FORM 10-Q SB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended March 31, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission file number: 33-20897-D
HELIX BIOMEDIX, INC.
______________________________________________________
(Exact name of registrant as specified in its charter)
Colorado 84-1080717
_______________________________ __________________________________
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2151 E. Lakeshore Drive, Baton Rouge, LA 70808
___________________________________________________________________________
(Address of principal executive offices) (Zip Code)
(504)-387-1112
________________________________________________________________________________
(Registrant's telephone number, including area code)
Not Applicable
________________________________________________________________________________
(Former name, former address and former fiscal year, if changed since last
report)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
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 the number of shares outstanding of each of the issuer's classes of
stock, as of the latest practicable date.
Shares Outstanding
Class of Securities at April 1, 1998
___________________ ___________________
Common Stock, no par value 1,612,305
DOCUMENTS INCORPORATED BY REFERENCE: YES, SEE INDEX ON PAGE 3
-------------------------
EXHIBITS: Indexed at page 3.
-------------------
PAGES: This form 10-QSB consists of 4 pages, plus pages F-1 through F-5 - F-6.
1
<PAGE>
INDEX
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Information
Please see Pages F-1 through F-5.
The following financial statements are filed as part of the Report:
Accountants' Disclaimer of Opinion .......................F-1
Balance Sheet ............................................F-2
Statements of Loss and Accumulated Deficit ...............F-3
Statements of Cash Flows .................................F-4
Notes to Financial Statements .........................F-5 - F-6
These financial statements should be read in conjunction with the audited
financial statements at December 31, 1997. Those statements are
incorporated herein by reference as part of Exhibit 99-a.
ITEM 2. Management's Discussion and Analysis or Plan of Operation
This item is incorporated by reference to Item 6-Part II of Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December 31, 1997.
(Exhibit 99-a). That Report was dated April 15, 1998, and, except for
the financial statements, the information therein is current and fully
applicable to the report.
(a) Plan of Operation
The Company's general plan of operation is outlined in Item 1 of Part 1 of
Exhibit No. 99-a. The Company has maintained operations since 1990
primarily with limited capital provided by loans from key Shareholders. A
major strategic and financial corporate restructuring initiative has been
undertaken since 1993. The details of this program are set forth in Item 1
of Part 1, Exhibit 99-a. The Company believes it is now prepared to
implement a Business Plan providing for both near term and long term product
introductions. At the present time the Company is actively seeking ]
additional capital through private sector financing. Such financing will be
used to bring the Company to continuing economic viability from commercially
profitable operations. This plan contemplates revenues from licensing and
strategic alliances for long term development of prescription pharmaceutical
products as will as introduction within the near term of products subject to
less regulatory restraints. It is expected by management that achievement
of projected progress milestones will establish the Company as a financially
viable biotechnology firm with substantial public investor support.
<PAGE>
Company's Proprietary Position and Competition
The Company believes it is establishing a strong patent position (both U.S.
and foreign) with respect to the compositions of matter and use of its
Cytoporin peptides. There is increasing interest in the biopharmaceutical
industry in the potential for lytic peptides as therapeutic drug agents.
To the best of the Company's knowledge there are at least four other U.S.
companies actively working in the field. They have greater financial re-
sources available to them. However, Registrant believes its early dates on
patents and patent applications are a major competitive asset, as is the
proprietary technical and product know-how which it has gained over a period
of nine years. The Company's five year Business Plan embraces a concept of
long term strategic partnering and introduction of near term proprietary
products to niche markets. Company management believes the Plan takes full]
cognizance of the emerging presence of well financed competitors in the
general field of endeavor.
Critical Developments in the Company's Relationship with Louisiana State
University ("LSU")
From the outset of its Agreement of Settlement with LSU is 1993, the Company
found its position as a patent licensee of the University to be one without
proper cooperative support. In 1996 and early 1997 the Company formally
notified LSU officials of its concerns about the deteriorating relationship.
During the first quarter of 1997 continuing disputes between the Registrant
and LSU resulted in each party's placing the other in default of the agree-
ments between the two.
During the second quarter of 1997 LSU formally terminated the Company's
license of certain LSU patents relating to the Cytoporin technology. This
termination of license and resolution of the alleged defaults of the parties
were all subject to arbitration. The arbitration procedures were invoked,
and the Company notified LSU of Registrant's intent to seek further relief
in an appropriate court of law. The actions of LSU in summarily terminating
the license were unwarranted in the opinion of management and corporate
counsel. Furthermore, throughout 1997 Registrant's ongoing initiatives to
raise capital and to confect strategic alliances were effectively in a state
of hiatus until the conflict with LSU was settled or otherwise resolved.
Management and corporate counsel for the Company emphasized to LSU that the
University was exposing itself to serious liability for damages which would
continue to increase by the month.
In late 1997 the Company and LSU made substantial progress in good faith
negotiations to settle all disputes. Continued progress in negotiations by
year end prompted the parties to place the arbitration proceedings in abey-
ance and to withhold contemplated legal actions pending the outcome of the
negotiations.
In March 1998 the Company and LSU reached final agreement of a "Novation of
Prior Agreements". Arbitration procedures were terminated by the parties.
In consideration of the Company's dismissing and waiving its causes of
action against LSU, LSU assigned to the Company all right, title and
interest to all of the U.S. and foreign patents and patent applications
previously under license to the Company. The details of this novation
agreement and the importance of the Company's outright ownership of the
entire patent estate will be further addressed by Registrant in a Form 8-K
Report.
<PAGE>
(b) Management's Discussion and Analysis
During the two fiscal years ending December 31, 1993 and December 31, 1994,
While the Company was instituting the restructuring program discussed in
this report, the cost of operations was held to a minimum. Continuing
through 1995, in the absence of revenues operating losses were held to app-
roximately $47,000 per quarter, of which approximately $14,000 per quarter
represents interest accrual rolled into the principal of loans from share-
holders. Administrative costs were controlled at a low level by the fact
that only the Company's President was a full time employee. During this
period the company substantially enhanced its patent prosecution with an
investment of nearly $11,000 per quarter. In house research and development
was placed in a holding pattern, with no funds of the Company expended in
this area. However, evaluation and product development with the Company's
Cytoporin compounds has continued on an accelerated basis at Therapeutic
Peptides, Inc.
During 1996 operations continued to be funded by loans from shareholders in
the amount of approximately $236,000. At December 31, 1996 the Company's
balance sheet was substantially improved by the conversion of approximately
$111,000 in debt into common stock.
In 1996 operating losses increased to an average of approximately $82,500
per quarter, of which approximately $16,500 per quarter represented interest
accrual on loans from major shareholders. The main source of increase in
operating expense in 1996 over the prior year came from stepped up R & D
expense.
Because of the hiatus created in 1997 by the revocation of the Company's
license by LSU, operating expenses and R & D expenditures were substantially
curtailed. Operating losses averaged approximately $57,100 per quarter, of
which amount $19,900 was for accrual of interest. Operations were funded by
loans from key shareholders. On December31, 1997 the Company's balance
sheet was substantially improved by debt reduction through the conversion of
$772,075 in promissory notes payable to key shareholders into common stock
of the Company. This was indicative of the continuing confidence of manage-
ment and key shareholders in the prospects for the Company's future.
In 1996 and 1997 full implementation of the alliance between the Company and
TPI through the Cooperative Endeavor Agreement confected in November 1995
strengthened the Company's capability to expand its patent estate and bring
the Cytoporin technology to commercial fruition. During this period the
Company greatly accelerated the development of its technology platform.
Over the last two years the development and testing of more active and
selective peptides produced data which has been particularly valuable in the
Company's dialogue with potential strategic alliances in the pharmaceutical
and biotechnology fields.
In 1998 the Company expects to complete its renewed initiative to raise
capital through private financing, pursuant to successful resolution of the
disputes with LSU. In its first phase of financing, the Company is seeking
to raise $500,000 as bridge capital to fund operations for a period of
twelve to sixteen months at the level projected in the Business Plan.
Management believes it is now critically important to increase spending in
in order to (i) step up further development of the patent estate, (ii) fund
the vital product development work at TPI, (iii) aggressively proceed with
seeking strategic alliances, (iv) maintain public reporting of company
<PAGE>
finances and operations, and to (v) conclude successfully an effort to bring
further equity capital funding to the Company. Management believes after
the bridge capital funding that an additional $2.0 million added to the
Company's equity capital base will permit the Company to emerge profitably
from its development stage during the next two to three years. Success in
its efforts to consummate the planned private capital financing steps is now
essential to the Company's completion of the restructuring program which it
has undertaken.
During the last quarter of 1995 operations were highlighted by two important
technical developments. These were reported in two News Releases which were
both nationally and internationally promulgated through the media and
Business Wire services. Copies of these releases were included as exhibits
in Registrant's 1995 10KSB Report, which is incorporated by reference herein
as Exhibit 13-j. In 1996 and 1997 these News Releases have resulted in
inquiries from over 20 international pharmaceutical and biotechnology
companies. The inquiries about the Cytoporin technology have already
developed for the Company on-going dialogue with several potential
candidates for strategic alliances.
As disclosed in the News Releases, Management believes the Company's
Cytoporin compounds may play a vital role in addressing the current health
care crisis related to rapid and continuing emergence of antibiotic
resistant bacteria and other pathogens. Also, the announced issuance of two
important European patents, now owned by the Company, will materially
strengthen the Company's competitive position and enhance the Company's
posture in its initiatives to acquire financing and to establish alliances
in the biopharmaceutical industry.
The Company's common stock, which if traded OTC under the symbol "HXBM" on
the NASDAQ bulletin board, continues to trade only sporadically and in
small transactions. Management believes this will continue to be the case
until the Company completes its first step of bridge financing and thereby
permit expanded operations under a sound and viable Business Plan. As a
step Precedent to resumption of active public trading of the common stock,
in late 1995 the Company made application for and obtained published
coverage of the Company in Standard and Poor's Corporation Records. This
coverage continues on a current basis.
Pending completion of ongoing financing initiatives, current operations of
the Company continue to be financed by loans from and /or investments by
several key shareholders.
2
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 3, 1995 the Company entered into a Loan Agreement with Inter-
national Biochemicals Group, Inc. ("IBG") whereby IBG advanced $25,000 to
the Company and made a commitment for further lending. On November 3,
1995 the Company issued to IBG a promissory note for $25,000 due and payable
May 3, 1996. The Company has not made payment on the note and advised IBG
of its breach of various provisions of the lending agreement. From time to
time the due dare of the note was extended, and the Company agreed to pay
the note in full promptly following resolution of its disputes with LSU, in]
consideration of which the Company had offered to withdraw its allegations
of IBG's default on the Loan Agreement. The protracted nature of the
disputes between LSU and the Company and the termination of the Company's
license by LSU prompted IBG to take legal action to collect on the above
referenced note.
On September 16, 1997 IBG filed a petition in the Nineteenth Judicial
District Court of Louisiana seeking judgement on the note. Corporate
Counsel for the Company timely responded to the petition and filed a re-
conventional demand in support of Registrant's allegation of IBG's breach
of the Loan Agreement. This litigation is now in the discovery phase.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description and Location
- ----------- ------------------------
99-a Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1997
Incorporated by reference to Form 10-KSB for 1997 filed by
Registrant with the SEC (File No. 33-20897-D) on April 14, 1998.
(b) Reports on Form 8-K
None
3
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused the Report to be signed on its behalf by the
undersigned thereunto duly authorized.
HELIX BIOMEDIX, INC. DATE: May 14, 1998
By:/s/ Keith P. Lanneau
----------------
Keith P. Lanneau, President, Principal Financial and Accounting Officer.
<PAGE>
HELIX BIOMEDIX, INC.
(A Development Stage Company)
March 31, 1998
(Unaudited)
<PAGE>
CONTENTS
Page
ACCOUNTANTS' REPORT F-1
BALANCE SHEET F-2
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT F-3
STATEMENTS OF CASH FLOWS F-4
NOTES TO FINANCIAL STATEMENTS F-5
<PAGE>
The Board of Directors
Helix BioMedix, Inc.
The accompanying balance sheet of Helix BioMedix, Inc. (a
development stage company) as of March 31, 1998 and the
related statements of loss and accumulated deficit and
cash flows for the period then ended were not audited by
us, and accordingly, we do not express an opinion on them.
Aurora, Colorado
May 12, 1998
COMISKEY & COMPANY
PROFESSIONAL CORPORATION
F-1
<PAGE>
Helix BioMedix, Inc.
(A Development Stage Company)
BALANCE SHEET
March 31, 1998
(Unaudited)
ASSETS
CURRENT ASSETS
Cash $ 730
Note receivable - TPI 25,000
----------
Total current assets 25,730
OTHER ASSETS
Antimicrobial technology (net) 129,683
Patents pending and approved (net) 327,316
Accrued interest receivable 4,028
----------
461,027
----------
TOTAL ASSETS $ 486,757
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 338
Accounts payable - related party 8,500
Notes payable 40,500
Notes payable - related parties 320,721
Accrued interest payable 13,749
----------
Total current liabilities 383,808
LONG-TERM LIABILITIES
Notes payable to shareholders 25,000
STOCKHOLDERS' EQUITY
Common stock, no par value, 2,000,000 shares
authorized, 1,612,306 shares issued and outstanding 2,796,505
Preferred stock, no par value, 400,000 shares
authorized, no shares issued or outstanding -
Additional paid-in-capital 137,400
Deficit accumulated during the
development stage (2,855,956)
----------
77,949
----------
Total liabilities and stockholders' equity $ 486,757
==========
The accompanying notes are an integral part of the financial statement
F-2
<PAGE>
Helix BioMedix, Inc.
(A Development Stage Company)
STATEMENTS OF LOSS AND ACCUMULATED DEFICIT
For the period from inception (November 7, 1988) to March 31, 1998
(Unaudited)
<TABLE>
<S> <C> <C> <C>
Inception to For the quarter ended
March 31, March 31,
1998 1998 1997
------------ ------------------------
REVENUE $ 19,500 $ - $ 10,000
EXPENSES
Research &
development 1,444,319 12,000 34,500
Amortization 114,559 4,895 4,373
Accounting & legal 115,939 - -
Advertising 13,488 - -
Compensation cost 137,400 - -
Consulting fees 497,853 10,900 6,000
Office expense 155,718 4,403 5,886
Other general &
administrative costs 11,561 274 194
------------ --------- ----------
TOTAL OPERATING
EXPENSES 2,490,837 32,472 50,953
------------ --------- ----------
NET LOSS FROM
OPERATIONS (2,467,747) (32,472) (40,515)
OTHER (INCOME) EXPENSE
Gain on settlement of lawsuit (48,574) - -
Interest income (4,028) (438) (438)
Interest expense 437,221 7,413 18,740
------------ --------- ----------
388,209 6,975 18,740
------------ --------- ----------
NET LOSS $ (2,855,956) $ (39,447) $ (59,255)
============ ========= ==========
NET LOSS PER SHARE ($3.00) ($0.02) ($0.05)
============ ========= ==========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 951,977 1,597,405 1,207,620
============ ========= ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
Helix BioMedix, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the period from inception (November 7, 1988) to March 31, 1998
(Unaudited)
Inception to For the three months end
March 31, March 31,
1998 1998 1997
------------ ----------- ----------
NET CASH USED IN OPERATIONS $ (1,909,978) $ (37,040) $ (13,285)
CASH FLOWS FROM INVESTING ACTIVITIES
Patents (208,548) (6,321) (1,806)
------------ ----------- ----------
NET CASH PROVIDED (USED) IN
INVESTING ACTIVITIES (208,548) (6,321) (1,860)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received in reverse acquisition 634,497 - -
Note receivable (25,000) - -
Notes payable 72,894 500 25,000
Related party notes payable (net) 537,146 27,590 (11,000)
Issuance of stock for cash 62,000 10,000 -
Issuance of stock for debt 837,719 4,900 -
------------ ----------- ----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 2,119,256 42,990 14,000
------------ ----------- ----------
NET INCREASE (DECREASE) IN CASH 730 (371) (1,091)
CASH, BEGINNING OF PERIOD - 1,101 1,369
------------ ----------- ----------
CASH, END OF PERIOD $ 730 $ 730 $ 278
============ =========== ==========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
AND OTHER CASH INFORMATION
Stock issued to acquire patents 66,486 - -
Debt issued to acquire technology 200,000 - -
Bridge loans outstanding at acquisition 200,000 - -
Patent costs included in accounts payable 76,935 2,815 1,806
Accounts payable converted to notes 700,559 - 22,953
Accrued interest rolled into note 354,163 7,413 17,689
Notes converted to equity 1,639,548 - -
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
Helix BioMedix, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
1. Management's representation of interim financial information. The
accompanying financial statements have been prepared by Helix BioMedix,
Inc. without audit pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted as allowed by such rules and regulations, and management believes
that the disclosures are adequate to make the information presented
not misleading. These financial statements include all of the adjustments
which, in the opinion of management, are necessary to a fair
presentation of financial position and results of operations. All
such adjustments are of a normal and recurring nature. These
financial statements should be read in conjunction with the audited
financial statements at December 31, 1997.
2. Changes in Classification
Classification changes in the 1997 financial statement cash flow data were
made in order to conform to the current year presentation.
3. Critical Developments in the Company's Relationship with LSU
From the outset of its Agreement of Settlement with LSU in 1993, the
Company found its position as a patent licensee of the University to be
one without proper cooperative support. In 1996 and early 1997 the Company
formally notified LSU officials of its concerns about the deteriorating
relationship. During the first quarter of 1997 continuing disputes between
the Registrant and LSU resulted in each party's placing the other in
default of the agreements between the two.
During the second quarter of 1997 LSU formally terminated the Company's
license of certain LSU patents relating to the Cytoporin technology. This
termination of license and resolution of the alleged defaults of the
parties were all subject to arbitration. The arbitration procedures were
invoked, and the Company notified LSU of Registrant's intent to seek
further relief in an appropriate court of law. The actions of LSU in
summarily terminating the license were unwarranted in the opinion of
management and corporate counsel. Furthermore, throughout 1997
Registrant's ongoing initiatives to raise capital and to confect strategic
alliances were effectively in a state of hiatus until the conflict with
LSU was settled or otherwise resolved. Management and corporate counsel
for the Company emphasized to LSU that the University was exposing itself
to serious liability for damages which would continue to increase by the
month.
In late 1997 the Company and LSU made substantial progress in good faith
negotiations to settle all disputes. Continued progress in negotiations
by year end prompted the parties to place the arbitration proceedings in
abeyance and to withhold contemplated legal actions pending the outcome of
the negotiations. As the outcome of this litigation cannot be determined,
no accrual was made in excess of the original amount due to IBG was made
in these financial statements.
In March 1998 the Company and LSU reached final agreement on a "Novation of
Prior Agreements". Arbitration proceedures were terminated by the parties.
In consideration of the Company's dismissing and waiving its causes
of action against LSU, LSU assigned to the Company all right, title and
interest to all of the U.S. and foreign patents and patent applications
previously under license to the Company. The details of this novation
agreement and the importance of the Company's outright ownership of the
entire patent estate will be further addressed by Registrant in a Form 8-K
Report.
F-5
<PAGE>
Helix BioMedix, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
4. Legal Proceedings
On November 3, 1995 the Company entered into a Loan Agreement with
International Biochemicals Group, Inc. ("IBG") whereby IBG advanced $25,000
to the Company and made a commitment for further lending. On
November 3, 1995 the Company issued to IBG a promissory note for $25,000
due and payable May 3, 1996. The Company has not made payment on the note
and advised IBG of its breach of various provisions of the lending
agreement. From time to time the due date of the note was extended, and
the Company agreed to pay the note in full promptly following resolution of
its disputes with LSU, in consideration of which the Company had offered
to withdraw its allegations of IBG's default on the Loan Agreement. The
protracted nature of the disputes between LSU and the Company and the
termination of the Company's license by LSU prompted IBG to take legal
action to collect on the above referenced note.
On September 16, 1997 IBG filed a petition in the Nineteenth Judicial
District Court of Louisiana seeking judgment on the note. Corporate
Counsel for the Company timely responded to the petition and filed a
reconventional demand in support of Registrant's allegation of IBG's breach
of the Loan Agreement. This litigation is now in the discovery phase.
F-6
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AND STATEMENTS OF LOSS AND ACCUMULATED DEFICIT AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH 10QSB FOR THE QUARTER ENDED MARCH 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 730
<SECURITIES> 0
<RECEIVABLES> 25000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 25730
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 486757
<CURRENT-LIABILITIES> 383808
<BONDS> 25000
0
0
<COMMON> 2796505
<OTHER-SE> (2718556)
<TOTAL-LIABILITY-AND-EQUITY> 486757
<SALES> 0
<TOTAL-REVENUES> 438
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 39885
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7413
<INCOME-PRETAX> (39447)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (39447)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
