FORM 10-Q SB
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1999
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
(225) 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 [ ]
The number of shares outstanding of Registrant's common stock,
no par value at September 30, 1999 was 3,723,043 shares.
DOCUMENTS INCORPORATED BY REFERENCE: YES. SEE INDEX ON PAGE 9.
EXHIBITS: Indexed at Page 9.
PAGES: This Form 10-QSB consists of 9 pages, plus pages F-1 through F-6.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL INFORMATION
Please see Pages F-1 through F-6.
The following financial statements are filed as part of this Report:
Page
Accountants' Report-------------------------------------------F-1
Balance Sheet as at September 30, 1999------------------------F-2
Statements of Operations--------------------------------------F-3
Statements of Cash Flows------------------------------------- F-4
Notes to Financial Statements---------------------------------F-5
These financial statements should be read in conjunction with the
audited financial statements at December 31, 1998. Those statements are
incorporated herein by reference as part of Exhibit No. 99-a.
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OR
PLAN OF OPERATION
This item incorporates by reference Item 1-Part I and Item 6-Part II
of Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1998. (Exhibit No. 99-a). This item also
incorporates by reference Item 2-Part I of Registrant's Quarterly
Report on Form 10-QSB for the period ended June 30, 1999.
(Exhibit No. 99-b).
(a) Plan of Operation
The Company's general plan of operation is outlined in Item 1 of
Part I of Exhibit No. 99-a. The Company has maintained
operations since 1990 primarily with limited capital provided by
loans from key Shareholders. A major strategic and financial
corporate restructuring initiative has been undertaken since 1993.
The details of this program are set forth in Item 1 of Part I, Exhibit
No. 99-a. The Company believes it is now prepared to implement a
Business Plan providing for both near term and long term product
introductions. During the third quarter of this year the Company
was actively seeking additional capital through private sector
financing. A private placement offering was successfully completed
by October 31, 1999, as set forth in succeeding sections of this
report. 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.
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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 five or six other U.S. and Canadian companies actively
working in the field, several of which companies 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 twelve 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.
Collaborative Research with Therapeutic Peptides, Inc.
As set forth in Item 1 of Part I of Exhibit No. 99-a, (i) during the
period 1987 to 1992 the Company conducted the original germinal
research on its Cytoporin technology through scientific work which
it supported at Louisiana State University. ("LSU"); and thereafter
(ii) the Company expanded the realm of its scientific expertise and
continued development of the technology through a joint venture
with Therapeutic Peptides, Inc. ("TPI"), a New Orleans, LA based
high-tech research entity. In November 1995 the Company and TPI
formalized their alliance through execution of a "Cooperative
Endeavor Agreement". This agreement closely linked the parties in
a continuing initiative to expand upon the early work done at LSU,
to further enhance the patent Company's patent estate and to
commercialize the Cytoporin technology.
Dr. Donald R. Owen, the former Chief Scientist and a Director of
the Company, serves as CEO and Scientific director of TPI. Since
1993 TPI has utilized its technical staff and well equipped
laboratory facilities to synthesize and further evaluate the
Company's proprietary lytic peptides. From 1995 through 1999
scientists at TPI developed new and improved "third generation"
derivatives of the Company's earlier proprietary peptides. Several
of the new peptides show promise as lead compounds for pre-clinical
and clinical development of new drugs. Patent applications and
patents resulting from the joint undertaking by TPI and the
Company will be fully assigned to the Company, thereby
substantially enhancing the Company's patent properties derived
from the earlier research sponsored at LSU. As set forth below in
this report on September 30, 1999 (Effective Date) the Company
and TPI entered into a novation of their 1995 Cooperative Endeavor
Agreement, which new "Research Alliance Agreement" further
strengthens the valuable technical alliance between the two
Companies.
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 the Registrant and LSU resulted
in each party's placing the other in default of the agreements
between the two.
During the second quarter of 1997 LSU formally terminated the
Company's license of certain LSU patents relating to the Cytoporin
technology. This termination of license and resolution of the alleged
defaults of the parties were all subject to arbitration. The
arbitration procedures were invoked, and the Company notified
LSU of Registrant's intent to seek further relief in an appropriate
court of law. The actions of LSU in summarily terminating the
license were unwarranted in the opinion of management and
corporate counsel. Furthermore, throughout 1997 and 1998
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.
3
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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 procedures were
terminated by the parties. In consideration of the Company's
dismissing and waiving its causes of action against LSU, LSU
assigned to the Company all right, title and interest to all of the
U.S. and foreign patents and patent applications previously under
license to the Company. The patent estate now fully assigned to the
Company has resulted in sole ownership by the Company of
nineteen (19) U. S. and foreign patents already issued, ten (10) U. S.
and foreign patent applications pending, and various divisional
applications subject to filing with the early priority dates (1987 to
1989) of the issued patents and applications pending.
(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 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 1998, pending final resolution of the dispute with LSU (as set
forth in Part I herein), and pending consummation of a private
financing initiative, the Company continued curtailment of its
operating expenditures. During the year operating losses averaged
approximately $40,800 per quarter, of which only $8,300 was for
accrual of interest. The relatively large reduction of interest costs
from 1996 and 1997 resulted from the substantial reduction of debt
at the end of 1997. During 1998 and the first two quarters of 1999
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operations continued to be funded by stock purchases and loans
from key shareholders.
In early 1999 the Company expected to complete its renewed
initiative to raise capital through private financing following the
recent settlement of disputes with LSU. In its first phase of such
financing, the objective of the Company was to raise $1,000,000 to
$2,000,000 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) expand the vital product development work at TPI and
other outside laboratories, (iii) aggressively proceed with seeking
strategic alliances, (iv) maintain public reporting of company
finances and operations, and to (v) move forward with future
initiatives to bring further equity capital funding to the Company.
Management believes after the initial bridge capital funding that
additional equity capital can be added, on a favorable basis, to the
Company's capital base. This should facilitate the Company's
emerging profitably from its development stage during the next two
to three years. As set forth below the Company's success with the
private placement offering commenced in the third quarter
exceeded expectations. This, and other activities discussed below
constitute substantial achievement of many of the goals of the
Company's broad restructuring program. During the third
quarter, pending completion of the private placement offering,
current operations of the Company continued to be financed by
loans from and/or investments by several key shareholders and
Directors.
During the third quarter the Company's common stock, which is
traded under the symbol "HXBM" on the OTC bulletin board,
continued to trade sporadically and in small transactions.
Management believes market activity in its stock will markedly
increase as the Company begins to enjoy the benefits of its improved
financial condition and expands its operations under the new
Business Plan. On-going initiatives to step up shareholder
communications and to develop company profile in the investor
community should also impact trading activity in the stock. 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.
(c) Other Significant Developments
Corporate Restructuring Activities in 1999
During the first quarter of 1999 the Company retained the services
of outside financial and management consultants to (i) update
various components of the Company's Business Plan (ii) evaluate
and develop alternative plans for financial restructuring, (iii) assist
the Company with recruitment of management and scientific
personnel, and to (iv) implement programs for enhancing corporate
public profile (e.g., development of a Company Website) to
facilitate investor relations and strategic contacts with the scientific
and pharmaceutical industry communities.
During the second quarter of 1999, with the assistance of its
consultants the Company (i) updated its Business Plan, (ii) confected
a definitive plan for financial restructuring, (iii) reached agreement
in principle for employment of three new management and scientific
personnel, (v) at a duly called meeting of the shareholders, elected a
new board of directors and amended the Articles of Incorporation
of the Company to increased authorized capital stock, and (vi)
completed a Private Placement Memorandum and other
documentation required for a private offering of equity securities to
raise capital in the financing initiative which the Company had been
planning since 1998.
The effective date of the Private Placement Memorandum was July
19, 1999 with a final expiration date of not later than October 31,
1999. This private offering contemplated the sale of common stock
and warrants for an aggregate minimum amount of $1,155,000 and
a maximum amount of $1,680,000. In the Memorandum the
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Company outlined its plans to use the proceeds of the offering
primarily to further enhance its patent position, to restructure the
terms of the research alliance with its principal research partner
(Therapeutic Peptides, Inc.), to rearrange certain promissory
convertible debt obligations of the Company, and for general
working capital to implement the Company's updated Business
Plan.
Successful Private Placement Offering
In connection with its Private Placement Offering commenced July
19, 1999 the Company, as of September 30, 1999, had sold
2,100,643 shares of common stock for $1,470,450 in cash. This is
reflected in the financial statements of this third quarter 10-QSB
report. The shares were sold in units (or fractions thereof), each
unit consisting of 150,000 common shares and 150,000 warrants,
each warrant to purchase an additional common share at an
exercise price of $3.25 per share. The warrants, having a maximum
term of five years, are for a period of three years callable at the
option of the Company at a premium equal to the greater of market
price less $3.25 or a price of $0.75 for the first year, $1.75 for the
second year, and $2.75 for the third year.
In addition to reaching the level of minimum proceeds from the
private offering, as a further condition for the release from escrow
of funds from the offering the Company entered into certain
"Restructuring Agreements" with various parties, which agreements
were deemed to be important to future operations of the Company.
The escrow release conditions were met on September 30, 1999 at
which time the various agreements had been confected in principle
on that date. Due to necessary administrative delay all required
agreements were fully executed by the parties on October 5, 1999.
Because of favorable investor response to the Company's private
offering of securities, the Board of Directors increased the
maximum aggregate amount of the offering; and by October 31,
1999, when the offering was terminated, the Company had
increased its total sale of common stock to 2,890,643 shares (with
warrants) for a final aggregate of $2,023,450 in cash proceeds from
the offering. All shares and warrants sold will be "restricted"
securities within the meaning of Rule 144 of the Securities Act of
1933. The increase in equity capitalization after the end of the third
quarter will be reflected in the fourth quarter financial statements
and the year end audit as at December 31, 1999.
Debt Restructuring Agreement
One of the aforesaid Restructuring Agreements provided that Keith
P. Lanneau, as holder of a convertible demand promissory note of
the Company in the amount of $489,462 (including principal and
accrued interest) would, effective September 30, 1999, agree to
restructuring of this debt obligation. By agreement of the parties the
aforesaid demand note was replaced by three notes having no rights
of conversion into common stock, said notes having equal principal
amounts of $163,154 and with maturities of one (1), two (2), and
three (3) years, respectively. This debt restructuring is reflected in
the financial statements of this third quarter 10-QSB report.
New Agreement with Therapeutic Peptides, Inc. (TPI)
In another Restructuring Agreement, effective September 30,1999,
the Company and TPI agreed to a novation of the 1995 Cooperative
Endeavor Agreement between the parties, which had defined the
terms and conditions of the important research collaboration
between the two companies. Whereas the earlier agreement had
provided for the sharing by the companies of any license fees and
royalties resulting from Cytoporin technology developed for the
Company by TPI, the new novated agreement entitled "Research
Alliance Agreement" now provides (i) that rights to all patents and
patent applications based upon Cytoporin technology heretofore and
hereafter developed for the Company by TPI will be fully assigned
to the Company, (ii) that TPI will relinquish its previous right to
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share in any license fees and royalties from such protected
technology, and (iii) that TPI will convey to the Company all know-
how, data, and materials which it has developed in its previous
research on the Cytoporin technology.
In consideration of the aforesaid restructuring of the agreements
between the parties, the Company agreed (i) to pay $100,000 in cash
to TPI and to forgive the indebtedness of TPI on a promissory note
payable to the Company in the amount of $31,656 (including
principal and interest), (ii) to issue 50,000 shares of restricted
common stock of the Company to TPI, (iii) to issue 10,000 shares of
restricted common stock to Dr. Donald R. Owen personally, as
Chief Scientist and CEO of TPI, and (iv) to commit to continued
support of collaborative research in the laboratories of TPI on a
contract basis.
Company management believes the new "Research Alliance
Agreement" with TPI will lead to valuable additions to the
Company's Cytoporin patent estate and that increased future
funding for collaborative research at TPI will strengthen the
valuable alliance between the two companies.
A Corporate Website for the Company
As a major step in its new initiative to enhance corporate profile in
the scientific and financial communities and to strengthen
communications with shareholders and the public in general, the
Company completed development of a corporate Website which
went on line on the Internet shortly after the end of the third
quarter. The address of the Website is www.helixbiomedix.com.
(d) Year 2000 Issue
The Company's management has conducted an assessment of the
impact of the Year 2000 issue on its operations. Management
believes that Year 2000 issues are not currently material to the
Company's business, operations or financial condition, and the
Company does not currently anticipate that it will incur any
material expenses to remediate any Year 2000 issues it may
encounter. However, Year 2000 issues may become material to the
Company following its completion of a business combination
transaction. In that event, the Company may be required to adopt
a plan and a budget for addressing such issues.
7
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On November 3, 1995 the Company entered into a Loan
Agreement with International Biochemicals Group, Inc. ("IBG")
whereby IBG advanced $25,000 to the Company and made a
commitment for further lending. On November 3, 1995 the
Company issued to IBG a promissory note for $25,000 due and
payable May 3, 1996. The Company has not made payment on
the note and advised IBG of its breach of various provisions of the
lending agreement. From time to time the due date of the note
was extended, and the Company agreed to pay the note in full
promptly following resolution of its disputes with LSU, in
consideration of which the Company had offered to withdraw its
allegations of IBG's default on the Loan Agreement. The
protracted nature of the disputes between LSU and the Company
and the termination of the Company's license by LSU prompted
IBG to take legal action to collect on the above referenced note.
On September 16, 1997 IBG filed a petition in the Nineteenth
Judicial District Court of Louisiana seeking judgment on the note.
Corporate Counsel for the Company timely responded to the
petition and filed a reconventional demand in support of
Registrant's allegation of IBG's breach of the Loan Agreement.
On August 19, 1998 the Court granted the judgment to Interbio
for payment of principal and interest due on the note along with
legal costs. The judgment is on appeal and the Company
continues the litigation to recover damages from Interbio on the
reconventional demand still pending in the suit. Included in the
accompanying financial statements is $25,000, representing
principal amount of the IBG note, plus interest of $9,377. In the
event the Company's appeal is unsuccessful, management
estimates the Company will be liable for an additional $15,080 in
interest and legal fees pursuant to the aforementioned judgment.
In its reconventional demand the Company is seeking to recover
damages in excess of $1,000,000 from Interbio for its alleged
breaches of contract.
ITEM 2. CHANGES IN SECURITIES
As set forth herein in Part I-Item 2 (c), as a result of its Private
Placement Offering, during the third quarter the Company sold 2,100,643
shares of common stock with warrants and agreed to convey 60,000 shares
of common stock to TPI and Dr. Donald R. Owen.
Additionally, the Company, effective September 30, 1999, entered
into an agreement with its consultants, Katz-Miller Ventures L.L.C.,
whereby the consultants will receive (i) 40,000 shares of common stock of
the Company for past services, (ii) an additional 40,000 shares for services
to be rendered prior to September 30, 2000, (iii) and a contingent
maximum of 540,000 additional shares, based on possible specified
increases in the market value of the common stock during the next two
years.
Additionally, effective September 30, 1999, the Company and two
of its Directors (Keith P. Lanneau and Thomas L. Frazer) entered into an
agreement whereby the parties agreed to the cancellation and termination
of warrants, previously issued to Messrs. Lanneau and Frazer, to
purchase up to an aggregate of 119,200 shares of common stock of the
Company at a price of $1.00 per share.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No. Description and Location
- ----------- ---------------------------------
99-a Registrant's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998 Incorporated by reference to Form 10-KSB for 1997
filed by Registrant with the SEC (File No. 33-20897-D) on
April 15, 1999.
99-b Registrant's Form 10-QSB for the Quarter Ended June 30, 1999
Incorporated by reference to Form 10-QSB (Second Quarter, 1999) filed
by Registrant with the SEC (File No. 33-20897-D) on August 19, 1999.
(b) Reports on Form 8-K--None
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on its behalf
by the undersigned thereunto duly authorized.
HELIX BIOMEDIX, INC. DATE: November 18, 1999
BY:/s/ Keith P. Lanneau
Keith P. Lanneau, Chairman of the Board of Directors
9
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HELIX BIOMEDIX, INC.
(A Development Stage Company)
FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
CONTENTS
Page
ACCOUNTANTS' REPORT F-1
BALANCE SHEET F-2
STATEMENTS OF OPERATIONS F-3
STATEMENTS OF CASH FLOWS F-4
NOTES TO FINANCIAL STATEMENTS F-5
<PAGE>
The Board of Directors
Helix BioMedix, Inc.
The accompanying balance sheet of Helix BioMedix, Inc. (a development
stage company), as of September 30, 1999, and the related statements of
operations and cash flows for the period then ended were not audited by us
and, accordingly, we do not express an opinion on them.
Denver, Colorado
November 19, 1999
Comiskey & Company
PROFESSIONAL CORPORATION
F-1
<PAGE>
Helix BioMedix, Inc.
(A Development Stage Company)
BALANCE SHEET
September 30, 1999
(Unaudited)
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 1,467,978
Note receivable - TPI 25,000
----------
Total current assets 1,492,978
OTHER ASSETS
Accrued interest receivable 6,656
Deferred private offering costs 33,448
Antimicrobial technology (net) 112,805
Patents pending and approved (net) 368,507
----------
521,416
----------
TOTAL ASSETS $ 2,014,394
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable - trade $ 61,435
Accounts payable - related party 62,924
Notes payable 40,000
Notes payable on demand - related parties 213,154
Accrued interest payable 22,683
----------
Total current liabilities 400,196
LONG-TERM LIABILITIES
Notes payable 28,717
Notes payable - related party 326,308
---------
355,025
STOCKHOLDERS' EQUITY
Preferred stock, no par value, 2,000,000 shares
authorized, no shares issued or outstanding -
Common stock, no par value, 10,000,000 shares
authorized, 3,723,043 shares issued and outstanding 4,277,050
Additional paid-in-capital 137,400
Deficit accumulated during the
development stage (3,155,277)
----------
1,259,173
----------
Total liabilities and stockholders' equity $2,014,394
==========
The accompanying notes are an integral part of the financial statement
F-2
<PAGE>
Helix BioMedix, Inc.
(A Development Stage Company)
STATEMENTS OF OPERATIONS
For the period from inception (November 7, 1988) to September 30, 1999
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C> <C>
Inception to For the three months For the nine months
September 30, ended September 30, ended September 30,
1999 1999 1998 1999 1998
------------ --------- --------- ---------- --------
REVENUE $ 19,500 $ - $ - $ - $ -
OPERATING EXPENSES
Accounting &
legal 175,151 48,657 817 53,231 4,585
Advertising 13,488 - - - -
Amortization 147,952 6,236 4,895 18,708 14,685
Compensation
costs 137,400 - - - -
Consulting fees 543,948 6,000 8,500 21,100 26,795
Office expense 183,431 2,658 5,004 11,515 15,573
Other general &
administrative 15,815 1,847 311 2,716 1,385
Research &
development 1,516,319 12,000 12,000 36,000 36,000
------------ -------- -------- ---------- --------
TOTAL OPERATING
EXPENSES 2,733,504 77,398 31,527 143,270 99,023
------------ -------- -------- ---------- --------
NET LOSS FROM
OPERATIONS (2,714,004) (77,398) (31,527) (143,270) (99,023)
OTHER (INCOME) EXPENSE
Gain on settlement
of lawsuit (48,574) - - - -
Interest income (6,656) (438) (438) (876) (1,314)
Interest
expense 496,503 13,483 8,566 23,796 23,954
------------ -------- ------- --------- -------
441,273 13,045 8,128 22,920 22,640
------------ -------- ------- --------- -------
NET LOSS $(3,155,277) $ (90,443) $ (39,655) $ (166,190) $(121,663)
============ ========= ========== ========== =========
NET LOSS
PER SHARE $ (3.06) $ (0.05) $ (0.02) $ (0.10) $ (0.08)
============ ========= ========== ========== =========
WEIGHTED AVERAGE NUMBER
OF SHARES
OUTSTANDING 1,030,778 1,692,421 1,613,700 1,627,098 1,522,859
============ ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
Helix BioMedix, Inc.
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
For the period from inception (November 7, 1988) to September 30, 1999
(Unaudited)
Inception to For the six months end
June 30, September 30,
1999 1999 1998
------------ ----------- ----------
NET CASH PROVIDED (USED)
BY OPERATIONS $ (1,990,738) $ (23,713) $ (74,249)
CASH FLOWS FROM INVESTING ACTIVITIES
Patents (266,252) (29,522) (29,246)
------------ ----------- ----------
NET CASH USED IN
INVESTING ACTIVITIES (266,252) (29,522) (29,246)
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of stock for debt 832,819 - 4,900
Issuance of stock for cash 1,532,450 1,470,450 10,000
Note receivable (25,000) - -
Cash received in reverse acquisition 634,497 - -
Notes payable 74,455 - 1,530
Related party notes payable (net) 675,747 50,000 86,106
------------ ----------- ----------
NET CASH PROVIDED BY FINANCING
ACTIVITIES 3,724,968 1,520,450 102,536
------------ ----------- ----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,467,978 1,467,215 (959)
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD - 763 1,101
------------ ----------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 1,467,978 $ 1,467,978 $ 142
============ ========= ========
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
AND OTHER CASH INFORMATION
Stock issued to acquire patents 66,486 - -
Debt issued to acquire technology 200,000 - -
Bridge loans outstanding at acquisition 200,000 - -
Patent costs included in accounts payable 99,859 - 25,739
Accounts payable converted to notes 700,559 - -
Accrued interest rolled into notes 421,463 45,796 21,852
Notes converted to equity 1,639,548 - -
The accompanying notes are an integral part of the financial statements.
F-4
<PAGE>
Helix BioMedix, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
September 30, 1999
(Unaudited)
1. Management's Representation of Interim Financial Information
------------------------------------------------------------
The accompanying financial statements have been prepared by Helix
BioMedix, Inc. without audit pursuant to the rules and regulations of
the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles
have been condensed or omitted as allowed by such rules and
regulations, and management believes that the disclosures are adequate
to make the information presented not misleading. These financial
statements include all of the adjustments which, in the opinion of
management, are necessary to a fair presentation of financial position
and results of operations. All such adjustments are of a normal and
recurring nature. These financial statements should be read in
conjunction with the audited financial statements at December 31, 1998.
2. Legal Proceedings
-----------------
On November 3, 1995, the Company entered into a Loan Agreement with
International Biochemicals Group, Inc. ("IBG") whereby IBG advanced
$25,000 to the Company and made a commitment for further lending. On
November 3, 1995, the Company issued to IBG a promissory note for
$25,000 due and payable May 3, 1996. The Company has not made payment
on the note and advised IBG of its breach of various provisions of the
lending agreement. From time to time the due date of the note was
extended, and the Company agreed to pay the note in full promptly
following resolution of its disputes with Louisiana State University
("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. On August 19, 1998, the Court granted
the judgement to Interbio for payment of principal and interest due on
the note along with legal costs. The judgement is on appeal and the
Company continues the litigation to recover damages from Interbio on
the reconventional demand still pending in the suit. Contingent
liability of the Registrant on the judgement is approximately $15,080
in excess of the face amount of the note and interest which the
Registrant has accrued to date in its financial statements. In its
reconventional demand, the Company is seeking to recover damages in
excess of $1,000,000 from Interbio for its alleged breaches of contract.
3. Equity
------
Effective September 30, 1999 the Company issued 2,100,642 shares of
common stock for $1,470,450 in cash. The shares were sold in units,
each unit consisting of 150,000 common shares and 150,000 warrants,
each warrant to purchase common shares at an exercise price of $3.25
per share. For a period of three years, the warrants are callable at
the option of the Company at a premium equal to the greater of market
price less $3.25 or a price of $0.75 for the first year, $1.75 for the
second year, and $2.75 for the third year.
The Company intends to use the proceeds of the offering primarily to
further enhance its patent position, to restructure its research
alliance agreement with its principal research
F-5
<PAGE>
Equity (continued)
- -----------------
partner (Therapeutic Peptides, Inc.), to rearrange certain promissory debt
obligations of the Company, and for general working capital to implement
the Company's updated Business Plan. The Company plans to extend this
offering through the sale of additional shares effective October 31, 1999.
F-6
<PAGE>
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AND STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH 10QSB FOR THE QUARTER ENDED SEPTEMBER 30, 1999.
</LEGEND>
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