U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from____________ to ______________
***********
COMMISSION FILE NO. 33-20897-D
HELIX BIOMEDIX, INC.
COLORADO 84-1080717
2151 E. LAKESHORE DR., BATON ROUGE, LA 70808
(504) 387-1112
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. YES [X]
NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-B is not contained in this form, and no disclosure
will be contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]
Registrant's revenues for the fiscal year ending December 31, 1997:
$12,252
As of December 31, 1997, there were 1,597,405 shares of common no par
value stock of Helix BioMedix, Inc. issued and outstanding, and the aggregate
market value of the common stock held by non-affiliates was approximately:
$1,151,688
DOCUMENTS INCORPORATED BY REFERENCE: YES. SEE INDEX ON PAGES 20-23
EXHIBITS: Indexed at Pages 20-23
PAGES: This Form 10-KSB consists of 24 pages, plus pages F-1 through
F-15.
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PART I
ITEM 1. BUSINESS
(a) General Development of Business
Helix BioMedix, Inc., formerly Cartel Acquisitions, Inc. ("the Company"),
was formed under the laws of the state of Colorado on February 2, 1988 to
create a corporate vehicle to seek and acquire a business opportunity. On
March 20, 1989, the Company acquired 100% of the outstanding shares of Helix
BioMedix, Inc., a Louisiana corporation, ("BioMedix of Louisiana") in exchange
for shares of the Company's common stock representing a control interest in
the Company. The Company acquired all of the stock of BioMedix of Louisiana
from Helix International Corporation ("Helix"), a Louisiana corporation
founded in 1985. BioMedix of Lousiana was incorporated on November 7, 1988 as
a wholly owned subsidiary of Helix to develop therapeutic biopharmaceuticals
for animal and human health care.
On June 19, 1989, having acquired BioMedix of Louisiana, the Company
amended its charter to change its name to Helix BioMedix, Inc. All references
herein to the Company refer to Helix BioMedix, Inc., the Colorado corporation,
and its wholly owned subsidiary, Helix BioMedix, Inc. of Louisiana.
(b) Description of Business During the Development Stage
Acquisition of Rights to the Lytic Peptide Technology
Since March 1989 the Company has been involved in the business of
conducting research both internally and through a contract arrangement with
Louisiana State University ("LSU"). Prior to its incorporation of BioMedix of
Louisiana, Helix had started its research on lytic peptides (small bioactive
proteins) in 1986, and in August 1987 entered into a collaborative
"Antimicrobial Project" Agreement with LSU which had done pioneering
exploratory research in this area. Under the terms of the Agreement Helix
provided funding for specific research support at LSU, Helix assumed
responsibility for obtaining a patent position to protect the results of the
research, and LSU and Helix agreed to share equally in any future royalty
income, and Helix retained the rights to commercialize the technology
developed in the Project.
Helix transferred to BioMedix of Louisiana in 1988 all of its rights and
obligations in the Antimicrobial Project relating to the use of lytic peptides
in animal and human health care. Therefore, in March 1989 the Company
acquired all of such rights for the purpose of further developing the
technology and ultimately bringing commercial products to market.
Research and Management Agreement with Helix International Corporation
Concurrent with its acquisition of BioMedix of Louisiana, the Company
entered into an agreement with Helix which provided that the scientific
employees of Helix continue to conduct lytic peptide research in its
laboratories, that Helix continue to support the LSU research under the
Antimicrobial Agreement, that Helix continue to obtain the related patent
coverage---all to be undertaken on a contract basis for the account of the
Company. Under the terms of the Agreement, Helix provided research scientists
and technicians, laboratory and office facilities and all administrative
services to the Company on a cost plus 15% basis. This arrangement continued
through February 1990.
Research and Management Agreement With University Research & Marketing, Inc.
In March 1990 the Company lacked adequate financial resources to continue
its contract research activities, and Helix was also no longer able to provide
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financial support to the Company. At that time Helix closed its laboratory
operations, and the Company's in-house research and development activities
were curtailed pending availability of additional financing. Concurrently,
the Company underwent a de-facto change in control wherein Helix agreed to
sell to University Research & Marketing, Inc. ("URM") the majority of its
controlling stock interest in the Company. In connection with this action the
Company entered into an agreement with URM, whereby URM would provide
administrative services and continue to support the research at LSU in behalf
of the Company for a flat fee of $20,000 per month plus patent and other out
of pocket costs. It was agreed that the Company would defer cash payment for
such services until it was able to obtain additional corporate financing.
URM continued to perform such services on behalf of the Company from
March 1990 until August 1991. Although research activities were maintained at
a substantially lower level than in 1989, the patent prosecution was
continued, and favorable corroboration of the early research was obtained by
scientists in outside universities (other than LSU) who evaluated several of
the Company's proprietary lytic peptide compounds.
Discontinuation of Reporting to the SEC and Cessation of Trading of the
Company's Stock
From February 1990 until 1994 the Company was operated on an absolutely
minimum budget for administrative costs because of the lack of operating
capital. Therefore, the Company was unable to continue the substantial
expense and effort of filing quarterly 10-Q and annual 10-K (with audited
financial statements) Reports with the SEC. Prior to 1994 the last report
filed with the SEC was the Company's Report on Form 10-Q for the quarterly
period ending September 30, 1989. That Report is incorporated herein by
reference as Exhibit 13-a. Until 1994 the Company had not been current nor in
compliance with the reporting requirements for public companies pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. No annual or
quarterly reports, financial statements, or proxy solicitations were sent to
the Shareholders by the Company during the period of non-reporting to the SEC.
In late 1988 and throughout 1989 the Company's common stock was actively
traded in the over-the-counter market as a "penny stock" listed in the pink
sheets. Several brokerage firms acted as market makers in the stock. After
State and Federal securities regulatory agencies drastically curtailed
operations of penny stock brokers in 1989 and 1990, and after the Company
ceased to make financial statements publicly available, trading of the
Company's stock substantially discontinued until 1994. This is discussed
further in Item 5 of Part II of this Report.
Management Control of the Company Returned to Helix International Corporation
URM was unable to fulfill its commitment to purchase from Helix the
controlling interest in the Company's common stock. In July 1992, de-facto
control of the Company was returned to Helix by the shareholders of the
Company, at which time Helix, URM, and Mr. Keith P. Lanneau (returning as
President and CEO of the Company) and several other substantial shareholders
committed to a plan of action for revitalizing and restructuring the Company.
Plan for Restructuring the Company
By mid 1992 it was the belief of the major shareholders of the Company
that the Company's proprietary lytic peptide technology and the associated
patent estate and the gradually emerging market potential for
biopharmaceuticals had developed to a point which encouraged and demanded
renewed corporate vigor. Management recognized that the Company should
undertake a major strategic and financial restructuring to strengthen itself
and to move aggressively toward commercialization of its technology base. A
restructuring plan was adopted with the following objectives which have been
attained or are currently in the process of implementation as follows:
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(a) Several key shareholders to provide interim funding to maintain the
Company's activities during the restructuring.
Key shareholders have done this on a month-to-month basis since August 1991 to
the present time. The Company believes it can rely upon a continuation of
this funding until permanent private and/or public financing is obtained.
(b) Management to be strengthened by new outside Directors.
In March 1993 the Company entered into an agreement with the Louisiana
Partnership for Technology and Innovation ("LAPTI") to obtain assistance in
implementation of the Company's restructuring plan and in the development of a
program for selective licensing of the Company's technology. In consideration
of these services to be rendered, the Company issued 8,000 shares of its
common stock to LAPTI in May 1993. An officer and staff member of the
Partnership, Mr. Michael K. Marcantel, joined the Company's Board of Directors
and since 1993 has served as Vice President, Secretary-Treasurer. He spends
approximately 20% of his time assisting the Company's President in the
restructuring initiatives discussed herein.
In December 1993 Dr. Donald R. Owen joined the Company as a Director and Vice
President and Chief Scientist, bringing high level expertise to the Company in
its fields of technical endeavor.
In October 1994 Mr. Thomas L. Frazer joined the Company as a Director with the
specific mission of assisting management with its restructuring plan. Access
to Mr. Frazer's extensive business experience and financial expertise
constitute an important step in further strengthening company management. In
mid 1995 the board of directors designated Mr. Frazer as Chief Financial
Officer for the Company.
(c) The Agreements with LSU to be renegotiated and novated to the benefit of
the parties involved.
In March 1993 the Company, Helix, URM, and Helix Phytonetix, Inc. (a related
company) entered into a novated Agreement of Settlement with LSU which
releases all the parties from any defaults arising from their former
respective agreements. Ownership of the lytic peptide technology, formerly
jointly owned by LSU and Helix (with the Company as assignee of the Helix
interest) is now definitively clarified. Under the new Agreement five U.S.
patent applications (and their foreign counterparts), which have been
prosecuted by Helix, URM, and the Company, became the property of LSU.
Pursuant to the new Agreement, the Company was granted by LSU a world-wide
exclusive license to the technology of the lytic peptide patent estate with
respect to all potential uses except in the area of plant technology.
Additionally, the Company was granted a conditional right, without further
funding from the Company, to obtain a license to certain future lytic peptide
technology which LSU may develop.
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(d) Stepped up development and prosecution of the patent estate.
In March 1994 the Company discharged the patent law firm which had previously
handled prosecution of patent matters relating to the lytic peptide
technology. (See Item 3 herein) The Company retained another large patent
law firm, which it believes is fully qualified to develop the patent estate.
The Company is actively working with this law firm, as well as with several
patent law firms in foreign countries to achieve the final issuance of several
U.S. and foreign patents during 1998. During 1997 the patent estate was
further enhanced by the granting of two Korean patents. As soon as further
financing is available, the Company is prepared to file additional patent
applications on its peptides and drug delivery formulations, based on new
proprietary bioactive compounds, which are outside the scope of the past
agreements with LSU.
(e) Strengthen in-house scientific expertise and obtain enhanced capability
to produce the Company's proprietary peptides and to develop formulated drug
delivery vehicles for same.
In late 1993 the Company entered into negotiations with Therapeutic Peptides,
Inc. ("TPI"), a firm located in New Orleans, LA. In the Registrant's December
31, 1994 10-KSB Report (Exhibit 13-f) it was disclosed that the Company and
TPI were considering a plan to merge TPI into Helix BioMedix, contingent upon
the latter's success in completing its first step private financing initiative
to raise $500,000 as bridge funding. The Company is currently deliberating
with two separate corporate and institutional groups considering substantial
private investment in the Company. However, during the latter part of 1995,
the Boards of Directors of Helix BioMedix and TPI concluded that the present
interests of both companies are better served by a contractural strategic
alliance between the parties than by a merger of the corporations. On
November 10, 1995 the Company and TPI reached agreement on such an alliance
and executed a "Cooperative Endeavor Agreement" which closely links the
parties in a joint initiative to further enhance the Company's patent estate
and to commercialize the Cytoporin technology.
Dr. Donald R. Owen, Chief Scientist and a director of the Company, serves
as President and Scientific Director of TPI. Since 1993 TPI has utilized its
scientific staff and well equipped laboratory facilities to synthesize and
further evaluate the Company's lytic peptides. During the period of 1995
through 1997 scientists at TPI developed new "third and fourth generation"
derivatives of the Company's Cytoporin peptides which will further enhance the
Company's patent estate. Several of the new peptides, as well as earlier
patented Cytoporins, all show excellent promise as lead compounds for
pre-clinical and clinical development of new drugs.
(f) Remove the Company's common stock from its previous "penny stock" status.
As set forth in Item 4 (Part I) of this Report, on December 29, 1993 at an
Annual Meeting of its Shareholders the Company effected a 500:1 reverse split
of its outstanding shares of Common Stock. With only 1,597,405
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shares now outstanding, the stock (as set forth in Item 5-Part II herein) has
resumed limited trading in the low "dollars", rather than "penny", range.
This will facilitate the Company's future efforts to attract market makers and
retail brokers to support trading of the Company's securities.
(g) Place the Company's financial reporting on a current basis and resume
compliance with the SEC public company reporting requirements.
During the third quarter of 1994 the Company filed those Form 10-KSB and
10-QSB reports necessary to bring it current and in compliance with SEC
reporting requirements.
Audited financial statements were prepared for the fiscal years ending
December 31, 1989, 1990, 1991, 1992, and 1993. These statements were
incorporated in a Form 10-KSB report for the period ending December 31, 1993.
That report was filed September 30, 1994 concurrently with the filing of Form
10-QSB reports for the first and second quarters of 1994. The Company also
filed with the SEC its 1994 third quarter 10-QSB and December 31, 1994 10-KSB
reports on a timely basis. All quarterly 10-QSB and 10-KSB reports for 1995,
1996, and 1997 have been filed on a timely basis. The aforesaid reports are
incorporated herein by reference as Exhibits 13-a through 13-q. With the
present filing of this Form 10-KSB report for the fiscal year ended December
31, 1997, the Company has been in full compliance with SEC public company
reporting requirements with timely filing of required reports for the last
forty two (42) months.
(h) Prepare a well documented five year Business Plan for the Company.
As a major component of its restructuring initiative, during the last three
years the Company developed a five year Business Plan which is periodically
updated to reflect advances in the state of the Company's technology
platform. The strategic elements of this Plan, which the Company believes are
prudently consistent with the Company's probable ability to attract capital
resources, will in the near future be reported in summary form to the
Shareholders and to the public investing community.
(i) Resume a program of financial and information reporting to the
Shareholders.
As soon as practicable after filing of this 1997 10-KSB report the Company
plans to resume formal communications with its Shareholders by means of
regular meetings, newsletters and/or quarterly and annual reports to the
Shareholders.
(j) Obtain adequate outside private capital funding to place the Company in
sound financial condition to execute its Business Plan.
A primary, and necessary, objective of the Company's restructuring efforts has
been to reach a point where adequate private capital funding can be attracted
to supplement the earlier, limited public financing and to move the Company
out of its development stage by commercializing the technology base. The
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Company believes such financing will enable it to enter into strategic
alliances and licensing agreements to produce both capital and revenues and to
introduce its first products to the marketplace within the next two years.
Given the availability of current financial reporting, recent advances in
development of its technology, and the aforesaid Business Plan, during 1996
and 1997 the Company made presentations to potential private capital sources,
including both venture capital groups and biotech/pharmaceutical companies
interested in the Company's technology. Definitive discussions are now
underway with several such groups. During 1998 implementation of the
financing initiatives is first priority for the Company's management.
(k) Develop a network of retail brokers to re-establish an active trading
market in the Company's securities.
Pursuant to completion of the restructuring initiatives (i) and (j) described
above, Company management will undertake to interest a group of
small-to-medium size brokerage firms in becoming retail market makers in the
Company's common stock. This will require (1) current SEC reports, (2) a
summary of the Company's current Business Plan, (3) re-establishment of news
flow to shareholders, and (4) evidence of good financial viability through
successful completion of the Company's on-going initiative to attract private
capital.
During the latter half of 1998 the Company believes it will develop an active
market for its securities. This will provide liquidity for the present public
shareholders as well as lay the groundwork for future public financing by the
Company.
Investment in Research and Development
The Company's direct investment in research and development of its
"Cytoporin" (i.e., lytic peptide) technology has aggregated $1,996,904 since
Registrant's inception (November 7, 1988) to December 31, 1997. Of this sum
an amount of $339,585 has been capitalized as the legal costs incurred in
patent prosecution, $200,000 capitalized as a cost paid by promissory note to
Helix International Corporation to acquire the Antimicrobial Technology at
Registrant's inception, and $25,000 paid in common stock issued (10,000
shares) as partial consideration for Antimicrobial Technology developed for
the Company by TPI prior to confection of the Cooperative Endeavor Agreement
in November 1995. The balance of $1,432,319 has been expensed as R & D costs
as they were incurred by the Company. The Company's total investment in R & D
and other operating and interest expenses to develop its Cytoporin technology
has aggregated $3,421,765 since Registrant's inception through December 31,
1997.
To the best of Registrant's knowledge, prior to November 7, 1988 Helix
International had invested approximately $839,400 in research and development
(excluding patent costs) on the lytic peptide technology. In addition to the
approximately $4,261,165 invested by Registrant and Helix International
Corporation to develop the technology base, LSU, several other universities,
TPI, and several other companies have expended substantial sums of their own
in exploring potential applications of the Company's Cytoporin technology.
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Potential for Commercialization of the Company's Technology
The Company's technology is based on the discovery that its proprietary
bioactive Cytoporin compounds (lytic peptides) have the ability to destroy a
broad spectrum of bacteria, protozoa, fungi, and viruses which cause
pathogenic disease conditions in animals and humans. Some of the Cytoporins
have demonstrated activity as growth factors to promote wound healing and to
cause proliferation of white blood cells which are subject to destruction by
autoimmune diseases such as AIDS. Certain Cytoporins, in in-vitro tests, have
shown potential applications as chemotherapeutic agents in cancer therapy.
With the on-going critical concern in scientific and medical circles
about the exploding emergence of antibiotic resistant bacteria, the use of
Cytoporins as adjuvants or enhancers to boost the effect of existing
antibiotics against resistant bacterial strains opens an important new realm
of possible pharmaceutical applications for the Company's Cytoporin compounds.
The cost and time of bringing new drugs to market essentially mandates
that the Company seek strategic alliances and licensing arrangements with
larger, well financed companies to bring the Cytoporins through arduous and
expensive clinical trials before they find commercial applications as
prescription drugs.
While the Company is pursuing the long term introduction of high
potential prescription drugs through a program of strategic partnering, it
will concentrate in-house efforts on the near term introduction of proprietary
products in the area of topical antiseptics and industrial disinfectants.
Impact of Regulatory Factors
The enormous cost and time of bringing prescription drugs through the FDA
regulatory gauntlet of clinical trials and approvals is a factor that
virtually assures the Company must seek well financed strategic partners for
such initiatives in the pharmaceutical or biotechnology industries. For this
reason the Company is developing, for near term market introduction, certain
non-drug products subject to less stringent regulatory hurdles posed by the
FDA and/or environmental protection agencies.
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
resources 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 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
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the Registrant and LSU resulted in each party's placing the other in default
of the agreements between the two.
During the second quarter 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.
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 and in the forthcoming First Quarter 1998 10-QSB Report.
ITEM 2. PROPERTIES
The Company maintains its offices in office space provided by the
Company's President. The President is paid $200 per month for rent of this
space and is reimbursed for out-of-pocket expenses for telephone use, postage,
and other general office expenses. These rent payments for rent and other
Company offices expenses are not made in cash, but are accrued as an account
or note payable to the President (or an affiliated company) until the Company
is in a position to pay these expenses on a cash basis. The Company offices
are located at 2151 East Lakeshore Dr., Baton Rouge, Louisiana 70818. The
telephone number is (504) 387-1112, and the Fax Number is (504) 338-9727.
Synthesis and testing of the Company's proprietary Cytoporin compounds
(lytic peptides) are
conducted at the laboratories (approx. 3000 sq. ft. ) of Therapeutic Peptides,
Inc.(TPI) in Harahan, LA. Dr. Donald R. Owen is President of TPI and is a
Vice President and Director of Helix BioMedix, Inc. The Company utilizes the
TPI laboratories under the terms of the Cooperative Endeavor Agreement between
the Company and TPI. The Company reimburses TPI in cash for such contract
research conducted for the account of the Company.
ITEM 3. 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
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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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during 1997. The
most recent Annual Meeting of the Shareholders of Registrant was held on
December 29, 1993. There was no proxy solicitation for the meeting. Exhibit
No. 22 incorporated by reference in this Report is a copy of the Notice of the
Meeting timely forwarded to the Shareholders. A quorum was present and
voting and there was a unanimous vote in favor of each matter voted upon as
follows:
Directors elected or re-elected to constitute the Board of Directors.
Amendments to the Articles of Incorporation to (i) Effect a 500:1 Reverse
Stock Split, and (ii) Reduce the Number of Authorized Shares, all as set
forth in Exhibit No. 22 incorporated by reference in this Report.
Exhibit No. 22 also includes a copy of a Notice to Shareholders dated
March 11, 1994 requesting them to contact Registrant's Stock Transfer Agent to
exchange their stock certificates pursuant to the shareholder approved 500:1
reverse stock split.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) Principal Market or Markets
The Registrant's Shares of common stock are traded on the
over-the-counter market. Registrant ceased to be compliant with SEC reporting
requirements in 1990, and there were only limited and sporadic trades of
Registrant's securities, as "penny stock" from 1990 to 1994. After the 500:1
reverse stock split described in Item 4. of Part I of this Report,
Registrant's stock (formerly symbol HXBI on the pink sheets) was reported in
April, 1994 under the new stock symbol, "HXBM", on the electronic bulletin
board of NASDAQ Market Operations. Since Registrant continued to be
non-compliant with SEC reporting requirements until September 30, 1994, only
limited trading of Registrant's stock had taken place in 1994. Based on
information received from one of two Market Makers for Registrant's stock,
during 1995, 1996, and 1997 there has been a continuation of very limited and
sporadic trading of Registrant's stock, with total transactions aggregating
less than 20,000 shares during 1997. In the ninety day period prior to date
of this Report the bid/ask quote has remained at $1.00 per share bid and $2.00
to $2.50 per share asked. The foregoing prices are believed to be
representative inter-dealer quotations, without retail markup, markdown or
comnmissions, and may not represent actual transactions.
Registrant believes that a non active market for its securities will
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continue to exist until such time as (1) Registrant promulgates to the public
news of the Company's restructuring program and recent advances in development
of its technology and (2) until the Company, now fully current in it SEC
reporting, obtains a network of retail brokers to re-establish an active
trading market for the stock, all as discussed in Item 1 of Part I of this
Report. Management believes this will occur during the latter half of 1998.
(b) Approximate Number of Holders of Common Stock
The number of holders of record of Registrant's no par value common stock
at December 31, 1997 was approximately 600. Registrant estimates and believes
there are 400 to 500 additional shareholders holding stock in "street name" in
brokerage accounts.
(c) Dividends
Holders of common stock are entitled to receive such dividends as may be
declared by the Registrant's Board of Directors. No dividends have been paid
with respect to the common stock since Registrant's inception, and no
dividends are anticipated to be paid in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(a) Plan of Operation
The Company's general plan of operation is outlined in Item 1 of Part I
of this Report. 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 I
herein. 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 well 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.
(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 approximately
$47,000 per quarter, of which approximately $14,000 per quarter represents
interest accrual rolled into the principal of loans from shareholders.
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
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<PAGE>
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 December 31, 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 management
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 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 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 10-KSB 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 is 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
12
<PAGE>
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.
ITEM 7. FINANCIAL STATEMENTS
Please see Pages F-1 through F-15.
The following Financial Statements are filed as part of this report:
Page
Report of Independent Certified Public Accountants F-1
Balance sheet as of December 31, 1997 F-2
Statement of Operations for the periods ending December 31, 1996
and December 31, 1997 and for the period from inception
(November 7, 1988) to December 31, 1997 F-3
Statement of Stockholders' Equity (Deficit) for the period from
inception (November 7, 1988) to December 31, 1997 F-4 to F-6
Statements of Cash Flows for the period from inception
(November 7, 1988) to December 31, 1997 F-7 to F-8
Notes to Financial Statements F-9 to F-15
All schedules have been omitted, as the required information is
inapplicable or the information is presented in the financial statements or
the notes thereto.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements between the Registrant and its
independent accountants on any matter of accounting principles or practices or
financial statement disclosure since the Registrant's inception.
13
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT
(a) The Directors and Officers of the Registrant are as follows:
Name: Keith P. Lanneau
Age: 72
Position: President, CEO, and Director
Tenure as Officer or Director: March 15, 1989 to March 10, 1990 as President,
CEO, and Director; November 13, 1991 to July 10, 1992 as
a Director; and July 10, 1992 to present as President,
CEO, and Director.
Name: Thomas L. Frazer
Age: 52
Position: Director
Tenure as Officer or Director: October 27, 1994 to present as a Director
Name: Robert J. Love, M.D.
Age: 49
Position: Vice President and Director
Tenure as Officer or Director: March 15, 1989 to March 10, 1990 as a
Director; September 14, 1991 to July 10, 1992 as a
Director; July 10, 1992 to December 31, 1993 as a
Director; and December 31, 1993 to present as Vice
President and a Director.
Name: Michael K. Marcantel
Age: 49
Position: Vice President, Secretary-Treasurer, and Director
Tenure as Officer or Director: May 5, 1993 to present.
Name: Donald R. Owen, Ph.D.
Age: 53
Position: Vice President , Chief Scientist, and Director
Tenure as Officer or Director: December 29, 1993 to present.
A brief description of the business experience of each of the above
Directors and Officers of Registrant is set forth below:
Mr. Lanneau was founder of Helix Biomedix, Inc. (of Lousiana) in 1988, which
company was acquired by Registrant on March 20, 1989. Registrant, formerly
named Cartel Acquisitions, Inc. (a Colorado corporation) then changed its name
to Helix BioMedix, Inc. (of Colorado). Mr. Lanneau has served full time as
Chief Executive Officer of Registrant during the periods of tenure shown
above. He holds a B.S. degree in Physics from the Massachusetts Institute of
Technology and an M.B.A. degree from Harvard. He is the author of numerous
patents and publications and was a scientist and research director with Exxon
Research and Engineering for eleven years from 1949 to 1960. For some of his
notable scientific work with Exxon he was awarded the Senior Moulton Medal of
the British Institution of Chemical Engineers in 1959.
14
<PAGE>
Prior to his association with Registrant Mr. Lanneau, after 1960 had extensive
experience as a scientist-businessman, having been the founder, Chief
Executive Officer, Director, and/or Principal Scientist of several high
technology companies. He was a founding director of Louisiana's Gulf South
Research Institute, a non-profit multi-disciplinary contract research
organization. He was a member of its Board of Directors and Executive
Committee from 1965 to 1985 and served a two year term as Chairman of the
Board. Mr. Lanneau was a founding member of the Louisiana Partnership for
Technology and Innovation in 1988. Throughout his business and professional
career, he has actively served on the boards of various local and statewide
civic organizations within Louisiana.
In addition to his present duties as President/CEO and Director of the Company
Mr. Lanneau is an active scientific collaborator with Dr. Donald R. Owen, and
he assumes primary responsibility for technical interfacing with patent
attorneys and those outside companies with whom the Registrant seeks
collaborations and strategic alliances.
Mr. Frazer, a practicing CPA, is a prominent business executive in Baton
Rouge, LA. He was a founding director of a commercial bank and has served on
the board of directors of a number of business corporations. He was chairman
of the board of a $50,000,000 computer software company. He is a professional
consultant and expert in company acquisitions, restructuring programs, and
financial reorganizations. As such, Mr. Frazer's recent addition to the
Company's board of directors constitutes an important milestone in the
Company's initiative to strengthen its management organization.
Dr. Love is a Canadian citizen and resident of Vancouver, British Colombia.
He holds a B.S. degree in biology and received his Doctorate in Medicine from
the University of Alberta. From 1986 to 1988 he served as President and
Director of Esstra Industries Corporation, a Canadian public company with
interests in several high technology ventures. During his association with
Helix BioMedix, Inc. he has been active in developing interest in the
company's technology at medical research clinics in Canada. In his medical
practice in Vancouver he specializes in environmental medicine and
immunology. He is a member of the American Academy of Environmental
Medicine.
Mr. Marcantel is a Vice President of the Louisiana Partnership for Technology
and Innovation ("LAPTI") and has held that position since 1988. Prior to
joining LAPTI he held various management positions from 1977 to 1988 with Gulf
South Research Institute where he was responsible for contract administration
and intellectual property (patents) management. He holds a B.S. degree in
Business Administration from Louisiana State University.
LAPTI, a private, non-profit successor to Gulf South Research Institute
supported by both State and private funding, assists in the formation and/or
development of new technology based industries within the State of Louisiana.
LAPTI makes small seed capital investments in and/or contributes expertise in
strategic and financial planning and management assistance to its "portfolio"
companies. As an officer and senior staff member of LAPTI, Mr. Marcantel
presently serves on the Board of Directors of several high technology
companies based in Louisiana. In behalf of LAPTI, which holds a minority
equity interest (approx. 1%) in Registrant, he spends approximately 20% of his
time on his activities as an Officer and Director of Helix BioMedix, Inc. Mr.
Marcantel is a member of the Technology Transfer Society, Licensing Executives
Society, and the National Contract Management Association.
15
<PAGE>
Dr. Owen holds a B.S. degree in Pre-Medicine and M.S. degree in Chemistry. He
obtained his Ph.D. in Chemistry from the University of Houston. He has served
on the faculties and staff of the University of Southern Mississippi, the
University of Utah, and Tulane University. Dr. Owen has numerous publications
and extensive academic and industry research experience in several fields
including polymer chemistry, biomaterials science, biomedical engineering,
cosmetic and pharmaceutical formularies, and computer-aided rational design of
bioactive peptides and proteins.
After serving six years as a Senior Scientist with Gulf South Research
Institute, in 1987 Dr. Owen founded Biosouth Research Laboratories, Inc.
("BRL") in New Orleans as a private, contract research laboratory specializing
in development of pharmaceutical and cosmetic formularies. He is also founder
and President of Biosyn, Inc., a manufacturer of specialty products for the
cosmetic and pharmaceutical industries. He is President of Vital Assist,
Inc., another high technology company doing pioneering research on development
of medical device organ perfusion systems for use in organ transplant centers
and in the transport and preservation of donated human organs. Both of these
latter two companies are "spin-outs" from technologies developed by Dr. Owen
in his research company, BRL. In 1992 a third "spin-out" (Therapeutic
Peptides, Inc. ("TPI") was formed by BRL and Dr. Owen to focus on research in
peptide chemistry and to collaborate with Helix BioMedix, Inc. in the
synthesis and testing of the proprietary Cytoporin (lytic peptide) compounds
of BioMedix.
At the present time Registrant and TPI are working jointly to commercialize
the Cytoporins under the terms of the Cooperative Endeavor Agreement adopted
by them in November 1995. Dr. Owen is President and Scientific Director of
TPI. In December 1993 he joined Helix BioMedix, Inc. as a Director and Vice
President and Chief Scientist. Dr. Owen is presently an Adjunct Professor of
Materials Science and Bioengineering at the University of New Orleans. He is
a member of the American Chemical Society, Society of Biomaterials, and the
International Society of Artificial Organs. In 1993 he received recognition
from the Louisiana Partnership for Technology and Innovation as the State's
top "Innovator of the Year".
All Directors of the Registrant will hold office until the next annual
meeting of the shareholders and hold office until their successors have been
elected and qualified.
The Officers of the Registrant are elected by the Board of Directors at
the first meeting after each annual meeting of the Registrant's shareholders
and hold office until their death or until they shall resign or have been
removed from office.
The date of the next annual meeting of the Registrant will be determined
by the Registrant's Board of Directors in accordance with Colorado law.
(b) Compliance With Section 16(a) of The Exchange Act
No persons or entities holding Registrant's securities or serving as
Officers or Directors of Registrant are subject to the reporting requirements
of Section 16(a) of The Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
Since 1991 the only officer who has received compensation for his
services is the President and CEO, Keith P. Lanneau. From December 1, 1991 to
December 31, 1994 he was compensated by an accrual of $5,000 per month. In
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<PAGE>
lieu of cash payment for services, which has not been feasible for the
Company, Mr. Lanneau accepted convertible promissory notes of the Company,
payble on demand, with 8% interest compounded quarterly. Said notes, in the
aggregate amount of $192,943, were converted on April 1, 1995 into 80,000
shares of common stock of the Company at a price of $2.42 per share.
Commencing January 1, 1995 to the present Helix International Corporation
and Arrowhead Technology Associates, Inc., both affiliates of Registrant, have
provided full time management consulting services to the Company for a fee of
$5000 per month through June 30, 1995 and for $6000 per month thereafter.
These fees include Mr. Lanneau's services as President and CEO of the Company.
Since inception of the Company no persons have received any monetary
compensation for their services as Members of the Board of Directors. On
December 31, 1997, in consideration of their past services as Directors of the
Company the following persons were granted stock options to purchase common
stock at a price of $1.00 per share, the number of shares being shown beside
each name. These options replaced options previously granted to the same
persons in 1995.
Director Number of Shares
Thomas L. Frazer 20,000
Dr. Robert J. Love 5,000
Michael K. Marcantel 15,000
Dr. Donald R. Owen 15,000
Keith P. Lanneau 20,000
---------
75,000
The above cited options are all exercisable upon issuance and expire at
December 31, 2000.
SUMMARY ANNUAL COMPENSATION TABLE
Name and Year Salary Bonus Other Compensation
Position
- ----------------- ------ -------- ------- ------------------
Keith P. Lanneau 1991 $ 5,000 None None
Director 12/91 to
6/92, President and 1992 $60,000 None None
CEO and Director from
7/92 to Present 1993 $60,000 None None
1994 $60,000 None None
1995 - None Options
1996 - None None
1997 - Options
17
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
(a) Present Ownership
The following table sets forth, as of the date of this Report, the stock
ownership of each person known by the Registrant to be the beneficial and/or
record owner of five percent or more of the Registrant's Common Stock, each
Officer and Director individually and all Officers and Directors of the
Registrant as a group:
<TABLE>
<S> <C> <C>
NAME AND ADDRESS NUMBER OF SHARES PERCENT
- ---------------- ---------------- -------
Helix International Corporation 844,062 52.8%
2151 East Lakeshore Drive
Baton Rouge, LA 70808
Estate of Joy G. Lanneau (1) 91,000 (2) 5.7%
2151 East Lakeshore Drive
Baton Rouge, LA 70808
Keith P. Lanneau 935,062 (3) 58.5%
2151 East Lakeshore Drive
Baton Rouge, LA 70808
Thomas L. Frazer 151,499 (4) 9.5%
7520 Perkins Rd. Suite 280
Baton Rouge, LA 70808
Robert J. Love -0- (5) 0.0%
3483 W. 18th Ave.
Vancouver, B.C.
Canada V6S 1A8
Michael K. Marcantel -0- (6) 0.0%
8748 Quarters Lake Road
Baton Rouge, LA 70809
Donald R. Owen 10,000 (7) 0.6%
5701 Crawford St., Suite 1
Harahan, LA 70123
--------- ------
All Officers and Directors 1,096,561 68.6%
As a Group (5 persons) --------- ------
========= ======
TOTAL SHARES OUTSTANDING 1,597,405 100.0%
========= ======
</TABLE>
18
<PAGE>
(b) Ownership Assuming Conversion of All Promissory Notes and Exercise of
Options
<TABLE>
<S> <C> <C>
NAME AND ADDRESS NUMBER OF SHARES PERCENT
- ---------------- ---------------- -------
Helix International Corporation 844,062 42.9%
Estate of Joy G. Lanneau (1) 384,131 (2) 19.5%
Keith P. Lanneau 1,248,193 (3) 63.4%
Thomas L. Frazer 171,499 (4) 8.7%
Robert J. Love 5,000 (5) 0.2%
Michael K. Marcantel 15,000 (6) 0.8%
Donald R. Owen 25,000 (7) 1.3%
------- -----
All Officers and Directors 1,464,692 74.5%
As a Group (5 persons)
========= ======
TOTAL SHARES OUTSTANDING 1,967,336 100.0%
========= ======
</TABLE>
(c) Notes to Tables (a) and (b) Above
(1) Mrs. Joy G. Lanneau, former spouse of Keith P. Lanneau, died March 30,
1998. Mr. Lanneau is beneficial owner of securities owned by her estate.
(2) As at December 31, 1997, Mrs. Lanneau was beneficial owner of 91,000
shares of stock and of notes convertible into 293,131 shares of stock, either
held personally or beneficially as sole shareholder of Arrowhead Technology
Associates, Inc..
(3) Mr. Lanneau is beneficial owner as Chief Executive Officer of Helix
International Corporation, and as beneficiary of the estate of Mrs. Lanneau,
of 935,062 shares of stock. As a Director he also holds an option to purchase
20,000 shares. He is beneficial owner of the stock conversion rights held by
the Estate of Mrs. Lanneau.
(4) Mr. Frazer is the holder of record of 151,499 shares of stock and an
option, as a Director, to purchase an additional 20,000 shares.
(5) Dr. Love holds, as a Director, an option to acquire 5,000 shares of
stock.
(6) Mr. Marcantel holds, as a Director, an option to purchase from the
Company 15,000 shares of stock.
(7) As controlling shareholder of TPI, Dr. Owen is the beneficial owner of
10,000 shares of the Company's stock. He also owns, as a Director, an option
to purchase an additional 15,000 shares.
19
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) With Helix International Corporation
From March 1989 to March 1990, the Company contracted with Helix
International Corporation ("Helix"), a principal shareholder, to conduct
research on lytic peptides and the Company's proprietary Cytoporin compounds
on a contract basis for the account of the Company. The Company incurred a
total of $655,321 in such research costs paid or payable to Helix during this
period. These costs included payments by Helix to Louisiana State University
("LSU") for contract research support and to patent attorneys for development
of a patent position on the Company's proprietary technology. At December 31,
1997, the Company's promissory notes for $752,802 were outstanding to Helix to
recognize the balance due to Helix on unpaid research costs, accrued interest,
consulting fees, and patent pass through costs. On December 31, 1997 these
notes were converted into 304,062 shares of common stock of the Company (at an
average price per share of $2.48. In addition, $50,000 in debt payable to
Helix had been converted in September 1993 into common stock equity of the
Company on the basis of $2.50 per share.
Commencing January 1, 1995 the Company began to accrue for Helix
International a management consulting fee of $5000 per month, which fee was
increased to $6000 per month effective July 1, 1995. This fee arrangement
includes the services of Mr. Lanneau as President and CEO of the Company, and
Mr. Lanneau has not otherwise been compensated by the Company since 1994 for
his services as an officer. This consulting fee arrangement with Helix
International was terminated June 30, 1996 and was transferred to Arrowhead
Technology Associates, Inc.
(b) With Arrowhead Technology Associates, Inc.
Arrowhead Technology Associates, Inc. is a business consulting company
affiliated with Mr. Lanneau. On July 1, 1996 the Company began to accrue for
Arrowhead a consulting fee of $6000 per month, which fee continues to the
present and includes the services of Mr. Lanneau as President and CEO of the
Company. Mr. Lanneau receives no other compensation for his services as an
officer of Registrant. Office rent and general office expenses of the Company
are paid by Arrowhead and the Company either reimburses Arrowhead or accrues
these expenses to the Company's promissory note payable to Arrowhead. This is
more fully discussed in Item 12. (d) below.
(c) With University Research & Marketing, Inc.
In March 1990, when Helix became unable to continue funding of the
Company's research and other business activities, the Company entered into an
agreement with another shareholder, University Research & Marketing, Inc.
(URM), as part of a restructuring of debt, to continue the Company's research
and development for a flat fee of $20,000 per month plus patent and other out
of pocket costs. Under this agreement, which terminated the Company's earlier
agreement with Helix, URM provided administrative services and sponsored
research on behalf of the Company totalling $360,000 for the period from March
1990 until August 1991. The $360,000 in debt incurred under this agreement
was converted into common stock equity of the Company by the shareholder in
September, 1993. The conversion was on the basis of $2.50 per share of
stock. At March 31, 1995, the Company remained obligated to URM for out of
pocket costs, patent costs, and interest in the form of a promissory note in
the amount of $104,331. On April 1, 1995 this note was also converted into
common stock at $2.50 per share.
As part of the LSU Settlement Agreement (described in Note 1 to the
Financial Statements, pages F-9,10), the Company entered into a sublicense
agreement with URM, a shareholder, for the development and marketing of a
portion of the Company's proprietary technology, specifically the use of the
technology in food preservation and purification of drinking water.
20
<PAGE>
(d) With Keith P. Lanneau
The Company maintains it corporate offices in the offices of its
President, Keith P. Lanneau. From Inception to December 31, 1997, the Company
has incurred $147,619 in rental and general office expense reimbursements
which have been paid or are payable to Arrowhead Technology Associates, Inc.,
another company affiliated with Mr. Lanneau. In September, 1993 $50,000 of
the debt incurred with the affiliated company was converted into common stock
equity of the Company. The conversion was on the basis of $2.50 per share of
stock. At December 31, 1997, the balance of the unpaid debt to the affiliated
company, Arrowhead Technology Associates, Inc., was evidenced by the
Company's promissory note in the amount of $188,166. This balance includes
unpaid accruals for rent, general office expenses, the consulting fee
described in Item 12. (b) above, and accrued interest.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description and Location
- ----------- ------------------------
3-a Articles of Incorporation and ByLaws
Incorporated by reference to Exhibit No. 3 to the Registrant's
Registration Statement (No.33-20897-D) dated July 1, 1988.
3-b Amendments to Articles of Incorporation
Incorporated by reference to Form 10-KSB for 1993 filed by Registrant
with the SEC (File No. 33-20897-D) on September 30, 1994.
3-c Amendments to By Laws
Incorporated by reference to Form 10-KSB for 1993 filed by Registrant
with the SEC (File No. 33-20897-D) on September 30, 1994.
13-a Registrant's Form 10-Q For the Quarter Ended September 30, 1989
Incorporated by reference to Form 10-Q filed by Registrant with the SEC
(File No. 33-20897-D) on November l5, 1989.
13-b Registrant's Form 10-KSB for the Five Years Ended December 31, 1993
Incorporated by reference to Form 10-KSB for 1993 filed by Registrant
with the SEC (File No. 33-20897-D) on September 30, 1994.
13-c Registrant's Form 10-QSB For the Quarter Ended March 31, 1994
Incorporated by reference to Form 10-QSB (First Quarter, 1994) filed
by Registrant with the SEC (File No. 33-20897-D) on September 30, 1994.
13-d Registrant's Form 10-QSB For the Quarter Ended June 30, 1994
Incorporated by reference to Form 10-QSB (Second Quarter, 1994) filed
by Registrant with the SEC (File No. 33-20897-D) on September 30, 1994.
13-e Registrant's Form 10-QSB For the Quarter Ended September 30, 1994
Incorporated by reference to Form 10-QSB (Third Quarter, 1994) filed by
Registrant with the SEC (File No. 33-20897-D) on November 12, 1994.
21
<PAGE>
13-f Registrant's Form 10-KSB for the Year Ended December 31, 1994
Incorporated by reference to Form 10-KSB for 1994 filed by
Registrant with the SEC (File No. 33-20897-D) on April 12, 1995.
13-g Registrant's Form 10-QSB for the Quarter Ended March 31, 1995
Incorporated by reference to Form 10-QSB (First Quarter, 1995) filed
by Registrant with the SEC (File No. 33-20897-D) on May 12, 1995.
13-h Registrant's Form 10-QSB for the Quarter Ended June 30, 1995
Incorporated by reference to Form 10-QSB (Second Quarter, 1995)
filed by Registrant with the SEC (File No. 33-20897-D) on August 12,
1995.
13-i Registrant's Form 10-QSB for the Quarter Ended September 30, 1995
Incorporated by reference to Form 10-QSB (Third Quarter, 1995) filed
By Registrant with the SEC (File No. 33-20897-D) on November 13, 1995.
13-j Registrant's Form 10-KSB for the Year Ended December 31, 1995
Incorporated by Reference to Form 10-KSB for 1995 filed by Registrant
with the SEC (File No. 33-20897-D) on April 12, 1996.
13-k Registrant's Form 10-QSB for the Quarter Ended March 31, 1996
Incorporated by reference to Form 10-QSB (First Quarter, 1996) filed
by Registrant with the SEC (File No. 33-20897-D) on May 16, 1996.
13-l Registrant's Form 10-QSB for the Quarter Ended June 30, 1996
Incorporated by reference to Form 10-QSB (Second Quarter, 1996) filed
by Registrant with the SEC (File No. 33-20897-D) on August 12, 1996.
13-m Registrant's Form 10-QSB for the Quarter Ended September 30, 1996
Incorporated by reference to Form 10-QSB (Third Quarter, 1996) filed by
Registrant with the SEC (File No. 33-20897-D) on November 8, 1996.
13-n Registrant's Form 10-KSB for the Year Ended December 31, 1996
Incorporated by Reference to Form 10-KSB for 1996 filed by
Registrant with the SEC (File No. 33-20897-D) on April 9, 1997.
13-o Registrant's Form 10-QSB for the Quarter Ended March 31, 1997
Incorporated by Reference to Form 10-QSB (First Quarter, 1997) filed
by Registrant with the SEC (File No. 33-20897-D) on May 14, 1997.
13-p Registrant's Form 10-QSB for the Quarter Ended June 30, 1997
Incorporated by Reference to Form 10-QSB (Second Quarter, 1997)
filed by Registrant with the SEC (File No. 33-20897-D) on August 14,
1997.
13-q Registrant"s Form 10-QSB for the Quarter Ended September 30, 1997
Incorporated by Reference to Form 10-QSB (Third Quarter, 1997) filed
by Registrant with the SEC (File No. 33-20897-D) on November 13, 1997.
22 Notice of 1993 Annual Shareholders' Meeting and Request to Exchange
Stock Certificates Pursuant to 500:1 Reverse Stock Split
Incorporated by reference to Form 10-KSB for 1993 filed by Registrant
with the SEC (File No. 33-20897-D) on September 30, 1994.
22
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8k were filed during any quarter of the fiscal year
ending December 31, 1997.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Registrant: HELIX BIOMEDIX, INC.
By:/s/Keith P. Lanneau Date: April 15, 1998
____________________________
Keith P. Lanneau, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
By:/s/Keith P. Lanneau Date: April 15, 1998
_____________________________________
Keith P. Lanneau, President, Principal
Financial Officer, and Director
By:/s/Michael K. Mercantel Date: April 15, 1998
_____________________________________
Michael K. Marcantel, Vice President,
Secretary-Treasurer, and Director
By:/s/Donald R. Owen Date: April 15, 1998
_____________________________________
Donald R. Owen, Vice President, Chief
Scientist, and Director
24
<PAGE>
HELIX BIOMEDIX, INC.
Financial Statements
December 31, 1997
<PAGE>
CONTENTS
Page
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT F-1
BALANCE SHEET F-2
STATEMENTS OF OPERATIONS F-3
STATEMENT OF STOCKHOLDERS' DEFICIT F-4 to F-6
STATEMENTS OF CASH FLOWS F-7 to F-8
NOTES TO FINANCIAL STATEMENTS F-9 to F-15
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
The Board of Directors
Helix Biomedix, Inc.
Baton Rouge, Louisiana
We have audited the accompanying balance sheet of Helix
Biomedix, Inc. as of December 31, 1997, and the related
statements of operations, cash flows, and changes in
stockholders' deficit for each of the two years then
ended and for the period from inception (November 7,
1988) to December 31, 1997. These financial statements
are the responsibility of the Company's management. Our
responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require
that we plan and perform the audit to obtain reasonable
assurance that the financial statements are free of
material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also
includes assessing the accounting principles used and
significant estimates made by management, as well as
evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for
our opinion.
In our opinion, the financial statements referred to
above present fairly, in all material respects, the
financial position of Helix Biomedix, Inc. as of December
31, 1996, and the results of its operations, cash flows,
and changes in its stockholders' deficit for each of the
two years ended December 31, 1997, and for the period
from inception (November 7, 1988) to December 31, 1997 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared
assuming the Company will continue as a going concern.
The company, which is in the development stage, has
incurred substantial losses since its inception, and has
minimal current assets with which to repay obligations as
they come due. Management plans to raise money in equity
markets to finance further patent prosecution and ongoing
research and development activities. However, there is
no assurance that management will be successful in
obtaining additional financing. These conditions give
rise to substantial doubt about the Company's ability to
continue as a going concern. These financial statements
do not include any adjustments which may be necessary if
the Company is unable to continue in existence.
Denver, Colorado
April 13, 1998
COMISKEY & COMPANY
PROFESSIONAL CORPORATION
F-1
<PAGE>
HELIX BIOMEDIX INC.
BALANCE SHEET
DECEMBER 31, 1997
CURRENT ASSETS
Cash $ 1,101
Note Receivable - TPI 25,000
---------
Total current assets 26,101
OTHER ASSETS
Accrued interest receivable 3,590
Antimicrobial technology (net) 132,496
Patents pending and approved (net) 323,077
---------
Total other assets 459,163
---------
Total assets $ 485,264
=========
CURRENT LIABILITIES
Accounts payable - trade $ 11,936
Notes payable 40,000
Notes payable on demand - related parties 293,131
Accrued interest payable 12,701
---------
Total current liabilities 357,768
LONG TERM LIABILITIES 25,000
STOCKHOLDERS' DEFICIT
Common stock, no par value, 2,000,000
shares authorized, 1,597,405
shares issued and outstanding 2,781,605
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 (2,816,509)
---------
Total stockholders' equity 102,496
---------
Total liabilities and stockholders'
deficit $ 485,264
=========
The accompanying notes are an integral part of the
financial statements
F-2
<PAGE>
HELIX BIOMEDIX INC.
STATEMENTS OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988)
TO DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INCEPTION
TO DEC. 31, DECEMBER 31,
1997 1997 1996
----------- -------- --------
REVENUE $ 23,090 $ 12,252 $ 7,838
OPERATING EXPENSES
Research & Development 1,432,319 70,500 -
Amortization 109,664 17,492 17,492
Accounting & Legal 115,939 11,843 4,284
Advertising 13,488 - -
Compensation costs 137,400 - -
Consulting fees 486,953 37,245 85,437
Office expense 151,315 23,060 26,414
Other general & administrative costs 11,287 840 685
----------- --------- --------
TOTAL OPERATING EXPENSES 2,458,365 160,980 267,812
----------- --------- --------
NET LOSS FROM OPERATIONS (2,435,275) (148,728) (259,974)
OTHER (INCOME) EXPENSE
Gain on settlement of lawsuit (48,574) - (48,574)
Interest expense 429,808 79,785 70,152
----------- --------- --------
381,234 79,785 21,578
----------- --------- --------
NET LOSS (2,816,509) (228,513) (281,552)
=========== ========= =======
NET LOSS PER SHARE $ (3.01) $ (0.18) $ (0.24)
=========== ========= =======
WEIGHTED AVERAGE SHARES OUTSTANDING 934,719 1,270,620 1,159,644
=========== ========= ========
</TABLE>
The accompanying notes are an integral part of the
financial statements.
F-3
<PAGE>
HELIX BIOMEDIX INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO
DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C> <C> <C>
ADDITIONAL
COMMON STOCK PAID IN ACCUMULATED STOCKHOLDERS'
# SHARES AMOUNT CAPITAL DEFICIT DEFICIT
--------- --------- ---------- ----------- -------------
Initial capitalization 1,000,000 $ 66,486 $ 66,486
November 7, 1988
Restated for recapitalization
of the private company (370,000) -
Net loss for the period
ended Dec 31, 1988 (217,271) (217,271)
--------- ------- ---------- ----------- -------------
Balance,
December 31, 1988 630,000 66,486 (217,271) (150,785)
Reverse acquisition of
Helix BioMedix, Inc. by
Cartel Acquisitions, Inc.
March 20, 1989 151,262 855,292 855,292
Net loss for the year
ended Dec 31, 1989 (705,641) (705,641)
--------- ------- ---------- ----------- -------------
Balance,
December 31, 1989 781,262 921,778 (922,912) (1,134)
Net loss for the year
ended Dec 31, 1990 (267,541) (267,541)
--------- ------- ---------- ----------- -------------
Balance
December 31, 1990 781,262 921,778 (1,190,453) (268,675)
Net loss for the year
ended Dec 31, 1991 (206,878) (206,878)
--------- ------- ---------- ----------- -------------
Balance
December 31, 1991 781,262 921,778 (1,397,331) (475,553)
Issuance of stock for
services rendered,
Dec. 1992, $2.50/share 5,600 14,000 14,000
Net loss for the year
ended Dec 31, 1992 (191,053) (191,053)
--------- ------- ---------- ----------- -------------
Balance
December 31, 1992 786,862 935,778 (1,588,384) (652,606)
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
HELIX BIOMEDIX INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1997
continued
ADDITIONAL
COMMON STOCK PAID IN ACCUMULATED STOCKHOLDERS'
# SHARES AMOUNT CAPITAL DEFICIT DEFICIT
--------- --------- ---------- ----------- -------------
Issuance of stock for
services rendered,
May, 1993 $5.00/share 8,000 40,000 40,000
Issuance of stock in
partial settlement of
account payable,
May, 1993, $5.00/share 4,000 20,000 20,000
Issuance of stock for
debt conversion, September
1993, $2.50 per share 184,000 460,000 460,000
Issuance of stock for
current and prior services
rendered, December 1993,
$2.50 per share 9,490 23,724 23,724
Fractional shares issued
in connection with 1 for
500 reverse stock split 29 -
Net loss for the year
ended Dec 31, 1993 (222,049) (222,049)
--------- --------- ---------- ----------- -------------
Balance
December 31, 1993 992,381 1,479,502 (1,810,433) (330,931)
Issuance of stock
for cash, March and
December 1994,
$2.50 per share 16,000 40,000 40,000
Net loss for the year
ended Dec 31, 1994 (172,503) (172,503)
--------- --------- ---------- ----------- -------------
Balance,
December 31, 1994 1,008,381 1,519,502 (1,982,936) (463,434)
Issuance of stock
for debt conversion,
April 1995, $2.50/share 41,732 104,331 104,331
The accompanying notes are an integral part of the financial statements.
F-5
<PAGE>
HELIX BIOMEDIX INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1997
continued
ADDITIONAL
COMMON STOCK PAID IN ACCUMULATED STOCKHOLDERS'
# SHARES AMOUNT CAPITAL DEFICIT DEFICIT
--------- --------- ---------- ----------- -------------
Issuance of stock for
debt conversion,
April 1995, $2.41/share 80,000 192,943 192,943
Issuance of stock for
cash, April 19, 1995,
$2.50 per share 4,800 12,000 12,000
Issuance of stock for
debt conversion,
September 1995,
$2.50 per share 14,731 36,828 36,828
Issuance of stock
consideration in
cooperative endeavor
agreement Nov. 10, 1995 10,000 25,000 25,000
Issuance of stock options 137,400 137,400
Net loss for the year
ended Dec 31, 1995 (323,508) (323,508)
--------- --------- ---------- ----------- -------------
Balance
December 31, 1995 1,159,644 1,890,604 137,400 (2,306,444) (278,440)
Issuance of stock
for conversion of debt
and accounts payable
for consulting fees,
December 1996.
$1.00 per share 110,976 110,976 110,976
Net loss for the year
ended Dec 31, 1996 (281,552) (281,552)
--------- --------- ---------- ----------- -------------
Balance
December 31, 1996 1,270,620 2,001,580 137,400 (2,587,996) (449,016)
Issuance of stock
for conversion of debt
and accounts payable
for consulting fees,
December 1997.
$2.50 and $1.00
per share 326,785 780,025 780,025
Net loss for the year
ended Dec 31, 1997 (228,513) (228,513)
--------- --------- ---------- ----------- -------------
Balance
December 31, 1997 1,597,405 2,781,605 137,400 (2,816,509) 102,496
========= ========= ========== =========== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
HELIX BIOMEDIX, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1997
<TABLE>
<S> <C> <C> <C>
INCEPTION
TO DEC. 31, DECEMBER 31,
1997 1997 1996
----------- ---------- ----------
CASH FLOWS FROM OPERATIONS
Net Loss $ (2,816,509) $ (228,513) $ (281,552)
Adjustments to reconcile net loss
with net cash flows from operations
Stock for services 155,906 20,745 37,437
Accrued interest receivable (3,590) (1,751) (1,839)
Amortization 109,845 17,492 17,492
Compensation Cost 137,400 - -
Consultation Fees 151,437 - 85,437
Research & Development 24,000 - 24,000
Increase(decrease) in accounts
payable 11,936 5,142 (31,581)
Increase (decrease) in accounts
payable - related party 343,936 (690,944) -
Increase in accrued
interest payable 12,701 4,204 3,582
----------- ---------- ----------
NET CASH USED IN OPERATIONS (1,872,938) (873,625) (147,024)
CASH FLOWS FROM INVESTING ACTIVITIES
Patents (202,227) (10,532) (13,689)
----------- ---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (202,227) (10,532) (13,689)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received in Cartel
reverse acquisition 634,497 - -
Due from Affiliate - - 30,124
Notes Receivable (25,000) - -
Notes payable 72,394 25,000 (4,131)
Related party notes payable (net) 509,556 99,609 59,323
Issuance of stock for cash 52,000 - -
Issuance of stock for debt 832,819 759,280 73,539
----------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,076,266 883,889 158,855
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 1,101 (268) (1,858)
CASH, BEGINNING, OF PERIOD - 1,369 3,227
----------- ---------- ----------
CASH, END OF PERIOD $ 1,101 $ 1,101 $ 1,369
=========== ========== ==========
The accompanying notes are an integral part of the financial statements
F-7
<PAGE>
HELIX BIOMEDIX, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1997
continued
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
AND OTHER CASH INFORMATION
INCEPTION
TO DEC. 31, DECEMBER 31,
1997 1997 1996
----------- ---------- ---------
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 accts payable 74,120 - 1,784
Accounts payable converted to notes 700,559 13,295 37,437
Accrued interest rolled into note 346,750 75,581 69,501
Notes converted to equity 867,023 72,921 334,102
Cash paid for interest and taxes 651 - 651
</TABLE>
The accompanying notes are an integral part of the financial statements
F-8
<PAGE>
Helix BioMedix, Inc.
Notes to Financial Statements
For the period from inception (November 7, 1998) to December 31, 1997
1. Summary of Significant Accounting Policies
Description of entity
Helix BioMedix, Inc., formerly Cartel Acquisitions, Inc. ("the Company") was
formed under the laws of the state of Colorado on February 2, 1988 to create
a corporate vehicle to seek and acquire a business opportunity. On March
20, 1989, the Company acquired 100% of the outstanding shares of Helix
BioMedix, Inc., a Louisiana corporation, ("BioMedix of Louisiana") in
exchange for 630,000 shares of the Company's common stock. The Company
acquired its shares from Helix International Corporation. BioMedix of
Louisiana was incorporated on November 7, 1988 as a separate corporate
entity from Helix International, Inc., to develop therapeutic
biopharmaceuticals for animal and human health care. The accompanying
financial statements present the financial position and results of
operations of BioMedix of Louisiana since inception.
Unless otherwise noted, all references herein to ("the Company") refer to Helix
BioMedix, Inc., the Colorado corporation, and its wholly owned subsidiary,
Helix BioMedix, Inc. of Louisiana.
Development stage activities
The Company has been involved in the business of conducting research both
internally and in conjunction with a research and development arrangement
with Louisiana State University (LSU), in the field of biotechnology. The
Company applies genetic engineering techniques to the development of
potential commercial products primarily in the fields of human therapeutics
and agribusiness.
In conjunction with the incorporation of BioMedix of Louisiana, Helix
transferred to it, by way of an Assignment of Interest in Technology, all of
Helix's right, title and interest in and to the technology and potential
Patent rights relating to the use of lytic peptides in animal and human
health care. Furthermore, Helix granted to BioMedix of Louisiana all of
Helix's rights and obligations associated with the Helix/LSU Antimicrobial
Project relating to the use of lytic peptides in animal and human health
care. In exchange for the transfer of technology, BioMedix of Louisiana
issued 100% of its stock to Helix and signed a $200,000 promissory note to
Helix.
Concurrently with the aforementioned events, the Company entered into an
agreement with Helix International with provided that the scientific
employees of Helix continue to conduct the lytic peptide research on a
contract basis for the account of the Company. Under the terms of the
Agreement, Helix provided research associates, laboratory and office
facilities and all administrative services to the Company on a cost plus 15%
basis until an aggregate of $500,000 in expenditures had been reached. This
arrangement continued through February 1990.
F-9
<PAGE>
Helix BioMedix, Inc.
Notes to Financial Statements
For the period from inception (November 7, 1998) to December 31, 1997
continued
In March 1990, the Company's in-house research and development activities
were curtailed pending additional financing. Concurrently, the Company
underwent a de-facto change in control wherein Helix International sold the
majority of its controlling stock interest in the Company to University
Research Marketing, Inc. ("URM"). Concurrently with this action, the
Company entered into an agreement with URM to provide administrative
services and to continue its research and development for a flat fee of
$20,000 per month plus patent and other out of pocket costs. URM performed
such services and funded research at LSU on behalf of the Company from March
1990 until August 1991.
In July 1992, de-facto control of the Company was returned to Helix
International, and the Company, with the assistance of both URM and Helix
International, began a series of negotiations with LSU which culminated in the
February 1993 Agreement of Settlement, Compromise and Release. This
settlement agreement essentially released LSU, the Company, Helix
International, URM, and Helix Phytonetix, a related company, from defaults
under their original respective agreements. The settlement renewed the
Company's exclusive license in five lytic peptide patents currently under
development. Excluding research and development costs expensed to
operations as incurred, the Company's investment in these patents was
$323,077, net of amortization, at December 31, 1997. As part of the
settlement, the Company executed a sublicense agreement with URM for the
development and marketing of a portion of the patented technology.
In 1993, the Company entered into an agreement with the Louisiana
Partnership forTechnology and Innovation to obtain assistance in the
implementation of a financial and managerial restructuring plan for the
Company, and in the development and implementation of licensing programs for
the technology. In consideration for these services, the Company issued
8,000 shares of its common stock to the Partnership in May 1993.
In late 1993, the Company entered into negotiations with Therapeutic
Peptides, Inc. (TPI), the objective of which was to bring about a merger of
TPI into Helix BioMedix, Inc., contingent upon the successful completion of
the Company's financing plan. Since 1993 and through the present, TPI has
continued to conduct lytic peptide research on behalf of the Company.
In November 1995, the Company, in lieu of the proposed merger with TPI,
entered into a cooperative endeavor agreement with Therapeutic Peptides,
Inc. Upon consummation of the agreement, Therapeutic Peptides, Inc.
received 10,000 shares of stock in Helix BioMedix, Inc., and shall
henceforth share in the royalties received by Helix BioMedix, Inc. with
respect to the derivative peptides. The Company continues to fund research
on its peptides at the laboratories of TPI.
In 1996, the Company agreed to an out of court settlement resulting from a
suit filed by the Company and three other parties, including Helix
International, Inc., University Research and Marketing, Inc. and Helix
Phytonetix, against former patent attorneys for the failure to renew patents
held by the plaintiffs. The settlement resulted in a gain for the Company
of $48,574.
Due to the fact that the Company's research and development activities have
begun but there has been no significant revenue therefrom, the Company is in
the development stage as defined in Statement of Financial Accounting
Standards #7.
The following are the Company's significant accounting policies:
F-10
<PAGE>
Helix BioMedix, Inc.
Notes to Financial Statements
For the period from inception (November 7, 1998) to December 31, 1997
continued
Basis of Presentation
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company, which is in the
development stage, has incurred substantial losses since its inception, and
has no current assets with which to repay obligations as they come due.
Management plans to raise money in equity markets to finance further patent
prosecution and ongoing research and development activities. However, there
is no assurance that management will be successful in obtaining additional
financing. These conditions give rise to substantial doubt about the
Company's ability to continue as a going concern. These financial
statements do not include any adjustments which may be necessary if the
Company is unable to continue.
Intangibles
Patent costs, consisting primarily of legal, filing and maintenance fees,
are capitalized. Amortization is taken on the straight line method over the
life of each patent(s), commencing upon the issuance of the patents, not to
exceed 17 or 20 years, depending on the date the patent was issued, or the
date the application was filed. Antimicrobial technology which was
purchased in conjunction with the patents, has been capitalized at the basis
of the debt issued for it. This technology is being amortized ratably over
twenty years. Organization costs were amortized ratably over 60 months.
Research and Development
Research and development costs are expensed as incurred.
Statement of cash flows
For purposes of the statement of cash flows, the company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents.
Loss per share
Basic loss per share has been computed using the weighted average number of
shares outstanding during the period. Diluted loss per share has not been
presented as the effect of potentially dilutive securities is estimated to
be antidilutive.
Use of estimates
The preparation of the Company's financial statements in conformity with
generally accepted accounting principles requires the Company's management
to make estimates and assumptions that affect the amounts reported in these
financial statements and accompanying notes. Actual results could differ
from those estimates.
Income taxes
For all periods presented, the Company has computed its income tax benefit
under FASB 109 - Accounting for Income Taxes. Because of the company's
creation of a valuation allowance for the tax benefit of net operating loss
carryforwards and R & D credit carryforwards, there is no material
difference in the financial statements between income tax calculated under
FASB 109 and income tax calculated under APB 11.
F-11
<PAGE>
Helix BioMedix, Inc.
Notes to Financial Statements
For the period from inception (November 7, 1998) to December 31, 1997
continued
Reverse stock split
On December 29, 1993 the company underwent a 1 for 500 reverse stock split.
All share and per share amounts have been retroactively restated to reflect
the split.
2. Notes Payable
The Company is obligated under the following notes at December 31, 1997
8% convertible promissory note,
principal and interest due June 1996. 4,000
12% promissory note, principal and
interest due November 1989 2,000
Two 8% convertible demand
notes payable to shareholders, due
on demand. 293,121
Three 12% promissory notes due
December 1998, each note
convertible into 400 shares of
common stock at the option of the
holder. 9,000
10.25% promissory note, principal
and interest due May 1996 25,000
8.00% promissory note, principal
and interest due June 1999 25,000
-------
Total notes outstanding 358,121
Less amount classified as current 333,121
-------
$ 25,000
The shareholder notes for $293,131 are secured by a first security interest
in technology and intellectual property rights of the Company. Interest is
payable quarterly in cash or common shares of the Company at the rate of
$1.00 per share, or may be converted to principal. Form of payment of
quarterly interest is at the discretion of the note holder. The note plus
accrued interest is convertible in whole or in part at any time prior to
maturity into shares of the Company's common stock at $1.00 per share
The 8% note for $4,000 is convertible into shares of the Company's common
stock at $2.50 per share.
The 8% note for $25,000 is convertible into shares of the Company's common
stock at '$1.50 per share.
F-12
<PAGE>
Helix BioMedix, Inc.
Notes to Financial Statements
For the period from inception (November 7, 1998) to December 31, 1997
continued
Debt maturities over the next five years are as follows: due in 1998,
$333,121: due in 1999, $25,000: and, due thereafter $0.
3. Stockholders' Equity
The Company has 1,597,405 outstanding common shares and no outstanding
preferred shares. The Company is authorized to issue 2,000,000 common and
400,000 preferred shares. The Company's president, Keith P. Lanneau, holds
a total of 935,062 shares beneficially as shareholder in Helix
International, which holds 844,062 of the Company's shares, and as
beneficial owner of 91,000 in the Estate of Mrs. Joy G Lanneau.
On December 29, 1993, the Company underwent a 1 for 500 reverse stock split.
All share and per share amounts in these financial statements have been
retroactively restated to reflect this reverse split.
At December 31, 1997, the Company had outstanding stock options to purchase
75,600 shares of the Company's common stock, 600 of which are exerciseable
at $0.50 per share and the remaining 75,000 at $1.00 per share. The options
became exercisable upon issuance and expire at various dates through 2000.
4. Income Taxes
At December 31, 1997 the Company has approximately $2,817,000 in net
operating loss carryforwards and approximately $97,000 in Research and
Development tax credit carryforwards available to offset future taxable
income and related income tax. The operating loss carryforwards expire
between 2003 and 2012. The tax benefit of these carryforwards has been
offset by a full allowance for realization.
5. Related Party Transactions
From March 1989 to March 1990, the Company contracted with Helix
International, Inc., a principal shareholder, to conduct lytic peptide
research on a contract basis for the account of the Company. The Company
incurred a total of $655,321 in research costs paid or payable to Helix
International during this period. At December 31, 1997, the entire
promissory note for $747,900 was converted into common stock of the company
at $2.50 per share or a total 299,160 shares. In addition, $50,000 in debt
payable to Helix International had been converted to equity in 1992.
The Company maintains its corporate offices in the offices of its president.
From inception to December 31, 1997, the Company has incurred $147,619 in
rental and general office expense reimbursements which have been paid or are
payable to an affiliated company.
The President of the Company is also a principal shareholder of Helix
Phytonetix, Inc. ("Phytonetix"). Phytonetix is a party to the LSU
settlement agreement described in Note 1. As a result of the out of court
settlement also described in Note 1, Phytonetix paid $30,124
F-13
<PAGE>
Helix BioMedix, Inc.
Notes to Financial Statements
For the period from inception (November 7, 1998) to December 31, 1997
continued
to the Company, the total amount that was outstanding, during the year ended
December 31, 1996.
As part of the LSU settlement described in Note 1, the Company entered into
a sublicense agreement with URM, a shareholder, for the development and
marketing of a portion of the patented technology, specifically the use of
the technology in food preservation and purification of drinking water.
For the year ended December 31, 1997, $72,000 of consulting fees have
accrued to Arrowhead Technology Associates, Inc.
The note receivable from Therapeutic Peptides, Inc.(TPI), a shareholder of
the Company, was due June 30, 1996. The Company plans to write off this
receivable against invoices received from TPI for work to be performed in
future periods on behalf of the Company in the area of research &
development. For the year ended December 31, 1997, none of this credit was
used.
6. Legal Proceedings
On November 3, 1995 the Company entered into a Loan Agreement with
International Biochemicals Group, Inc. ("IBG") whereby IBG advanced 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 propmpted IBG to take legal action to collect 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
reconventional demand in support of Registrant's allegations of IBG's breach
of the Loan Agreement. This litigation is now in the discovery phase.
7. Subsequent events
During the first quarter of 1998, the disputes with LSU, which began March
1993, were settled in a novation agreement, effective January 15, 1998,
more fully described in the next paragraph.
F-14
<PAGE>
Helix BioMedix, Inc.
Notes to Financial Statements
For the period from inception (November 7, 1998) to December 31, 1997
continued
7. Subsequent events, continued
In March 1993 the Company, Helix, URM, and Helix Phytonetix, Inc. (a related
company) entered into a novated Agreement of Settlement with LSU which
releases all the parties from any defaults arising from their former
respective agreements. Under this Agreement five U.S. patent applications
(and their foreign counterparts), which had been prosecuted by Helix, URM, and
the Company, became the property of LSU. Pursuant to this new Agreement, the
Company was granted by LSU a world- wide exclusive license to the technology
of the lytic peptide patent estate with respect to all potential uses except
in the area of plant technology. Additionally, the Company was granted a
conditional right, without further funding from the Company, to obtain a
license to certain future lytic peptide technology which LSU may develop.
From the outset of its Agreement of Settlement with LSU in 1993, the Company
contended 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 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.
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.
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. Although the assignment was made for nominal
consideration, with LSU entitled to no future royalties of licenses rights,
the Novation Agreement contains a provision by which Helix BioMedix may pay up
to $1,000,000 to LSU upon final FDA approval of the first two pharmaceuticals
falling within the scope of the patents and patent applications now assigned
by LSU to the Company.
F-15
<PAGE>
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ENDED DECEMBER 31, 1997.
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