Forward-Looking Statements

Our disclosure and analysis in this Quarterly Report 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

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 condensed financial statements and the notes included in Item 1 of Part I of this Quarterly Report on Form 10-Q 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, 2008.

Business Overview

Helix BioMedix, Inc. is a biopharmaceutical company with an extensive 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. We have a proprietary library containing a broad array of these synthetic bioactive peptides. Our business strategy is to develop and out-license to third parties the rights to use these proprietary peptides in diverse fields of application and to commercialize our own branded products. We have developed numerous peptides with unique sequences in the following two broad areas of application:

• Consumer (skin care) - we have developed a number of peptides capable of stimulating certain aspects of the skin's innate ability to regenerate and are marketing these peptides as innovative ingredients for cosmetic use.

• Pharmaceutical - certain of our peptides have demonstrated promising results in the areas of topical anti-infectives and wound healing and are being developed for Rx applications.

Our objective is also to increase our focus on our pharmaceutical programs and initiate clinical development of our lead drug candidates. Due to the pre-clinical stage of development of each of our peptide sequences in our pharmaceutical programs, we are unable to estimate the total costs and timing to complete development, and we do not separately track these costs due to the cost burden associated with accounting at such levels of detail and our limited resources. However, the majority of our research and development spending is on the two areas of application discussed above. Further development of our pharmaceutical programs will require additional funding to support these programs.

We generate revenue through license agreements with skin care product manufacturers and through collaborative development agreements, as well as by selling proprietary branded skin care products through distribution channels in the United States.

We make available on our website at www.helixbiomedix.com, free of charge, copies of our Annual Reports on Forms 10-K and 10-KSB, Quarterly Reports on Forms 10-Q and 10-QSB, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended, as soon as reasonably practicable after filing or furnishing the information to the SEC. Information contained on our website is not part of, and is not incorporated into, this Quarterly Report. Our filings with the SEC are also available to the public at the SEC's website at www.sec.gov.

Critical Accounting Policies and Estimates

The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. On an ongoing basis, our management evaluates its estimates and judgments, including those related to revenue recognition, research and development costs, capitalized patent costs and valuation of stock options and warrants. We base our estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition. We derive our revenue from technology licenses, joint development agreements, sales of peptides and consumer products, and administrative services provided to a related party. Revenue under technology licenses may include up-front payments and royalties from third-party product manufacturing and sales. Revenue associated with joint development agreements primarily consists of payments for completion of development milestones. For agreements with multiple elements, we follow the Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, to determine whether each element can be separated into a unit of accounting based on the following criteria: (1) the delivered items have value to the customer on a stand-alone basis; (2) any undelivered items have objective and reliable evidence of fair value; and (3) delivery or performance of the undelivered items that have a right of return is probable and within our control. If there is objective and reliable evidence of fair value for all units of accounting in an arrangement, we allocate revenue among the separate units of accounting based on their estimated fair values. If the criteria are not met, elements included in an arrangement are accounted for as a single unit of accounting and revenue is deferred until the period in which the final deliverable is provided. When the period of deferral cannot be specifically identified from the agreement, we estimate the period based upon other factors contained within the agreement. Our management continually reviews these estimates, which could result in a change in the deferral period and the timing and the amount of revenue recognized.

• Licensing Fees. We recognize up-front license payments at the point when persuasive evidence of an agreement exists, delivery has occurred or services have been performed, the price is fixed and determinable and collection is reasonably assured. We recognize royalty revenue in the period royalty is earned based on reports received from licensees or other information available through the date of issuance of the financial statements. We must occasionally make estimates on certain royalty revenue amounts due to the timing of securing information from our customers. While we believe we can make reliable estimates for certain royalty revenue, these estimates are inherently subjective. Accordingly, our estimates for royalty revenue could differ from actual events, thus impacting our financial position and results of operations.

• Development Fees. We record revenue associated with performance milestones as earned when we have completed the specific milestones as defined in the joint development agreements and there are no uncertainties or contingencies regarding collection of the related payment. Payments received for which the earnings process is not complete are recorded as deferred revenue.

• Peptide and Consumer Product Sales. We recognize revenue from sales of our skin care products and peptides when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collection is reasonably assured.

• Administrative Services Revenue, Related Party. Administrative services revenue consists of fees received from DermaVentures LLC (DermaVentures), a related party, for marketing campaign costs associated with DermaVentures' product line and other out-of-pocket expenses we incur on DermaVentures' behalf. Administrative services revenue is invoiced to DermaVentures at or near cost and is recorded as earned when services have been rendered, no obligations remain outstanding and collection is reasonably assured. In accordance with EITF Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, and EITF Issue No. 01-14, Income Statement Characterization of Reimbursements Received for 'Out-of-Pocket' Expenses Incurred, fees received from DermaVentures are reported as administrative services revenue, while related costs are included in cost of revenue in the statements of operations.

Marketable Securities. Marketable securities are reported at estimated fair value with the related unrealized gains and losses included as a component of accumulated other comprehensive income (loss) in stockholders' equity. Realized gains, losses, and declines in value of securities judged to be other than temporary are included in other non-operating income (expense). We estimate fair value based on valuation techniques defined by Financial Accounting Standards Board Statement (SFAS) No. 157, Fair Value Measurements (SFAS 157), including using observable inputs such as quoted prices in active market for identical or similar investments. When observable inputs are not sufficiently available, we estimate fair value by incorporating assumptions that market participants would use in their estimates of fair value, which may include credit quality, estimates on the probability of the securities being called prior to final maturity, the liquidity of the securities and indications of value from reports of developing secondary markets for ARS.

Research and Development Costs. Our research and development costs are expensed as incurred. Research and development expenses include, but are not limited to, payroll and benefit expenses, lab supplies and expenses, and external trials and studies. In instances where we enter into agreements with third parties for research and development activities, which may include personnel costs, supplies and other costs associated with such collaborative agreements, we expense these items as incurred.

Capitalization of Patent Costs. We capitalize the third-party costs associated with patents that have been issued. Our policy for the capitalization of patent costs is to begin amortization of these costs at the time they are incurred. We periodically review our patent portfolio to determine whether any such costs have been impaired and are no longer being used in our research and development activities. To the extent we no longer use certain patents, the associated costs will be written-off at that time.

Valuation of Stock Options Granted to Employees, Officers and Non-Employee Directors for Board Service. The fair value of each option granted to employees, officers and non-employee directors for board service is estimated on the date of grant using the Black-Scholes option valuation model. The assumptions used to calculate the fair value of options granted are evaluated and revised, as necessary, to reflect market conditions and our experience. Options granted are valued using the single option valuation approach, and the resulting expense is recognized using the cliff, straight-line attribution method, consistent with the single option valuation approach. Compensation expense is recognized only for those options expected to vest.

Valuation of Warrants and Non-Employee Stock Options Unrelated to Convertible Note Payable, Related Party, Issued in 2008. We account for our warrants and non-employee stock options in accordance with the provisions of SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS 133), EITF Issue No. 00-19, Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company's Own Stock (EITF 00-19), EITF Issue No. 07-5, Determining Whether an Instrument (or an Embedded Feature) is Indexed to an Entity's Own Stock (EITF 07-5), and EITF Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services (EITF 96-18), which require these instruments to be classified as permanent equity, temporary equity or as assets or liabilities. In general, warrants and non-employee stock options that either require net-cash settlement or are presumed to require net-cash settlement are recorded as assets and liabilities at fair value, and warrants that require settlement in shares are recorded as equity instruments.

We estimate the fair value of these derivative liabilities and equity instruments using a Black-Scholes model and use estimates for an expected dividend yield, a risk-free interest rate, and expected volatility. At each reporting period, as long as the derivative liabilities were outstanding and there was a potential for an insufficient number of authorized shares available to settle these instruments, they were revalued and any difference from the previous valuation date would be recognized as a change in fair value in our statement of operations.

Valuation of Warrant Related to Convertible Note Payable, Related Party, Issued in 2008. In connection with the convertible note payable to a related party issued in February 2008 and amended in June 2008, we issued warrants to purchase up to 750,000 shares of our common stock at an exercise price of $1.00 per share. Pursuant to the guidance in EITF 00-19 and EITF 07-5, we accounted for these warrants as an equity instrument.

Valuation of Warrants Related to Convertible Notes Payable Issued in 2009. In connection with the convertible notes payable issued in the first quarter of 2009, we issued warrants to purchase up to 868,500 shares of our common stock at an exercise price of $1.00 per share. Because these warrants are legally detachable and are separately exercisable from the debt and its related embedded options, they are considered to be freestanding financial instruments from these convertible notes payable. Pursuant to the guidance in Accounting Principles Board (APB) Opinion 14 (APB 14), Accounting for Convertible Debt and Debt Issued with Stock Purchase Warrants, EITF 00-19, EITF 07-5 and other relevant literature, we accounted for these warrants as an equity instrument and allocated the value of the warrants based on a relative-fair-value basis between the convertible notes payable issued and the warrants.

Valuation of Conversion Features Related to Convertible Notes Payable, Including Related Party. In accordance with SFAS 133, we were required to separately account for the fair value of our right to automatically convert the convertible note payable to a related party to equity pursuant to the terms of the convertible note payable issued on February 14, 2008 (See Note 2 of our Notes to Condensed Financial Statements). We estimated the fair value of this right using a Black-Scholes model and used estimates for an expected dividend yield, a risk-free interest rate, and expected asset-based volatility, together with management's estimate of the probability of exercise of the put options.

On June 27, 2008, we entered into an amendment to the convertible note payable which effectively extinguished the original convertible note payable, including its embedded derivative instruments. The June 27, 2008 fair value of the separately-accounted-for embedded derivative instruments was credited to additional paid-in capital as part of recording the capital transaction resulting from the extinguishment of the original convertible note payable.

Pursuant to the guidance in SFAS 133, EITF 00-19, EITF 07-5 and other relevant literature, the conversion rights of the convertible note payable amended in June 2008 and the convertible notes payable issued in the first quarter of 2009 are not required to be accounted for separately.

Valuation of Call Option Related to Convertible Note Payable, Related Party, Issued in 2008. The convertible note payable issued on February 14, 2008 and subsequently amended on June 27, 2008 includes a call option which gives the holder the right to demand repayment in the case of default. Under the guidance of SFAS 133, we are required to separately account for the fair value of the embedded call option. We determined that the call option related to this convertible note payable had no value at either the issuance date or any of the reporting dates since then, based on an analysis of the right and the likelihood of its exercise.

Valuation of Prepayment Right Related to Convertible Note Payable, Related Party, Issued in 2008. The convertible note payable issued on February 14, 2008 and subsequently amended on June 27, 2008 allows us to prepay the unpaid balance of the convertible note and accrued interest at any time and without penalty. Under the guidance of SFAS 133, we are required to separately account for the fair value of the prepayment right. We determined that this prepayment right had no value at either the issuance date or any of the reporting dates since then, based on an analysis of the right and the likelihood of its exercise.

Results of Operations

As of March 31, 2009, our accumulated deficit was approximately $33,002,200. We may continue to incur substantial operating losses over the next several years, due principally to the costs associated with our current level of operations, continued commercialization of our technology, and initiation of our pharmaceutical programs. Our net loss for the three months ended March 31, 2009 was approximately $919,700, or $0.04 per share, reflecting a decrease of $355,300 compared to a net loss of approximately $1,275,000, or $0.05 per share, for the same period in 2008. The decrease in net loss for the first quarter of 2009 compared to the same period in 2008 was primarily due to decreases in operating expenses of approximately $82,600 and non-operating expenses of approximately $365,900, partially offset by a decrease in gross profit of approximately $93,300. The decrease in operating expenses was primarily attributable to decreases in compensation and benefit expense due to a reduction of headcount, consulting fees and general corporate expenses, partially offset by increases in stock-based compensation and marketing expenses. The decrease in non-operating expenses was due primarily to decreases in accretion of debt discount and change in fair value of derivative instruments related to our convertible notes payable, partially offset by an increase in interest expense associated with the outstanding convertible notes payable.

Revenue

Revenue in the three months ended March 31, 2009 and 2008 consisted primarily of
license fees, development fees, peptide sales, consumer product sales and
administrative services revenue as summarized in the table below.



                                                        Three Months Ended March 31,
                                                          2009               2008         Change
License and development fees                         $       34,777    $        147,062    (76.4 )%
Peptide and consumer product sales                           42,529              93,308    (54.4 )%
Administrative services revenue, related party                9,945                  -         *

Total revenue                                        $       87,251    $        240,370    (63.7 )%

* Percentage not meaningful

Revenue for the first quarter of 2009, excluding administrative services revenue from DermaVentures, a related party, compared to the same period last year decreased by approximately $163,100, or 67.8%. Development fees were $0 for the first quarter of 2009, compared to $130,000 for the same period in 2008. The fluctuation in development fees was attributable to the timing of the achievement of certain milestones under applicable development agreements. License fees, which are derived from royalty arrangements, increased by approximately $17,700, or 103.8%, for the first three months of 2009 compared to the same period in 2008.

Peptide sales decreased by approximately $53,300, or 57.1%, for the three months of 2009 compared to the same period in the previous year. The lower peptide sales in the first three months of 2009 reflected a decline in the manufacturing of products containing our peptides from certain of our customers.

Sales of consumer products for the first quarter of 2009 were approximately $2,500, or 2.9% of total revenue. As these new products were launched in the fourth quarter of 2008, we expect consumer product sales will increase in the future.

Administrative services revenue for the first quarter of 2009 reflected revenue received from DermaVentures, a related party, for marketing costs associated with DermaVentures' product line and other out-of-pocket expenses we incurred on DermaVentures' behalf. Administrative services revenue and related costs for the three months ended March 31, 2008 were not material. Administrative services revenue is typically invoiced to DermaVentures at or near cost and therefore has no material net effect on our gross profit or net loss.

Cost of Revenue and Gross Margin

Cost of revenue consists of (1) cost of peptides and materials associated with consumer products, (2) cost of administrative services revenue from DermaVentures, a related party, which includes primarily marketing campaign costs associated with DermaVentures' product line and other out-of-pocket expenses we incur on DermaVentures' behalf, and (3) other cost of revenue, which includes cost of materials associated with development activities as well as professional fees incurred related to development agreements. 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 and development fees are higher than our margins from peptide sales and administrative services revenue.

Cost of revenue and gross margin for the three months ended March 31, 2009 and 2008 are summarized in the table below.

                                                      Three Months Ended March 31,
                                                       2009                 2008           Change
Cost of peptide and consumer product sales         $      38,582       $        69,384      (44.4 )%
Percentage of total revenue                                 44.2 %                28.9 %
Percentage of related revenue                               90.7 %                74.4 %
Cost of administrative services revenue, related
party                                              $       9,750                    -           *
Percentage of total revenue                                 11.2 %                  -
Percentage of related revenue                               98.0 %                  -
Other cost of revenue                              $          -        $        38,781          *
Percentage of total revenue                                   -  %                16.1 %
Percentage of related revenue                                 -  %                26.4 %

Total cost of revenue                              $      48,332       $       108,165      (55.3 )%
Percentage of revenue                                       55.4 %                45.0 %

Gross profit (loss)                                $      38,919       $       132,205      (70.6 )%
Gross margin                                                44.6 %                55.0 %

* Percentage not meaningful

Cost of peptide and consumer product sales for the first quarter of 2009 decreased by approximately $30,800, or 44.4%, compared to the same period in 2008. Peptides and consumer products sold in the first quarter of 2009 resulted in 9.3% margin compared to 25.6% margin for the same period in 2008. The decrease in gross margin related to peptide and consumer product sales was due primarily to the customer mix for peptide sales. As peptides are sold at cost to certain customers based on the terms of respective licensing arrangements, the gross margin from peptide sales may vary from period to period depending on the customer mix. Sales of our consumer products generate a higher gross margin compared to sales of peptides, however, as our consumer products were only introduced to the market in the fourth quarter of 2008, the sale volume for these products has not reached a level that would make a significant contribution to the gross margin.

Cost of administrative services revenue for the first quarter of 2009 consisted primarily of marketing service expenses. Cost of administrative services revenue for the first quarter of 2008 was not material. As administrative services revenue is invoiced at or near cost, the margin related to this revenue is insignificant.

Other cost of revenue for the first quarter of 2009 was not material. For the first quarter of 2008, other cost of revenue was approximately $38,800 which consisted primarily of professional fees for services performed in connection with a joint development agreement.

Research and Development Expenses

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 efforts.
R&D expenses for the three months ended March 31, 2009 and 2008 are summarized
in the table below.



                                          Three Months Ended March 31,
                                            2009                 2008          Change
   Research and development expenses   $      160,414       $      195,177      (17.8 )%
   Percentage of total revenue                  183.9 %               81.2 %

. . .