PINX:HXBM Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

PINX:HXBM (): Fair Value Estimate
Premium
PINX:HXBM (): Consider Buying
Premium
PINX:HXBM (): Consider Selling
Premium
PINX:HXBM (): Fair Value Uncertainty
Premium
PINX:HXBM (): Economic Moat
Premium
PINX:HXBM (): Stewardship
Premium
 


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 10-Q
 
(Mark One)
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2012
 
OR
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                  to                 
 
Commission file number: 33-20897-D

HELIX BIOMEDIX, INC.
(Exact name of registrant as specified in its charter)
 
Delaware
91-2099117
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer Identification No.)
 
22121 17th Avenue SE, Suite 112, Bothell, Washington 98021
(Address of principal executive offices, including zip code)
 
(425) 402-8400
(Registrant’s telephone number, including area code)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x     No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  ¨
Accelerated filer  ¨        
Non-accelerated filer  ¨
Smaller reporting company  x
   
(Do not check if a smaller
reporting company)
 
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
 
Yes  ¨    No  x
 
As of July 30, 2012, 49,720,255 shares of the registrant’s common stock were issued and outstanding.
 
 
 

 
 
HELIX BIOMEDIX, INC.
FORM 10-Q
TABLE OF CONTENTS
 
 
Page
PART I - FINANCIAL INFORMATION
 
   
Item 1. Financial Statements
1
   
Condensed Balance Sheets (unaudited)
1
   
Condensed Statements of Operations and Comprehensive Loss (unaudited)
2
   
Condensed Statements of Stockholders’ Equity (unaudited)
3
   
Condensed Statements of Cash Flows (unaudited)
4
   
Notes to Condensed Financial Statements (unaudited)
5
   
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
12
   
Item 3. Quantitative and Qualitative Disclosures About Market Risk
19
   
Item 4. Controls and Procedures
19
   
PART II - OTHER INFORMATION
 
   
Item 1A. Risk Factors
20
   
Item 6. Exhibits
21
   
Signatures
22
 
 
 

 
 
PART I - FINANCIAL INFORMATION
 
ITEM 1.         Financial Statements.
 
HELIX BIOMEDIX, INC.
CONDENSED BALANCE SHEETS
(Unaudited)
 
   
June 30,
2012
   
December 31,
2011
 
ASSETS
           
Current assets:
           
Cash and cash equivalents
  $ 739,108     $ 1,688,945  
Accounts receivable, net
    219,141       239,773  
Accounts receivable, affiliated company, net
    117,599       200,935  
Inventory
    295,584       363,869  
Deferred debt issuance costs, current
    201,040        
Prepaid expenses and other assets
    119,265       64,583  
Total current assets
    1,691,737       2,558,105  
Property and equipment, net
    14,825       26,098  
Intangible assets, net
    112,412       146,297  
Deferred debt issuance costs, non-current
    201,590        
Other long term assets
    9,667       20,884  
Investment in affiliated company
    202,665       223,255  
Total assets
  $ 2,232,896     $ 2,974,639  
LIABILITIES AND STOCKHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 110,957     $ 125,324  
Accrued compensation and benefits
    56,445       87,859  
Accrued expenses
    47,831       55,463  
Deferred revenue
    13,602        
Deferred gross profit, affiliated company
    69,718       134,842  
Deferred rent, current
    8,341       7,155  
Total current liabilities
    306,894       410,643  
Deferred rent, non-current
    23,995       28,660  
Total liabilities
    330,889       439,303  
Commitments and contingencies
               
Stockholders’ equity:
               
Preferred stock, $0.001 par value, 25,000,000 shares authorized; no shares issued or outstanding
           
Common stock, $0.001 par value, 100,000,000 shares authorized; 49,720,255 shares outstanding at June 30, 2012 and December 31, 2011
    49,721       49,721  
Additional paid-in capital
    49,159,261       48,542,453  
Accumulated deficit
    (47,306,975 )     (46,056,838 )
Total stockholders’ equity
    1,902,007       2,535,336  
Total liabilities and stockholders’ equity
  $ 2,232,896     $ 2,974,639  
 
The accompanying notes are an integral part of the financial statements.

 
1

 

HELIX BIOMEDIX, INC.
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
 
   
Three Months Ended June 30,
     
Six Months Ended June 30,
 
   
2012
   
2011
     
2012
   
2011
 
Revenue:
                         
Licensing fees
  $ 173,453     $ 164,975       $ 488,545     $ 336,400  
Peptide and consumer product sales
    175,794       340,349         428,521       475,281  
Consumer product sales to affiliated company
    121,275       187,779         233,878       239,050  
Total revenue
    470,522       693,103         1,150,944       1,050,731  
Cost of revenue:
                                 
Cost of peptide and consumer product sales
    109,363       247,698         267,136       338,995  
Cost of consumer product sales to affiliated company
    55,094       104,995         106,852       134,525  
Total cost of revenue
    164,457       352,693         373,988       473,520  
Gross profit
    306,065       340,410         776,956       577,211  
Operating expenses:
                                 
Research and development
    87,942       90,747         175,027       315,910  
Marketing and business development
    269,645       244,018         572,751       448,455  
General and administrative
    329,235       374,889         713,811       716,681  
Accounting, legal and professional fees
    181,201       144,196         400,423       309,633  
Depreciation and amortization
    22,063       28,147         45,158       54,764  
Total operating expenses
    890,086       881,997         1,907,170       1,845,443  
Loss from operations
    (584,021 )     (541,587 )       (1,130,214 )     (1,268,232 )
Other income (expense):
                                 
Interest income
    384       928         1,124       2,132  
Amortization of debt issuance costs
    (50,123 )             (62,240 )      
Equity in loss of affiliated company
    (29,942 )     (59,065 )       (47,590 )     (51,073 )
Change in fair value of option to purchase interest in affiliated company
    (4,597 )     (25,151 )       (11,217 )     (17,436 )
Total other income (expense), net
    (84,278 )     (83,288 )       (119,923 )     (66,377 )
Net loss and comprehensive loss
  $ (668,299 )   $ (624,875 )     $ (1,250,137 )   $ (1,334,609 )
Basic and diluted net loss per share
  $ (0.01 )   $ (0.01 )     $ (0.03 )   $ (0.03 )
Weighted average shares outstanding
    49,720,255       49,720,255         49,720,255       49,720,255  
 
The accompanying notes are an integral part of the financial statements.

 
2

 

HELIX BIOMEDIX, INC.
CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY
For the Year Ended December 31, 2011 and for the Six Months Ended June 30, 2012
(Unaudited)
 
   
Common Stock
    Additional              
   
Number
of Shares
   
Amount
   
Paid-in
Capital
   
Accumulated
Deficit
   
Stockholders’ Equity
 
Balance at December 31, 2010
    49,720,255     $ 49,721     $ 48,392,985     $ (43,568,262 )   $ 4,874,444  
Stock-based compensation
                149,468             149,468  
Net loss
                      (2,488,576 )     (2,488,576 )
Balance at December 31, 2011
    49,720,255       49,721       48,542,453       (46,056,838 )     2,535,336  
Stock-based compensation
                151,938             151,938  
Fair value of warrants issued in connection with letter of credit
                464,870             464,870  
Net loss
                      (1,250,137 )     (1,250,137 )
Balance at June 30, 2012
    49,720,255     $ 49,721     $ 49,159,261     $ (47,306,975 )   $ 1,902,007  
 
The accompanying notes are an integral part of the financial statements.

 
3

 

HELIX BIOMEDIX, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
Six Months Ended June 30,
 
   
2012
   
2011
 
Cash flows from operating activities
           
Net loss
  $ (1,250,137 )   $ (1,334,609 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Depreciation and amortization
    45,158       54,764  
Stock-based compensation expense
    151,938       118,949  
Amortization of debt issuance costs
    62,240        
Equity in loss of affiliated company
    47,590       51,073  
Change in fair value of option to purchase interest in affiliated company
    11,217       17,436  
Changes in assets and liabilities:
               
Accounts receivable, net
    20,632       (131,199 )
Accounts receivable, affiliated company, net
    83,336       (104,558 )
Inventory
    68,285       (27,447 )
Prepaid expenses and other current assets
    (54,682 )     (52,341 )
Accounts payable
    (14,367 )     61,259  
Accrued compensation and benefits
    (31,414 )     6,119  
Other accrued expenses
    (11,111 )     (56,129 )
Deferred gross profit
    13,602        
Deferred gross profit, affiliated company
    (65,124 )     36,031  
Net cash used in operating activities
    (922,837 )     (1,360,652 )
Cash flows from investing activities
               
Purchases of property and equipment
          (2,669 )
Website development
          (20,655 )
Investment in affiliated company
    (27,000 )      
Net cash used in investing activities
    (27,000 )     (23,324 )
Net decrease in cash and cash equivalents
    (949,837 )     (1,383,976 )
Cash and cash equivalents at beginning of period
    1,688,945       4,044,309  
Cash and cash equivalents at end of period
  $ 739,108     $ 2,660,333  
 
The accompanying notes are an integral part of the financial statements.
 
 
4

 
 
HELIX BIOMEDIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
 
Note 1.  Summary of Significant Accounting Policies
 
Basis of Presentation and Preparation
 
The accompanying unaudited condensed financial statements of Helix BioMedix, Inc. (the Company) have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) for interim financial reporting and pursuant to the rules and regulations of the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in annual financial statements have been condensed or omitted for interim financial information in accordance with the SEC rules and regulations for quarterly reporting. These condensed financial statements should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2011, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 27, 2012.
 
Use of Estimates
 
The preparation of the Company’s financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting periods. In the opinion of management, the accompanying unaudited condensed financial statements include all normal recurring accruals and adjustments necessary for a fair presentation of the Company’s financial position, results of operations and cash flows for the periods indicated and to ensure that the financial statements are not misleading. Significant items subject to such estimates and assumptions include, but are not limited to, revenue recognition, impairments of long-lived assets, and valuation of receivable allowances, inventories, deferred income tax assets, stock-based compensation and option to purchase interest in affiliated company. Actual results could differ from those estimates.
 
The results of operations for the three and six months ended June 30, 2012 are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 31, 2012.
 
Recent Accounting Pronouncements
 
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04 (ASU 2011-04), Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs to provide a uniform framework for fair value measurements and related disclosures between U.S. GAAP and International Financial Reporting Standards (“IFRS”). Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 requires prospective application for interim and annual periods beginning on or after December 15, 2011. The Company is currently evaluating the impact that ASU 2011-04 will have on its financial position and results of operations.
 
In June 2011, the FASB issued ASU No. 2011-05 (ASU 2011-05), Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU No. 2011-05 amends existing guidance by allowing an entity the option to present the components of net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. ASU No. 2011-05 requires retrospective application and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. As the adoption of this guidance concerns disclosures only, it does not have a material impact on the Company’s financial position or results of operations.
 
Note 2.  Financing Activities
 
On March 9, 2012, the Company entered into an LOC Agreement (the LOC Agreement) with Frank T. Nickell, who beneficially owned approximately 40% of the Company’s outstanding common stock, pursuant to which Mr. Nickell established an irrevocable standby letter of credit by JPMorgan Chase Bank, N.A. (JPMorgan) in the amount of $2.0 million on the Company’s behalf and deposited $2.0 million with JPMorgan as collateral. Bank administrative fees for the letter of credit are expected to be 0.75% per year and borrowings under this line of credit (LOC), if not immediately repaid by the collateral, will accrue interest at a rate of 4% per year. The LOC with JPMorgan will expire on July 1, 2013 but will automatically renew until July 1, 2014 unless terminated by JPMorgan at least 14 days prior to the end of the current term, at which time the Company may draw up to the balance remaining on the LOC. Pursuant to the LOC Agreement, the Company agreed to use commercially reasonable efforts to consummate an equity financing prior to the termination date of the LOC in which it would sell and issue shares of its common stock at a price per share of at least $0.60 for aggregate proceeds of at least $3.0 million, upon consummation of which all amounts outstanding under the LOC shall be immediately repaid.
 
In connection with the LOC Agreement, the Company issued to Mr. Nickell a five-year fully vested warrant to purchase 2,000,000 shares of the Company’s common stock at an exercise price of $0.25 per share and agreed to reimburse Mr. Nickell for his reasonable expenses in connection with the LOC, including any interest and bank fees. As of June 30, 2012, reimbursements to Mr. Nickell had not been significant.
 
As the warrant was issued to obtain a letter of credit rather than in connection with a debt issuance, the Company measured this warrant at fair value on the inception date and accounted for it as equity in accordance with Accounting Standard Codification (ASC) 505-50-25, Equity-Based Payments to Non-Employees. The issuance of this warrant was equivalent to the payment of a loan commitment or access fee, and, therefore, the offset was recorded as deferred debt issuance costs to be amortized on a straight-line basis over the term of the LOC.
 
The Company estimated the fair value of this warrant to be $464,870 on March 9, 2012, based on the Black-Scholes option pricing model using an exercise period of 5 years, risk-free rate of 0.90%, volatility of 161%, and a trading price of the underlying shares of $0.25. For the three and six months ended June 30, 2012, the Company recorded a total of $50,123 and $62,240, respectively, of amortization expense related to the establishment of the LOC.
 
As of June 30, 2012, the Company had no borrowings outstanding under the LOC.
 
 
5

 

HELIX BIOMEDIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
Note 3.  Fair Value of Financial Instruments
 
The inputs used to measure fair value are summarized in the three broad levels listed below:
 
 
Level 1 — Quoted prices in active markets for identical securities;
 
 
Level 2 — Other significant observable inputs (including quoted prices in active markets for similar securities); and
 
 
Level 3 — Significant unobservable inputs (including the Company’s own assumptions in determining fair value of investments).
 
The following table sets forth by level, within the fair value hierarchy, financial assets and liabilities accounted for at fair value as of June 30, 2012. As required by ASC 820-10, assets and liabilities are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.
 

   
June 30,
2012
   
Quoted Prices in Active Market for Identical Assets (Level 1)
   
Significant Other Observable Inputs (Level 2)
   
Significant Unobservable Inputs (Level 3)
 
Money market funds
  $ 435,225     $ 435,225     $     $  
Option to purchase interest in affiliated company
  $ 1,145     $     $     $ 1,145  
 
Option to Purchase Interest in Affiliated Company. The Company estimated the fair value of the option to purchase an interest in an affiliated company to be $1,145 and $12,362 at June 30, 2012 and December 31, 2011, respectively, using the multiple of earnings method based on a number of factors and assumptions regarding the affiliated company’s potential future revenue and projected earnings before interest, tax, depreciation and amortization (EBITDA). The Company recorded decreases in fair value of $4,597 and $11,217 in the accompanying condensed statement of operations for the three and six months ended June 30, 2012, respectively.
 
Financial Instruments.  The carrying amount of the Company’s cash, accounts receivable, accounts payable, accrued compensation and benefits, and accrued expenses approximated their estimated fair values at June 30, 2012 and December 31, 2011 because of the short-term nature of these instruments.
 
Note 4. Inventory
 
Inventory consisted of the following as of June 30, 2012 and December 31, 2011:
 
   
June 30,
2012
   
December 31,
2011
 
Work in process
  $ 86,090     $ 156,425  
Finished goods
    209,494       207,444  
    $ 295,584     $ 363,869  
 
Note 5  Property and Equipment
 
Property and equipment consisted of the following as of June 30, 2012 and December 31, 2011:
 
   
June 30,
2012
   
December 31,
2011
 
Machinery and equipment
  $ 520,950     $ 520,950  
Website development costs
    63,175       63,175  
Furniture and fixtures
    50,441       50,441  
Leasehold improvements
    43,993       43,993  
      678,559       678,559  
Less accumulated depreciation
    (663,734 )     (652,461 )
Property and equipment, net
  $ 14,825     $ 26,098  
 
Aggregate depreciation expense for property and equipment during the three months ended June 30, 2012 and 2011 was $5,121 and $11,205, respectively, and was $11,273 and $20,879 during the six months ended June 30, 2012 and 2011, respectively.
 
 
6

 
 
HELIX BIOMEDIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
Note 6.  Intangible Assets
 
Identifiable intangible assets consisted of the following as of June 30, 2012 and December 31, 2011:
 
   
June 30,
2012
   
December 31,
2011
 
Antimicrobial technology
  $ 222,187     $ 222,187  
Licensing agreements
    61,391       61,391  
Patents, pending and approved
    834,301       834,301  
Total intangible assets
    1,117,879       1,117,879  
Less accumulated amortization
    (1,005,467 )     (971,582 )
Intangible assets, net
  $ 112,412     $ 146,297  
 
Amortization expense for intangible assets was $16,942 during each of the three months ended June 30, 2012 and 2011, and was $33,885 during each of the six months ended June 30, 2012 and 2011.
 
Note 7.  Investment in Affiliated Company
 
In July 2010, the Company obtained a 30% membership interest in NuGlow Cosmaceuticals, LLC (NuGlow), a direct-response company selling specialty skin care products, in exchange for an initial capital contribution of $350,000. Subsequently in September 2011, in connection with NuGlow’s additional capital raise, the Company contributed an additional $42,000 to maintain its 30% interest in NuGlow. In March 2012, the Company entered into a Second Amendment to the Amended and Restated Operating Agreement with NuGlow and consented to certain monthly payments by NuGlow. In exchange, the Company’s option to purchase the remaining interest of NuGlow (the Purchase Option) was extended from July 1, 2015 to July 1, 2017. In April 2012, in connection with NuGlow’s additional capital raise, the Company contributed an additional $27,000 to maintain its 30% interest in NuGlow and entered into a Third Amendment to the Amended and Restated Operating Agreement with NuGlow to amend the allocation and distribution of this additional capital contribution prior to other allocations or distributions thereunder.
 
The Company’s cumulative investment in NuGlow is accounted for as an equity investment and is adjusted at each reporting period to reflect the Company’s share of NuGlow’s net earnings, losses, contributions and any profit distributions. The Company accounts for the Purchase Option at fair value on the balance sheet with changes in value recognized in the statement of operations over the life the of the Purchase Option. Additionally, at each reporting period, the Company assesses its investment in NuGlow to determine whether any events or changes in circumstances have occurred to indicate impairment to this asset. The primary factors the Company considers in its determination are NuGlow’s financial condition and operating performance. The Company would recognize an impairment loss if there was a decline in value that was deemed other than temporary.
 
At December 31, 2011, the carrying value of the Company’s investment in NuGlow was $223,255. For the three and six months ended June 30, 2012, the Company recorded a loss $29,942 and $47,590, respectively, to account for its share of NuGlow’s net loss during these respective periods. The equity loss for the first six months of 2012, together with the additional investment made in April 2012, reduced the value of the Company’s investment in NuGlow to $202,665 as of June 30, 2012.
 
NuGlow’s condensed balance sheets at June 30, 2012 and December 31, 2011 and statements of operations for the three and six months ended June 30, 2012 and 2011 are as follows:
 
NuGlow’s Condensed Balance Sheets
 
June 30,
2012
(Unaudited)
   
December 31,
2011
(Unaudited)
 
             
Assets
           
Cash
  $ 14,459     $ 200  
Accounts receivable, net
    7,013       18,276  
Inventory
    178,539       275,838  
Prepaid expenses and other current assets
    15,770       9,513  
Total assets
  $ 215,781     $ 303,827  
                 
Liabilities and members’ equity
               
Accounts payable and current liabilities
  $ 261,456     $ 280,867  
Members’ equity and accumulated deficit
    (45,675 )     22,960  
Total liabilities and members’ equity
  $ 215,781     $ 303,827  
 
 
7

 
 
HELIX BIOMEDIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
NuGlow’s Condensed Statements of Operations (Unaudited)
 
2012
   
2011
   
2012
   
2011
 
Revenue
  $ 251,741     $ 311,164     $ 485,112     $ 491,884  
Cost of goods sold
    (129,923 )     (110,774 )     (228,150 )     (198,364 )
Operating expenses
    (221,628 )     (397,273 )     (415,597 )     (463,762 )
Net loss
  $ (99,810 )   $ (196,883 )   $ (158,635 )   $ (170,242 )

 
Note 8.  Other Assets
 
Other assets consisted of the following as of June 30, 2012 and December 31, 2011:

   
June 30,
2012
   
December 31,
2011
 
Deposits
  $ 8,522     $ 8,522  
Option to purchase interest in affiliated company
    1,145       12,362  
Other assets
  $ 9,667     $ 20,884  
 
Note 9. Deferred Gross Profit, Affiliated Company
 
Deferred gross profit from an affiliated company consisted of the following as of June 30, 2012 and December 31, 2011:

   
June 30,
2012
   
December 31,
2011
 
Deferred revenue, affiliated company
  $ 139,720     $ 254,826  
Deferred cost of revenue, affiliated company
    70,002       119,984  
Deferred gross profit, affiliated company
  $ 69,718     $ 134,842  
 
Note 10.  Stock-Based Compensation
 
2011 Stock Option Plan
 
On February 10, 2011, the Company’s board of directors adopted, and on May 25, 2011, the Company’s stockholders approved, the Helix BioMedix, Inc. 2011 Stock Option Plan (the 2011 Plan). The 2011 Plan provides for the grant of incentive stock options to employees and non-statutory stock options to employees, non-employee directors and consultants. The 2011 Plan is administered by the board of directors, which has the authority to select the individuals to whom awards are to be granted, the number of awards granted, and the vesting schedule. A total of 12,000,000 shares of common stock are reserved for issuance under the 2011 Plan. Options granted under the 2011 Plan to employees generally vest over a three-year period with 1/3 of the shares vesting after one year from the date of grant and 1/36 of the shares vesting monthly thereafter. Option awards to non-employee directors may vest fully upon grant or quarterly over one year. All option awards have a maximum term of ten years and exercise prices equal to the closing market price of the Company’s common stock on the grant date.
 
2000 Stock Option Plan
 
In 2000, the Company’s stockholders approved the Helix BioMedix 2000 Stock Option Plan (the 2000 Plan). The 2000 Plan provided for the granting of incentive stock options and nonqualified stock options to employees, directors and consultants. Options granted under the 2000 Plan generally became exercisable over periods ranging from one to three years, had a maximum term of ten years and exercise prices equal to the closing market price of the Company’s common stock on the grant date. Effective November 6, 2010, additional option awards under the 2000 Plan were discontinued. The 2000 Plan will remain in effect as to outstanding options granted prior to November 6, 2010.
 
 
8

 
 
HELIX BIOMEDIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
Stock Option Activities
 
During the three months ended June 30, 2012, the Company did not grant any options. For the three months ended June 30, 2011, the Company granted options under the 2011 Plan to purchase an aggregate of 35,000 shares of common stock with a grant date fair value of $0.22 per share. For the six months ended June 30, 2012 and 2011, the Company granted options under the 2011 Plan to purchase an aggregate of 1,200,000 and 170,000 shares of common stock, respectively, with a grant date fair value of $0.23 and $0.25 per share, respectively. Fair value for options granted were calculated using the Black-Scholes option pricing model with the following assumptions:

   
Three Months Ended June 30,
   
Six months Ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
Risk-free interest rate
          2.14%     0.87% 1.14%     2.14% 2.17%  
Expected dividend yield
          0       0         0    
Expected terms in years
          6.0     5.0 6.0     5.5 6.0  
Expected volatility
          112%     147% 157%     112% 118%  
 
The risk-free rate is based on the implied yield available on U.S. Treasury zero–coupon issues with a remaining term equal to the expected term of options issued. The Company does not anticipate declaring dividends in the foreseeable future. For the three and six months ended June 30, 2012 and 2011, the Company calculated expected volatility based on the annualized daily historical volatility of the Company’s stock price commensurate with the expected term of the option and other factors, including peer company data. The Company estimates the expected term as the average of the vesting period and the contractual term. The Company will continue to use this method of estimation until it has sufficient historical data to provide reasonable estimates of expected lives of stock options. The Company’s stock price volatility and option term involves management’s best estimates at that time, both of which impact the fair value of the option calculated under the Black-Scholes pricing model and, ultimately, the expense that will be recognized over the life of the option. The Company recognizes compensation expense for only the portion of options that is expected to vest. Therefore, the Company applies an estimated forfeiture rate that is derived from historical employee termination behavior. Forfeiture rates are revised in subsequent periods if actual forfeitures differ from those estimates.
 
Stock-based compensation expense was $33,333 and $67,821 for the three months ended June 30, 2012 and 2011, respectively. For the three months ended June 30, 2011, general and administrative expenses included $52,478 of stock compensation expense related to the modification of options held by three members of the board of directors who were not reelected in May 2011. Stock-based compensation expense for the six months ended June 30, 2012 and 2011 was $151,938 and $118,949, respectively. For the six months ended June 30, 2012, stock-based compensation included $92,240 of expenses related to fully vested options granted to the Company’s executives in February 2012. As of June 30, 2012, total unrecognized stock-based compensation related to non-vested stock options was approximately $213,515, which is expected to be recognized over a weighted-average period of approximately 2.2 years.
 
A summary of the Company’s stock compensation expense for the three and six months ended June 30, 2012 and 2011 is as follows:

   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
Research and development
  $ 4,123     $ 382     $ 8,247     $ 38,484  
Marketing and business development
    7,003       4,380       58,629       8,769  
General and administrative
    22,207       63,059       85,062       71,696  
Total stock-based compensation
  $ 33,333     $ 67,821     $ 151,938     $ 118,949  

A summary of the Company’s stock option activity for the six months ended June 30, 2012 is presented in the following table:
 
   
Shares
Subject to
Options
   
Weighted
Average
Exercise
Price per
Share
   
Weighted
Average
Remaining
Contractual
Life (Years)
   
Aggregate
Intrinsic
Value
 
Outstanding, December 31, 2011
    3,264,207     $ 0.65              
Granted
    1,200,000     $ 0.25              
Exercised
                       
Forfeited
                       
Expired
    (395,000 )   $ 0.87              
Outstanding, June 30, 2012
    4,069,207     $ 0.51       5.91     $ 274,644  
Exercisable, June 30, 2012
    3,009,677     $ 0.60       4.68     $ 128,033  
 
 
9

 
 
HELIX BIOMEDIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
The aggregate intrinsic value in the table above is based on the Company’s closing stock price of $0.40 on June 30, 2012. The intrinsic value is calculated as the difference between the closing stock price and the exercise price of the stock options as of June 30, 2012, had all of the options with exercise prices less than $0.40 been exercised on that date.
 
As of June 30, 2012, there were 12,000,000 shares of common stock reserved for issuance pursuant to the 2011 Plan, of which 10,393,000 shares remained available for future grants. Additional information regarding options outstanding as of June 30, 2012, is as follows:
 
 
   
Options Outstanding
   
Options Exercisable
 
Range of Exercise Prices
 
Shares
   
Weighted
Average
Remaining
Contractual
Life (Years)
   
Weighted
Average
Exercise
Price
   
Shares
   
Weighted
Average
Exercise
Price
 
$0.15
$0.37     2,223,957       8.24     $ 0.28       1,164,427     $ 0.29  
$0.40
$0.57     795,000       4.29     $ 0.49       795,000     $ 0.49  
$0.70
$1.00     869,000       2.18     $ 0.90       869,000     $ 0.90  
$1.20
$1.80     181,250       2.28     $ 1.56       181,250     $ 1.56  
$0.15
$1.80     4,069,207       5.91     $ 0.51       3,009,677     $ 0.60  
 
Note 11.  Net Loss per Share
 
Net loss per share has been computed by dividing net loss by the weighted-average number of shares outstanding during the period. Diluted per share amounts reflect potential dilution from the exercise or conversion of securities into common stock. The Company’s capital structure includes common stock options and common stock warrants, all of which have been excluded from net loss per share calculations as they are antidilutive, as follows:
 
   
Three Months Ended June 30,
   
Six Months Ended June 30,
 
   
2012
   
2011
   
2012
   
2011
 
Weighted average outstanding options
    4,069,207       3,908,305       3,887,366       3,905,988  
Weighted average outstanding warrants
    3,013,643       2,331,917       2,309,978       2,412,427  
 
Note 12.  Concentration of Risks
 
The Company maintains a portion of its cash balance in one financial institution, which at times may exceed federally insured limits. As of June 30, 2012, the Company maintained approximately $435,000 at major financial institutions in money market accounts insured by the Federal Deposit Insurance Corporation up to $250,000 per account or the Securities Investor Protection Corporation up to $500,000 per account. To date, the Company has not experienced any losses in its money market account.
 
A significant portion of the Company’s revenue is derived from a concentrated number of customers. The following individual customers accounted for 10% or more of revenue for the three and six months ended June 30, 2012 and 2011:

   
Three Months Ended
June 30,
   
Six Months Ended
June 30,
 
   
2012
   
2011
   
2012
   
2011
 
Customer A
    26 %     13 %     21 %     21 %
Customer B
    33 %     29 %     43 %     32 %
Customer C
          27 %           18 %
Customer D
    26 %     27 %     20 %     23 %
 
Note 13.  Liquidity and Capital Resources
 
For the six months ended June 30, 2012, the Company incurred a net loss of $1,250,137. At June 30, 2012, the Company had $739,108 in cash and cash equivalents. For the six months ended June 30, 2012, cash used in operations was $922,837 and cash used in investing activities was $27,000 which reflected the additional investment in NuGlow.
 
 
10

 
 
HELIX BIOMEDIX, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS – (Continued)
(Unaudited)
 
Based on the current status of the Company’s operating and product commercialization development plans, the Company estimates that its existing cash and cash equivalents, together with the LOC with JPMorgan, will be sufficient to fund its operations, continue with work towards its prescription (Rx) product development and support the continued expansion of its consumer program through the remainder of 2012. The Company will need substantial additional capital in order to maintain the current level of operations, continue commercialization of its technology and advance its pharmaceutical programs beyond 2012. Accordingly, the Company will need to draw down on the LOC and/or raise additional funding, which may include debt and/or equity financing. However, there is no assurance that additional funding will be available on favorable terms, if at all. If the Company is unable to obtain the necessary additional funding, the Company may not be able to satisfy its existing obligations or may be required to severely reduce the scope of its operations, which would significantly impede its ability to proceed with current operational plans and could lead to the discontinuation of its business.
 
The amount of capital the Company will need in the future will depend on many factors, including the amount of revenue generated by the Company, capital expenditures and hiring plans to accommodate future growth, research and development plans, future demand for the Company’s products and technology, and general economic conditions.
 
 
11

 
 
ITEM 2.         Management’s Discussion and Analysis of Financial Condition and Results of Operations.
 
Forward-Looking Statements
 
Our disclosure and analysis in this Quarterly Report on Form 10-Q contain forward-looking statements, which provide our current expectations or forecasts of future events. Forward-looking statements include, without limitation:
 
 
statements concerning possible or assumed future results of operations, trends in financial results and business plans, including those relating to earnings growth and revenue growth;
 
 
statements about our product development schedule;
 
 
statements about our future capital requirements and the sufficiency of our cash, cash equivalents, investments, and any other sources to meet these requirements;
 
 
statements about our plans, objectives, expectations, and intentions; and
 
 
other statements that are not historical facts.
 
Words such as “may,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “could,” “future,” “target,” and similar expressions may identify forward-looking statements, but the absence of these words does not necessarily mean that a statement is not forward-looking. Our actual results could differ materially from those anticipated in the forward-looking statements for many reasons, including the factors described in Part I, Item 1A, “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2011. You should carefully consider these factors in evaluating our forward-looking statements.
 
You should not unduly rely on these forward-looking statements, which speak only as of the date of this Quarterly Report. Except as required by law, we undertake no obligation to publicly revise any forward-looking statement to reflect circumstances or events after the date of this Quarterly Report or to reflect the occurrence of unanticipated events. You should, however, review the factors and risks we describe in the reports we file from time to time with the Securities and Exchange Commission (SEC) after the date of this Quarterly Report.
 
This information should be read in conjunction with the unaudited condensed financial statements and the notes included in Item 1 of Part I of this Quarterly Report and the audited financial statements and notes and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in our Annual Report on Form 10-K for the year ended December 31, 2011.
 
Business Overview
 
We are a biopharmaceutical company with an extensive proprietary library of structurally diverse bioactive peptides and patents covering hundreds of thousands of peptide sequences. Our mission is to enrich clinical practice and the patient/consumer experience by developing and commercializing topically applied products which offer the benefits of our advanced bioactive small molecule peptide technology. Our vision is to be recognized as the world leader in the identification, qualification and commercialization of natural and synthetic peptides.
 
Our business strategy is to develop our peptide and small molecule portfolio to derive revenue from a broad base of opportunities including licensing to third parties rights to use select proprietary peptides in specific fields of application and commercializing our own branded products. Over the longer term, we intend to pursue applications for products using our technology in medical devices and pharmaceutical preparations. We have developed numerous peptides with unique sequences for use in the following two areas of application:
 
 
Consumer skin care products — we have developed a range of peptides and small molecule technologies capable of improving different aspects of the skin’s appearance, texture, tone and barrier function and are marketing these peptides as innovative ingredients for cosmetic use; and
 
 
Prescription (Rx) products — certain of our peptides have demonstrated promising results in the areas of infection control, wound healing and immune modulation and are being developed for Rx applications.
 
Our Rx focus is on prescription-only topical preparations that would be subject to a shorter regulatory approval process under Section 510(k) of the Food, Drug and Cosmetic Act (510(k) devices). We continue to explore possible sources of funding to support further in-house development work on our pharmaceutical programs, which we believe will enhance potential partnership opportunities with pharmaceutical companies.
 
We generate revenue through license agreements with skin care product manufacturers as well as by selling proprietary branded skin care products through distribution channels and through our dedicated e-commerce websites.
 
 
12

 
 
Critical Accounting Policies and Estimates
 
The preparation of our financial statements in conformity with United States Generally Accepted Accounting Principles (U.S. GAAP) requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities and disclosure of contingent assets and liabilities as of the dates of the balance sheets and the reported amounts of revenue and expenses during the reporting period. Actual results may differ from those estimates and judgments under different assumptions and conditions. We have discussed the critical accounting policies and estimates that we used in the preparation of our financial statements in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of the Operations – Critical Accounting Policies and Estimates,” in our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC on March 27, 2012. There have been no material changes to those critical accounting policies or the underlying accounting estimates or judgments, other than the fact that we have used similar concepts, judgments and estimates underlying our policy related to stock options issued to employees with respect to warrants issued in connection with our line of credit agreement.
 
Second Quarter Overview
 
Our total revenue for the three months ended June 30, 2012 decreased by 32.1% compared to the same period in the prior year, driven primarily by a decline in sales of private-labeled products to international distributors as well as to an affiliated company.
 
Operating expenses increased 0.9% during the three months ended June 30, 2012, as compared to the same period in 2011, principally attributable to higher spending in marketing activities and legal fees related to patents and other general corporate matters, partially offset by a decrease in stock-based compensation expenses.
 
Our net loss for the three months ended June 30, 2012 increased by 6.9% compared to the same period in 2011, due primarily to lower revenue and gross profit.
 
As of June 30, 2012, our accumulated deficit was approximately $47,307,000. We may continue to incur substantial operating losses over the next several years based on the estimated costs associated with our current level of operations and continued commercialization of our technology being greater than our anticipated revenue.
 
Results of Operations
 
Revenue
 
Revenue in the three and six months ended June 30, 2012 and 2011 consisted primarily of license fees, peptide sales and consumer product sales as summarized in the table below.
 
   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
2012
   
2011
   
Change
   
2012
   
2011
   
Change
 
License fees
  $ 173,453     $ 164,975       5.1 %   $ 488,545     $ 336,400       45.2 %
Peptide and consumer product sales
    175,794       340,349       (48.3 )%     428,521       475,281       (9.8 )%
Consumer product sales to affiliated company
    121,275       187,779       (35.4 )%     233,878       239,050       (2.2 )%
Total revenue
  $ 470,522     $ 693,103       (32.1 )%   $ 1,150,944     $ 1,050,731       9.5 %
 
Total revenue decreased by approximately $223,000, or 32.1%, for the three months ended June 30, 2012 compared to the same period in the previous year, and increased by approximately $100,000, or 9.5%, for the first six months of 2012 compared to the first six months of 2011. License fees, which are derived from royalty arrangements, increased by approximately $8,000, or 5.1%, for the second quarter of 2012 compared to the same period in 2011, and increased by $152,000, or 45.2%, for the first six months of 2012 compared to the same period in 2011. The fluctuations in our royalty revenue for the three and six months ended June 30, 2012 reflected the variation in levels of product sales from our licensees.
 
Peptide and consumer product sales decreased by approximately $165,000, or 48.3%, for the second quarter of 2012 compared to the same period in the previous year and by approximately $47,000, or 9.8%, for the first six months of 2012 compared to the same period in the previous year. The variability in peptide sales, which decreased by 10.8% for the second quarter of 2012 and increased by 14.3% for the first six months of 2012 compared to the same periods in the prior year, resulted from fluctuations of sales to our bulk ingredient customers. The decreases in consumer product sales of 73.7% and 35.6% for the three and six months ended June 30, 2012, respectively, compared to the same periods in the prior year, resulted primarily from lower sales to our international distributors.
 
Consumer product sales to affiliated company, which consisted of products sold under private labels to NuGlow Cosmaceuticals, LLC (NuGlow), decreased by approximately $67,000, or 35.4%, for the second quarter of 2012 and by $5,000, or 2.2%, for the first six months of 2012 compared to the respective periods in the previous year. As NuGlow is an affiliated company, our revenue to NuGlow is recognized based on NuGlow’s sales to third-party customers or NuGlow’s usage of products for marketing purposes.
 
 
13

 
 
Cost of Revenue and Gross Margin
 
Cost of revenue consists of cost of peptides and materials associated with consumer products sold. Gross profit is the difference between revenue and cost of revenue, and gross margin is gross profit expressed as a percentage of total revenue. Revenue mix affects our gross margin because our margins from license fees are higher than our margins from peptide and consumer products sales.
 
Cost of revenue and gross profit for the three and six months ended June 30, 2012 and 2011 are summarized in the table below.
 
   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
2012
   
2011
   
Change
   
2012
   
2011
   
Change
 
Cost of peptides and consumer product sales
  $ 109,363     $ 247,698       (55.8 )%   $ 267,136     $ 338,995       (21.2 )%
Percentage of total revenue
    23.2 %     35.7 %             23.2 %     32.3 %        
Cost of consumer product sales to affiliated company
    55,094       104,995       (47.5 )%     106,852       134,525       (20.6 )%
Percentage of total revenue
    11.7 %     15.1 %             9.3 %     12.8 %        
Total cost of revenue
  $ 164,457     $ 352,693       (53.4 )%   $ 373,988     $ 473,520       (21.0 )%
Gross profit
  $ 306,065     $ 340,410       (10.1 )%   $ 776,956     $ 577,211       34.6 %
 
 
Cost of peptide and consumer product sales decreased by approximately $138,000, or 55.8%, for the three months ended June 30, 2012 compared to the three months ended June 30, 2011 and by approximately $72,000, or 21.2%, for the first six months of 2012 compared to the same period in the previous year. Cost of peptides and consumer product sales for the three and six months ended June 30, 2012 declined at higher rates compared to the decreases in peptide and consumer product revenue during those periods due primarily to the product mix. Cost of consumer product sales to an affiliated company decreased by approximately $50,000, or 47.5%, for the three months ended June 30, 2012 compared to the three months ended June 30, 2011 and by approximately $28,000, or 20.6%, for the first six months of 2012 compared to the same period in the previous year, due primarily to a drop in NuGlow’s sales volume to third-party customers.
 
Gross margin on peptide and consumer product sales was 37.8% for the three months ended June 30, 2012 compared to 27.2% for the three months ended June 30, 2011, and increased to 37.7% for the six months ended June 30, 2012 compared to 28.7% for the same period in the prior year. The higher gross margin related to peptide and consumer product sales was due primarily to the product mix and customer mix. Consumer product sales typically generate a higher gross margin than peptide sales. Gross margin on sales of consumer products to an affiliated company also grew to 54.6% during the second quarter of 2012 compared to 44.1% for the second quarter of 2011, and increased to 54.3% for the first six months of 2012 compared to 43.7% for the same period in the previous year. The improved gross margin was influenced principally by product mix.
 
Research and Development
 
Research and development (R&D) expenses consist primarily of compensation and benefit expenses, stock-based compensation expense, cost of external studies and trials, and contract and other outside service fees related to our R&D activities. R&D expenses for the three and six months ended June 30, 2012 and 2011 are summarized in the table below.
 
   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
2012
   
2011
   
Change
   
2012
   
2011
   
Change
 
Research and development
  $ 87,942     $ 90,747       (3.1 )%   $ 175,027     $ 315,910       (44.6 )%
Percentage of total revenue
    18.7 %     13.1 %             15.2 %     30.1 %        
 
R&D expenses decreased by approximately $3,000, or 3.1%, for the three months ended June 30, 2012 compared to the three months ended June 30, 2011, and by approximately $141,000, or 44.6%, for the six months ended June 30, 2012 compared to the same period in 2011. The decrease in R&D expenses for the three and six months ended June 30, 2012 was primarily attributable to lower spending on external trials and studies and reduced employee compensation resulting from the departure of our former Vice President and Chief Scientific Officer in February 2011. For the remainder of 2012, we anticipate R&D expenses to increase compared to the level experienced in the first half of 2012 as we expect to incur additional spending on external testing and studies related to the product development of our consumer products and Rx programs.
 
Marketing and Business Development
 
Marketing and business development (M&BD) expenses consist primarily of compensation and benefit expenses, stock-based compensation expense, consulting fees and various marketing costs. M&BD expenses for the three and six months ended June 30, 2012 and 2011 are summarized in the table below.
 
 
14

 
 
   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
2012
   
2011
   
Change
   
2012
   
2011
   
Change
 
Marketing and business development
  $ 269,645     $ 244,018       10.5 %   $ 572,751     $ 448,455       27.7 %
Percentage of total revenue
    57.3 %     35.2 %             49.8 %     42.7 %        
 
M&BD expenses increased by approximately $26,000, or 10.5%, for the three months ended June 30, 2012 compared to the three months ended June 30, 2011, and by approximately $124,000, or 27.7%, for the six months ended June 30, 2012 compared to the same period in 2011. The increase for the three and six months ended June 30, 2012 was primarily driven by higher advertising expense and stock-based compensation expense. For the remainder of 2012, we anticipate M&BD expenses to be consistent with the level experienced in the first half of 2012 in absolute dollars. We expect that stock-based compensation expense will be reduced but that we will incur higher expenses on advertising, market testing and promotions for our current products as well as for new skin care products we plan to introduce in 2012
 
General and Administrative
 
General and administrative (G&A) expenses consist primarily of salaries and benefit expenses, stock-based compensation expense, consulting fees and general corporate expenditures. G&A expenses for the three and six months ended June 30, 2012 and 2011 are summarized in the table below.

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
2012
   
2011
   
Change
   
2012
   
2011
   
Change
 
General and administrative
  $ 329,235     $ 374,889       (12.2 )%   $ 713,811     $ 716,681       (0.4 )%
Percentage of total revenue
    70.0 %     54.1 %             62.0 %     68.2 %        
 
G&A expenses decreased by approximately $46,000, or 12.2%, for the three months ended June 30, 2012 compared to the three months ended June 30, 2011, and by approximately $3,000, or 0.4%, for the six months ended June 30, 2012 compared to the same period in 2011. The decrease for the three months ended June 30, 2012 was primarily due to a one-time charge to stock-based compensation in the second quarter of 2011 related to option grant modifications for three board members who were not reelected in May 2011. The decrease for the six months ended June 30, 2012 was due primarily to lower spending in general corporate expenses, partially offset by an increase in stock-based compensation expense. For the remainder of 2012, we anticipate G&A expenses to increase from the level experienced in the first half of 2012 as we expect to incur higher consulting fees and general corporate expenses.
 
Accounting, Legal and Professional Fees
 
Accounting, legal and professional fees for the three and six months ended June 30, 2012 and 2011 are summarized in the table below.

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
2012
   
2011
   
Change
   
2012
   
2011
   
Change
 
Accounting, legal and professional fees
  $ 181,201     $ 144,196       25.7 %   $ 400,423     $ 309,633       29.3 %
Percentage of total revenue
    38.5 %     20.8 %             34.8 %     29.5 %        
 
Accounting, legal and professional fees increased by approximately $37,000, or 25.7%, for the three months ended June 30, 2012 compared to the three months ended June 30, 2011, and by approximately $91,000, or 29.3%, for the six months ended June 30, 2012 compared to the same period in 2011. The increase for the three months ended June 30, 2012 was due primarily to higher legal fees associated with patent protection and general corporate matters. The increase for the six months ended June 30, 2012 was principally attributable to increases in accounting fees and legal fees associated with patent protection, partially offset by a decrease in legal fees related to general corporate matters.
 
For the remainder of 2012, we anticipate accounting, legal and professional fees will increase significantly as we expect to incur a much higher level of spending on legal fees related to the protection of our intellectual property.
 
Depreciation and Amortization
 
Depreciation and amortization expenses for the three and six months ended June 30, 2012 and 2011 are summarized in the table below.
 
   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
2012
   
2011
   
Change
   
2012
   
2011
   
Change
 
Depreciation and amortization
  $ 22,063     $ 28,147       (21.6 )%   $ 45,158     $ 54,764       (17.5 )%
Percentage of total revenue
    4.7 %     4.1 %             3.9 %     5.2 %        
 
 
15

 
 
Depreciation and amortization expenses decreased by approximately $6,000, or 21.6%, for the three months ended June 30, 2012 compared to the three months ended June 30, 2011, and by approximately $10,000, or 17.5%, for the six months ended June 30, 2012 compared to the same period in 2011. The decrease for the three and six months ended June 30, 2012 was primarily due to reduced depreciation from assets becoming fully depreciated. For the remainder of 2012, we expect depreciation and amortization expenses to be consistent with the levels experienced in the first half of 2012.
 
Other Income (Expense), Net
 
Other income (expense), net consists of interest income, interest expense related to our outstanding convertible notes payable and accretion of discount on the convertible notes payable.
 
Other income (expense), net for the three and six months ended June 30, 2012 and 2011 is summarized in the table below.

   
Three Months Ended June 30,
         
Six Months Ended June 30,
       
   
2012
   
2011
   
Change
   
2012
   
2011
   
Change
 
Interest income
  $ 384     $ 928       (58.6 )%   $ 1,124     $ 2,132       (47.3 )%
Amortization of debt issuance costs
    (50,123 )        
NM
      (62,240 )        
NM
 
Equity in loss of affiliated company
    (29,942 )     (59,065 )     (49.3 )%     (47,590 )     (51,073 )     (6.8 )%
Change in fair value of option to purchase interest in affiliated company
    (4,597 )     (25,151 )     (81.7 )%     (11,217 )     (17,436 )     (35.7 )%
Total other income (expense), net
  $ (84,278 )   $ (83,288 )     1.2 %   $ (119,923 )   $ (66,377 )     80.7 %
 

NM – Not meaningful
 
Interest Income. Interest income for the three months ended June 30, 2012 and 2011 was not significant due to our low cash balance and prevailing interest rates. Interest income for the six months ended June 30, 2012 decreased by $1,000 compared to the same period in 2011, due primarily to a lower average cash balance on hand. For the remainder of 2012, we expect interest income to be lower than the level experienced in the first half of 2012 due to our decreasing balance in cash and cash equivalents.
 
Amortization of Debt Issuance Costs. For the three and six months ended June 30, 2012, we recorded expenses of approximately $50,000 and $62,000, respectively, related to the letter of credit established on our behalf by our largest stockholder on March 9, 2012. These amounts represented the amortization of the fair value of the warrants issued in connection with the letter of credit for the periods presented.
 
Equity in Loss of Affiliated Company. The equity in loss of affiliated company represented our share of NuGlow’s net loss for the reported periods. Equity in loss of affiliated company decreased by approximately $29,000, or 49.3%, for the three months ended June 30, 2012 compared to the three months ended June 30, 2011, and by approximately $3,000, or 6.8%, for the six months ended June 30, 2012 compared to the same period in 2011.
 
Change in Value of Option to Purchase Interest in Affiliated Company. For the three and six months ended June 30, 2012, we recorded a loss of approximately $5,000 and $11,000, respectively, compared to a loss of approximately $25,000 and $17,000 for the three and six months ended June 30, 2011, respectively, which reflected the change in fair value of the option to purchase the remainder of NuGlow under certain circumstances.
 
Liquidity and Capital Resources
 
Since inception, we have financed our operations primarily through the private sale of debt and equity securities. Our principal sources of liquidity are cash and cash equivalents. As of June 30, 2012, we had approximately $739,000 in cash and cash equivalents, compared to approximately $1.7 million in cash and cash equivalents at December 31, 2011. The decrease in cash and cash equivalents from December 31, 2011 was primarily attributable to cash used in operations and investment in an affiliated company.
 
Cash Flows from Operating Activities
 
Cash used in operating activities for the six months ended June 30, 2012 and 2011 was approximately $923,000 and $1,361,000, respectively, and in each case derived primarily from the net loss for the period plus the net effect of non-cash expenses. Our operating cash flows are also influenced by our working capital needs to support growth, in particular fluctuations in inventory, accounts receivable, accounts payable and other current assets and liabilities. We continue to experience negative cash flows from operating activities due to the cash requirements to maintain our current level of operations while supporting activities to expand our product lines and revenue base.
 
For the six months ended June 30, 2012, changes in accounts receivable, inventory and deferred revenue provided approximately $186,000 of cash while changes in prepaid expenses and other assets, accounts payable, accrued expenses and deferred gross profit from an affiliated company used approximately $177,000 of cash. During the six months ended June 30, 2011, changes in accounts receivable, inventory, prepaid expenses and other assets, and accrued expenses used approximately $372,000 of cash, while changes in accounts payable, accrued compensation and benefits, and deferred gross profit from an affiliated company provided approximately $103,000 of cash.
 
 
16

 
 
Cash Flows from Investing Activities
 
For the six months ended June 30, 2012, cash used in investing activities was approximately $27,000, which reflected the additional investment in NuGlow, while cash used of approximately $23,000 during the same period in 2011 was due to payments for website development costs and purchases of capital assets.
 
Cash Flows from Financing Activities
 
For the six months ended June 30, 2012 and 2011, there was no cash provided by financing activities.
 
On March 9, 2012, we entered into an LOC Agreement (the LOC Agreement) with Frank T. Nickell, who beneficially owned approximately 40% of our outstanding common stock, pursuant to which Mr. Nickell established an irrevocable standby letter of credit by JPMorgan Chase Bank, N.A. (JPMorgan) in the amount of $2.0 million on our behalf and deposited $2.0 million with JPMorgan as collateral. Bank administrative fees for the letter of credit are expected to be 0.75% per year and borrowings under this line of credit (LOC), if not immediately repaid by the collateral, will accrue interest at a rate of 4% per year. The LOC will expire on July 1, 2013 but will automatically renew until July 1, 2014 unless terminated by JPMorgan at least 14 days prior to the end of the current term, at which time we may draw up to the balance remaining on the LOC. Pursuant to the LOC Agreement, we agreed to use commercially reasonable efforts to consummate an equity financing prior to the termination date of the LOC in which we would sell and issue shares of our common stock at a price per share of at least $0.60 for aggregate proceeds of at least $3.0 million, upon consummation of which all amounts outstanding under the LOC shall be immediately repaid. In connection with the LOC Agreement, we issued to Mr. Nickell a five-year fully vested warrant to purchase 2,000,000 shares of our common stock at an exercise price of $0.25 per share and agreed to reimburse Mr. Nickell for his reasonable expenses in connection with the LOC, including any interest and bank fees. As of June 30, 2012, we had no borrowings outstanding under the LOC and reimbursements to Mr. Nickell had not been significant.
 
Based on the current status of our operating and product commercialization development plans, we estimate that our existing cash and cash equivalents, together with the LOC with JPMorgan, will be sufficient to fund our operations, continue with work towards our Rx product development and support the continued expansion of our consumer program through the remainder of 2012. We will need substantial additional capital in order to maintain the current level of operations, continue commercialization of our technology and advance our pharmaceutical programs beyond 2012. Accordingly, we will need to draw down on the LOC and/or raise additional funding, which may include debt and/or equity financing. However, there is no assurance that additional funding will be available on favorable terms, if at all. If we are unable to obtain the necessary additional funding, we may not be able to satisfy our existing obligations or may be required to severely reduce the scope of our operations, which would significantly impede our ability to proceed with current operational plans and could lead to the discontinuation of our business.
 
The amount of capital we will need in the future will depend on many factors, including the amount of revenue we generate, capital expenditures and hiring plans to accommodate future growth, research and development plans, future demand for our products and technology, and general economic conditions.
 
Contractual Obligations
 
The following table summarizes our contractual obligations and the effect such obligations are expected to have on liquidity in future periods as of June 30, 2012:
 
Contractual Obligations
 
Remainder of 2012
   
2013 through 2014
   
2015 through 2016
   
2017 through 2018
   
Total
 
Operating lease
  $ 39,528     $ 156,306     $ 172,816     $ 136,140     $ 504,790  
Purchase order commitments (1)
    187,012                         187,012  
Total contractual obligations
  $ 226,540     $ 156,306     $ 172,816     $ 136,140     $ 691,802  
 

(1)     Purchase order commitments primarily consist of open orders for inventory.
 
 
17

 
 
Recent Accounting Pronouncements
 
In May 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2011-04 (ASU 2011-04), Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs to provide a uniform framework for fair value measurements and related disclosures between U.S. GAAP and International Financial Reporting Standards (“IFRS”). Additional disclosure requirements in the update include: (1) for Level 3 fair value measurements, quantitative information about unobservable inputs used, a description of the valuation processes used by the entity, and a qualitative discussion about the sensitivity of the measurements to changes in the unobservable inputs; (2) for an entity’s use of a nonfinancial asset that is different from the asset’s highest and best use, the reason for the difference; (3) for financial instruments not measured at fair value but for which disclosure of fair value is required, the fair value hierarchy level in which the fair value measurements were determined; and (4) the disclosure of all transfers between Level 1 and Level 2 of the fair value hierarchy. ASU 2011-04 requires prospective application for interim and annual periods beginning on or after December 15, 2011. We are currently evaluating the impact that ASU 2011-04 will have on our financial position and results of operations.
 
In June 2011, the FASB issued ASU No. 2011-05 (ASU 2011-05), Comprehensive Income (Topic 220): Presentation of Comprehensive Income. ASU No. 2011-05 amends existing guidance by allowing an entity the option to present the components of net income and other comprehensive income in either a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. ASU No. 2011-05 requires retrospective application and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. As the adoption of this guidance concerns disclosures only, it does not have a material impact on our financial position or results of operations.
 
 
18

 

ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk.
 
Not applicable.
 
ITEM 4.  Controls and Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
Our management, with the participation of our Chief Executive Officer and Acting Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
 
Based on that evaluation, the Chief Executive Officer and Acting Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
 
Change in Internal Control over Financial Reporting
 
No change in our internal control over financial reporting occurred during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
 
 
19

 
 
PART II – OTHER INFORMATION
 
ITEM 1A.     Risk Factors.
 
There are numerous factors that affect our business and results of operations, many of which are beyond our control. Please see our Annual Report on Form 10-K for the year ended December 31, 2011 for a description of some of the risks and uncertainties that we face. There have been no material changes in our risk factors from those described in that Annual Report. If any of those risks were to occur, our business, operating results and financial condition could be seriously harmed.
 
 
20

 

ITEM 6.         Exhibits.

     
Incorporated by Reference
Exhibit Number
Exhibit Description
Filed Herewith
Form
Period Ending
Exhibit
Filing Date
2.1
Proposal for Approval of Reincorporation of Helix BioMedix, Inc., a Colorado corporation, from Colorado to Delaware
 
10-KSB
12/31/00
2
4/16/01
3.1
Certificate of Ownership and Merger of Helix BioMedix, Inc. a Delaware corporation and Helix BioMedix, Inc., a Louisiana corporation
 
10-KSB/A
12/31/02
3.1
4/30/03
3.2
Certificate of Incorporation of Helix BioMedix, Inc.
 
10-KSB/A
12/31/00
3-A
5/18/01
3.3
Certificate of Amendment to the Certificate of Incorporation of Helix BioMedix, Inc.
 
10-KSB/A
12/31/02
3.3
4/30/03
3.4
Bylaws of Helix BioMedix, Inc.
 
10-KSB/A
12/31/00
3-B
5/18/01
4.1
Rights Agreement dated August 21, 2003
 
10-KSB
12/31/03
10.27
3/26/04
4.2
Acceptance and Acknowledgement of Appointment dated January 4, 2004
 
10-KSB
12/31/03
10.28
3/26/04
10.11(c)
Third Amendment dated April 9, 2012 to Amended and Restated Operating Agreement of NuGlow Cosmaceuticals, LLC among the Company, NuGlow Cosmaceuticals, LLC and Camden Street Partners, LLC
X
       
31.1
Certification of the Company’s Chief Executive Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
X
       
31.2
Certification of the Company’s Acting Chief Financial Officer pursuant to Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934
X
       
32.1
Certification of the Company’s Chief Executive Officer pursuant to 18 U.S.C. Section 1350
X
       
32.2
Certification of the Company’s Acting Chief Financial Officer pursuant to 18 U.S.C. Section 1350
X
       
101.INS*
XBRL Instance Document
X
       
101.SCH*
XBRL Taxonomy Extension Schema Document
X
       
101.CAL*
XBRL Taxonomy Extension Calculation Linkbase Document
X
       
101.DEF*
XBRL Taxonomy Extension Definition Linkbase Document
X
       
101.LAB*
XBRL Taxonomy Extension Label Linkbase Document
X
       
101.PRE*
XBRL Taxonomy Extension Presentation Linkbase Document
X
       
 

* XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
 
 
21

 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
August 2, 2012
 
 
HELIX BIOMEDIX, INC.
 
 
            (Registrant)
 
       
 
By:
/s/ R. Stephen Beatty
 
 
R. Stephen Beatty
 
 
President and Chief Executive Officer and
 
 
Acting Chief Financial Officer
 
  (Principal Executive Officer and  
  Acting Principal Financial Officer)  
 
 
22

PINX:HXBM Quarterly Report 10-Q Filling

PINX:HXBM Stock - Get Quarterly Report SEC Filing of PINX:HXBM stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

PINX:HXBM Quarterly Report 10-Q Filing - 6/30/2012
Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol |  Title Star Rating |  Category |  Total Assets |  Top Holdings |  Top Sectors |  Symbol |  Name Title |  Date |  Author |  Collection |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Name |  Ticker |  Star Rating |  Market Cap |  Stock Type |  Sector |  Industry Star Rating |  Investment Style |  Total Assets |  Category |  Top Holdings |  Top Sectors |  Symbol / Ticker |  Title Star Rating |  Category |  Total Assets |  Symbol / Ticker |  Name Title |  Date |  Author |  Collection |  Popularity |  Interest Title |  Date |  Company |  Symbol |  Interest |  Popularity Topic |  Sector |  Key Indicators |  User Interest |  Market Cap |  Industry Title |  Date |  Company |  Symbol |  Interest |  Popularity

Previous: PINX:HXBM Quarterly Report 10-Q Filing - 3/31/2012  |  Next: PINX:HYDI Quarterly Report 10-Q Filing - 3/31/2012