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 ~~September 30~~March 31, ~~2011~~2012

¨	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.)

22118-20th Avenue SE, Suite 204, 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 ~~October~~April 3130, ~~2011~~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 (unaudited)	2
Condensed Statements of Operations and Comprehensive Loss (unaudited)	2
Condensed Statements of Stockholders’ Equity (Deficit) (unaudited)	3
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 Disclosure About Market Risk	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	18
Item 4. Controls and Procedures	18
PART II - OTHER INFORMATION
Item 1A. Risk Factors	19
Item 5. Other Information	19
Item 6. Exhibits	20
Signatures	21

PART I - FINANCIAL INFORMATION

ITEM 1. Financial Statements.

HELIX BIOMEDIX, INC.

CONDENSED BALANCE SHEETS

(Unaudited)

	September 30, 2011			December 31, 2010
	March 31, 2012			December 31, 2011
ASSETS
Current assets:
Cash and cash equivalents	$	21,~~067~~163,~~262~~534		$	41,~~044~~688,~~309~~945
Accounts receivable, net		~~254~~424,~~246~~824			~~235~~239,~~149~~773
Accounts receivable, affiliated company, net		~~256~~235,~~805~~265			52200,~~795~~935
Inventory		~~356~~322,~~087~~891			~~278~~363,~~392~~869
Prepaid expenses and other current assets		44,725			63,471
Deferred debt issuance costs, current		201,040			—
Total current assets		2,979,125			4,674,116
Prepaid expenses and other assets		80,441			64,583
Property and equipment, net		35,721			44,178
Total current assets		2,427,995			2,558,105
Intangible assets, net		163,240			214,068
Property and equipment, net		19,946			26,098
Other long term assets		19,886			29,179
Intangible assets, net		129,354			146,297
Investment in affiliated company		234,495			266,941
Deferred debt issuance costs, non-current		251,713			—
Total assets	$	3,432,467		$	5,228,482
Other long term assets		14,264			20,884
Investment in affiliated company		205,607			223,255
Total assets	$	3,048,879		$	2,974,639
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	75177,~~942~~035		$	~~130~~125,~~489~~324
Accrued compensation and benefits		3648,~~099~~478			3087,~~285~~859
Accrued expenses		44114,~~496~~106			~~102~~55,~~123~~463
Deferred gross profit, affiliated company		171,577			50,479
Deferred revenue		7,060			—
Deferred rent, current		6,574			4,847
Deferred gross profit, affiliated company		131,151			134,842
Total current liabilities		334,688			318,223
Deferred rent, current		7,748			7,155
Deferred rent, non-current		30,597			35,815
Total current liabilities		485,578			410,643
Total liabilities		365,285			354,038
Deferred rent, non-current		26,328			28,660
Total liabilities		511,906			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 September 30, 2011, and December 31, 2010		49,721			49,721
Common stock, $0.001 par value, 100,000,000 shares authorized; 49,720,255 shares outstanding at March 31, 2012 and December 31, 2011		49,721			49,721
Additional paid-in capital		4849,~~525~~125,~~949~~928			48,~~392~~542,~~985~~453
Accumulated deficit		(4546,~~508~~638,~~488~~676	)		(4346,~~568~~056,~~262~~838	)
Total stockholders’ equity		32,~~067~~536,~~182~~973			42,~~874~~535,~~444~~336
Total liabilities and stockholders’ equity	$	3,~~432~~048,~~467~~879		$	52,~~228~~974,~~482~~639

The accompanying notes are an integral part of the financial statements.

HELIX BIOMEDIX, INC.

CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

	Three months ended September 30,						Nine months ended September 30,
	Three months ended March 31,
	2011			2010			2011			2010
	2012			2011
Revenue:
Licensing fees	$	~~176~~315,~~922~~092		$	48171,~~007~~425		$	~~513,322~~		$	~~253,525~~
Peptide and consumer product sales		~~100~~252,~~884~~727			45134,~~673~~932			~~576,165~~			~~240,271~~
Consumer product sales to affiliated company		~~116~~112,~~901~~603			—51,271			~~355,951~~			—
Total revenue		~~394~~680,~~707~~422			93357,~~680~~628			~~1,445,438~~			~~493,796~~
Cost of revenue:
Cost of peptide and consumer product sales		70157,~~834~~773			2991,~~037~~297			~~409,829~~			~~178,271~~
Cost of consumer product sales to affiliated company		5651,~~961~~758			—29,530			~~191,486~~			—
Total cost of revenue		~~127~~209,~~795~~531			29120,~~037~~827			~~601,315~~			~~178,271~~
Gross profit		~~266~~470,~~912~~891			64236,~~643~~801			~~844,123~~			~~315,525~~
Operating expenses:
Research and development		~~109~~87,~~221~~085			~~196~~225,~~752~~163			~~425,131~~			~~572,617~~
Marketing and business development		~~225~~303,~~732~~106			~~193~~204,~~027~~437			~~674,187~~			~~480,016~~
General and administrative		~~327~~384,~~162~~576			~~431~~341,~~202~~792			~~1,043,843~~			~~1,138,062~~
Accounting, legal and professional fees		~~168~~219,~~043~~222			~~107~~165,~~263~~437			~~477,676~~			~~414,038~~
Depreciation and amortization		2723,~~845~~095			2826,~~430~~617			~~82,609~~			~~86,803~~
Total operating expenses		~~858~~1,~~003~~017,084			~~956~~963,~~674~~446			~~2,703,446~~			~~2,691,536~~
Loss from operations		(~~591~~546,~~091~~193	)		(~~892~~726,~~031~~645	)		~~(1,859,323~~	)		~~(2,376,011~~	)
Other income (expense):
Interest income		~~704~~740			1,~~027~~204			~~2,836~~			~~2,386~~
Interest expense on convertible notes payable		—			(38,796	)		—			(103,069	)
Amortization of debt issuance costs		(12,117	)		—
Interest expense on convertible notes payable, related party		—			(156,274	)		—			(426,553	)
Equity in earnings (loss) of affiliated company		(17,648	)		7,992
Accretion of discount on convertible notes payable		—			(10,675	)		—			(29,861	)
Change in value of option to purchase interest in affiliated company		(6,620	)		7,715
Accretion of discount on convertible notes payable, related party		—			(18,427	)		—			(51,604	)
Other income (expense), net		(35,645	)		16,911
Equity in loss of affiliated company		(23,373	)		(4,013	)		(74,446	)		(4,013	)
Net loss and comprehensive loss	$	(581,838	)	$	(709,734	)
Change in fair value of option to purchase interest in affiliated company		8,143			—			(9,293	)		—
Basic and diluted net loss per share	$	(0.01	)	$	(0.01	)
Other income (expense), net		(14,526	)		(227,158	)		(80,903	)		(612,714	)
Weighted average shares outstanding		49,720,255			49,720,255
Net loss and comprehensive loss	$	(605,617	)	$	(1,119,189	)	$	(1,940,226	)	$	(2,988,725	)
Basic and diluted net loss per share	$	(0.01	)	$	(0.04	)	$	(0.04	)	$	(0.12	)
Weighted average shares outstanding		49,720,255			25,653,512			49,720,255			25,653,512

The accompanying notes are an integral part of the financial statements.

HELIX BIOMEDIX, INC.

CONDENSED STATEMENTS OF STOCKHOLDERS’ EQUITY ~~(DEFICIT)~~

For the Year Ended December 31, ~~2010~~2011 and for the ~~Nine~~Three Months Ended ~~September 30~~March 31, ~~2011~~2012

(Unaudited)

	Common Stock				Additional Paid-in Capital		Accumulated Deficit			Stockholders’ Equity
	Number of Shares		Amount		~~Paid-in Capital~~		~~Accumulated Deficit~~			~~Stockholders’ Equity (Deficit)~~
Balance at December 31, 2009		25,653,512	$	25,654	$	30,663,081	$	(35,857,460	)	$	(5,168,725	)
Balance at December 31, 2010		49,720,255	$	49,721	$	48,392,985	$	(43,568,262	)	$	4,874,444
Stock-based compensation		—		—		~~188~~149,~~920~~468		—			~~188~~149,~~920~~468
Relative fair value of detachable warrants issued with convertible notes payable		—		—		77,300		—			77,300
Net loss		—		—		—		(2,488,576	)		(2,488,576	)
Proceeds from warrant exercises, net		4,852,000		4,852		2,151,415		—			2,156,267
Balance at December 31, 2011		49,720,255		49,721		48,542,453		(46,056,838	)		2,535,336
Issuance of stock from conversion of notes payable		18,215,012		18,215		10,910,806		—			10,929,021
Stock-based compensation		—		—		118,605		—			118,605
Proceeds from private placement, net		999,731		1,000		594,497		—			595,497
Fair value of warrants issued in connection with letter of credit		—		—		464,870		—			464,870
Debt conversion inducement expense		—		—		3,806,966		—			3,806,966
Net loss		—		—		—		(581,838	)		(581,838	)
Net loss		—		—		—		(7,710,802	)		(7,710,802	)
Balance at March 31, 2012		49,720,255	$	49,721	$	49,125,928	$	(46,638,676	)	$	2,536,973
Balance at December 31, 2010		49,720,255		49,721		48,392,985		(43,568,262	)		4,874,444
Stock-based compensation		—		—		132,964		—			132,964
Net loss		—		—		—		(1,940,226	)		(1,940,226	)
Balance at September 30, 2010		49,720,255	$	49,721	$	48,525,949	$	(45,508,488	)	$	3,067,182

The accompanying notes are an integral part of the financial statements.

HELIX BIOMEDIX, INC.

CONDENSED STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine months ended September 30,
	Three months ended March 31,
	2011			2010
	2012			2011
Cash flows from operating activities
Net loss	$	(1581,~~940,226~~838	)	$	(2709,~~988,725~~734	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		8223,~~609~~095			8626,~~803~~617
Stock-based compensation expense		~~132~~118,~~964~~605			~~168~~51,~~132~~128
Interest expense on convertible notes payable		—			103,069
Amortization of debt issuance costs		12,117			—
Interest expense on convertible notes payable, related party		—			426,553
Equity in (earnings) loss of affiliated company		17,648			(7,992	)
Accretion of discount on convertible notes payable		—			29,861
Change in value of option to purchase interest in affiliated company		6,620			(7,715	)
Accretion of discount on convertible notes payable, related party		—			51,604
Equity in loss of affiliated company		74,446			4,013
Change in fair value of option to purchase interest in affiliated company		9,293			—
Changes in assets and liabilities:
Accounts receivable, net		(19185,~~097~~051	)		8(40,~~668~~972	)
Accounts receivable, affiliated company, net		(204,010	)		—
Accounts receivable from affiliated company, net		(34,330	)		(71,808	)
Inventory		~~(77~~40,~~695~~978	)		(8520,~~283~~314	)
Prepaid expenses and other current assets		18,746			(80,684	)
Prepaid expenses and other assets		(15,858	)		(64,662	)
Accounts payable		~~(54~~51,~~547~~711	)		148,~~925~~275
Accrued compensation and benefits		5(39,~~814~~381	)		1810,~~511~~603
Other accrued expenses		(61,118	)		19,894
Other accrued liabilities		56,904			(56,474	)
Deferred gross profit, affiliated company		121,098			70,798
Deferred revenue		7,060			53,270
Net cash used in operating activities		(1,911,723	)		(2,164,861	)
Deferred gross profit, affiliated company		(3,691	)		36,900
Net cash used in operating activities		(525,411	)		(752,878	)
Cash flows from investing activities
Website development and purchases of property and equipment		(23,324	)		(2,546	)
Purchases of property and equipment		—			(20,655	)
Investment in affiliated company		(42,000	)		(350,000	)
Net cash used in investing activities		—			(20,655	)
Net cash used in investing activities		(65,324	)		(352,546	)
Net decrease in cash and cash equivalents		(525,411	)		(773,533	)
Cash flows from financing activities
Cash and cash equivalents at beginning of period		1,688,945			4,044,309
Proceeds from issuance of convertible notes payable and detachable warrants		—			550,000
Cash and cash equivalents at end of period	$	1,163,534		$	3,270,776
Proceeds from issuance of convertible notes payable and detachable warrants, related party		—			2,650,000
Net cash provided by financing activities		—			3,200,000
Net increase in cash and cash equivalents		(1,977,047	)		682,593
Cash and cash equivalents at beginning of period		4,044,309			1,344,719
Cash and cash equivalents at end of period	$	2,067,262		$	2,027,312

The accompanying notes are an integral part of the financial statements.

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, ~~2010~~2011, included in the Company’s Annual Report on Form 10-K filed with the SEC on March 2427, ~~2011~~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 nine~~ months ended ~~September~~March 3031, ~~2011~~2012 are not necessarily indicative of the results of operations that may be achieved for the entire year ending December 31, ~~2011~~2012.

~~Recent~~Note ~~Accounting~~2. Financing ~~Pronouncements~~Activities

InOn ~~May~~March ~~2011~~9, 2012, the ~~Financial~~Company ~~Accounting~~entered ~~Standards~~into ~~Board~~an ~~(FASB)~~LOC ~~issued~~Agreement ~~Accounting~~(the ~~Standards~~LOC ~~Update (ASU~~Agreement) ~~2011-04~~with ~~(ASU~~Frank ~~2011-4)~~T. Nickell, ~~Fair~~who ~~Value~~beneficially ~~Measurement~~owned ~~(Topic~~approximately ~~820):~~40% ~~Amendments~~of tothe ~~Achieve~~Company’s ~~Common~~outstanding ~~Fair~~common ~~Value~~stock ~~Measurement~~as ~~and~~of ~~Disclosure~~March ~~Requirements~~26, in2012, ~~U.S.~~pursuant ~~GAAP~~to ~~and~~which ~~IFRSs~~Mr. toNickell ~~provide~~established aan ~~uniform~~irrevocable ~~framework~~standby ~~for~~letter ~~fair~~of ~~value~~credit ~~measurements~~by ~~and~~JPMorgan ~~related~~Chase ~~disclosures~~Bank, ~~between U~~N.SA. ~~GAAP~~(JPMorgan) ~~and~~that ~~International~~allows ~~Financial~~the ~~Reporting~~Company ~~Standards~~to ~~(IFRS).~~borrow ~~Additional~~from ~~disclosure~~JPMorgan ~~requirements~~up into ~~the~~$2.0 ~~update~~million. ~~include:~~The line of credit (1LOC) ~~for~~ ~~Level~~with 3JPMorgan ~~fair~~will ~~value~~expire ~~measurements,~~on ~~quantitative~~July ~~information~~1, ~~about~~2013 ~~unobservable~~but ~~inputs~~will ~~used,~~automatically arenew ~~description~~until ofJuly ~~the~~1, ~~valuation~~2014 ~~processes~~unless ~~used~~terminated by ~~the~~JPMorgan ~~entity,~~at ~~and~~least ~~a qualitative~~14 ~~discussion~~days ~~about~~prior to the ~~sensitivity~~end of the ~~measurements~~current toterm, ~~changes~~at inwhich time the ~~unobservable~~Company ~~inputs;~~may ~~(2) for~~draw anup ~~entity’s~~to ~~use~~the ofbalance aremaining ~~nonfinancial~~on ~~asset~~the ~~that~~LOC. isAmounts ~~different~~outstanding ~~from~~under the ~~asset’s~~LOC ~~highest~~accrue ~~and~~interest ~~best~~at ~~use,~~ the ~~reason~~rate ~~for~~of ~~the~~0.75% ~~difference;~~per ~~(3) for~~annum ~~financial~~and ~~instruments~~are ~~not~~due ~~measured~~and atpayable ~~fair~~on ~~value~~or ~~but~~before ~~for~~July ~~which~~1, ~~disclosure~~2014. ofPursuant ~~fair~~to ~~value~~the isLOC ~~required~~Agreement, the ~~fair~~Company ~~value~~agreed ~~hierarchy~~to ~~level~~use incommercially ~~which~~reasonable ~~the~~efforts ~~fair~~to ~~value~~consummate ~~measurements~~an ~~were~~equity ~~determined;~~financing ~~and~~prior ~~(4)~~ to the ~~disclosure~~termination date of ~~all~~the ~~transfers~~LOC ~~between~~in ~~Level~~which 1it would sell and ~~Level~~issue 2shares of ~~the~~its ~~fair~~common ~~value~~stock ~~hierarchy.~~at ~~ASU~~a ~~2011-04~~price ~~requires~~per ~~prospective~~share ~~application~~of ~~for~~at ~~interim~~least ~~and~~$0.60 ~~annual~~for ~~periods~~aggregate ~~beginning~~proceeds onof orat ~~after~~least ~~December 15, 2011~~$3.0 ~~The~~million, ~~Company~~upon isconsummation ~~currently~~of ~~evaluating~~which ~~the~~all ~~impact~~amounts ~~that~~outstanding ~~ASU~~under ~~2011-04~~the ~~will~~LOC ~~have~~shall onbe ~~its~~immediately ~~financial position and results of operations~~repaid.

In ~~June 2011,~~connection with the ~~FASB~~LOC ~~issued ASU No. 2011-05 (ASU 2011-05)~~Agreement, ~~Comprehensive~~the ~~Income~~Company ~~(Topic~~issued ~~220):~~to ~~Presentation of Comprehensive Income~~Mr. ~~ASU~~Nickell ~~No. 2011~~a five-05year ~~amends~~fully ~~existing~~vested ~~guidance~~warrant ~~by allowing an entity the option~~ to ~~present~~purchase ~~the~~2,000,000 ~~components~~shares of ~~net~~the ~~income~~Company’s ~~and~~common ~~other~~stock ~~comprehensive~~at ~~income~~an inexercise ~~either~~price ~~a single continuous statement~~ of ~~comprehensive income or in two separate but consecutive statements~~$0.25 ~~This~~per ~~ASU~~share ~~eliminates~~and ~~the~~agreed ~~option~~ to ~~present~~reimburse ~~the~~Mr. ~~components~~Nickell offor ~~other~~his ~~comprehensive~~reasonable ~~income~~expenses asin ~~part~~connection ofwith the ~~statement~~LOC, ofincluding, ~~changes~~without inlimitation, ~~stockholders’~~any ~~equity.~~interest ~~ASU~~accrued ~~No. 2011-05 requires retrospective application~~ and ispayable ~~effective~~by ~~for~~Mr. ~~fiscal~~Nickell ~~years, and~~in ~~interim~~connection ~~periods~~with ~~within~~the ~~those~~LOC. ~~years,~~As ~~beginning~~of ~~after~~March ~~December 15~~31, ~~2011~~2012, ~~with~~reimbursements ~~early~~to ~~adoption permitted~~Mr. ~~The~~Nickell ~~Company~~had ~~believes the adoption of this guidance concerns disclosure only and will~~ not ~~have~~been ~~a material impact on its financial position or results of operations~~significant.

~~Note~~As 2the 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. ~~Fair~~ ~~Value~~The issuance of ~~Financial~~this ~~Instruments~~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 months ended March 31, 2012, the Company recognized a total of $12,117 of amortization expense related to the establishment of the LOC.

As of March 31, 2012, there were no borrowings outstanding under the LOC.

HELIX BIOMEDIX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

(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).

5The following table sets forth by level, within the fair value hierarchy, financial assets and liabilities accounted for at fair value as of March 31, 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.

HELIX BIOMEDIX, INC.

	March 31, 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	$	684,840	$	684,840	$	—	$	—
Option to purchase interest in affiliated company	$	5,742		—		—		5,742

~~NOTES~~Option TOto ~~CONDENSED~~Purchase ~~FINANCIAL~~Interest ~~STATEMENTS~~in -Affiliated Company. The Company estimated the fair value of the option to purchase an interest in an affiliated company to be $5,742 and $12,362 at March 31, 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 (~~Continued~~EBITDA). The decrease in fair value of $6,620 was recorded in the statement of operations for the three months ended March 31, 2012.

~~(Unaudited)~~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 March 31, 2012 and December 31, 2011 because of the short-term nature of these instruments.

~~The~~Note ~~following table sets forth the financial assets and liabilities that are measured at fair value on a recurring basis at September 30, 2011, by level within the fair value hierarchy~~4. ~~As required by ASC 820-10, assets and liabilities measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement.~~Inventory

	September 30, 2011		Quoted Prices in Active Market for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Money market funds	$	1,783,209	$	1,783,209	$	—	$	—
Option to purchase interest in affiliated company	$	11,364		—		—	$	11,364

Inventory consisted of the following as of March 31, 2012 and December 31, 2011:

Option to Purchase Interest in Affiliated Company. The Company estimated the fair value of the option to purchase the remaining interest in an affiliated company to be $11,364 and $20,657 at September 30, 2011 and December 31, 2010, 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 increase in fair value of $8,143 in the three months ended September 30, 2011 and decrease in fair value of $9,293 in the nine months ended September 30, 2011 were recorded in the statement of operations for the respective periods.

	March 31, 2012		December 31, 2011
Work in process	$	105,824	$	156,425
Finished goods		217,067		207,444

	$	322,891	$	363,869

~~Financial~~Note ~~Instruments~~5. ~~The~~ Property ~~carrying amount of the Company’s cash, accounts receivable, accounts payable, accrued compensation~~ and ~~benefits, and accrued expenses approximated their estimated fair values at September 30, 2011 and December 31, 2010 because of the short-term nature of these instruments.~~Equipment

~~Note~~Property 3.and ~~Inventory~~equipment consisted of the following as of March 31, 2012 and December 31, 2011:

Inventory consisted of the following as of September 30, 2011 and December 31, 2010:

	March 31, 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		(658,613	)		(652,461	)

Property and equipment, net	$	19,946		$	26,098

	September 30, 2011		December 31, 2010
Work in process	$	115,273	$	66,365
Finished goods		240,814		212,027
	$	356,087	$	278,392

Aggregate depreciation expense for property and equipment during the three months ended March 31, 2012 and 2011 was $6,152 and $9,674, respectively.

Note 4. Property and Equipment

Property and equipment consisted of the following as of September 30, 2011 and December 31, 2010:

	September 30, 2011			December 31, 2010
Machinery and equipment	$	568,727		$	569,809
Website development costs		63,175			42,520
Furniture and fixtures		50,441			55,614
Leasehold improvements		43,993			43,993
		726,336			711,936
Less accumulated depreciation		(690,615	)		(667,758	)
Property and equipment, net	$	35,721		$	44,178

Aggregate depreciation expense for property and equipment for the three months ended September 30, 2011 and 2010 was $10,902 and $11,487, respectively, and was $31,781 and $35,975 for the nine months ended September 30, 2011 and 2010, respectively. During the first nine months of 2011, the Company disposed of certain fixed assets totaling $8,924, all of which were fully depreciated. There was no gain or loss associated with the disposal.

HELIX BIOMEDIX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS ~~- (Continued)~~

(Unaudited)

Note 56. Intangible Assets

Identifiable intangible assets consisted of the following as of ~~September 30~~March 31, ~~2011~~2012 and December 31, ~~2010~~2011:

	September 30, 2011			December 31, 2010
	March 31, 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		(~~954~~988,~~639~~525	)		(~~903~~971,~~811~~582	)
Intangible assets, net	$	~~163~~129,~~240~~354		$	~~214~~146,~~068~~297

Amortization expense for intangible assets ~~for each of the three months ended September 30, 2011 and 2010~~ was $16,943, ~~and was $50,828~~ for each of the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012 and ~~2010~~2011.

Note 67. 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 a capital contribution of $350,000. In connection with NuGlow’s capital raise in September 2011, the Company contributed an additional $42,000 to maintain its 30% interest in NuGlow. ~~The~~In ~~Company’s~~March ~~cumulative~~2012, ~~investment~~the inCompany ~~NuGlow~~entered isinto ~~accounted~~a ~~for~~Second asAmendment anto ~~equity~~the ~~investment~~Amended and isRestated ~~adjusted~~Operating atAgreement ~~each~~with ~~reporting period to reflect the Company’s share of~~ NuGlow~~’s net earnings~~, ~~losses,~~pursuant ~~contributions~~to ~~and~~which ~~any profit distributions. Additionally, at each reporting period,~~ the Company ~~assesses~~consented ~~its investment in NuGlow~~ to ~~determine~~certain ~~whether~~monthly ~~events~~payments orby ~~changes~~NuGlow in ~~circumstances~~consideration ~~indicate~~for ~~that~~which the ~~carrying~~Company’s ~~amount~~option ~~may~~to ~~not~~purchase ~~be recoverable. The primary factors~~ the ~~Company~~remaining ~~considers~~interest inof ~~its determination are~~ NuGlow’s ~~financial~~(the ~~condition~~Purchase ~~and~~Option) ~~operating~~was ~~performance.~~extended Iffrom ~~the~~July ~~decline~~1, in2015 ~~value is deemed~~ to beJuly ~~other than temporary~~1, ~~the Company would recognize an impairment loss~~2017.

~~For~~The ~~the~~Company’s ~~three~~cumulative investment in NuGlow is accounted for as an equity investment and ~~nine~~is ~~months~~adjusted ~~ended~~at ~~September~~each ~~30,~~reporting ~~2011,~~period to reflect the Company’s ~~recorded~~share aof ~~loss~~NuGlow’s ofnet ~~$23~~earnings,~~373~~ losses, contributions and ~~$74,446,~~any ~~respectively,~~profit distributions. The Company has elected to ~~“Equity~~account for the Purchase Option at fair value on the balance sheet with changes in ~~loss~~value recognized in the statement of ~~affiliated~~operations ~~company”~~over ~~which~~the ~~reflected~~life the of the Purchase Option. Additionally, at each reporting period, the Company assesses its ~~share~~investment ofin NuGlow’s ~~net~~to ~~loss~~determine ~~during~~whether ~~those~~events ~~periods.~~or ~~The~~changes in circumstances indicate that the carrying ~~value~~amount ofmay not be recoverable. The primary factors the Company’s ~~investment~~considers in its determination are NuGlow’s ~~was~~financial ~~$234,495~~condition and ~~$266,941~~operating atperformance. ~~September~~If ~~30,~~the ~~2011~~decline ~~and~~in ~~December~~value ~~31,~~is ~~2010~~deemed to be other than temporary, ~~respectively~~the Company would recognize an impairment loss.

~~NuGlow~~At December 31, 2011, the carrying value of the Company’s ~~condensed~~investment ~~balance~~in ~~sheets~~NuGlow atwas ~~September 30~~$223,255. ~~2011~~For ~~and~~the ~~December~~three months ended March 31, ~~2010~~2012, ~~and~~the ~~statements~~Company recorded a loss $17,648 to “Equity in loss of ~~operations~~affiliated ~~for~~company” ~~the~~which ~~three~~reflected ~~and~~its ~~nine~~share ~~months~~of ~~ended~~NuGlow’s ~~September~~net 30loss during the first quarter of 2012, ~~2011~~thereby ~~and~~decreasing ~~2010~~the ~~are~~value of the Company’s investment in NuGlow to $205,607 as ~~follows:~~of March 31, 2012.

NuGlow’s Condensed Balance Sheets	September 30, 2011 (Unaudited)			December 31, 2010 (Unaudited)
Assets
Cash	$	31,964		$	75,147
Accounts receivable, net		25,533			2,574
Inventory		339,475			140,443
Prepaid expenses and other current assets		2,602			11,455
Total assets	$	399,574		$	229,619
Liabilities and members’ equity
Accounts payable and current liabilities	$	339,147		$	61,041
Members’ equity		514,661			374,661
Accumulated deficit		(454,234	)		(206,083	)
Total liabilities and members’ equity	$	399,574		$	229,619

NuGlow’s condensed balance sheets at March 31, 2012 and December 31, 2011 and statements of operations for the three months ended March 31, 2012 and 2011 are as follows:

	March 31, 2012 (Unaudited)			December 31, 2011 (Unaudited)
NuGlow Condensed Balance Sheets
Assets
Cash	$	19,242		$	200
Accounts receivable, net		6,373			18,276
Inventory		229,147			275,838
Prepaid expenses and other current assets		59,471			9,513

Total assets	$	314,233		$	303,827


Liabilities and members’ equity
Accounts payable and current liabilities	$	350,098		$	280,867
Members’ equity		514,661			514,661
Accumulated deficit		(550,526	)		(491,701	)

Total liabilities and members’ equity	$	314,233		$	303,827

HELIX BIOMEDIX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS ~~- (Continued)~~

(Unaudited)

	Three months ended September 30, (Unaudited)						Nine months ended September 30, (Unaudited)
	Three months ended (Unaudited)
NuGlow’s Condensed Statements of Operations	2011			2010			2011			2010
	March 31, 2012 (Unaudited)			March 31, 2011 (Unaudited)
Revenue	$	264,139		$	11,133		$	756,023		$	42,400
NuGlow Condensed Statements of Operations
Cost of goods sold		(118,660	)		(5,493	)		(317,024	)		(12,597	)
Revenue	$	233,371		$	180,720
Operating expenses		(223,388	)		(19,016	)		(687,150	)		(30,592	)
Cost of goods sold		(98,227	)		(87,590	)
Net loss	$	(77,909	)	$	(13,376	)	$	(248,151	)	$	(789	)
Operating expenses		(193,969	)		(66,489	)
Net income	$	(58,825	)	$	26,641

Note 78. Other ~~Long-Term~~ Assets

Other assets consisted of the following as of ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011:

	September 30, 2011		December 31, 2010
	March 31, 2012		December 31, 2011
Deposits	$	8,522	$	8,522
Option to purchase interest in affiliated company		11,364		20,657
Option to purchase interest in affiliated company (see Note 7)		5,742		12,362
Other assets	$	1914,~~886~~264	$	2920,~~179~~884

Note 89. Deferred Gross Profit, Affiliated Company

Deferred gross profit from an affiliated company consisted of the following as of ~~September~~March 3031, ~~2011~~2012 and December 31, ~~2010~~2011:

	September 30, 2011		December 31, 2010
	March 31, 2012		December 31, 2011
Deferred revenue, affiliated company	$	~~318~~252,~~391~~710	$	~~115~~254,~~527~~826
Deferred cost of revenue, affiliated company		~~146~~121,~~814~~559		65119,~~048~~984
Deferred gross profit, affiliated company	$	~~171~~131,~~577~~151	$	50134,~~479~~842

Note 910. 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 ~~to employees~~ 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 ~~and new option awards were granted under the 2011 Plan~~. ~~Remaining authorized shares under the 2000 Plan that were not subject to outstanding awards as of November 6, 2010 were then cancelled.~~ The 2000 Plan will remain in effect as to ~~any~~ outstanding options granted prior to November 6, 2010.

Stock Option Activities

During the three months ended March 31, 2012 and 2011, the Company granted options under the 2011 Plan to purchase an aggregate of 1,200,000 and 135,000 shares of common stock, respectively, with a weighted-average fair value of $0.23 and $0.25 per share, respectively. Fair values for options granted were calculated using the Black-Scholes option pricing model with the following assumptions:

HELIX BIOMEDIX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS ~~- (Continued)~~

(Unaudited)

Stock Option Activities

	Three months ended March 31,
	2012		2011
Risk-free interest rate		0.87% - 1.14%		2.17%
Expected dividend yield		0		0
Expected term in years	5.0-6.0 years		5.5 years
Expected volatility		147% - 157%		118%

~~During~~The risk-free rate is based on the ~~three~~implied ~~and~~yield ~~nine~~available ~~months~~on ~~ended~~U.S. ~~September~~Treasury ~~30,~~zero–coupon ~~2011,~~issues ~~the~~with ~~Company~~a ~~granted~~remaining ~~options~~term equal to ~~purchase~~the anexpected ~~aggregate~~term of 87options issued. The Company does not anticipate declaring dividends in the foreseeable future. For the three months ended March 31,~~000~~ 2012 and ~~257~~2011,~~000~~ ~~shares~~the ofCompany ~~common~~calculated ~~stock,~~expected ~~respectively,~~volatility ~~under~~based on the ~~2011~~annualized ~~Plan~~daily ~~with~~historical avolatility ~~weighted-average~~of ~~grant~~the ~~date~~Company’s ~~fair~~stock ~~value~~price commensurate with the expected term of ~~$0.13~~the option and ~~$0.21~~other ~~per share~~factors, ~~respectively~~including peer company data. ~~During~~The Company estimates the ~~three~~expected ~~and~~term ~~nine~~as ~~months~~the ~~ended~~average ~~September~~of ~~30,~~the ~~2010,~~vesting period and the ~~Company~~contractual ~~granted~~term. ~~options~~The toCompany ~~purchase~~will ~~250,000~~continue ~~and~~to ~~785,000~~use ~~shares~~this method of ~~common~~estimation ~~stock,~~until ~~respectively,~~it ~~under~~has ~~the~~sufficient ~~2000~~historical ~~Plan~~data ~~with~~to aprovide ~~weighted-average~~reasonable ~~grant~~estimates ~~date~~of ~~fair~~expected ~~value~~lives of $0stock options.31 The Company’s stock price volatility and ~~$0.28~~option ~~per~~term ~~share~~involves management’s best estimates at that time, ~~respectively.~~both ~~Fair~~of ~~value~~which ~~for~~impact ~~options~~the ~~granted~~fair ~~was~~value of the option calculated ~~using~~under the Black-Scholes ~~option~~ pricing model ~~with~~and, ultimately, the ~~following~~expense ~~assumptions:~~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.

	Three months ended September 30,				Nine months ended September 30,
	2011		2010		2011		2010
Risk-free interest rate		0.90% – 1.17%		1.41%		0.90% – 2.17%		1.41% – 2.77%
Expected dividend yield		0		0		0		0
Expected terms in years		5.0 – 6.0		5.0		5.0 – 6.0		5.0 – 6.0
Expected volatility		116%		106%		112% – 118%		98% – 106%

The amount of stock-based compensation expense recognized in the three months ended March 31, 2012 and 2011 related to stock options was $118,605 and $51,128, respectively. Stock-based compensation for the three months ended March 31, 2011 included an expense of approximately $36,000 related to the modifications of the terms of certain options held by the Company’s former Vice President and Chief Scientific Officer, who left in February 2011. As of March 31, 2012, total unrecognized stock-based compensation related to non-vested stock options was $246,848, which is expected to be recognized over a weighted-average period of approximately 2.4 years.

~~The~~A ~~risk-free~~summary rate is based on the implied yield available on U.S. Treasury zero–coupon issues with an equivalent remaining term. The Company does not anticipate declaring dividends in the foreseeable future. For the three and nine months ended September 30, 2011 and 2010, 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~~three ofmonths ~~options~~ended ~~that is expected to vest. Therefore~~March 31, ~~the~~2012 ~~Company~~and ~~applies~~2011 ~~an estimated forfeiture rate that~~ is ~~derived~~as ~~from historical employee termination behavior. Forfeiture rates are revised in subsequent periods if actual forfeitures differ from those estimates.~~follows:

The amount of stock-based compensation expense recognized in the three months ended September 30, 2011 and 2010 related to stock options was $14,015 and $104,269, respectively, and for the nine months ended September 30, 2011 and 2010 was $132,964 and $168,132, respectively. Stock-based compensation for the first nine months of 2011 included an expense of $52,478 related to modifications of options held by three departing members of the board of directors. As of September 30, 2011, total unrecognized stock-based compensation related to non-vested stock options was approximately $59,636, which is expected to be recognized over a weighted-average period of approximately 1.6 years.

	Three months ended March 31,
	2012		2011
Research and development	$	4,124	$	38,102
Marketing and business development		51,626		4,389
General and administrative		62,855		8,637

Total stock-based compensation	$	118,605	$	51,128

A summary of the Company’s stock ~~compensation~~option ~~expense~~activity under both option plans for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2011~~2012 ~~and~~is ~~2010~~presented isin asthe ~~follows~~following table:

	Three months ended September 30,					Nine months ended September 30,
	Shares Subject to Options			Weighted-Average Exercise Price Per Share		Weighted-Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
	2011			2010		2011		2010
Outstanding, December 31, 2011		3,264,207		$	0.65
Research and development	$	607		$	2,708	$	39,091	$	7,178
Granted		1,200,000		$	0.25
Marketing and business development		4,150			9,602		12,919		26,220
Exercised		—			—
General and administrative		9,258			91,959		80,954		134,734
Forfeited		—			—
Total stock-based compensation	$	14,015		$	104,269	$	132,964	$	168,132
Expired		(395,000	)	$	0.87
Outstanding, March 31, 2012		4,069,207		$	0.51		6.16	$	10,200
Exercisable, March 31, 2012		2,924,706		$	0.60		4.83	$	2,000

AThe ~~summary~~aggregate ofintrinsic value in the table above is based on the Company’s closing stock ~~option~~price ~~activity~~of ~~for~~$0.25 on March 31, 2012, which would have been the ~~nine~~closing ~~months~~price ~~ended~~of ~~September~~shares ~~30,~~of ~~2011~~common isstock ~~presented~~received inby the ~~following~~optionees ~~table:~~had all of the options with exercise prices less than $0.25 been exercised on that date.

	Shares Subject to Options			Weighted Average Exercise Price per Share		Weighted Average Remaining Contractual Life (Years)		Aggregate Intrinsic Value
Outstanding, December 31, 2010		3,868,950		$	0.91
Granted		257,000		$	0.24
Exercised		—			—
Forfeited		(38,543	)	$	0.37
Expired		(708,200	)	$	1.56
Outstanding, September 30, 2011		3,379,207		$	0.73		3.94	$	10,200
Exercisable, September 30, 2011		3,084,760		$	0.77		3.69	$	1,500

HELIX BIOMEDIX, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS ~~- (Continued)~~

(Unaudited)

~~The~~As ~~aggregate~~of ~~intrinsic~~March 31, ~~value~~2012, inthere ~~the~~were ~~table~~12,000,000 ~~above~~shares isof ~~based~~common ~~on the Company’s closing~~ stock ~~price~~reserved offor ~~$0.25~~issuance onpursuant ~~September~~to ~~30,~~the 2011. ~~The~~Plan, ~~intrinsic~~of ~~value~~which is10,393,000 ~~calculated~~shares asremained ~~the~~available ~~difference~~for ~~between~~future ~~the~~grants. ~~closing~~Additional ~~stock~~information ~~price~~regarding ~~and the exercise price of the stock~~ options outstanding as of ~~September 30~~March 31, ~~2011~~2012, ~~had~~is ~~all~~as ~~of the options with exercise prices less than $0.25 been exercised on that date.~~follows:

As of September 30, 2011, there were 12,000,000 shares of common stock reserved for issuance pursuant to the 2011 Plan, of which 11,743,000 shares remained available for future grants. Additional information regarding options outstanding as of September 30, 2011, 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		8.49	$	0.28		1,079,456	$	0.29
$	0.40 – $0.57		795,000		4.55	$	0.49		795,000	$	0.49
$	0.70 – $1.00		869,000		2.43	$	0.90		869,000	$	0.90
$	1.20 – $1.80		181,250		2.54	$	1.56		181,250	$	1.56

$	0.15 – $1.80		4,069,207		6.16	$	0.51		2,924,706	$	0.60

	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 – $0.40		1,123,957		6.22	$	0.32		829,788	$	0.34
$0.49 – $0.76		815,000		4.68	$	0.58		814,722	$	0.58
$0.77 – $0.85		245,000		4.61	$	0.82		245,000	$	0.82
$1.00 – $1.80		1,195,250		1.14	$	1.18		1,195,250	$	1.18
$0.15 – $1.80		3,379,207		3.94	$	0.73		3,084,760	$	0.77

Note 11. Net Loss per Share

Note 10. 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 September 30,

Nine months ended September 30,

Three months ended March 31,

2011

2010

2011

2010

2012

2011

Weighted average outstanding options

3,~~368~~705,~~522~~526

3,~~760~~903,~~380~~644

~~3,724,864~~

~~3,582,257~~

Weighted average outstanding warrants

1,~~793~~606,~~530~~313

42,~~952~~493,~~319~~831

~~2,203,861~~

~~4,773,656~~

Note 1112. Concentration of Risks

The Company maintains ~~a portion of~~ its cash ~~balance~~balances in one financial institution, which at times may exceed federally insured limits. As of ~~September 30~~March 31, ~~2011~~2012, the Company maintained approximately $1685,~~783,209~~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 ~~accounts~~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 nine~~ months ended ~~September 30~~March 31, ~~2011~~2012 and ~~2010~~2011:

	Three months ended September 30,						Nine months ended September 30,
	Three months ended March 31,
	2011			2010			2011			2010
	2012			2011
Customer A		3618	%		8737	%		33	%		71	%
Customer B		2649	%		—39	%		22	%		17	%
Customer C		3017	%		—14	%		25	%		—

Note 1213. Liquidity and Capital Resources

For the ~~nine~~three months ended ~~September 30~~March 31, ~~2011~~2012, the Company incurred a net loss of $1581,~~940,226~~838. At ~~September 30~~March 31, ~~2011~~2012, the Company had $21,~~067~~163,~~262~~534 in cash and cash equivalents. For the ~~nine~~three months ended ~~September 30~~March 31, ~~2011~~2012, cash used in operations was $1525,~~911,723 and cash used in investing activities was $65,324, consisting of additional capital contribution into NuGlow, payments for website development costs and purchases of capital assets~~411.

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.

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 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 2011. 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 2011. Accordingly, the Company will need to 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.

Note 14. Subsequent Events

Additional Investment in NuGlow

In connection with NuGlow’s additional capital raise in April 2012, on April 9, 2012, the Company contributed an additional $27,000 to maintain its 30% interest in NuGlow. The Company concurrently entered into a Third Amendment to the Amended and Restated Operating Agreement of NuGlow Cosmaceuticals, LLC to amend the allocation and distribution of this additional capital contribution prior to other allocations or distributions thereunder.

Operating Lease Amendment

Effective April 23, 2012, the Company entered into a Fourth Amendment to Lease with Teachers Insurance & Annuity Association of America, Inc. (Landlord) pursuant to which the Company agreed to move its office and laboratory to a new location also in Bothell, Washington on or before the later of July 1, 2012 and the date on which the Landlord completes certain tenant improvements (the Commencement Date). The new premises, consisting of approximately 6,300 square feet of office and lab space, will be leased for an additional 72 months starting from the Commencement Date. Under the terms of the amended lease, annual lease payments are expected to be approximately $79,000 for the first year, $81,000 for the second year, $84,000 for the third year, $86,000 for the fourth year, $89,000 for the fifth year and $92,000 for the sixth year, plus building operating costs. The amended lease provides the Company a moving allowance not exceeding $7,500 and a conditional abatement of one month base rent based upon the Company’s performance of the terms, covenants and conditions of the amended lease. The Company believes that any moving expenses it may incur beyond the Landlord’s allowance will not be significant.

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, ~~2010~~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, ~~2010~~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.

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, ~~2010~~2011 filed with the SEC on March 2427, ~~2011~~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.

Results of Operations

~~Our~~For ~~total revenue for~~ the three ~~and nine~~ months ended ~~September~~March 3031, ~~2011~~2012, ~~increased~~we bygenerated ~~321.3%~~revenue ~~and~~of ~~192.7%,~~approximately ~~respectively~~$680,000, asrepresenting ~~compared~~an toincrease of 90% from the same ~~periods~~period in ~~2010,~~the ~~principally~~previous year. The favorable revenue variance was attributable to ~~increased~~growth ~~royalty~~in ~~revenue~~royalties ~~and~~as well as sales of ~~proprietary~~peptides ~~branded~~and consumer products.

Our net loss for the ~~third~~first quarter of ~~2011~~2012 was approximately $~~606~~582,000, or $0.01 per share, compared to a net loss of approximately $~~1.1 million~~710,000, or $0.0401 per share, for the same period in ~~2010. Our net loss for the first nine months of~~ 2011 ~~was approximately $1~~.9 ~~million, or $0.04 per share, compared to a net loss of approximately $3.0 million, or $0.12 per share, for the same period in 2010.~~ The decrease in net loss ~~for both the three and nine months ended September 30, 2011~~ was principally due to ~~increases~~an increase in ~~revenue and~~ gross profit, aspartially ~~well~~offset asby aincreases ~~decrease~~ in ~~interest~~operating ~~expense.~~expenditures ~~The decrease in our net loss per share for the three~~ and ~~nine~~non-cash ~~months~~expenses ~~ended~~related ~~September 30, 2011 was also in part attributable~~ to anfinancing ~~increase~~activities ~~in the weighted average number of shares of our common stock outstanding resulting from the amendment, conversion~~ and ~~exercise~~investment ofin ~~convertible notes payable and warrants and the consummation of~~ an ~~equity~~affiliated ~~financing in the fourth quarter of 2010~~company.

As of ~~September 30~~March 31, ~~2011~~2012, our accumulated deficit was approximately $4546,~~508~~639,000. 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, and initiation of our pharmaceutical programs being greater than our anticipated revenue.

Revenue

Revenue in the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2011~~2012 and ~~2010~~2011 consisted primarily of license fees, peptide sales and consumer product sales as summarized in the table below.

	Three months ended September 30,							Nine months ended September 30,
	Three months ended March 31,				Change
	2011		2010		Change			2011		2010		Change
	2012		2011
License fees	$	~~176~~315,~~922~~092	$	48171,~~007~~425		~~268~~83.58	%	$	~~513,322~~	$	~~253,525~~		~~102.5~~	%
Peptide and consumer product sales		~~100~~252,~~884~~727		45134,~~673~~932		~~120~~87.93	%		~~576,165~~		~~240,271~~		~~139.8~~	%
Consumer product sales to affiliated company		~~116~~112,~~901~~603		—51,271	NM	119.6	%		~~355,951~~		—	NM
Total revenue	$	~~394~~680,~~707~~422	$	93357,~~680~~628		~~321~~90.3	%	$	~~1,445,438~~	$	~~493,796~~		~~192.7~~	%

~~______________~~Revenue for the three months ended March 31, 2012 compared to the same period last year increased by approximately $323,000, or 90.3%. License fees, which are derived from royalty arrangements, increased by approximately $144,000, or 83.8%, for the first three months of 2012 compared to the same period in 2011, primarily attributable to increased volume of product sales by our licensees.

NMPeptide –and ~~Not~~consumer ~~meaningful~~product sales increased by approximately $117,000, or 87.3%, for the three months ended March 31, 2012 compared to the same period in the previous year. The increase included growth of 45.9% in peptide sales, which reflected a higher usage volume of our peptides by our ingredient distributors, and 258.3% in sales of consumer products, which represented a mixture of increased sales to distributors and end user customers. Consumer product sales to an affiliated company, which consist of products sold under private labels to NuGlow Cosmaceuticals, LLC (NuGlow), a direct- response company in which we have maintained an equity investment since July 2010, grew by approximately $61,000, or 119.6%, for the first quarter of 2012 compared to the same period in 2011. The growth in our revenue from NuGlow reflected an increase in NuGlow’s sales to end user customers as well as a higher level of our products used by NuGlow for promotional purposes.

Total revenue increased by approximately $301,000, or 321.3%, for the three months ended September 30, 2011 compared to the same period last year, and by approximately $952,000, or 192.7%, for the first nine months of 2011 compared to the same period in the prior year. License fees, which are derived from royalty arrangements, increased by approximately $129,000, or 268.5%, for the three months ended September 30, 2011 compared to the same period in 2010, and by approximately $260,000, or 102.5%, in the first nine months of 2011 compared to the same period in the previous year. These increases resulted from higher sales of products containing our peptides by our licensees during the three and nine months ended September 30, 2011 as well as from the timing of royalty revenue recognition due to a change in royalty reporting frequency from semi-annually to quarterly for one licensee.

Peptide and consumer product sales increased by approximately $55,000, or 120.9%, for the three months ended September 30, 2011 compared to the same period in the previous year and by approximately $336,000, or 139.8%, for the first nine months of 2011 compared to the same period in the previous year. The increases in peptide sales of 80.8% and 60.4% for the three and nine months ended September 30, 2011, respectively, compared to the same periods in the prior year, resulted from increased repeat sales to our existing customers. The increases in consumer product sales of 543.1% and 535.7% for the three and nine months ended September 30, 2011, respectively, compared to the same periods in the prior year, were attributable to growth in both distributor and direct sales.

Consumer product sales to affiliated company consisted of products sold under private labels to NuGlow Cosmaceuticals, LLC (NuGlow), a direct- response company in which we have maintained an equity investment since July 2010, which markets and sells specialty skin care products.

Cost of Revenue and Gross Margin

Cost of revenue consists of ~~cost of~~ peptides and ~~materials~~material costs 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 nine months ended September 30, 2011 and 2010 are summarized in the table below.~~13

	Three months ended September 30,									Nine months ended September 30,
	2011			2010			Change			2011			2010			Change
Cost of peptides and consumer product sales	$	70,834		$	29,037			143.9	%	$	409,829		$	178,271			129.9	%
Percentage of total revenue		17.9	%		31.0	%					28.4	%		36.1	%
Percentage of related revenue		70.2	%		63.6	%					71.1	%		74.2	%
Cost of consumer product sales to affiliated company		56,961			—		NM				191,486			—		NM
Percentage of total revenue		14.4	%		—						13.2	%		—
Percentage of related revenue		48.7	%		—						53.8	%		—
Total cost of revenue	$	127,795		$	29,037			340.1	%	$	601,315		$	178,271			237.3	%
Gross profit	$	266,912		$	64,643			312.9	%	$	844,123		$	315,525			167.5	%

Cost of revenue and gross margin for the three months ended March 31, 2012 and 2011 are summarized in the table below.

_____________

	Three months ended March 31,
	2012			2011			Change
Cost of peptide and consumer product sales	$	157,773		$	91,297			72.8	%
Percentage of total revenue		23.2	%		25.5	%
Cost of consumer product sales to affiliated company	$	51,758		$	29,530			75.3	%
Percentage of total revenue		7.6	%		8.3	%

Total cost of revenue	$	209,531		$	120,827			73.4	%

Gross profit	$	470,891		$	236,801			98.9	%
Gross margin		69.2	%		66.2	%

NMCost –of ~~Not~~peptide ~~meaningful~~and consumer product sales for the three months ended March 31, 2012 increased by approximately $66,000, or 72.8%, compared to the same period in 2011. Cost of consumer product sales to NuGlow for the three months ended March 31, 2012 increased by approximately $22,000, or 75.3%, compared to the same period in 2011. The increases in cost of revenue for the first quarter of 2012 compared to the same period in 2011 in general was not linear with the growth rate of revenue, due principally to the product mix and customer mix during the periods presented. Peptide and consumer product sales, including those to an affiliated company, in the first three months of 2012 resulted in a blended margin of 42.6% compared to 35.1% for the same period in 2011. The increase in gross margin related to peptide and all consumer product sales was influenced by both sales volumes and product mix. Sales of our consumer products typically generate a higher gross margin compared to sales of peptides. As such, as sales of consumer products grow at a faster rate compared to peptide sales, the blended gross margin for peptide and consumer product sales will improve.

Cost of peptide and consumer product sales increased by approximately $42,000, or 143.9%, for the three months ended September 30, 2011 compared to the three months ended September 30, 2010 and by approximately $232,000, or 129.9%, for the first nine months of 2011 compared to the same period in the previous year. The cost of peptides for the three and nine months ended September 30, 2011 increased by 136.7% and 58.9%, respectively, as compared to the same periods in the prior year. Fluctuations in the peptide costs may be disproportionate from those of related peptide sales from period to period due to the types of peptides sold. Gross margin on peptide and consumer product sales decreased to 29.8% for the three months ended September 30, 2011 compared to 36.4% for the three months ended September 30, 2010, and increased to 28.9% for the nine months ended September 30, 2011 compared to 25.8% for the same period in the prior year. The fluctuations in gross margin related to peptide and consumer product sales were due primarily to the product mix. Sales of certain types of peptide yield a more favorable gross margin, and, in general, consumer product sales generate a higher margin than peptide sales. Our overall gross margin may also be influenced by customer mix, as peptides sold to licensees generate lower margins compared to sales to non-licensees, and, similarly, consumer products sold to distributors result in lower margins compared to sales to direct customers.

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 nine~~ months ended ~~September 30~~March 31, ~~2011~~2012 and ~~2010~~2011 are summarized in the table below.

	Three months ended September 30,									Nine months ended September 30,
	Three months ended March 31,
	2011			2010			Change			2011			2010			Change
	2012			2011			Change
Research and development	$	~~109~~87,~~221~~085		$	~~196~~225,~~752~~163			(4461.53	)%	$	~~425,131~~		$	~~572,617~~			~~(25.8~~	)%
Percentage of total revenue		2712.78	%		~~210~~63.0	%					~~29.4~~	%		~~116.0~~	%

R&D expenses ~~decreased by approximately $88,000, or 44.5%,~~ for the three months ended ~~September~~March 3031, ~~2011~~2012 ~~compared~~decreased ~~to the three months ended September 30, 2010, and~~ by approximately $~~147~~138,000, or 2561.83%, ~~for the nine months ended September 30, 2011~~ compared to the same period in ~~2010~~2011. ~~The~~This ~~decreases~~decrease inwas ~~R&D~~primarily ~~expenses~~attributable ~~for~~to ~~the~~decreases ~~three~~in salary and ~~nine~~benefit ~~months ended September 30~~expenses, ~~2011~~product ~~were~~efficacy ~~primarily~~study ~~attributable to lower~~ spending, onconsulting ~~external~~fees ~~trials~~ and ~~studies~~stock-based ~~and reduced employee~~ compensation ~~resulting~~expense. ~~from~~For the ~~departure~~remainder of ~~our~~2012, ~~former~~we ~~Vice~~anticipate ~~President~~R&D ~~and~~expenses ~~Chief~~to ~~Scientific~~increase ~~Officer~~compared into ~~February~~the ~~2011.~~level ~~For~~experienced in the ~~remainder~~first quarter of ~~2011,~~2012 as we ~~anticipate~~expect ~~R&D~~to ~~expenses~~incur toadditional ~~remain~~spending ~~consistent~~on ~~with~~external ~~the~~testing ~~level experienced~~and instudies related to the ~~third~~product ~~quarter~~development of ~~2011~~our new 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 nine~~ months ended ~~September 30~~March 31, ~~2011~~2012 and ~~2010~~2011 are summarized in the table below.

	Three months ended September 30,									Nine months ended September 30,
	Three months ended March 31,						Change
	2011			2010			Change			2011			2010			Change
	2012			2011
Marketing and business development	$	~~225~~303,~~732~~106		$	~~193~~204,~~027~~437			1648.93	%	$	~~674,187~~		$	~~480,016~~			~~40.5~~	%
Percentage of total revenue		5744.25	%		~~206~~57.02	%					~~46.6~~	%		~~97.2~~	%

M&BD expenses ~~increased by approximately $33,000, or 16.9%,~~ for the three months ended ~~September~~March 3031, ~~2011~~2012 ~~compared~~increased ~~to the three months ended September 30, 2010, and~~ by approximately $~~194~~99,000, or 4048.53%, ~~for the nine months ended September 30, 2011~~ compared to the same period in ~~2010~~2011. The ~~increases~~increase ~~for~~was ~~the~~primarily ~~three~~attributable ~~and~~to ~~nine~~increases ~~months~~in ~~ended~~advertising ~~September~~and ~~30,~~stock-based ~~2011~~compensation ~~were~~expenses. ~~primarily~~For ~~driven~~the byremainder ~~higher~~of ~~advertising~~2012, ~~expense~~we ~~and~~anticipate ~~employee~~M&BD ~~compensation~~expenses ~~due~~ to ~~additional~~be ~~headcount.~~consistent Wewith ~~anticipate~~the ~~M&BD~~level ~~expenses~~experienced toin ~~increase~~the first quarter of 2012 in absolute dollars. ~~for~~We ~~the~~expect ~~remainder~~that ofstock-based ~~2011~~compensation asexpense wewill ~~expect~~be toreduced but that we will incur ~~increased~~higher expenses on advertising, market testing and promotions for our current products as well as for new skin care products we plan to introduce ~~into the market~~ in ~~the near future~~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 nine~~ months ended ~~September 30~~March 31, ~~2011~~2012 and ~~2010~~2011 are summarized in the table below.

	Three months ended September 30,									Nine months ended September 30,
	Three months ended March 31,
	2011			2010			Change			2011			2010			Change
	2012			2011			Change
General and administrative	$	~~327~~384,~~162~~576		$	~~431~~341,~~202~~792			~~(24~~12.15	)%	$	~~1,043,843~~		$	~~1,138,062~~			~~(8.3~~	)%
Percentage of total revenue		8256.95	%		~~460~~95.36	%					~~72.2~~	%		~~230.5~~	%

G&A expenses ~~decreased by approximately $104,000, or 24.1%,~~ for the three months ended ~~September~~March 3031, ~~2011~~2012 ~~compared~~increased ~~to the three months ended September 30, 2010, and~~ by approximately $9443,000, or 812.35%, ~~for the nine months ended September 30, 2011~~ compared to the same period in ~~2010~~2011. The ~~decreases~~increase ~~for~~was ~~the three and nine months ended September 30, 2011 were~~ primarily due to ~~decreases~~an increase in ~~general corporate expenses and~~ stock-based compensation expense. ~~associated~~For ~~with~~the ~~options~~remainder ~~granted~~of to2012, ~~consultants.~~we We anticipate G&A expenses ~~for~~to ~~the~~increase ~~remainder~~from ofthe ~~2011~~level toexperienced bein ~~consistent~~the ~~with~~first ~~the~~quarter ~~average~~as ~~quarterly~~we ~~level~~expect ~~experienced~~to inincur ~~the~~higher ~~first~~consulting ~~nine~~fees ~~months~~and ofgeneral ~~2011~~corporate expenses.

Accounting, Legal and Professional Fees

Accounting, legal and professional fees for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2011~~2012 and ~~2010~~2011 are summarized in the table below.

	Three months ended September 30,									Nine months ended September 30,
	Three months ended March 31,						Change
	2011			2010			Change			2011			2010			Change
	2012			2011
Accounting, legal and professional fees	$	~~168~~219,~~043~~222		$	~~107~~165,~~263~~437			5632.75	%	$	~~477,676~~		$	~~414,038~~			~~15.4~~	%
Percentage of total revenue		4232.62	%		~~114~~46.53	%					~~33.0~~	%		~~83.8~~	%

Accounting, legal and professional fees ~~increased by approximately $61,000, or 56.7%,~~ for the three months ended ~~September~~March 3031, ~~2011~~2012 ~~compared to the three months ended September 30, 2010, and~~ increased by approximately $6454,000, or 1532.45%, ~~for the nine months ended September 30, 2011~~ compared to the same period in ~~2010~~2011. The increase ~~for~~was ~~the~~due ~~three~~primarily ~~months~~to ~~ended~~higher ~~September~~legal ~~30,~~fees ~~2011~~associated ~~was~~with ~~due~~the ~~primarily~~protection toof ~~higher~~our ~~spending~~intellectual property, partially offset by a decrease in legal fees ~~associated~~related ~~with~~to ~~intellectual~~general ~~property~~corporate ~~protection~~matters. ~~The~~Legal ~~increase~~fees for ~~the~~general ~~nine~~corporate ~~months~~matters ~~ended~~incurred ~~September~~in ~~30,~~the first quarter of 2011 ~~was~~included ~~principally~~services ~~attributable~~related to ~~increases~~our instock ~~legal~~option ~~fees~~plan as well as regulatory filings associated with ~~intellectual~~the ~~property~~tender ~~protection~~offer ~~and~~for ~~accounting~~our ~~fees~~outstanding ~~related~~convertible tonotes ~~tax~~payable ~~services~~and associated warrants.

For the remainder of ~~2011~~2012, we anticipate accounting, legal and professional fees towill increase ~~compared~~significantly toas ~~the~~we ~~average~~expect ~~quarterly level~~to ~~experienced~~incur ina ~~the~~much ~~first~~higher ~~nine~~level ~~months~~ of ~~2011~~spending ason ~~we expect to incur higher~~ legal ~~expenses~~fees related to ~~distribution~~the ~~and~~protection ~~licensing~~of ~~agreements~~our ~~and~~ intellectual property ~~protection~~.

Depreciation and Amortization

Depreciation and amortization expenses for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2011~~2012 and ~~2010~~2011 are summarized in the table below.

	Three months ended September 30,									Nine months ended September 30,
	Three months ended March 31,						Change
	2011			2010			Change			2011			2010			Change
	2012			2011
Depreciation and amortization	$	2723,~~845~~095		$	2826,~~430~~617			(213.12	)%	$	~~82,609~~		$	~~86,803~~			~~(4.8~~	)%
Percentage of total revenue		73.14	%		307.34	%					~~5.7~~	%		~~17.6~~	%

Depreciation and amortization expenses ~~decreased by approximately $1,000, or 2.1%,~~ for the three months ended ~~September~~March 3031, ~~2011~~2012 ~~compared~~decreased ~~to the three months ended September 30, 2010, and~~ by approximately $4,000, or 413.82%, ~~for the nine months ended September 30, 2011~~ compared to the same period in ~~2010~~2011. The ~~decreases~~decrease for the three ~~and nine~~ months ended ~~September 30~~March 31, ~~2011~~2012 ~~were~~was primarily due to reduced depreciation from assets becoming fully depreciated. For the remainder of ~~2011~~2012, we expect depreciation and amortization expenses to be consistent with the ~~average quarterly~~ level experienced in the first ~~nine~~quarter ~~months~~ of ~~2011~~2012.

Other Income (Expense), Net

Other income (expense), net ~~consists~~for ofthe ~~interest~~three ~~income,~~months ~~interest~~ended ~~expense~~March 31, ~~related~~2012 ~~to our prior outstanding convertible notes payable~~ and ~~accretion~~2011 ofis ~~discount~~summarized onin the ~~convertible~~table ~~notes payable~~below.

Other income (expense), net for the three and nine months ended September 30, 2011 and 2010 is summarized in the table below.

	Three months ended March 31,					Change
	2012			2011		Change
Interest income	$	740		$	1,204		(38.5	)%
Amortization of debt issuance costs		(12,117	)		—	NM
Equity in earnings (loss) of affiliated company		(17,648	)		7,992		(320.8	)%
Change in value of option to purchase interest in affiliated company		(6,620	)		7,715		(185.8	)%

Other income (expense), net	$	(35,645	)	$	16,911		(310.8	)%

	Three months ended September 30,									Nine months ended September 30,
	2011			2010			Change			2011			2010			Change
Interest income	$	704		$	1,027			(31.5	)%	$	2,836		$	2,386			18.9	%
Interest expense on convertible notes payable		—			(38,796	)		(100.0	)%		—			(103,069	)		(100.0	)%
Interest expense on convertible notes payable, related party		—			(156,274	)		(100.0	)%		—			(426,553	)		(100.0	)%
Accretion of discount on convertible notes payable		—			(10,675	)		(100.0	)%		—			(29,861	)		(100.0	)%
Accretion of discount on convertible notes payable, related party		—			(18,427	)		(100.0	)%		—			(51,604	)		(100.0	)%
Equity in loss of affiliated company		(23,373	)		(4,013	)		482.4	%		(74,446	)		(4,013	)		1755.1	%
Change in fair value of option to purchase interest in affiliated company		8,143			—		NM				(9,293	)		—		NM
Other income (expense), net	$	(14,526	)	$	(227,158	)		(93.6	)%	$	(80,903	)	$	(612,714	)		(86.7	)%

____________________________

______________

NM – Not meaningful

Interest Income. Interest income was fairly consistent for the three and nine months ended September 30, 2011 compared to the same periods in the previous year. For the remainder of 2011, we expect interest income to be lower than the average quarterly level experienced in the first nine months of 2011 due to our decreasing balance in cash and cash equivalents.15

Interest ~~Expense~~Income. onInterest ~~Convertible~~income ~~Notes~~for ~~Payable, Including Related Party, and Accretion of Discount on Convertible Notes Payable, Including Related Party. For~~ the three ~~and nine~~ months ended ~~September~~March 3031, ~~2010,~~2012 ~~interest~~decreased ~~expense~~slightly ~~and~~compared ~~accretion~~to ofthe ~~debt~~same ~~discount~~period ~~related~~in to2011, ~~our~~due ~~then~~primarily ~~outstanding~~to ~~convertible~~a ~~notes~~lower ~~payable,~~average ~~including~~balance ~~related~~of ~~party,~~cash ~~were approximately $224,000~~ and ~~$611,000,~~cash ~~respectively.~~equivalents ~~During~~during the ~~fourth~~first quarter of ~~2010,~~2012. ~~all~~For ofthe ~~these~~remainder ~~convertible~~of ~~notes~~2012, ~~payable~~we ~~were~~expect ~~converted~~interest ~~into~~income ~~equity~~to orbe ~~repaid,~~consistent ~~and,~~ as athe ~~result,~~level weexperienced ~~did~~in ~~not~~the ~~incur~~first ~~further~~quarter ~~interest~~of ~~or debt discount expense thereafter~~2012.

~~Equity~~Amortization ~~in Loss~~ of ~~Affiliated~~Expense ~~Company.~~Related ~~Equity~~to inLetter ~~loss~~ of ~~affiliated company increased by approximately $19,000, or 482~~Credit.~~4%,~~ ~~for~~For the three months ended ~~September~~March 3031, ~~2011 compared to the three months ended September 30~~2012, ~~2010,~~we ~~and~~recorded by approximately $7012,000, orof ~~1755.1%,~~expense ~~for~~related ~~the nine months ended September 30, 2011 compared~~ to the ~~same~~letter ~~period in 2010. Equity in loss~~ of ~~affiliated~~credit ~~company~~established ~~represented~~on our ~~share~~behalf ofby ~~NuGlow’s~~our ~~net~~largest ~~loss~~stockholder ~~for~~on ~~the~~March ~~periods~~9, ~~presented~~2012. AsThis weamount ~~did~~represented ~~not~~the ~~invest~~amortization inof ~~NuGlow~~the ~~until~~fair ~~July~~value ~~2010,~~of wethe ~~did~~warrants ~~not~~issued ~~experience~~in ~~any~~connection ~~gain~~with orthe ~~loss~~letter ~~related~~of tocredit anfrom ~~affiliated company during~~ the ~~first~~inception ~~six~~date ~~months~~through ofthe ~~2010~~reporting date.

~~Change~~Equity in ~~Value~~Earnings of ~~Option to Purchase Interest in~~ Affiliated Company. For the three months ended ~~September~~March 3031, ~~2011~~2012, we recorded ~~a gain of~~ approximately $818,000, ~~and~~in ~~for~~equity ~~the~~in ~~nine~~loss ~~months~~of ~~ended~~affiliated ~~September 30~~company, ~~2011~~compared to approximately $8,000 wein ~~recorded~~equity ain ~~loss~~earnings of ~~approximately~~affiliated ~~$9,000~~company tofor ~~reflect~~ the ~~change~~same period in ~~fair~~2011. ~~value~~These ofamounts represented our ~~option~~share toof ~~purchase~~NuGlow’s ~~the~~net ~~remaining~~income ~~interest~~or inloss ~~NuGlow~~for the respective periods.

Change in Value of Purchase Option, Affiliated Company. For the three months ended March 31, 2012, we recorded a loss of approximately $7,000 compared to a gain of approximately $8,000 to reflect the change in fair value of our option to purchase the remaining interest in NuGlow during the respective periods.

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 and, as of March 9, 2012, the line of credit with JP Morgan Chase Bank, N.A., as described below. As of ~~September 30~~March 31, ~~2011~~2012, we had approximately $21,~~067~~164,000 in cash and cash equivalents, compared to approximately $41,~~044~~689,000 in cash and cash equivalents at December 31, ~~2010~~2011. The decrease in cash and cash equivalents from December 31, ~~2010~~2011 was primarily attributable to cash used in operations, ~~additional~~during ~~capital~~the ~~contribution~~first inthree ~~NuGlow,~~months ~~website development and purchases~~ of ~~capital assets totaling approximately $1,977,000~~2012.

Cash Flows from Operating Activities

Cash used in operating activities for the ~~nine~~three months ended ~~September 30~~March 31, ~~2011~~2012 and ~~2010~~2011 was approximately $1525,~~912,~~000 and $2753,~~165,~~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~~support our current level of operations while ~~supporting~~investing in activities to expand our product lines and revenue base.

For the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012, changes in accounts receivable, ~~inventory~~prepaid expenses, ~~accounts~~accrued ~~payable~~compensation and ~~accrued~~benefits ~~expenses~~and deferred gross profit used approximately $~~416~~278,000 ~~of cash,~~ while changes in ~~prepaid~~inventory, ~~expenses~~accounts payable, accrued ~~compensation~~expenses and ~~benefits, and~~ deferred ~~gross~~revenue ~~profit from an affiliated company~~ provided approximately $~~146~~157,000 of cash. ~~During~~ For the ~~nine~~three months ended ~~September~~March 3031, ~~2010~~2011, changes in accounts receivable, inventory, prepaid expenses and ~~prepaid~~other assets and accrued expenses used approximately $~~166~~254,000 of cash, while changes in accounts ~~receivable~~payable, accrued compensation and benefits, ~~accrued~~deferred ~~expenses~~revenue and deferred ~~revenue~~gross profit provided approximately $~~120~~149,000 of cash.

16Accounts receivable, including those from an affiliated company, increased by $219,000 and $113,000 for the first quarter of 2012 and 2011, respectively. The 2012 increase was due primarily to higher royalties recorded at the end of the quarter, and the 2011 increase was a result of products sales transacted in the latter part of the quarter. Inventory decreased by $41,000 for the first three months of 2012 and increased by approximately $20,000 for the same period in 2011. The fluctuations in inventory reflect our effort to manage cash flow and maintain inventory at a certain levels to meet customer required lead times.

Cash Flows from Investing Activities

For the ~~nine~~three months ended ~~September~~March 3031, ~~2011~~2012, ~~cash~~there ~~used in investing activities of approximately $65,000~~ was ~~related~~no tocash anused ~~additional capital contribution~~ in ~~NuGlow~~or ~~and~~provided ~~payments~~by ~~for~~investing ~~website~~activities. ~~development~~For ~~costs~~the ~~and~~three ~~purchases~~months ofended ~~capital~~March ~~assets~~31, ~~while~~2011, cash used ~~of approximately $353,000 during the same period~~ in ~~2010~~investing ~~resulted~~activities ~~from a capital contribution~~ of approximately $~~350~~21,000 inwas ~~NuGlow~~related ~~and~~to ~~purchases~~payments offor ~~capital~~website ~~assets~~development ~~of approximately $3,000~~costs.

Cash Flows from Financing Activities

For the ~~nine~~three months ended ~~September~~March 3031, 2012 and 2011, there was no cash provided by financing activities. For the nine months ended September 30, 2010, cash provided by financing activities was $3,200,000, which represented the aggregate proceeds from our issuance of convertible promissory notes and warrants in March and May 2010.

~~Based~~On onMarch 9, 2012, we entered into an LOC Agreement (the ~~current~~LOC ~~status~~Agreement) with Frank T. Nickell, who beneficially owned approximately 40% of our ~~operating~~outstanding ~~and~~common ~~product~~stock ~~commercialization~~as ~~development~~of ~~plans~~March 26, we2012, ~~estimate~~pursuant ~~that~~to ~~our~~which ~~existing~~Mr. ~~cash~~Nickell ~~and~~established ~~cash~~an ~~equivalents~~irrevocable ~~will~~standby beletter ~~sufficient~~of tocredit ~~fund~~by ~~our~~JPMorgan ~~operations~~Chase Bank, ~~continue~~N.A. ~~with~~(JPMorgan) ~~work~~to ~~towards~~allow ~~our~~us Rxto ~~product~~borrow ~~development~~from ~~and~~JPMorgan ~~support~~up ~~the~~to ~~continued~~$2.0 ~~expansion~~million. The line of ~~our~~credit ~~consumer~~with ~~program~~JPMorgan ~~through~~(LOC) ~~the~~will ~~remainder~~expire ofon ~~2011.~~July We1, 2013 but will ~~need~~automatically ~~substantial~~renew ~~additional~~until ~~capital~~July in1, ~~order~~2014 unless terminated by JPMorgan at least 14 days prior to ~~maintain~~the end of the current ~~level~~term, ofat ~~operations,~~which ~~continue~~time ~~commercialization~~we may draw up to the balance remaining on the LOC. Amounts outstanding under the LOC accrue interest at the rate of ~~our~~0.75% ~~technology~~per annum and ~~advance~~are ~~our~~due ~~pharmaceutical~~and ~~programs~~payable ~~beyond~~on ~~2011~~or before July 1, 2014. ~~Accordingly~~Pursuant to the LOC Agreement, we ~~will~~agreed ~~need~~to use commercially reasonable efforts to ~~raise~~consummate ~~additional~~an ~~funding,~~equity financing prior to the termination date of the LOC in which ~~may~~we ~~include~~would ~~debt~~sell and~~/or~~ ~~equity~~issue ~~financing.~~shares ~~However,~~of ~~there~~our iscommon nostock ~~assurance~~at ~~that~~a ~~additional~~price ~~funding~~per ~~will~~share ~~be available~~of onat ~~favorable~~least ~~terms,~~$0.60 iffor aggregate proceeds of at ~~all~~least $3.0 Ifmillion, weupon ~~are~~consummation ~~unable~~of towhich ~~obtain~~all amounts outstanding under the ~~necessary~~LOC ~~additional~~shall ~~funding~~be immediately repaid. In connection with the LOC Agreement, we ~~may~~issued ~~not~~to beMr. ~~able~~Nickell a five-year fully vested warrant to ~~satisfy~~purchase 2,000,000 shares of our ~~existing~~common ~~obligations~~stock orat ~~may~~an beexercise ~~required~~price of $0.25 per share and agreed to ~~severely~~reimburse ~~reduce~~Mr. Nickell for his reasonable expenses in connection with the ~~scope~~LOC, ofincluding, ~~our~~without ~~operations~~limitation, ~~which~~any ~~would~~interest ~~significantly~~accrued ~~impede~~and ~~our~~payable ~~ability~~by toMr. ~~proceed~~Nickell in connection with ~~current~~the ~~operational~~LOC. ~~plans~~As ~~and~~of ~~could~~March ~~lead~~31, to2012, there were no borrowings outstanding under the ~~discontinuation~~LOC ofand ~~our~~reimbursements ~~business~~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 ~~September 30~~March 31, ~~2011~~2012:

Contractual Obligations

Remainder of ~~2011~~2012

2013 through 2014

~~2012 - 2013~~

2015

~~2014 - 2015~~

Total

Operating lease

1959,~~379~~490

~~160~~165,~~890~~717

~~127~~43,~~278~~195

~~307~~268,~~547~~402

Purchase order commitments (1)

~~126~~189,~~630~~405

~~33,000~~—

—

~~159~~189,~~630~~405

Total contractual obligations

~~146~~248,~~009~~895

~~193~~165,~~890~~717

~~127~~43,~~278~~195

~~467~~457,~~177~~807

______________________

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

~~Recent~~Subsequent ~~Accounting Pronouncements~~Events

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~~Investment ~~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 our financial position and results of operations.NuGlow

In ~~June 2011,~~connection ~~the~~with ~~FASB~~NuGlow’s ~~issued~~additional ~~ASU~~capital ~~No. 2011-05~~raise ~~(ASU~~in ~~2011-05)~~April 2012, ~~Comprehensive~~on ~~Income~~April ~~(Topic~~9, ~~220):~~2012, ~~Presentation~~we ofcontributed ~~Comprehensive Income. ASU No. 2011-05 amends existing guidance by allowing~~ an ~~entity~~additional ~~the~~$27,000 ~~option~~ to ~~present~~maintain ~~the~~our ~~components~~30% ofinterest ~~net~~in ~~income~~NuGlow. ~~and~~We ~~other~~concurrently ~~comprehensive~~entered ~~income~~into ~~in either~~ a ~~single~~Third ~~continuous~~Amendment ~~statement~~to ~~of comprehensive income or in two separate but consecutive statements. This ASU eliminates~~ the ~~option~~Amended toand ~~present~~Restated ~~the~~Operating ~~components~~Agreement of ~~other~~NuGlow ~~comprehensive~~Cosmaceuticals, ~~income~~LLC asto ~~part~~amend of the ~~statement~~allocation ~~of changes in stockholders’ equity. ASU No. 2011-05 requires retrospective application~~ and isdistribution ~~effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. We believe the adoption~~ of this ~~guidance~~additional ~~concerns~~capital ~~disclosure~~contribution ~~only~~prior ~~and~~to ~~will~~other ~~not~~allocations ~~have a material impact on our financial position~~ or ~~results~~distributions ~~of operations~~thereunder.

Operating Lease Amendment

Effective April 23, 2012, we entered into a Fourth Amendment to Lease with Teachers Insurance & Annuity Association of America, Inc. (Landlord) pursuant to which we agreed to move our office and laboratory to a new location also in Bothell, Washington on or before the later of July 1, 2012 and the date on which the Landlord completes certain tenant improvements (the Commencement Date). The new premises, consisting of approximately 6,300 square feet of office and lab space, will be leased for an additional 72 months starting from the Commencement Date. Under the terms of the amended lease, annual lease payments are expected to be approximately $79,000 for the first year, $81,000 for the second year, $84,000 for the third year, $86,000 for the fourth year, $89,000 for the fifth year and $92,000 for the sixth year, plus building operating costs. The amended lease provides us a moving allowance not exceeding $7,500 and a conditional abatement of one month base rent based upon our performance of the terms, covenants and conditions of the amended lease. We believe that any moving expenses we may incur beyond the Landlord’s allowance will not be significant.

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 functioning effectively 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~~last ~~recent~~ fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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, ~~2010~~2011 for a description of ~~some~~material ~~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.

ITEM 5. Other Information.

Effective April 23, 2012, we entered into a Fourth Amendment to Lease (the “Fourth Lease Amendment”) with Teachers Insurance & Annuity Association of America, Inc. (the “Landlord”) in connection with the premises located at 22118 20th Avenue SE, Bothell, Washington 98021 and 22122 20th Avenue SE, Bothell, Washington 98021 (the “Initial Premises”). The Fourth Lease Amendment amends the Lease dated August 14, 2001 (the “Initial Lease”), as amended by the First Amendment to Lease dated December 6, 2005, the Second Amendment to Lease dated October 4, 2006 and the Third Amendment to Lease dated July 22, 2009 (as amended, the “Lease”). The Fourth Lease Amendment relocates the premises subject to the Lease from the Initial Premises to 6,276 square feet at 22121 17th Avenue SE, Bothell, Washington 98021 on or before the later of July 1, 2012 and the date on which the Landlord completes certain tenant improvements (the “Commencement Date”); provides us with a moving allowance of up to $7,500.00; and extends the term of the Lease for an additional 72 months commencing on the Commencement Date. The base monthly rent under the Lease shall be $6,588.00 for the initial 12 months (with a conditional abatement for January 2013), $6,785.83 for months 13 through 24, $6,989.40 for months 25 through 36, $7,199.08 for months 37 through 48, $7,415.05 for months 49 through 60, and $7,637.50 for months 61 through 72. The right of first opportunity by us under the Third Lease Amendment to lease certain office space contiguous to the Initial Premises has been deleted from the Lease.

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
10.12(b)	Second Amendment to License Agreement dated as of August 25, 2011 between the Company and Rodan & Fields, LLC	X
10.4(d)	Fourth Amendment to Lease between the Company and Teachers Insurance and Annuity Association of America, Inc. dated April 23, 2012	X
10.19(a)	First Amendment dated September 1, 2011 to Amended and Restated Operating Agreement of NuGlow Cosmaceuticals, LLC and Supply Agreement among the Company, NuGlow Cosmaceuticals, LLC and Camden Street Partners, LLC	X
10.11(b)	Second Amendment dated March 6, 2012 to Amended and Restated Operating Agreement of NuGlow Cosmaceuticals, LLC among the Company, NuGlow Cosmaceuticals, LLC and Camden Street Partners, LLC	X
10.13	LOC Agreement dated March 9, 2012 between the Company and Frank T. Nickell	X
10.14	Warrant dated March 9, 2012 issued to Frank T. Nickell to purchase 2,000,000 shares of Common Stock	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.INS*	XBRL Instance Document	X
101.SCH**	XBRL Taxonomy Extension Schema Document	X
101.SCH*	XBRL Taxonomy Extension Schema Document	X
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase Document	X
101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document	X
101.DEF**	XBRL Taxonomy Extension Definition Linkbase Document	X
101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document	X
101.LAB**	XBRL Taxonomy Extension Label Linkbase Document	X
101.LAB*	XBRL Taxonomy Extension Label Linkbase Document	X
101.PRE**	XBRL Taxonomy Extension Presentation 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.

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.

~~November 3~~May 10, ~~2011~~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)

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