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 [FEE REQUIRED]
For the fiscal year ended December 31, 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
210 BARONNE ST., SUITE 1004, NEW ORLEANS, LA 70112
(504) 525-2090
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,
1999: $ -0-
As of December 31, 1999, there were 4,628,253 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: $5,057,764
DOCUMENTS INCORPORATED BY REFERENCE: YES. SEE INDEX ON PAGE 30.
EXHIBITS: Indexed at Page 30.
PAGES: This Form 10-KSB consists of 31 pages, plus pages F-1
through F-20.
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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. In 1988 the Company became a publicly held
company through registration and sale of its securities. 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 by Mr. Keith P. Lanneau, who became President and CEO of the
Company. 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.
A Platform Technology--The "Cytoporin" Peptides
The Company refers to its lytic peptide technology as the
Cytoporin Technology. Briefly, the Cytoporins are small, synthetic
peptides which act upon biological cells by disrupting their
membranes. Membrane Disruptive Peptides (MDPs) over the last
fifteen to twenty years were discovered in nature as major
components in the antimicrobial protective systems of various animal
species. The MDPs, generally
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called "lytic peptides", are small bioactive proteins which are a
key to the host defense (immune) systems of many insects,
amphibians, and mammals. In the giant silk moth, Hyalophora
Cecropia, bacterial infection induces synthesis of special proteins
which form pores in the cell membranes of invading pathogens,
resulting in their death. One group of these proteins are lytic
peptides called Cecropins.
Moving forward from their early research studies with
Cecropins in 1986-87, scientists at Louisiana State University and
the Company developed an entire new class of synthetic,
non-naturally-occuring, MDPs which offer promise as (I)
ANTI-INFECTIVE AGENTS, (II) WOUND HEALING COMPOUNDS, AND (III)
ANTICANCER DRUGS. These novel, highly bioactive compounds are
proprietary to the Company and were named "CYTOPORINS". The Company
believes it has created a powerful platform technology which has the
potential to spawn the development of a broad array of both
biopharmaceutical and non-drug products.
The Company's lead Cytoporins are a family of approximately
twenty (20) proprietary compounds selected from extensive testing of
a library of literally hundreds of variations on the basic structure
of this class of lytic peptides. The Company has discovered that
several compounds appear to be particulary interesting as cancer
therapy agents, and other Cytoporins demonstrate unique wound
healing properties. As promising as these possible applications
are, the Company believes the centerpiece of its broad based
platform technology may be the discovery that some of the Cytoporins
can synergistically enhance and restore the killing power of many
conventional antibiotics which are losing their effectiveness
against dangerous antibiotic-resistant strains of bacteria. In
addition to their antibacterial properties, the Cytoporins are broad
spectrum anti-infectives which are active against many strains of
viruses, fungi, and protozoa.
Research and Management Agreement with Helix International
Corporation
Concurrent with its acquisition of BioMedix of Louisiana in
1989, 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 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.
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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. 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.
Termination of the Research Support at LSU and Renegotiation
of Agreements with LSU
During the period 1990-1992 the Company suffered from very
limited working capital, and discontinued its support of the
Cytoporin research at LSU in late 1992. However, patent prosecution
was continued by the Company with the prospects that valuable
patents covering the work might issue. Further, additional
corroboration of the early research data was obtained by prominent
scientists in other universities than LSU.
By 1993 several of the scientists on the LSU research team,
which the Company had funded to develop the Cytoporin technology,
had departed from the University. In March 1993 the Company
negotiated a novation of its original agreements with LSU and
entered into a "Settlement Agreement" whereby LSU became the
assignee of patents relating to its work on the Cytoporins, and the
Company became the exclusive world-wide licensee of the technology
under terms more favorable to the Company with respect to future
royalty sharing by LSU and the Company.
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Development of a Collaboration with Therapeutic Peptides, Inc.
and Dr. Donald R. Owen.
In 1993 the Company established a joint venture relationship
with a New Orleans based company, Therapeutic Peptides, Inc. ("TPI")
and its president and chief scientist, Dr. Donald R. Owen. From
1993 to the present the Company has continued the development of its
Cytoporin technology through its collaboration with TPI. On
November 10, 1995 the Company and TPI formalized their collaboration
by entering into a "Cooperative Endeavor Agreement", whereby TPI
would, on a contract basis, continue to advance the technology and
move toward commercialization of the proprietary peptides. This
agreement provided that any new patents, expanding upon the scope of
the Companys' patents based on the LSU research, would be assigned
to the Company and that TPI would share in any future royalty flow
from such new patents.
Since 1993 the collaboration between the Company and TPI has
resulted in the design and synthesis of a new "third generation" of
novel and improved Cytoporin peptides which hold substantial promise
as lead compounds for future applications in both pharmaceutical
(drug) and non-drug products. The new peptides are smaller, more
active, less toxic, and more economical to manufacture than the
earlier compounds derived from the LSU research. Indications are
that patent applications currently in preparation on the new
compounds will be highly complementary to the issued patents and
applications pending from the earlier work sponsored by the Company
at LSU.
The Company plans to continue its support of the successful
Cytoporin research and development work at TPI. As set forth in
Part III--Item 12 of this 10-KSB Report (CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS), on September 30, 1999 the Company entered
into a "Research Alliance Agreement" ("RAA") with TPI. The RAA is a
novation of the Company's prior agreement with TPI, and it provides
for outright assignment to the Company of all patent rights, without
future royalty sharing, relating to TPI's past and future research
on the Cytoporin Technology.
CRITICAL DEVELOPMENTS IN THE COMPANY'S RELATIONSHIP WITH LSU.
From the outset of its Settlement Agreement 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 early 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.
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FINAL RESOLUTION IN 1998 OF DISPUTES WITH LSU
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. All disputes were settled out of court
to the advantage of the Company in an agreement whereby, 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. This final
resolution of disputes with LSU greatly strengthened the Company's
patent estate and eliminated the hiatus in the Company's initiatives
to raise capital to move the business forward.
(C) COMPETITION
The Company believes it is establishing a strong patent
position with respect to proprietary compositions of matter and use
of its Cytoporins or other lytic peptides. There is increasing
interest in the biopharmaceutical industry in the potential for such
peptides as therapeutic drug agents. To the best of the Company's
knowledge there are five or six other U.S. or Canadian biotechnology
companies actively working in the field. Although they have had
greater financial resources available to them, the Company believes
the early priority dates on its 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 further believes that the activity of a few competitors,
who have all entered the lytic peptide technology field after the
Company, is helping to accelerate the advance of this basic
technology to the commercial stage.
The Company's basic business plan embraces a concept of (i)
long term strategic partnering for developing pharmaceutical
products and (ii) introduction of near term proprietary non-drug
products (e.g. topical antiseptics and industrial disinfectants and
biocides) to niche markets where regulatory constraints are less of
an obstacle. Company management believes its business plans take
full cognizance of the emerging presence of several well financed
competitors in the general field of endeavor.
(D) THE COMPANY'S PATENT ESTATE
THE HELIX/LSU PATENT ESTATE
Since its inception to the date hereof the Company has
invested over $440,000 in legal costs and fees, alone, to prosecute
the various patent applications based on the early Cytoporin
research conducted for the Company at LSU. A brief summary of the
current status of this patent portfolio is as follows:
1.) All of the pending applications and issued patents have
early priority dates (i.e. 1987-89) with little prior
art cited. Many broad composition and use claims have
been allowed. The Company has been assigned all rights
to the Helix/LSU patent applications and patents, as
discussed hereinabove.
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2.) Twenty two (22) foreign patents have issued, and an
important divisional application is pending in five
foreign countries.
3.) Two (2) U.S. patents have issued, and a third U.S.
patent is pending. Two additional divisional U.S.
patent applications, with early priority dates, are
also pending.
The Company believes (i) that the broad claims on the
Helix/LSU patents issued and pending with early priority dates will
present potential infringement problems to other biotechnology or
pharmaceutical companies working in the lytic peptide field, and
(ii) that claims allowed to the Company on proprietary
compositions-of-matter protect the Company's right to commercialize
its product technology without risk of infringing patents of others.
THE HELIX/TPI PATENT ESTATE
As discussed above in this Report, pursuant to execution of
the new 1999 Research Alliance Agreement between the Company and
TPI, the Company now holds full title to all patent rights on the
composition and use of Cytoporin compounds and the applications
thereof, as developed at TPI since 1993. The Company is now in the
process of filing several U. S. patent applications covering this
technology, and foreign counterpart applications will be filed
hereafter. Additional patent applications will be filed by the
Company and assigned to the Company covering results of future
contract work at TPI to be sponsored by the Company. As stated
hereinabove the Company believes the new generation of Cytoporins
derived from TPI's past research are among the most promising of the
Company's proprietary lead compounds for both pharmaceutical (drug)
and non-drug applications.
(E) INVESTMENT IN RESEARCH AND DEVELOPMENT
The Company's direct investment in research and development of
its Cytoporin Technology has aggregated $2,351,057 since
Registrant's inception (November 7, 1988) to December 31, 1999. Of
this sum an amount of $440,582 has been capitalized as the legal
costs incurred in patent prosecution. Other capitalized R & D costs
include (i) $200,000 capitalized as a cost paid by promissory note
to Helix International Corporation to acquire the Antimicrobial
Technology at Registrant's inception, and (ii) $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 $1,685,475 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 $4,209,763 since Registrant's inception
through December 31, 1999.
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 $5,049,163
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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(F) 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 proprietary 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 also focus in-house efforts on the near term
introduction of proprietary products in the area of topical
antiseptics and industrial disinfectants.
(G) 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.
H) THE COMPANY AS A PUBLICLY HELD ENTITY
As set forth above in this 10-KSB Report, the Company became a
publicly held company in 1988 prior to the reverse merger of Cartel
Acquisitions, Inc. (the Colorado public company) and Helix BioMedix,
Inc. of Louisiana. During the period 1989 to 1991, the Company's
common stock was traded actively as an OTC "pink sheet" stock.
After this period, as a result of concerted regulatory efforts of
the SEC, NASD, and state securities commissioners to curb abuses in
the industry, the active "penny stock" brokerage industry became
effectively curtailed. This impacted the Company's common stock by
reducing trading transactions to a very low level.
In December 1993, as discussed in the Company"s December 31,
1998 10-KSB Report (incorporated herein by reference as Exhibit
13-a), the Company's 500:1 reverse split of its common stock
substantially eliminated the onus of the "penny stock" status.
Since that time until the fourth quarter of 1999 the common stock of
the Company traded only sporadically on the Over the Counter
Bulletin Board (OTCBB) because of the Company's decision not to
encourage active public trading (through press releases and active
shareholder communications) of its securities until significant
progress had been made in the
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restructuring program described below. After 1993 to early 1999, in
limited transactions, the Company's common stock traded infrequently
at prices varying from $.50 to $5.00 per share. Transactions from
January 1999 to December 1999 fluctuated in the range of $1.00 to
$4.25 per share. Because of the thinly traded nature of the market
for the stock, these prices are not indicative of a meaningful
capitalization of the value per share. Following the successful
private placement of securities completed October 31, 1999 (as
discussed in subsequent sections of this Report), concerted efforts
to improve shareholder commumications are increasing investor
interest in the Company's common stock. During the first quarter of
the year 2000 trading volumes of the common stock have begun to
increase substantially.
Management believes that the Company's continuing status as a
reporting public company with approximately 700 shareholders of
record (and an estimated 700 to 800 shareholders in "street name")
will be a substantial asset in the future to attract capital through
either private or public financing.
(I) A PLAN BEGUN IN 1993 FOR RESTRUCTURING THE COMPANY
By 1993 it was the belief of the major shareholders of the
Company that the Company's proprietary Cytoporin technology, 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
corporate restructuring to strengthen itself and to move
aggressively toward commercialization of its technology base.
Notwithstanding the seriously limited financial resources of the
Company, the termination of the research collaboration with LSU, the
cessation of public reporting to the SEC by the Company, and the
virtual discontinuation of trading of the Company's "penny stock" a
restructuring plan was adopted with specific objectives, many of
which had been attained in substantial measure by 1997. The
Registrant's December 31, 1998 10-KSB report (incorporated herein by
reference as Exhibit 13-a) presents a more detailed narrative on the
restructuring program and progress in implementing its various
objectives through 1998.
(J) COMPLETION OF A PRIVATE PLACEMENT FINANCING INITIATIVE IN 1999
In March 1998 the Company and LSU settled the dispute over
ownership of the Helix/LSU Patent Estate, whereby all right, title
and interest in the patents and patent applications pending were
assigned to the Company. This effectively ended the hiatus for the
Company which had (i) interrupted pursuit of the restructuring
objectives outlined above, (ii) delayed the continuation of vigorous
prosecution of the Patent Estate, and (iii) interrupted, or
derailed, the urgently important initiatives to raise private
capital to maintain viability for the Company.
In mid 1998 the major shareholders of the Company believed
that an opportunity had then arrived to implement a new, SHORT TERM
STRATEGIC PLAN TO FULLY REVITALIZE THE COMPANY AND CAPITALIZE UPON
ITS VALUABLE TECHNOLOGY PLATFORM AND CORPORATE STATUS AS A PUBLIC
COMPANY. To this end the Board of Directors of the Company made a
decision (i) to hold in abeyance definitive re-consideration of
earlier private financing proposals, (ii) to seek advice of outside
consultants to assist the Company in developing and implementing a
comprehensive short term strategic plan for both financial and
managerial restructuring of the Company, and (iii), with the
assistance of the consultants, to undertake as soon as possible a
sale of securities (exempt from registration) through a Private
Offering ("Offering") to a limited number of qualified investors.
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Success of the Offering, commenced July 19, 1999 and
terminated October 31, 1999, exceeded management expectations.
Under the terms of a Private Placement Memorandum dated July 19,
1999 the Company sold and issued 2,890,643 shares of common stock
for $2,023,450. Net of offering costs of $100,320, proceeds to the
Company from the Offering were $1,923,130. The shares were sold in
units, each unit consisting of 150,000 common shares and 150,000
warrants, each warrant to purchase a common share 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 $.75 for the first
year, $1.75 for the second year, and $2.75 for the third year.
First proceeds from the Offering were released from escrow on
September 30, 1999 on which date the Company, pursuant to terms of
the Private Placement Memorandum, entered into several agreements
with related parties. These agreements are discussed in the notes
to the audited financial statements incorporated in this Report and
are further discussed herein in Part III-Item 9 (Directors,
Executive Officers, etc.) and in Part III-Item ll (Certain
Relationships and Related Transactions).
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 partner
(TPI), to rearrange certain promissory debt obligations of the
Company, and for general working capital to implement the Company's
updated Business Plan discussed below.
(K) IMPLEMENTATION OF A NEW SHORT TERM STRATEGIC PLAN OF ACTION
FOLLOWING THE OFFERING.
Since late 1998 through the period of the private Offering Mr.
Ralph Katz and Dr. Jeffrey A. Miller have worked closely with
mangagement, as consultants, to devise and begin implementation of
the updated strategic plans for the Company. Mr. Katz and Dr.
Miller, who joined the Company's Board of Directors in May 1999,
entered into a two year consulting agreement (See Part III-Item 11
herein) with the Company on September 30, 1999, whereby they will
continue to assist Company management in achieving goals of the new
operating plan. The critical components and status of the Strategic
Plan by which the company will operate during the next twelve to
eighteen months are as follows:
1.) The 1999 Private Placement Offering.
The Company believes the proceeds from the Offering will be
sufficient to maintain the expanded operations of the
strategic plan for a period of at least twelve to fourteen
months following December 31, 1999, during which period
significant milestones of this plan should be achieved.
2.) Restructuring and Strengthening Management
This activity is well under way, having begun early in 1999.
The Board of Directors was restructured and expanded with new
members at the Annual Meeting of the Shareholders in May 1999.
On October 1, 1999, pursuant to provisions of the Company's
Private Placement Memorandum, a new slate of corporate
officers was elected. Prior to this Mr. Katz and Dr. Miller
had recruited new key personnel to fill the positions of (i)
President and CEO (Mr. R. Stephen Beatty), (ii) Vice President
for Science (Dr. Henry L. Niman), and (iii) Vice President for
Investor Relations and Corporate Communications (Mrs.
Elizabeth L. Scheer). Mr. Keith P. Lanneau, the Company's
founder, continued his role
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in the Company as Board Chairman and Vice President for
Technology. The restructured management of the Company is
further discussed in Part III-Item 9 herein. Recruiting of
key personnel will continue during the coming year.
3.) Building Scientific Visibility and Credibility
This activity will revolve around the creation of a
distinguished Scientific Advisory Board for the Company,
primarily through the contacts and efforts of Dr. Niman. .
4.) Stepped Up Research and Development Activities
Funds available from the Offering will permit expanded,
targeted research and development efforts to (i) further
enhance the Patent Estate, and to obtain conclusive in vitro
and in vivo pre-clinical evaluations of selected Cytoporin
lead compounds, which evaluations will be effective in the
development of strategic alliances. The expanded research and
development work is now on-going both at TPI and in outside
contract laboratories. During the next year there will be
further evaluations and studies of potential applications of
the lead Cytoporins by outside scientific investigators in
industry and/or academia.
5.) Continued Expansion of the Patent Estate
The Patent Estate is a major asset of the Company which will
be continually enhanced in the future, as discussed above.
6.) Developing Collaborative Partners and Strategic Alliances
This is and has been a major objective in the Company's
overall long term business plan.Such joint ventures with other
biotechnology and pharmaceutical companies are vital to the
Company to provide the (i) financing and (ii) regulatory,
scientific, and marketing expertise required for
commercialization of pharmaceutical (drug) products. Dr.
Niman and Mr. Lanneau will provide stepped-up efforts in the
area of building such alliances during the coming year.
7.) Developing Corporate Profile in the Investment Community and
Facilitating Access to Future Financing on a Favorable
Basis.
The Company's plan to develop an aggressive and effective
program in the area of Investor Relations and Corporate
Communications will raise the Company profile in the
financial, scientific, and business communities. A new
corporate vice president is now full time in charge of these
high priority and vitally important activities. Development
of an Internet Web-site for the Comany was completed in the
fourth quarter of 1999. The Web-site (www.helixbiomedix.com),
providing comprehensive information on the Company went
on-line shortly after completion of the private Offering.
Additionally, periodic press releases during the fourth quater
of 1999 further promulgated news of the Company's activities.
Such news releases will be a continuing part of the
initiatives to raise the public profile of the Company during
the year 2000.
As experienced financial and business consultants, Mr. Katz
and Dr. Miller will work with key management personnel during
the year to develop a network of both market makers and
brokers to establish active public trading of the Company's
common stock. This will provide better liquidity for existing
shareholders, and an opportunity for appreciation in
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stock value through realistic market capitalization as the
Company achieves some of the other objectives of this
Strategic Plan. Management believes an active trading market
for the Company's securities and appreciation of the stock
value will greatly enhance the Company's ability to raise
future capital on a favorable basis through either private
placements or a secondary public offering.
(L) LONGER TERM OBJECTIVES
During the next year achievement of some, if not all, of the
above objectives of the short term Strategic Plan will lay a sound
foundation for attainment of the longer term objectives of the
Company. These are (i) to make Helix BioMedix, Inc. a well
recognized and leading name in the field of bioactive membrane
disruptive peptides, (ii) to build a broad base of strategic
alliances for the Company, (iii) to (iii) to maintain corporate
viability and strength for growth through well planned and well
executed financing initiatives, (iv) to bring the Cytoporin platform
technology to commercial fruition with both pharmaceutical (drug)
and non-drug products, and (v) to continue the enhancement of stock
value for the Company's present and future shareholders.
ITEM 2. PROPERTIES
The Company's principal place of business and corporate office
is in the central business district of New Orleans, LA.
Approximately 1500 square feet of rented office space is shared with
another entity affiliated with the Company's President and CEO.
Under terms of an agreement between the parties (See Part III-Item
11 herein) the Company shares both office space and certain
administrative services with the other entity for a monthly cash
consideration of $7,500. Additionally, the Company reimburses two
shareholders and officers of the Company (Mr. Lanneau and Mrs.
Scheer) a monthly stipend of $200 each to defray costs of
maintaining satellite offices in their homes located in Baton Rouge,
LA and Harahan, LA, respectively. The addresses and telephone
numbers for the three Company offices described above are as follows:
Corporate Office (Mr. Beatty, President & CEO)
210 Baronne St., Suite 1004
New Orleans, LA 70112
Tel: (504) 525-2090, Fax: (504) 525-2266
Satellite Office (Mr. Lanneau, Chairman & VP-Technology)
2151 E. Lakeshore Dr.
Baton Rouge, LA 70808
Tel: (225) 387-1112, Fax: (225) 338-9727
Satellite Office (Mrs. Scheer, VP Investor Relations and
Corporate Communications)
6 Erin Court
Harahan, LA 70123
Tel: (504) 737-8434, Fax: (504) 738-0621
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Research on the Company's proprietary Cytoporin compounds is
primarily 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 a former Officer and Director of the
Company. The Company utilizes the TPI laboratories under the terms
of the Research Alliance Agreement between the Company and TPI (See
Part III-Item 11 herein). The Company reimburses TPI for such
contract research conducted for the account of the Company. The
Company also utilizes the services and facilities of other Contract
Research Organizations.
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
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 was sustained on appeal and the Company continues the
litigation to recover damages from Interbio on the reconventional
demand still pending in the suit. However, the parties are
considering a negotiated settlement.
Included in the accompanying financial statements is $25,000,
representing principal amount of the IBG note, plus accrued interest
of $10,018. In the event the parties do not settle out of court,
management estimates the Company will be liable for an additional
$12,516 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 28, 1999 at a duly called Annual Meeting of the
Shareholders of the Company two matters were submitted to a vote.The
shareholders (a) amended the Articles of Incorporation and (b)
elected a new slate of seven directors for the forthcoming year, as
set forth below:
(A) AMENDMENT OF THE ARTICLES OF INCORPORATION
A copy of the Articles of Amendment to the Articles of
Incorporation was filed with the Colorado Secretary of State on July
15, 1999 and is incorporated herein as Exhibit 99-a.
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(b) EXPANSION OF THE NUMBER OF DIRECTORS ON THE BOARD OF DIRECTORS
Prior to the Shareholders' Meeting, at a duly called meeting
of the Company's Board of Directors, on May 12, 1999, a quorum was
present and the directors unanimously adopted resolutions increasing
the number of directors from five (5) to seven (7). The two
vacancies on the board, thereby created, were filled by a resolution
appointing two new members to the board. The new members so
appointed were Mr. Ralph Katz and Dr. Jeffrey A. Miller. The
actions of the board were in full compliance with provisions of the
Company's By Laws and the Colorado Corporation Act.
The two new directors have been active during 1999 in the
Company's business affairs as members of the outside consulting
group assisting the Company in its restructuring initiatives
reported herein. At the Annual Meeting of Shareholders on May 28,
1999 the shareholders elected a new slate of seven (7) directors to
serve until the next annual meeting thereafter of the shareholders.
These seven directors included the following persons:
R. Stephen Beatty
Thomas L. Frazer
Ralph Katz
Keith P. Lanneau
Michael K. Marcantel
Dr. Jeffrey A. Miller
Lester J. Waldman
Although Dr. Robert J. Love and Dr. Donald R. Owen, former
directors, did not stand for re-election to the Board, they remained
active in the Company in other capacities. As set forth above
herein, on October 1, 1999 the new Board of Directors convened and
elected a new slate of corporate officers of the Company pursuant to
terms of the Private Placement Memorandum.
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
Part I-Item 4(h) 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 the
over-the-counter markets (OTCBB). 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. During 1995, 1996, 1997, and 1998 there was a continuation of
very limited and sporadic trading of Registrant's stock, with total
transactions aggregating less than 10,000 shares during 1998. From
1993 until 1999 the limited transactions were at stock prices
varying from $.50 to $5.00 per share.
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Transactions from January 1999 through December 1999
fluctuated in the range of $1.00 to $4.25 per share. As discussed
herein in Part I-Item 1(h), following the Company's successful
private Offering
and the subsequent improvement in promulgation of corporate news,
investor interest in the common stock has increased with attendant
increases in the volume of market transactions. In the sixty day
(60) period preceding the date of this Report per share prices of
the Company's common stock have been in the range of $2.00 to $4.00
with trading volumes averaging several thousand shares per day.
Although some market days see no activity in the stock, volume
occasionally has been as high as 15,000 to 50,000 shares per day.
Registrant believes that the past non-active market for its
securities has abated and that higher trading volume and more stable
share pricing will result as the short term Strategic Plan discussed
hereinabove is more fully implemented. Management expects this to
occur during the year 2000.
(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, 1999 was approximately 700. Registrant
estimates and believes there are 700 to 800 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(i) through Item 1(l) of Part I of this Report. The Company has
maintained operations since 1990 until October 1999 primarily with
limited capital provided by loans from key Shareholders. A major
financial and managerial corporate restructuring initiative was
successfully undertaken in 1999. The details of this program are
set forth in Item 1 of Part I herein. The Company believes it is
now well prepared to implement its short term Strategic Plan of
action. 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 fewer 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 OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
During the two fiscal years ending December 31, 1993 and
December 31, 1994, while the Company was instituting the first
restructuring program discussed in this report, the cost of
operations was
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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 continued on an accelerated basis at TPI.
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 1996 through 1998 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 three 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, pending final resolution of the dispute with LSU (as
set forth in Part I herein), and pending consumation 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 operations continued to be
funded by stock purchases and loans from key shareholders.
In 1999 the Company (i) attained many objectives of its short
term Strategic Plan for financial and managerial restructuring, (ii)
successfully completed a major recapitalization though its private
Offering of securities, (iii) executed a number of important
agreements with related parties on September 30, 1999 pursuant to
terms of the Private Placement Memorandum, and (iv) generally
stepped up the tempo of Company operations with the availability of
adequate operating capital and a strengthened management
organization. Accordingly, during 1999 operating losses sharply
increased to an average of approximately
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$162,300 per quarter. The major items of increase over prior years
resulted from (i) substantial cost increases in legal, accounting,
and other professional services associated with the restructuring
initiatives, (ii) higher R & D costs to acquire the title to patent
rights from TPI, and (iii) higher administrative expenses associated
with the addition of key personnel to the staff.
As seen from the financial statements in the Audit Report for
the fiscal year ended December 31, 1999, the Company now has
excellent financial liquidity. Management projects that currently
available cash is adequate to fund planned operations for the next
twelve to fourteen months. During this period the Company will seek
to supplement cash availability from (i) licensing activities, (ii)
outside research support, and/or (iii) additional capital raised
from private or public financing. Success in any of these areas is
significantly dependent upon achievement of some of the goals of the
Company's short term Strategic Plan for business operations.
(C) CHANGE IN SECURITIES
On May 28, 1999 at a duly called meeting of the shareholders
of the Company, the shareholders adopted an Amendment to the
Articles of Incorporation to increase the authorized capital stock
of the Company. A copy of the Articles of Amendment filed with the
Colorado Secretary of State on July 15, 1999 is incorporated herein
by reference as a part of Exhibit 13-c.
During the period from July 19, 1999 to October 31, 1999 the
Company sold common stocks and warrants in a private Offerin of
securities, as set forth in Part I-Item 1(j) herein.
As set forth herein in Part III-Item 12 (Certain Relationships
and Related Transactions) on September 30, 1999, pursuant to the
Private Placement Memorandum, the Company (i) agreed to issue and
convey 60,000 shares of common stock to TPI and Dr. Donald R. Owen;
(ii) 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, an
additional 40,000 shares for services to be rendered prior to
September 30, 2000, 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; and (iii) entered into
an agreement with two of its directors and key shareholders (Keith
P. Lanneau and Thomas L. Frazer) 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.
On December 14, 1999 the Company Board of Directors authorized
the issuance of 37,400 shares of common stock to Beatty Finance, Inc.
(of which Mr. Beatty is president and controlling shareholder) and
29,315 shares issued to Mrs. Scheer in consideration of their past
services rendered to the Company as consultants in 1999. This is
discussed herein in Part III-Item 12(Certain Relationships and related
transactions).
(D) YEAR 2000 ISSUE
The Company has conducted an assessment of the impact of the
Year 2000 issue on its operations. No problems have been
encountered since December 31, 1999. 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 yet encounter.
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ITEM 7. FINANCIAL STATEMENTS
Please see Pages F-1 through F-20.
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, 1999 F-2
Statement of Operations for the periods ending December 31, 1998
and December 31, 1999 and for the period from inception
(November 7, 1988)
to December 31, 1999 F-3
Statement of Stockholders' Equity (Deficit) for the period from
inception (November 7, 1988) to December 31, 1999 F-4 to F-7
Statements of Cash Flows for the period from inception
(November 7, 1988) to December 31, 1999 F-8 to F-9
Notes to Financial Statements F-10 to F-20
All schedules have been omitted, as the required information
is inapplicable or the information is presented in the financial
statements or the notes thereto.
The financial statements should be read in connection with a
review of the Company's audited financial statements for the fiscal
year ended December 31, 1998 and the unaudited statements for the
quarterly periods ending March 31, 1999, June 30, 1999, and
September 30, 1999. All of these prior period statements are
incorporated herein by reference as part of Exhibits 13-a, 13-b,
13-c, and 13-d, respectively.
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.
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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 AS AT DECEMBER 31,
1999 ARE AS FOLLOWS:
Name: KEITH P. LANNEAU
Age: 74
Position: CHAIRMAN OF THE BOARD & VICE PRESIDENT-TECHNOLOGY, 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;
July 10, 1992 to September 30, 1999 as President & CEO and
Director; October 1, 1999 to Present, as Board
Chairman & VP-Technology and Director.
Name: R. STEPHEN BEATTY
Age: 50
Position: PRESIDENT & CEO, DIRECTOR
Tenure as Officer or Director:
May 28, 1999 to September 30, 1999 as Director (and Consultant)
October 1, 1999 to Present, as President & CEO and Director
Name: THOMAS L. FRAZER
Age: 53
Position: VICE PRESIDENT-TREASURER & CFO, DIRECTOR
Tenure as Officer or Director:
October 27, 1994 to September 30, 1999 as VP and Director
October 1, 1999 to Present, as VP-Treasurer & CFO and Director
Name: MICHAEL K. MARCANTEL
Age: 50
Position: VICE PRESIDENT-SECRETARY, DIRECTOR
Tenure as Officer or Director:
May 5, 1993 to September 30, 1999 as VP-Sec'y/Treas. and Director
October 1, 1999 to January 12, 2000 as VP-Secretary and Director
Resigned as Officer and Director effective January 12, 2000.
Name: HENRY L. NIMAN
Age: 51
Position: VICE PRESIDENT-SCIENCE
Tenure as Officer or Director:
October 1, 1999 to Present as Vice President-Science
Name: ELIZABETH L. SCHEER
Age: 48
Position: VICE PRESIDENT-INVESTOR RELATIONS & CORPORATE COMMUNICATIONS
Tenure as Officer or Director:
October 1, 1999 to Present as VP-Investor Rel. & Corp. Comm.
January 12, 1999 to Present as VP-IR & CC, Assistant Secretary
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Name: LESTER J. WALDMANN
Age: 52
Position: CORPORATE SECRETARY (EFFECTIVE JANUARY 12, 2000), DIRECTOR
Tenure as Officer or Director:
May 28, 1999 to Present as Director
January 12, 2000 to Present as Corporate Secretary and Director
Name: RALPH KATZ
Age: 42
Position: DIRECTOR (AND CORPORATE CONSULTANT)
Tenure as Officer or Director:
May 12, 1999 to Present as Director (and Corporate Consultant)
Name: JEFFREY A. MILLER
Age: 51
Position: DIRECTOR (AND CORPORATE CONSULTANT)
Tenure as Officer or Director:
May 12, 1999 to Present as Director (and Corporate Consultant)
Although Dr. Donald R. Owen and Dr. Robert J. Love, former
Officers and Directors of the Company, did not stand for re-election
to the Board of Directors at the Shareholders' Meeting on May 28,
1999, they remained as corporate officers (Vice-President-Science
and Vice President, respectively) until the election of the new
slate of Corporate Officers on October 1, 1999. Both of these
former Officers and Directors, as substantial shareholders, remain
actively interested in the affairs of the Company.
All directors of the Company will hold office until the next
annual meeting of the shareholders and until their successors have
been elected and qualified. The officers of the Company are elected
by the Board of Directors at the first board meeting after each
annual meeting of the shareholders and will hold office until their
death or until they shall resign or have been removed from office.
The following are brief resumes of each of the nine (9)
Officers or Directors (As at December 31, 1999) listed in the table
above:
MR. LANNEAU was founder of Helix BioMedix, Inc. (of Louisiana)
in 1988, which corporation was acquired by the Company on March 20,
1989. The Company, formerly named "Cartel Acquisitions, Inc." then
changed its name to "Helix BioMedix, Inc." Mr. Lanneau has served
full time as Chief Executive Officer of the Company since that time.
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.
Since 1960, Mr. Lanneau has 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
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organizations within Louisiana. In addition to his current duties
in the Company as Chairman of the Board and Vice
President-Technology, 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 Company seeks collaborations
and strategic alliances.
MR. BEATTY is a 1975 graduate of the University of South
Alabama with a major in Mathematics and a minor in Economics. He
obtained his MBA from University of New Orleans in 1997 where he
continues his association as Co-Chairman of the Student Support
Committee of the Business Alumni Council. Mr. Beatty has been
President of Beatty Finance, Inc., since 1990 and is responsible for
all aspects of company operations. Additionally, he serves as a
consultant to businesses in south Louisiana. He was previously
employed for 18 years with BellSouth (and South Central Bell) where
he managed large software development projects and was responsible
for re-engineering the business process flow for commercial
accounts. Mr. Beatty was elected to the Board of Directors of the
Company in May 1999 and was elected as the new President & CEO for
the Company on October 1, 1999.
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. Until 1994, he was a major shareholder
and chairman of the board of Fifth Generations, Inc., a $50,000,000
computer software company which was subsequently acquired by
Symantec, Inc. Mr. Frazer is a professional consultant and expert
in company acquisitions, restructuring programs, and financial
reorganizations. He is an active investor in a number of
biotechnology and computer software companies. Mr. Frazer is a
leader in various public and private community affairs in Baton
Rouge and New Orleans. A long time Director of the Company, Mr.
Frazer was elected to the position of Vice President-Treasurer and
CFO on October 1, 1999.
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. He is a member of the
Technology Transfer Society, Licensing Executives Society, and the
National Contract Management Association.
On behalf of LAPTI, which holds a minority equity interest
(approx. 0.2%) in the Company, he spent approximately 20% of his
time on his activities as an officer and director of the Company.
On January 12, 2000 Mr. Marcantel resigned his positions as an
officer and director of the Company in order to pursue other
activities which may have created a conflict of interests.
DR. NIMAN serves as Vice President-Science and Chairman of the
Scientific Advisory Board of the Company. Dr. Niman has a
distinguished scientific career beginning with his work in the
development of monoclonal antibody technology at Scripps Clinic and
Research Foundation in 1979. He is the inventor
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of broad patents covering the combination of synthetic peptides and
monoclonal antibody technologies. This discovery was hailed as one
of the top immunological advances of the decade. In 1983 he created
"flu" monoclonal antibody which remains one of the most widely used
in biomedical research. In 1984 Dr. Niman was awarded a $1.8
million contract from the National Cancer Institute to create
monoclonal antibodies for cancer research worldwide.
In addition to this extensive research background, Dr. Niman
is an experienced entrepreneur and was the scientific founder of
Progenx, Inc., the parent company of Ligand Pharmaceuticals.
Additionally, he was a pioneer in the use of on-line communication
to help non-scientists learn about science and drug development.
Active on the proprietary Prodigy service, he led an on-line protest
against email charges. News reports named him as one of the Prodigy
7, a group which succeeded in getting the company, then operated by
Sears and IBM, to reverse their position after one day. Many
believe that this action changed the entire character of on-line
service by setting a boundary on charges.
Moving his activity to the Internet, Dr. Niman began actively
posting information on biotech stocks, particularly Ligand, in 1992.
His popularity helped him to start an on-line biotech newsletter
and mailing list with many distinguished participants. This was a
precursor to the discussion on web sites such as Silicon Investor,
where Dr. Niman initiated the Ligand discussion thread in 1996. His
prolific participation led him to create the Links to Ligand web
site and to write a Review of Ligand for Silicon Investor. This web
site was the direct antecedent and inspiration for BioCognizance
where Dr. Niman continues to serve as President and CEO.
Dr. Niman holds an undergraduate degree in Biochemistry from
the University of Illinois and was awarded a Ph.D. in Biochemistry
from the University of Southern California in 1978.
MS. SCHEER is Vice-President for Investor Relations and
Corporate Communications for the Company. She was also elected to
the position of Assistant Corporate Secretary on January 12, 2000
following the resignation of Mr. Marcantel.
Ms. Scheer graduated from the University of Southwestern
Louisiana in 1973 with a Bachelor of Science in Nursing and
completed a Master of Nursing at Louisiana State University Medical
Center in 1976. She obtained a Master of Business Administration
from the University of New Orleans in 1997. With an extensive
background in health care administration, Ms. Scheer has served in
managed care operational and contracting positions and as executed
director for a large physician/hospital organization. She blends
both a clinical background with experience in all aspects of managed
care administration and is a frequent speaker on health care
delivery and financing trends at both local and national meetings.
Active in civic and community organizations, Ms. Scheer is currently
on the board of a number of educational and civic organizations and
actively involved in business/chamber of commerce committees in the
grater New Orleans metropolitan area.
Ms. Scheer created a Web-site for the Company
(www.helixbiomedix.com) and successfully launched it on the Internet
in the last quarter of 1999.
MR. WALDMANN received a B.A. in Economics from Valparaiso
University in 1969 and a juris doctorate from Louisiana State
University School of Law in 1972. Mr. Waldmann has been in private
practice in the New Orleans area with a concentration in personal
injury law. He has also served on the Board of Governors of the
Louisiana Trial Lawyers Association since 1989. An additional
endeavor is real
22
<PAGE>
estate development in the southeastern United States. Mr. Waldmann
has been an investor and supporter of Helix since 1994 and continues
this support by virtue of his election to the Board of Directors in
1999 and his election to the office of Corporate Secretary on
January 12, 1999 following the resignation of Mr. Marcantel.
MR. KATZ is the President of KBR, Inc., a hedge fund. He has
worked as a professional equity options trader and hedge fund
manager for seventeen years. His work has frequently involved the
evaluation of venture offerings and advice to venture investors. He
is a principal in Katz-Miller Ventures, L.L.C., which has entered
into a Consulting Agreement with the Company. (See Part III-Item 12
herein). Mr. Katz, for his own account, is a substantial investor
in the Company as well as other biotechnology companies and other
high tech ventures.
In addition to his service as a Director of the Company
beginning in May 1999, Mr. Katz is a member of the Board of
Directors of Simson Management Systems, Inc. He is also one of the
ranking tournament bridge players in the world, placing second in
Geneva in 1991 and fourth in Lille in 1998. He has represented the
United States in world competition on many occasions.
Mr. Katz holds a B.S. in Accounting from the University of
Steubenville (1981).
DR. MILLER, elected to the Company's Board of Directors in May
1999, is the CEO of two investment companies. Capital Market
Research performs contract research for professionals trading in
futures and options on major exchanges and provides support and
staff services to start-up companies engaged in research services.
NewArc Investments, Inc. manages individual, partnership, and
institutional investments. Dr. Miller, in conjunction with Mr.
Katz, has also advised venture capital investors for the last five
years. He is a principal in Katz-Miller Ventures, L.L.C., which has
entered into a Consulting Agreement with the Company (See Part
III-Item 12 herein).
Dr. Miller has worked in quantitative financial modeling for
over twenty years. During his thirteen years of college teaching at
the University of Wisconsin and Lawrence University, he taught
advanced seminars in research methods, simulation, modeling and
computer analysis. He also worked as a consultant for several
cities and counties developing complex budgetary and financial
models. Past clients include the Wisconsin Expenditure Commission,
the Wisconsin Tax Burden Study, the City of Milwaukee, and the
Wisconsin Alliance of Cities. He has testified frequently before
government hearings on tax and spending issues.
For the last eleven years, Mr. Miller has worked as a
consultant to several firms engaged in trading stocks, options and
futures. He worked closely with floor traders and assisted in the
day-to-day management of a hedge fund. He has developed proprietary
option valuation models, hedging strategies, and forecasting
techniques. For the last several years he has specialized in the
application of neural networks and genetic algorithms in financial
markets and the analysis of new ventures in the technology arena.
Dr. Miller holds a Ph.D. in Political Science (1975) from the
University of Michigan. His academic background emphasizes public
policy, administrative theory, economics and quantitative analysis.
23
<PAGE>
(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 to December 31, 1998 the only Company Officer who
received compensation, directly or indirectly through an affiliate,
for his services is Keith P. Lanneau. From December 1, 1991 to June
30, 1995 he, or his affiliates, were compensated by an accrual of
$5,000 per month for his full time services. In lieu of cash
payment for services, which had not been feasible for the Company,
Mr. Lanneau (or his affiliate) accepted promissory notes of the
Company. From July 1, 1995 until September 30, 1999 such
compensation was accrued and paid by promissory notes for a fee of
$6000 per month for Mr. Lanneau's continuing full time services as
President and CEO of the Company. Commencing October 1, 1999, at
which time Mr. Beatty became President & CEO, any further
compensation to Mr. Lanneau has been in cash. During 1999
compensation to Mr. Beatty has been in cash and stock 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.
24
<PAGE>
SUMMARY ANNUAL COMPENSATION TABLE
Name and Year Salary Bonus Other
Position (Stock) Compensation
- ------------------ -------- ---------- --------- -------------
KEITH P. LANNEAU 1997 $60,000 None Options (1)
President & CEO
1998 $60,000 None None
1999 $76,500 None None
R. STEPHEN BEATTY 1997
President & CEO
1998
1999 $56,100 Options (2)
$46,750 (stock)
______________________________________________________________________________
(1) See Director's Options in table above.
(2) See Part III-Item 12 herein.
25
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(A) PRESENT OWNERSHIP
The following table sets forth, as of December 31, 1999, 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:
NAME AND ADDRESS NUMBER OF SHARES PERCENT
- ---------------- ---------------- -------
Keith P. Lanneau 863,662 18.7%
2151 East Lakeshore Drive
Baton Rouge, LA 70808
R. Stephen Beatty 62,400 1.3%
210 Baronne St., Suite 1004
New Orleans, LA 70112
Thomas L. Frazer 328,994 7.1%
7520 Perkins Rd. Suite 280
Baton Rouge, LA 70808
Michael K. Marcantel -0- 0.0%
8748 Quarters Lake Rd.
Baton Rouge, LA 70809
Henry L. Niman -0- 0.0%
16 Tel Drive
Pittsburgh, PA 15238
Elizabeth L. Scheer 54,565 1.2%
6 Erin Court
Harahan, LA 70123
Lester J. Waldman 151,000 3.3%
301 Huey P. Long Ave.
Gretna, LA 70054
Ralph Katz 172,500 3.7%
6529 Manor Dr.
Burr Ridge, IL 60521
Jeffrey A. Miller 20,000 0.4%
876 Buttonwood Circle
Naperville, IL 60540
--------- ------
ALL OFFICERS & DIRECTORS AS A GROUP 1,652,121 35.7%
Frank T. Nickell 450,000 9.7%
320 Park Avenue, 24th Floor
New York, NY 10022
Non-Affiliate Shareholders 2,526,132 54.6%
========= ======
TOTAL SHARES OUTSTANDING 4,628,253 100.0%
========= ======
26
<PAGE>
(B) OWNERSHIP ASSUMING EXERCISE OR CONVERSION OF ALL OPTIONS,
WARRANTS, AND CONVERTIBLE NOTES OUTSTANDING AT DECEMBER 31, 1999 AND
VESTING (EARNING) OF ALL BONUS SHARES FOR WHICH THE COMPANY IS
CONTINGENTLY OBLIGATED BY CONTRACT.
NAME AND ADDRESS NUMBER OF SHARES PERCENT
- ---------------- ---------------- -------
Keith P. Lanneau 908,662 10.2%
2151 East Lakeshore Drive
Baton Rouge, LA 70808
R. Stephen Beatty 167,400 1.9%
210 Baronne St., Suite 1004
New Orleans, LA 70112
Thomas L. Frazer 505,244 5.7%
7520 Perkins Rd. Suite 280
Baton Rouge, LA 70808
Michael K. Marcantel 15,000 0.2%
8748 Quarters Lake Rd.
Baton Rouge, LA 70809
Henry L. Niman -0- 0.0%
16 Tel Drive
Pittsburgh, PA 15238
Elizabeth L. Scheer 109,345 1.2%
6 Erin Court
Harahan, LA 70123
Lester J. Waldman 301,000 3.4%
301 Huey P. Long Ave.
Gretna, LA 70054
Ralph Katz 616,250 6.9%
6529 Manor Dr.
Burr Ridge, IL 60521
Jeffrey A. Miller 310,000 3.5%
876 Buttonwood Circle
Naperville, IL 60540
--------- ------
ALL OFFICERS & DIRECTORS AS A GROUP 2,932,901 33.0%
Frank T. Nickell 900,000 10.1%
320 Park Avenue, 24th Floor
New York, NY 10022
Non-Affiliate Shareholders 5,051,075 56.9%
========= ======
TOTAL SHARES OUTSTANDING 8,883,976 100.0%
========= ======
27
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 30,1999, pursuant to provisions of its Private
Placement Memorandum, the Company entered into certain agreements
with related parties. These are as follows:
(A) WITH THERAPEUTIC PEPTIDES, INC. (TPI) AND DR. DONALD R. OWEN
The Company entered into a "Research Alliance Agreement" (RAA)
with TPI and Dr. Owen. This agreement amended certain
portions of the 1995 Cooperative Endeavor Agreement among the
parties to accelerate the research collaboration between the
Company and TPI. The new agreement provided for (i) the
assignment by TPI to the Company of all patent rights to
Cytoporin Technology developed by TPI, and (ii) an agreement
for TPI to continue certain research in its laboratories under
contract support by the Company. The Company agreed to pay
consideration to TPI consisting of (i) $100,000 in cash, (ii)
forgiveness of a $25,000 promissory note with accrued
interest, and (iii) issuance of 50,000 shares of Company stock
to TPI and 10,000 shares to Dr. Owen.
(B) WITH KATZ-MILLER VENTURES, LLC
The Company entered into a consulting agreement with
Katz-Miller Ventures, LLC, Ralph Katz and Jeffrey A Miller
commencing October 1, 1999, and extending for a period of two
years. This contract provides for the issuance of 40,000
shares of the Company's common stock upon execution of the
agreement, and an additional 40,000 on the first anniversary
of the agreement. The agreement also provides for additional
bonus shares of up to 540,000 to be issued provided the
strategic and financial planning provided by the collective
consultant group causes a triggering event (specified
increases in market value of the stock), as defined in the
agreement.
(C) WITH KEITH P. LANNEAU
The Company and Keith P. Lanneau entered into an agreement
whereby Mr. Lanneau agreed to restructure certain debt of the
Company owed to him. Lanneau agreed to cancellation of a
$489,462 convertible promissory note payable upon demand, and
to accept substitution therefor of three (3) non-convertible
promissory notes, each in the principal amount of $163,154,
with maturities of one, two, and three years respectively.
(D) WITH KEITH P. LANNEAU AND THOMAS L. FRAZER
Keith P. Lanneau and Thomas L. Frazer agreed to the
cancellation of outstanding warrants previously issued to them
by the Company to purchase 119,200 shares (87,200 shares by
Lanneau and 32,000 shares by Frazer) of common stock of the
Company at a price of $1.00 per share.
(E) WITH HENRY L. NIMAN
The Company entered into a Consulting Agreement with Henry L.
Niman commencing
28
<PAGE>
October 1, 1999, and extending for a term of one year
thereafter, provided that such term shall automatically renew
for one additional one year period at the end of such initial
term and each subsequent term and each renewal, unless 90 days
prior to the date of such renewal either party shall give
written notice to the other party of cancellation.
(F) WITH KEITH P. LANNEAU
The Company entered into an employment contract with its
Chairman of the Board, Keith P. Lanneau, commencing October 1,
1999, and extending for a term of one year thereafter,
provided that such term shall automatically renew for two
additional one year periods at the end of such initial term
and each subsequent renewal, unless 90 days prior to the date
of such renewal either party shall give written notice to the
other party of cancellation.
On December 14, 1999 the Company agreed to enter into (i)
employment agreements with its new President and CEO and with its
new Vice President for Investor Relations and Corporate
Communications, both elected to office on October 1, 1999; and (ii)
an administrative services agreement with Beatty Finance, Inc.
These three agreements are as follows:
(G) WITH R. STEPHEN BEATTY
The Company agreed to enter into an employment contract with
Mr. Beatty commencing January 1, 2000, and extending for a
term of one year thereafter, provided that such term shall
automatically renew for one additional year period at the end
of such initial term and each subsequent renewal, unless 90
days prior to the date of such renewal either party shall give
written notice to the other party of cancellation. This
contract contains stock options to purchase 80,000 shares of
the Company's common stock at an exercise price of $0.70 per
share. The Company may terminate this contract at any time
without cause provided that the employee shall be entitled to
50% of compensation (cash and stock options) due for the
remaining portion of the initial one year term.
(H) WITH ELIZABETH L. SCHEER
The Company agreed to enter into an employment contract with
Ms. Scheer commencing January 1, 2000, and extending for a
term of one year thereafter, provided that such term shall
automatically renew for one additional one year period at the
end of such initial term and each subsequent renewal, unless
90 days prior to the date of such renewal either party shall
give written notice to the other party of cancellation. The
contract provides for payment of salary in cash, for issuance
of 29,315 shares of the Company's common stock upon signing,
and for an additional 29,780 shares due in quarterly blocks
over the initial one year term.
(I) WITH BEATTY FINANCE, INC.
The Company agreed to enter into an Administrative Services,
Financial Management and Office Sharing Agreement with Beatty
Finance, Inc., a company related to the President and CEO of
the Company. This agreement provides that beginning January
1, 2000 and
29
<PAGE>
through December 31, 2000, the principal office of the Company
will be maintained at the offices of its President. After the
initial term, the Agreement will automatically renew on a
month-to-month basis. The contract calls for monthly payments
of $7,500 and additional amounts to be billed for telephone
expenses. For the year ended December 31, 1999, the Company
paid $5,333 in cash and 37,400 shares of the Company's common
stock to Beatty Finance Inc. as reimbursement for past consulting
services provided.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit No. Description and Location
- ----------- ------------------------
13-a Registrant's Form 10-KSB for the 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.
13-b Registrant's Form 10-QSB for the Quarter Ended March 31, 1999
--------------------------------------------------------------
Incorporated by Reference to Form 10-QSB (First Quarter, 1999)
filed by Registrant with the SEC (File No. 33-20897-D) on
May 14, 1999.
13-c 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.
13-d Registrant's Form 10-QSB for the Quarter Ended September 30, 1999
-----------------------------------------------------------------
Incorporated by Reference to Form 10-QSB (Third Quarter, 1999)
filed by Registrant with the SEC (File No. 33-20897-D) on
November 18, 1999.
99-a Registrant's Current Report on Form 8-K filed by Registrant with
the SEC (File No.33-20897-D) on October 18, 1999.
-----------------------------------------------------------------
Incorporated herein by reference.
(B) REPORTS ON FORM 8-K
During the 1999 Private Offering of the Registrant, on October
5, 1999 there was a change in control of the Company. At that time
prior to closing of the Offering, Keith P. Lanneau was the
beneficial owner of approximately 51.7% of all issued and
outstanding shares of common stock. Immediately following the
closing, Keith P. Lanneau was the beneficial owner of approximately
19.4%, and Frank T. Nickell was the beneficial owner of
approximately 10.1%, of all issued and outstanding shares of common
stock (without giving effect to outstanding options and convertible
securities). No other person owned more than 10% of the issued and
outstanding stock.
Pursuant to requirements of the Securities Exchange Act of
1934 the Company timely filed with the SEC a Report on Form 8-K to
report the aforesaid change of control of the Company. That Report,
filed October 18, 1999, is incorporated herein by reference in
Exhibit 99-a.
30
<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/Thomas L. Frazer Date: April 14, 2000
___________________________
Thomas L. Frazer, Director and Chief Financial Officer
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 14, 2000
_____________________________________
Keith P. Lanneau, Director and Board Chairman
By: /s/R. Stephen Beatty Date: April 14, 2000
_____________________________________
R. Stephen Beatty, Director and President-CEO
By: /s/Jeffrey A. Miller Date: April 14, 2000
_____________________________________
Jeffrey A. Miller, Director
By: /s/Thomas L. Frazer Date: April 14, 2000
_____________________________________
Thomas L. Frazer, Director, VP-Treasurer
and Chief Financial Officer
31
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
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, 1999, and the related
statements of operations, cash flows, and changes in
stockholders' equity for each of the two years then ended and
for the period from inception (November 7, 1988) to December 31,
1999. 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 audits.
We conducted our audits 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 audits provide 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, 1999, and the results
of its operations, cash flows, and changes in its stockholders'
equity for the year ended December 31, 1999, and for the period
from inception (November 7, 1988) to December 31, 1999 in
conformity with generally accepted accounting principles.
Denver, Colorado
March 25, 2000
PROFESSIONAL CORPORATION
F-1
<PAGE>
HELIX BIOMEDIX INC.
BALANCE SHEET
DECEMBER 31, 1999
CURRENT ASSETS
Cash $ 1,455,820
Prepaid expenses 15,125
Payroll tax refund receivable 342
---------
Total current assets 1,471,287
PROPERTY AND EQUIPMENT
Machinery & equipment 1,591
Furniture & fixtures 393
---------
1,984
Less: Accumulated depreciation 182
---------
1,802
OTHER ASSETS
Antimicrobial technology (net) 109,992
Patents pending and approved (net) 402,054
---------
512,046
---------
Total assets $ 1,985,135
=========
CURRENT LIABILITIES
Accounts payable - trade $ 54,170
Accounts payable - related party 1,843
Payroll taxes payable 3,174
Notes payable 36,000
Notes payable - related parties 163,154
Accrued interest payable 19,370
---------
Total current liabilities 277,711
LONG TERM LIABILITIES - related party 326,308
STOCKHOLDERS' DEFICIT
Common stock, no par value, 10,000,000
shares authorized, 4,628,258
shares issued and outstanding 4,974,099
Preferred stock, no par value, 2,000,000
shares authorized, no shares issued or
outstanding -
Additional paid in capital, net of
deferred compensation component 188,275
Deferred compensation costs (152,225)
Deficit accumulated during the
development stage (3,629,033)
---------
Total stockholders' equity 1,381,116
---------
Total liabilities and stockholders'
equity $ 1,985,135
=========
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, 1998
<TABLE>
<S> <C> <C> <C>
INCEPTION
TO DEC. 31, DECEMBER 31,
1999 1999 1998
----------- -------- --------
REVENUE $ 19,500 $ - $ -
OPERATING EXPENSES
Research & Development 1,685,475 205,156 48,000
Amortization 154,188 24,944 19,580
Accounting, legal and professional 366,724 244,804 5,981
Advertising 13,566 78 -
Compensation costs 137,400 - -
Consulting fees 564,948 42,100 35,895
Office expense 190,507 18,591 20,601
Other general & administrative costs 99,140 86,041 1,812
----------- --------- --------
TOTAL OPERATING EXPENSES 3,211,948 621,714 131,869
----------- --------- --------
NET LOSS FROM OPERATIONS (3,192,448) (621,714) (131,869)
OTHER (INCOME) EXPENSE
Gain on settlement of lawsuit (48,574) - -
Interest expense 507,421 44,492 33,121
Interest income (22,262) (16,920) (1,752)
----------- --------- --------
436,585 27,572 31,369
----------- --------- --------
NET LOSS (3,629,033) (649,286) (163,238)
=========== ========= =======
NET LOSS PER SHARE $ (3.23) $ (0.27) $ (0.10)
=========== ========= =======
WEIGHTED AVERAGE SHARES OUTSTANDING 1,124,229 2,372,647 1,609,964
=========== ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE>
HELIX BIOMEDIX INC.
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
ADDITIONAL DEFERRED
COMMON STOCK PAID IN COMPENSATION ACCUMULATED STOCKHOLDERS'
# SHARES AMOUNT CAPITAL COSTS DEFICIT EQUITY
--------- --------- -------- -------- ---------- ----------
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)
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
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, 1999 continued
ADDITIONAL DEFERRED
COMMON STOCK PAID IN COMPENSATION ACCUMULATED STOCKHOLDERS'
# SHARES AMOUNT CAPITAL COSTS DEFICIT EQUITY
--------- --------- -------- -------- ---------- ----------
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
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
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, 1998 continued
ADDITIONAL DEFERRED
COMMON STOCK PAID IN COMPENSATION ACCUMULATED STOCKHOLDERS'
# SHARES AMOUNT CAPITAL COSTS DEFICIT EQUITY
--------- --------- -------- -------- ---------- ----------
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
Issuance of stock for
services, March 31, 1998,
$1.00/share 4,900 4,900 - - - 4,900
Issuance of stock for
cash, March 31, 1998,
$1.00 per share 10,000 10,000 - - - 10,000
Issuance of stock for
conversion of accounts
payable, for consulting
fees June 30, 1998,
$1.00 per share 1,395 1,395 - - - 1,395
Issuance of stock for
conversion of accounts
payable for consulting
fees Sept. 30, 1998
$1.00 per share 2,500 2,500 - - - 2,500
Issuance of stock for
services rendered,
December 31, 1998,
$1.00 per share 3,100 3,100 - - - 3,100
The accompanying notes are an integral part of the financial statements.
F-6
<PAGE>
HELIX BIOMEDIX INC.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999 continued
ADDITIONAL DEFERRED
COMMON STOCK PAID IN COMPENSATION ACCUMULATED STOCKHOLDERS'
# SHARES AMOUNT CAPITAL COSTS DEFICIT EQUITY
--------- --------- -------- -------- ---------- ----------
Net loss for the year
ended Dec 31, 1998 - $ - $ - $ - $ (163,238) $ (163,238)
--------- --------- -------- -------- ---------- ----------
Balance
December 31, 1998 1,619,300 2,803,500 137,400 - (2,979,747) (38,847)
Issuance of stock for
conversion of accounts
payable for consulting
fees March 1999, $1.00
per share 3,100 3,100 - - - 3,100
Issuance of stock for in
Private Placement Memorandum,
July - September 1999, $0.70
per share. Net of Offering
Costs of $107,195 2,890,643 1,916,255 - - - 1,916,255
Issuance of stock for
compensation with
respect to consulting
agreement September
1999, $0.70 per share 40,000 28,000 - - - 28,000
Escrow, but not
issuance of stock
for consulting
agreement. September
1999, $0.70 per share - 42,000 - (42,000) - -
Issuance of stock for
compensation of past
services provided to
Company September
1999, $1.25 per share 73,215 91,519 - - - 91,519
Issuance of stock for
conversion of accounts
payable for consulting
fees September 1999,
$1.25 per share 2,000 2,500 - - - 2,500
Compensation and
deferred compensation
recorded for options
granted December 1999 - - 50,875 (44,000) - 6,875
Deferred compensation
recorded for stock
awards, December 1999 - 87,225 - (87,225) - -
Amortization of
deferred compensation
costs - - - 21,000 - 21,000
Net loss for the year
ended Dec 31, 1999 - - - - (649,286) (649,286)
--------- --------- -------- -------- ---------- ----------
Balance
December 31, 1999 4,628,258 $4,974,099 $188,275 $(152,225) $(3,629,033) $1,381,116
========= ========= ======== ======== ========== ==========
</TABLE>
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, 1999
<TABLE>
<S> <C> <C> <C>
INCEPTION
TO DEC. 31, DECEMBER 31,
1999 1999 1998
----------- ---------- ----------
CASH FLOWS FROM OPERATIONS
Net Loss $ (3,629,033) $ (649,286) $ (163,238)
Adjustments to reconcile net loss
with net cash flows from operations
Stock for services 279,670 111,869 11,895
Accrued interest receivable - 5,342 (1,752)
Amortization 154,369 24,944 19,580
Compensation Cost 137,400 - -
Consultation Fees 151,437 - -
Depreciation expense 182 182 -
Research & Development 24,000 - -
Increase in prepaid expenses (15,125) (15,125) -
Increase in payroll tax refund receivable (342) (342) -
Decrease in receivable - 25,000 -
Increase(decrease) in accounts
payable 54,170 44,594 (2,360)
Increase (decrease) in accounts
payable - related party 345,779 (35,741) 37,584
Increase in payroll taxes payable 3,174 3,174 -
Increase in accrued
interest payable 19,370 2,465 4,204
----------- ---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (2,474,949) (482,924) (94,087)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (1,984) (1,984) -
Patents (303,224) (66,494) (34,503)
----------- ---------- ----------
NET CASH USED BY INVESTING ACTIVITIES (305,208) (68,478) (34,503)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash received in Cartel
reverse acquisition 634,497 - -
Notes payable 43,394 (31,061) 2,061
Related party notes payable (net) 705,887 80,140 116,191
Issuance of stock for cash 2,019,380 1,957,380 10,000
Issuance of stock for debt 832,819 - -
----------- ---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 4,235,977 2,006,459 128,252
----------- ---------- ----------
NET INCREASE (DECREASE) IN CASH 1,455,820 1,455,057 (338)
CASH, BEGINNING, OF PERIOD - 763 1,101
----------- ---------- ----------
CASH, END OF PERIOD $ 1,455,820 $1,455,820 $ 763
=========== ========== ==========
The accompanying notes are an integral part of the financial statements
F-8
<PAGE>
HELIX BIOMEDIX, INC.
STATEMENTS OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999
continued
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
AND OTHER CASH INFORMATION
INCEPTION
TO DEC. 31, DECEMBER 31,
1999 1999 1998
----------- ---------- ---------
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 99,859 - 25,739
Accounts payable converted to notes 704,559 4,500 -
Accrued interest rolled into notes 403,463 27,796 28,917
Notes converted to equity 1,639,548 - -
Cash paid for interest 19,652 14,231 -
Cash paid for taxes - - -
</TABLE>
The accompanying notes are an integral part of the financial statements
F-9
<PAGE>
HELIX BIOMEDIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999
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 ("Helix"). 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 the Company and 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 which 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.
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.
F-10
<PAGE>
HELIX BIOMEDIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999
1. Summary of Significant Accounting Policies (continued)
Development Stage Activities (continued)
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 $402,054, net of
amortization, at December 31, 1999. 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
for Technology 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 a right to
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. As is more fully described in later
paragraphs, this agreement was amended in September 1999.
In 1996, the Company agreed to an out of court settlement resulting from
a suit filed by the Company and three other parties, 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.
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 Agreement, the
Company was granted by LSU a worldwide 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 might develop.
F-11
<PAGE>
HELIX BIOMEDIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999
1. Summary of Significant Accounting Policies (continued)
Development Stage Activities (continued)
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 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.
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." The parties terminated arbitration procedures. 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 from licensing by
the Company of patent 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.
In September 1999, the Company entered into a Research Alliance Agreement
with TPI, Biosouth Research Laboratories, Inc. ("BRL") and Dr. Donald R.
Owen ("OWEN"). This agreement amended certain portions of the 1995
cooperative endeavor agreement to include BRL and OWEN, and utilize the
corporate funding provided by the Private Placement Memorandum, more fully
described in Note 3, to accelerate the research collaboration between the
Company and TPI.
In September 1999, the Company entered into an employment contract with its
Chairman of the Board, Keith P. Lanneau commencing October 1, 1999, and
extending for a term of one year thereafter, provided that such term shall
automatically renew for two additional one year periods at the end of such
initial term and each subsequent renewal, unless 90 days prior to the date
of such renewal either party shall give written notice to the other party
of cancellation. As of December 31, 1999 the total remaining commitment
was $67,500.
In September 1999, the Company entered into a consulting agreement with Henry
Niman, Ph.D. commencing October 1, 1999, and extending for a term of one year
thereafter, provided that such term shall automatically renew for one
additional one year period at the end of such initial term and each
subsequent renewal, unless 90 days prior to the date of such renewal either
party shall give written notice to the other party of cancellation. As of
December 31, 1999 the total remaining commitment was $60,000.
F-12
<PAGE>
HELIX BIOMEDIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999
1. Summary of Significant Accounting Policies (continued)
Development Stage Activities (continued)
In September 1999, the Company entered into a consulting agreement with
Katz-Miller Ventures, LLC ("KATZ-MILLER"), Ralph Katz ("KATZ") and Jeffery A.
Miller ("MILLER") commencing October 1, 1999, and extending for a period of
two years. This contract provides for the issuance of 40,000 shares of the
Company's common stock upon execution of the agreement, and an additional
40,000 on the first anniversary of the agreement. This agreement also
provides for additional bonus shares of up to 540,000 to be issued provided
the strategic and financial planning provided by the collective consultant
group causes a triggering event, as defined in the agreement.
In December 1999, the Company agreed to enter into an employment contract
with its President and CEO, R. Stephen Beatty commencing January 1, 2000, and
extending for a term of one year thereafter, provided that such term shall
automatically renew for one additional one year period at the end of such
initial term and each subsequent renewal, unless 90 days prior to the date
of such renewal either party shall give written notice to the other party
of cancellation. This contract contains stock options to purchase 80,000
shares of the Company's common stock at an exercise price of $0.70 per
share. As of December 31, 1999 the total remaining commitment, excluding
options, was$78,000.
In December 1999, the Company agreed to enter into an employment contract
with its Vice-president of Investor Relations, Elizabeth Scheer commencing
January 1, 2000, and extending for a term of one year thereafter, provided
that such term shall automatically renew for one additional one year period
at the end of such initial term and each subsequent renewal, unless 90 days
prior to the date of such renewal either party shall give written notice to
the other party of cancellation. This contract provides for the issuance of
29,315 shares of the Company's common stock upon signing and an additional
29,780 shares due in quarterly blocks over the initial one year term. As
of December 31, 1999 the total remaining commitment, excluding stock, was
$67,000.
The Company believes it is now prepared to implement a Business Plan
providing for both near term and long term product introductions. 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. Management expects that achievement of projected progress
milestones will establish the Company as a financially viable biotechnology
firm with substantial public investor support.
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.
Significant Accounting Policies
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.
F-13
<PAGE>
HELIX BIOMEDIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999
1. Summary of Significant Accounting Policies (continued)
Significant Accounting Policies (continued)
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.
Depreciation
Cost of equipment used in operations has been capitalized and is depreciated
using the straight line method over useful lives of 5 to 7 years.
Concentrations of credit risk
From time-to-time, the Company maintains cash balances in excess of FDIC
insured limits. The amount of such excess at December 31, 1999 was
approximately $33,700.
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
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 SFAS 109 - Accounting for Income Taxes. Primary temporary difference
relate to net operating loss carryforwards and R & D credit carryforwards,
which are subject to a full valuation allowance.
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.
Fair Value of Financial Instruments
Unless otherwise indicated, the fair value of all reported assets and
liabilities which represent financial instruments (none of which are held
for trading purposes) approximate the carrying values of such instruments.
F-14
<PAGE>
HELIX BIOMEDIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999
2. Notes Payable
The Company is obligated under the following notes at December 31, 1999:
12% promissory note, principal and interest due November 1989. $ 2,000
8% note payable to shareholder, interest due quarterly,
principal due September 2000. 163,154
8% note payable to shareholder, interest due quarterly,
principal due September 2001. 163,154
8% note payable to shareholder, interest due quarterly,
principal due September 2002. 163,154
Three 12% promissory notes due April 30, 2000, each 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
----------
Total notes outstanding 525,462
Less amount classified as current 199,154
----------
$ 326,308
==========
Each of the shareholder notes for $163,154 will be secured by a first security
interest in technology and intellectual property rights or other assets of
the Company in the event of default. Interest is payable quarterly in cash.
Debt maturities over the next five years are as follows: due in 2000, $199,154;
due in 2001, $163,154; due in 2002, $163,154 and, due thereafter $0.
3. Stockholders' Equity
On July 15, 1999, the Company amended its Articles of Incorporation to
increase the number of authorized shares of stock to 12,000,000. Of these
10,000,000 are to be designated as Common Stock and 2,000,000 are to be
designated as Preferred Stock. All references to authorized shares have
been changed to reflect this amendment.
The Company has 4,628,258 outstanding common shares and no outstanding
preferred shares. The Company's Chairman of the Board, Keith P. Lanneau,
holds a total of 863,662.
Preferred Stock
On June 22, 1998 Registrant's Board of Directors, in accordance with Section
7-106-102 of the Colorado Corporation Code, duly adopted an Amendment to
the Corporation's Articles of Incorporation by adding a new Article XIV
which creates a "Series A Convertible Preferred Stock". The amendment
designates the preferences, powers, and special rights of this series of
the 2,000,000 shares of presently authorized No Par Value Preferred Stock
in the stated capital of the corporation. No shares of such Series A
Preferred Stock have been issued; however, management believes such shares
may be offered by the Company in the future to attract additional financing.
F-15
<PAGE>
HELIX BIOMEDIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999
3. Stockholders' Equity (continued)
The Series A Preferred Stock, which is convertible into common stock on a
share for share basis, will have liquidation preference over the no par
value common stock of Registrant and will have preferential voting rights.
The Series A Preferred Stock will have three (3) votes per share, whereas
each share of common stock is entitled to one (1) vote per share on all
matters to come before both classes of shareholders. The Company has no plans
for registration of the shares of Series A Preferred Stock, which may be
issued in connection with future private financing initiatives.
Stock Split
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.
Options
At December 31, 1999, the Company had outstanding stock options to purchase
88,100 shares of the Company's common stock, 600 of which are exercisable
at $0.50 per share, 12,500 at $0.70 per share, and the remaining 75,000 at
$1.00 per share. The options became exercisable upon issuance and expire at
various dates through the year 2002. During the year ended December 31, 1999,
119,200 options, held by officers and directors of the Company, were cancelled.
On December 14, 1999, the Board of Directors of Helix BioMedix, Inc. approved
and ratified various consulting and employment agreements. The employment
agreement with the Company's president and CEO provides for the grant of
80,000 options to purchase shares of stock of the Company at an exercise
price of $0.70. These options vest in quarterly blocks of 20,000 on
March 31, June 30, September 30, and December 31, 2000.
A summary of option activity is as follows:
Weighted Weighted
Shares Average Average
Under Exercise Options Exercise
Option Price Exercisable Price
December 31, 1998 194,800 $ 1.00 194,800 $ 1.00
Options granted 92,500 0.70 12,500 -
Options cancelled (119,200) 1.00 (119,200) 1.00
Options exercised - - -
Options outstanding as
of December 31, 1999 168,100 $ 0.83 88,100 $ 0.95
The options have exercise prices between $0.50 and $1.00 per share.
F-16
<PAGE>
HELIX BIOMEDIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999
3. Stockholders' Equity (continued)
Some of the options granted expire on various dates on 2002 and the rest
on December 31, 2004 and have the following vesting characteristics:
Number of options Vesting period Vested at December 31, 1999
88,100 Immediately 88,100
20,000 3 months -
20,000 6 months -
20,000 9 months -
20,000 12 months -
------- -------
168,100 88,100
======= =======
Pro Forma Disclosure
The Company applies Accounting Principles Board No. 25, Accounting for Stock
Issued to Employees, and related interpretations in accounting for its
options. As such, no compensation costs of were recorded as of the date
of grant, however deferred compensation expense of $44,000 was recorded as
a component of stockholders equity, and will be amortized over the following
year. The Company considered the effects of recognizing compensation cost
pursuant to the provisions of Statement of Financial Accounting Standards
No. 123, Accounting for Stock-Based Compensation, (SFAS No 123). Using the
Black-Scholes option pricing model, which takes into account the exercise
price of the options, expected life, current price of the underlying stock,
its expected volatility and dividends, and the risk-free interest rate, net
loss would have been increased to the pro forma amounts as follows for the
years ending December 31:
1999 1998
--------------------------- -------------------------
As Pro As Pro
Reported Forma Reported Forma
------------ ----------- ----------- ------------
Net Loss $ (649,286) $ (650,427) $ (163,238) $ (163,238)
The average fair value of options granted during fiscal 1999 was $0.69. The
fair value of options is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions: risk-free interest rate of 6.0 percent for fiscal 1999; expected
life of 6-12 months; dividend yield percentage of 0%; and volatility of
approximately 101% for the year ended December 31, 1999.
Stock Offering
For the year ended December 31, 1999, the Company issued, in a Private
Placement Memorandum, 2,890,643 shares of common stock for $1,923,130, net
of offering costs of $100,320. 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.
F-17
<PAGE>
HELIX BIOMEDIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999
3. Stockholders' Equity (continued)
Stock Offering (continued)
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 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.
Deferred Compensation Costs
During the year ended December 31, 1999, the Board of Directors approved and
ratified certain consulting agreements and employment contracts. These
agreements called for the issuance of stock and the granting of options,
at various intervals during the year 2000. The Company recorded total
deferred compensation costs, as a component of stockholders' equity of
$173,225 amortized quarterly as follows: By December 31, 1999, $21,000;
March 31, 2000, $41,306; June 30, $20,306; September 30, $70,306; and
December 31, $20,307
Stockholders Equity and Comprehensive Income
The Financial Accounting Standards Board has recently released Statement
of Financial Accounting Standards No. 130 - Reporting Comprehensive Income.
SFAS 130 requires companies to present comprehensive income (consisting
primarily of net income items plus other direct equity changes and credits)
and its components as part of the basic financial statements. For the year
ended December 31, 1999, the Company's financial statements do not contain
any changes in equity, other than investments by and distributions to
shareholders, which are required to be reported separately in comprehensive
income.
4. Income Taxes
The Company has federal net operating loss carryforwards totaling approximately
$3.6 million which expire between 2003 and 2019. The Company also has
approximately $120,000 in Federal Credits for Increasing Research Activities
available to offset future taxable income and related tax. The following are
the components of the Company's deferred tax assets and liabilities:
1999 1998
---- ----
Non-benefited net operating loss
carryforwards $ 3,600,000 $ 2,980,000
Research and development credits 120,000 102,000
Valuation allowance (3,720,000) (3,082,000)
------------ ------------
Total deferred tax assets $ - $ -
============ ============
Deferred tax liabilities $ - $ -
============ ============
F-18
<PAGE>
HELIX BIOMEDIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999
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, promissory notes
totaling $752,902 were converted into common stock of the Company at $2.48
per share, for a total of 304,062 shares. In addition, $50,000 in debt
payable to Helix International had been converted to equity in 1992 at
$2.50 per share.
The Company has maintained its corporate offices in the offices of one of
its shareholders from inception to December 31, 1999, and has incurred
$179,287 in rental and general office expense reimbursements, which have
been paid, or are payable to an affiliated company.
On December 14, 1999, the Company entered into an Administrative Services,
Financial Management and Office Sharing Agreement with Beatty Finance, Inc.,
a company related to the president of the Company. This agreement provides
that beginning January 1, 2000 and through December 31, 2000, the principal
office of the Company will be maintained at the offices of its president.
After the initial term, the Agreement will automatically renew on a
month-to-month basis. The contract calls for monthly payments of $7,500
and additional amounts to be billed for telephone expenses. For the year
ended December 31, 1999, the Company paid $5,333 in cash and 37,400 shares
of the Company's common stock to Beatty Finance, Inc. as reimbursement for
past consulting services provided. Also on December 14, 1999, the Company
agreed to reimburse two shareholders and officers of the Company a monthly
stipend of $200 to defray the costs related to maintaining satellite offices
in their homes.
The Chairman of the Board of Directors of the Company is also a principal
shareholder in 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
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 Company's proprietary technology, specifically
the use of the technology in food preservation and purification of drinking
water. LSU's subsequent termination of its license to the Company and later
assignment of the Cytoporin patent estate directly to the Company terminated
this sublicense.
For the year ended December 31, 1999, $54,000 of consulting fees has accrued,
and $18,000 had been paid to Keith P. Lanneau or an affiliated company.
The note receivable from Therapeutic Peptides, Inc. ("TPI"), a shareholder of
the Company, was due June 30, 1996. This receivable along with the accrued
interest receivable was forgiven as one condition of the Research Alliance
Agreement described more fully in Note 1.
During 1999, the Company entered into various employment contracts and
consulting agreements with officers and shareholders. These agreements
are discussed more fully in Note 1.
F-19
<PAGE>
HELIX BIOMEDIX, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD FROM INCEPTION (NOVEMBER 7, 1988) TO DECEMBER 31, 1999
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 prompted 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 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 was sustained on appeal and the Company continues the litigation
to recover damages from Interbio on the reconventional demand still pending
in the suit. However, the parties are considering a negotiated settlement.
Included in the accompanying financial statements is $25,000, representing
principal amount of the IBG note, plus accrued interest of $10,018. In the
event the parties do not settle out of court, management estimates the
Company will be liable for an additional $12,516 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.
F-20
<PAGE>
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