beyond 2011. Accordingly, we will need to raise additional funding, which may include debt and/or equity financing. However, there is no assurance that additional funding will be available on favorable terms, if at all. If we are unable to obtain the necessary additional funding, we may not be able to satisfy our existing obligations or may be required to severely reduce the scope of our operations, which would significantly impede our ability to proceed with current operational plans and could lead to the discontinuation of our business.

The amount of capital we will need in the future will depend on many factors, including the amount of revenue we generate, capital expenditures and hiring plans to accommodate future growth, research and development plans, future demand for our products and technology, and general economic conditions.

Contractual Obligations

The following table summarizes our contractual obligations and the effect such obligations are expected to have on liquidity in future periods as of September 30, 2011:

Contractual Obligations	Remainder of 2011			2012 - 2013		2014 - 2015	Total
Operating lease	$	19,379	$	160,890	$	127,278	$	307,547
Purchase order commitments (1)		126,630		33,000		—		159,630
Total contractual obligations	$	146,009	$	193,890	$	127,278	$	467,177

(1)	Purchase order commitments primarily consisted of open orders for inventory.

Recent Accounting Pronouncements

In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04 (ASU 2011-04), Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs to provide a uniform framework for fair value measurements and related disclosures between U.S. GAAP and International Financial Reporting Standards (“IFRS”). Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 requires prospective application for interim and annual periods beginning on or after December 15, 2011. We are currently evaluating the impact that ASU 2011-04 will have our financial position and results of operations.

In June 2011, the FASB issued ASU No. 2011-05 (ASU 2011-05), Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU No. 2011-05 amends existing guidance by allowing an entity the option to present the components of net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. ASU No. 2011-05 requires retrospective application and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. We believe the adoption of this guidance concerns disclosure only and will not have a material impact on our financial position or results of operations.

ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.

Not applicable.

ITEM 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Acting Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

Based on that evaluation, the Chief Executive Officer and Acting Chief Financial Officer concluded that our disclosure controls and procedures were functioning effectively as of the end of the period covered by this report to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Change in Internal Control over Financial Reporting

No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II – OTHER INFORMATION

ITEM 1A.

Risk Factors.

There are numerous factors that affect our business and results of operations, many of which are beyond our control. Please see our Annual Report on Form 10-K for the year ended December 31, 2010 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 6.

Exhibits.

			Incorporated by Reference
Exhibit Number	Exhibit Description	Filed Herewith	Form	Period Ending	Exhibit	Filing Date
2.1	Proposal for Approval of Reincorporation of Helix BioMedix, Inc., a Colorado corporation, from Colorado to Delaware		10-KSB	12/31/00	2	4/16/01
3.1	Certificate of Ownership and Merger of Helix BioMedix, Inc. a Delaware corporation and Helix BioMedix, Inc., a Louisiana corporation		10-KSB/A	12/31/02	3.1	4/30/03
3.2	Certificate of Incorporation of Helix BioMedix, Inc.		10-KSB/A	12/31/00	3-A	5/18/01
3.3	Certificate of Amendment to the Certificate of Incorporation of Helix BioMedix, Inc.		10-KSB/A	12/31/02	3.3	4/30/03
3.4	Bylaws of Helix BioMedix, Inc.		10-KSB/A	12/31/00	3-B	5/18/01
4.1	Rights Agreement dated August 21, 2003		10-KSB	12/31/03	10.27	3/26/04
4.2	Acceptance and Acknowledgement of Appointment dated January 4, 2004		10-KSB	12/31/03	10.28	3/26/04
10.12(b)	Second Amendment to License Agreement dated as of August 25, 2011 between the Company and Rodan & Fields, LLC	X
10.19(a)	First Amendment dated September 1, 2011 to Amended and Restated Operating Agreement of NuGlow Cosmaceuticals, LLC and Supply Agreement among the Company, NuGlow Cosmaceuticals, LLC and Camden Street Partners, LLC	X
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	X
31.2	Certification of the Company’s Acting Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934	X
32.1	Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350	X
32.2	Certification of the Company’s Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350	X
101.INS**	XBRL Instance Document	X
101.SCH**	XBRL Taxonomy Extension Schema Document	X
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document	X
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document	X
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document	X
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase Document	X

___________

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

SIGNATURES

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

November 3, 2011

	HELIX BIOMEDIX, INC.
	(Registr ant)


	By:	/s/ R. Stephen Beatty
	R. Stephen Beatty
	President and Chief Executive Officer and
	Acting Chief Financial Officer
	(Principal Executive Officer and
	Acting Principal Financial Officer)