UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


_____________________________


FORM
20-F


_____________________________





            REGISTRATION
      STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
      OF 1934





OR





ý
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





For
the fiscal year ended July 31, 2009




OR





            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934





OR





            SHELL
      COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
      ACT OF 1934





Commission
file number: 000-53508




Helix BioPharma
Corp.




(Exact
name of Registrant as Specified in its Charter)




Canada




(Jurisdiction
of Incorporation or Organization)




305 Industrial Parkway
South, #3, Aurora, Ontario, Canada  L4G 6X7




(Address
of Principal Executive Offices)




Photios
(Frank) Michalargias


Tel.:
(905) 841-2300 x233


Fax:
(905) 841-2244


305
Industrial Parkway South, #3


Aurora, Ontario,
Canada  L4G 6X7




(Name,
Telephone, E-mail and/or Facsimile Number and Address of Company Contact
Person)




Securities
registered or to be registered pursuant to Section 12(b) of the
Act:




Title of Each Class
            Name of Each Exchange On Which
      RegisteredNone
            None















Securities
registered or to be registered pursuant to Section 12(g) of the
Act:




Common shares, without par
value


(Title of
Class)




Securities
for which there is a reporting obligation pursuant to Section 15(d) of the
Act:




None


(Title of
Class)




The
number of outstanding shares of each of the issuer’s classes of capital or
common stock as of July 31, 2009was: 53,175,335 common
shares, without par value.




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.




Yes r No ý




If this
report is an annual or transition report, indicate by check mark if the
registrant is not required to file reports pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934.




Yes r No ý




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 r No ý




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 (§232.405 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 r No ý




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check
one):




Large
accelerated filer r      
Accelerated filer r   
Non-accelerated filer ý




Indicate
by check mark which basis of accounting the registrant has used to prepare the
financial statements included in this filing:




U.S.
GAAP r  International
Financial Reporting Standards as issued by the International
Accounting




Standards
Board r  Other ý




Indicate
by check mark which financial statement item the registrant has elected to
follow: Item 17 ý  Item 18
r




If this
is an annual report, indicate by check mark whether the registrant is a shell
company (as defined in Rule 12b-2 of the Exchange Act). Yes r No ý







HELIX
BIOPHARMA CORP.




FORM
20-F ANNUAL REPORT




TABLE
OF CONTENTS






Page INTRODUCTION
              4
 GLOSSARY
              7


PART
I


ITEM
      1.
            IDENTITY
      OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS
            10


ITEM
      2.
            OFFER
      STATISTICS AND EXPECTED TIMETABLE
            10


ITEM
      3.
            KEY
      INFORMATION
            10


ITEM
      4.
            INFORMATION
      ON THE COMPANY
            27


ITEM
      4A.
            UNRESOLVED
      STAFF COMMENTS
            44


ITEM
      5.
            OPERATING
      AND FINANCIAL REVIEW AND PROSPECTS
            44


ITEM
      6.
              ITEM
      7.
            DIRECTORS,
      SENIOR MANAGEMENT, AND EMPLOYEES
              MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
            61
              78




ITEM
      8.
            FINANCIAL
      INFORMATION
            80


ITEM
      9.
            THE
      OFFER AND LISTING
            80


ITEM
      10.
            ADDITIONAL
      INFORMATION
            82


ITEM
      11.
              QUANTITATIVE
      AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
              92


ITEM
      12.
            DESCRIPTION
      OF SECURITIES OTHER THAN EQUITY SECURITIES
            93




PART
II


ITEM
      13.
            DEFAULTS,
      DIVIDEND ARREARAGES AND DELINQUENCIES
            93


ITEM
      14.
              MATERIAL
      MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF
      PROCEEDS
              93


ITEM
      15.
              ITEM
      15T
            RESERVED
              CONTROLS AND PROCEDURES
            93
              93


ITEM
      16.
            RESERVED
            94


ITEM
      16A
            AUDIT
      COMMITTEE FINANCIAL EXPERT
            94


ITEM
      16B
            CODE
      OF ETHICS
            94


ITEM
      16C
              ITEM
      16D
              ITEM
      16E
            PRINCIPLE
      ACCOUNTING FEES AND SERVICES
              EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT
      COMMITTEES
              PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND
      AFFILIATED PURCHASES
            94
              94
              94






ITEM
      16F
            CHANGES
      IN REGISTRANT’S CERTIFYING ACCOUNTANT
            94


ITEM
      16G
            CORPORATE
      GOVERNANCE
            95


ITEM
      17.
            FINANCIAL
      STATEMENTS
            95


ITEM
      18.
            FINANCIAL
      STATEMENTS
            95


ITEM
      19.
            EXHIBITS
            95









INTRODUCTION




Helix
BioPharma Corp. is organized under the Canada Business Corporations Act. In this
Annual Report, the “Company”, “Helix”, “Helix BioPharma”, “we”, “our” and “us”
refer to Helix BioPharma Corp. and its subsidiaries (unless the context
otherwise requires). We refer you to the documents attached as exhibits hereto
for more complete information than may be contained in this Annual Report. Our
principal corporate offices are located at 305 Industrial Parkway South, #3,
Aurora, Ontario, Canada L4G 6X7. Our telephone number is (905)
841-2300.




Business
of Helix BioPharma Corp.




Helix
BioPharma Corp. is a biopharmaceutical company specializing primarily in the
field of cancer therapy. The Company is actively developing innovative products
for the treatment and prevention of cancer based on its proprietary
technologies. Helix’s product development initiatives include its L-DOS47 and
Topical Interferon Alpha-2b new drug candidates. The Company has generatedrevenues principally
from two sources: product sales, and license fees and royalties. Until the third
quarter of fiscal 2007, the Company also generated revenues from contract
research and development. Helix’s research and development initiatives are being
financed primarily from the issuance of its common shares.




Financial
and Other Information




In this
Annual Report, unless otherwise specified, all dollar amounts are expressed in
Canadian Dollars (“CDN$” or “$”). The Government of Canada permits a floating
exchange rate to determine the value of the Canadian Dollar against the U.S.
Dollar (“US$”).




Forward-Looking
Statements




This
Annual Report on Form 20-F contains forward-looking statements and information
(collectively, “forward-looking statements”) within the meaning of U.S. and
Canadian securities laws. Forward-looking statements are statements and
information that are not historical facts but instead include financial
projections and estimates;   statements regarding plans, goals,
objectives, intentions and expectations with respect to the Company’s future
business, operations, research and development; and other information in future
periods. Forward-looking statements include, without limitation, statements
concerning the Company’s planned development programs for Topical Interferon
Alpha-2b and L-DOS47; the planned remaining pre-clinical activities for L-DOS47
and their estimated time of completion; the timing of filing of an IND/CTA for
L-DOS47 and Topical Interferon Alpha-2b; market opportunities for the two drug
candidates; the nature, design and timing of future clinical trials; the
projected timing for completion of enrolment, and for study completion, of the
two ongoing Topical Interferon Alpha-2b Phase II clinical trials in Europe;
future expenditures; cash needs for the next 12 months and sufficiency of cash
reserves and expected cash flow; future financing requirements;
commercialization plans; and anticipated future revenue and operating
losses.  Forward-looking statements can be identified by the use of
forward-looking terminology such as  “expects”,  “plans”,
“designed to”, “potential”,  “is developing”, “believe”, “intends”,
“continues”, “opportunities”, “anticipated”,  “2010”, “2011”,
“next”,  “ongoing”, “pursue”, “to seek”,  “objective”,
“future”, “considering”, “projects”, “on track”, or the negative thereof or any
other variations thereon or comparable terminology referring to future events or
results, or that events or conditions “will”, “may”, “could”, “would”, or
“should” occur or be achieved, or comparable terminology referring to future
events or results.





Forward-looking
statements are statements about the future and are inherently uncertain, and are
necessarily based upon a number of estimates and assumptions that are also
uncertain.  Although we believe that the expectations reflected in
such forward-looking statements are reasonable, such statements involve
risks and uncertainties, and undue reliance should not be placed on such
statements. Certain material factors, estimates or assumptions are applied
in making forward-looking statements, including, but not limited
to, patient recruitment rates for our ongoing Phase II European clinical
trials; the timely and successful completion of ongoing clinical trials, GMP
manufacturing and other activities leading up to our planned IND and CTA
filings; the timely provision of services by third parties; future revenue and
costs, and regulatory approvals.






4






The
Company’s actual results could differ materially from those anticipated in the
forward-looking statements contained in this Annual Report as a result of
numerous known and unknown risks and uncertainties, including, but not limited
to:




·
            the
      Company’s need for additional capital which may not be available in a
      timely manner or at all and which, if not obtained, will have a material
      adverse impact on the Company and its ability to
  continue;




·
            the
      impact of the global economic downturn and credit crisis which has
      negatively affected the availability and terms of debt and equity
      financings and may have a negative effect on our sales operations and
      research and development
initiatives;




·
            uncertainty
      whether an IND or CTA will be compiled or submitted for Topical Interferon
      Alpha-2b or L-DOS47 as currently planned or at all, or if submitted,
      whether the Company will be permitted to undertake human
      testing;




·
            uncertainty
      whether Topical Interferon Alpha-2b or L-DOS47 will be successfully
      developed and marketed as a drug or at
all;




·
            intellectual
      property risks, including the possibility that patent applications may not
      result in issued patents, that issued patents may be circumvented or
      challenged and ultimately struck down, that any upcoming expiry of an
      issued patent, including without limitation, the expiry in 2013 of three
      patents issued in respect of Topical Interferon Alpha-2b, may negatively
      impact the further development or commercialization of the underlying
      technology, and that the Company may not be able to protect its trade
      secrets or other confidential proprietary
  information;




·
            risks
      associated with potential claims of infringement of third party
      intellectual property and other proprietary
  rights;




·
            research
      and development risks, including the fact that L-DOS47 and Topical
      Interferon Alpha-2b are complex compounds and the Company faces difficult
      challenges in connection with the manufacture of clinical batches of
      L-DOS47 or Topical Interferon Alpha-2b which could further delay or
      otherwise negatively affect the Company’s planned IND filings and clinical
      trials, and the risk of obtaining negative findings or factors that may
      become apparent during the course of research or development which may
      result in the discontinuation of the research or development
      projects;




·
            partnership/strategic
      alliance risks;




·
            Helix’s
      dependence on its contractors, consultants, advisors and licensees,
      including without limitation, contract research organizations, contract
      manufacturing organizations, clinical trial consultants, collaborative
      research consultants, regulatory affairs advisors, and others, whose
      performance and interdependence can critically affect the Company’s
      performance and the achievement of its
  milestones;




·
            the
      risk that the Company’s supplier of Topical Interferon Alpha-2b may not
      continue to provide the Company with interferon alpha-2b or exercise its
      commercialization option, which could have a material adverse effect on
      the drug’s further development and
  commercialization;




·
            the
      Company’s dependence on assurances from third parties regarding licensing
      of proprietary technology owned by others, including Helix’s dependence on
      its license of the L-DOS47
antibody;




·
            the
      need to secure new strategic relationships, which is not assured, to
      commercialize L-DOS47 and any other drug candidates which may arise out of
      DOS47;




·
            uncertainty
      whether the European pharmacokinetic study or the extended AGW clinical
      trial in Germany will be completed as planned or at all or if completed,
      will achieve expected results;




·
            uncertainty
      whether the planned Topical Interferon Alpha-2b U.S. Phase II/III and
      European Phase III clinical trials or the L-DOS47 clinical trial referred
      to in this Annual Report will be approved, undertaken or completed as
      planned or at all or will achieve expected
  results;




·
            the
      risk that the Company’s expected timing of meeting certain objectives,
      including the filing of an IND and CTA for each of L-DOS47 and Topical
      Interferon Alpha-2b, the commencement and completion of clinical trials
      and receipt of anticipated regulatory approvals, may not be met in the
      time expected or at all;




·
            the
      need for future clinical trials, the occurrence and success of which
      cannot be assured;




·
            manufacturing
      risks, the need to manufacture to regulatory standards, uncertainty
      whether the manufacturing process for the Company’s drug candidates can be
      further scaled-up successfully or at all and the risk that clinical
      batches of the Company’s drug candidate may not be able to be produced in
      a timely manner or at all, which would have a negative effect on the
      timing and/or occurrence of planned clinical trials and the potential
      commercialization of the drug
candidates;








5






·
            the
      dependence of the Company’s distribution business on a few customers and a
      few suppliers, the loss of any of which would negatively impact the
      Company’s operations;




·
            uncertainty
      of the size and existence of a market opportunity for, and market
      acceptance of, the Company’s
products;




·
            uncertainty
      as to availability of raw materials, and in particular, GMP grade
      materials, on acceptable terms or at
all;




·
            product
      liability and insurance risks;




·
            the
      effect of competition;




·
            the
      risk of unknown side effects;




·
            the
      possibility that the Company will pursue additional development projects
      or other business opportunities;




·
            the
      need to attract and retain key
personnel;




·
            government
      regulation, and the need for regulatory approvals for both the development
      and commercialization of products, which are not
  assured;




·
            risks
      associated with the fact that the FDA is not bound by its pre-IND
      meetings;




·
            rapid
      technological change and competition from pharmaceutical companies,
      biotechnology companies and universities, which may make the Company’s
      technology or products obsolete or
  uncompetitive;




·
            risks
      associated with claims, or potential claims, of infringement of third
      party intellectual property and other proprietary
  rights;




·
            the
      risk of unanticipated expenses or unanticipated reductions in revenue, or
      both;




and other
risk factors that are discussed under Item 3.D - Risk Factors in
this Annual Report or identified in the Company’s other public filings with the
Canadian Securities Administrators at www.sedar.com or with
the SEC at www.sec.gov/edgar.shtml.





For all
of the reasons set forth above, investors should not place undue reliance on
forward-looking statements. Other than any obligation to disclose material
information under applicable securities laws, the Company undertakes no
obligation to revise or update any forward-looking statements after the date
hereof.




Data
relevant to estimated market sizes and penetration for Helix’s lead products
under development are presented in this Annual Report. These data have been
obtained from a variety of published resources including published scientific
literature, websites and information generally available through publicized
means. Helix attempts to source reference data from multiple sources whenever
possible for confirmatory purposes. Although Helix believes the foregoing data
is reliable, Helix has not independently verified the accuracy and completeness
of this data.









6






GLOSSARY




Adenocarcinoma: Cancer that
originates in glandular tissue.




AGW: Ano-genital
warts.




Anika Therapeutics: Anika
Therapeutics, Inc.




Biochip Technology: Helix’s
proprietary heterodimer and in-licensed molecular sensing technology for the
creation of biochips designed for use by biopharmaceutical research companies,
institutions and organizations in the study of protein interactions for the
purpose of discovering and developing biopharmaceuticals and
diagnostics.




BioVectra:BioVectra Inc., a
cGMP manufacturer of active pharmaceutical ingredients, advanced intermediates,
specialty biochemicals, enzymes and biomolecules.




BiphasixTM Technology: A
platform technology designed for dermal, mucosal, transdermal and transmucosal
delivery of molecules.




CBCA: Canada Business
Corporations Act, R.S.C. 1985 c. C-44 as am.




cGMP: Is an acronym for
Current Good Manufacturing Practices, a term that is recognized worldwide for
the control and management of manufacturing and quality control testing of foods
and pharmaceutical products.




CBL:Chesapeake Biological
Laboratory.




CIN: Cervical Intraepithelial
Neoplasia. Standard CIN grading of increasing severity is CIN1, CIN2 or
CIN3.




CPL: Contract Pharmaceuticals
Limited Niagara.




CTA: Clinical Trial
Application.




Dermal: Pertaining to the
region of skin to the epidermis, consisting of a dense bed of vascular
connective tissue. Dermal administration refers to the delivery of substances or
compounds into the dermal region.




DOS47TM: A new drug candidate
under development at Helix that is intended to apply a novel approach to the
destruction of cancer cells.




EITF: Emerging Issues Task
Force.




Exchange Act: The Securities
Exchange Act of 1934, as amended.




FASB: Financial Accounting
Standards Board.




FDA: United States Food and
Drug Administration. The regulatory agency that oversees the development,
manufacture, sale and use of diagnostic and therapeutic medical products in the
United States.




Gastro-Intestinal Lavage: The
irrigation or washing out of the stomach and intestinal tract.




GLP:Good Laboratory
Practice.




GMP:Good Manufacturing
Practice.




Helsinn: Helsinn-Birex
Pharmaceuticals Ltd., a subsidiary of Helsinn Healthcare SA, a Swiss
company.








7






HPV: Human Papilloma Virus.
One of the most common sexually transmitted infections, causing ano-genital
warts as well as being linked to a variety of cancers.




HRD: Health Registration
Dossier, the application submitted to the appropriate European drug regulatory
authority for marketing approval.




ImunovirTM: An immunomodulator
of the potentiator type which has demonstrated an enhancing effect on the
function and number of various cells of the immune system, particularly T
lymphocytes. ImunovirTM is the trademark of Newport Pharmaceuticals
Limited.




IND: Investigational New
Drug.




KBI:KBI Biopharma
Inc.




Klean-PrepTM: A product used
for bowel lavage/evacuation, primarily as a pre-treatment for colon examination
in colorectal cancer screening. See ITEM 4.B – Important Business
Developments – International Licensing – Klean PrepTM.




L-DOS47: The Company’s lung
cancer targeting, antibody-conjugated DOS47TM. Lead candidate of the DOS47TM based
cancer therapeutic which is currently in the pre-Phase I clinical trial
stage.




Lipid: Fats or fat-like
substances characterized by being water-insoluble.




Low-grade cervical lesions:
For the purposes of this Annual Report this term refers to cervical
abnormalities combining an LSIL finding on Pap smear and a CIN 1 or CIN 2
diagnosis on colposcopy.




LSIL: Low-grade Squamous
Intraepithelial Lesions.




MPA: Medical Products Agency,
Sweden’s drug regulatory authority.




NDA: New Drug
Application.




NRC: National Research Council
of Canada.




Orthovisc®: A
product that reduces joint inflammation and improves joint mobility providing
relief from the osteoarthritis of the knee. Orthovisc is a registered trademark
of Anika Therapeutics.




Pap IIID: Mild to moderate
dysplasia according to the Munich classification system of cervical
cytopathology.




PCT: Patent Cooperation
Treaty. A multi-country treaty for the filing of patents.




Pharmacokinetic: The action of
drugs in the body over a period of time, including the processes of absorption,
distribution, localization in tissues, biotransformation (metabolism) and
excretion.




Phase I clinical trials:
Clinical trials used to assess the potential toxicity of a new drug, primarily
involving healthy volunteers, under the regulations of the applicable
jurisdiction.




Phase II clinical trials:
Clinical trials used to assess the effectiveness and most effective dosage of a
new drug, under the regulations of the applicable jurisdiction.




Phase III clinical trials:
Late stage clinical trials used to assess a drug for efficacy and safety at
several independent sites in a large number of patients, under the regulations
of the applicable jurisdiction.




STD: Sexually transmitted
disease.






8






Therapeutic: A medical
treatment or curative product for a disease.




Topical Interferon Alpha-2b: A
topical preparation that is intended to be self-applied to HPV-infected tissues,
in order to deliver interferon-alpha intradermally. It is based on Helix’s
proprietary BiphasixTM drug delivery technology and is currently in the Phase II
clinical trial stage.




TPD: Canadian Therapeutic
Products Directorate, a division of Health Canada. The regulatory agency that
oversees the development, manufacture, sale and use of diagnostic and
therapeutic medical products in Canada.




TSX: The Toronto Stock
Exchange.




Transdermal: Access to the
systemic blood circulation via migratory passage through the multiple layers of
skin.




Transmucosal: Access to the
systemic blood circulation via migratory passage through the multiple layers of
mucosa.




Vaccine: A suspension of
living, attenuated or killed microorganisms or genetic material administered for
the prevention or treatment of infectious or hereditary diseases.











9


PART
I




ITEM
1.  IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS




Not
Applicable.




ITEM
2.  OFFER
STATISTICS AND EXPECTED TIMETABLE




Not
Applicable.




ITEM
3.  KEY
INFORMATION




3.A.  Selected
Financial Data




The
selected financial data of the Company for the fiscal years ended July 31, 2009,
2008, 2007, 2006 and 2005 was extracted from the audited annual consolidated
financial statements of the Company, of which the audited consolidated financial
statements for the fiscal years ended July 31, 2009, 2008 and 2007 are included
in this Annual Report.




The
information contained in the selected financial data is for the fiscal years
ended July 31, 2009, 2008 and 2007 and is qualified in its entirety by reference
to the Company’s consolidated financial statements and related notes included in
ITEM 17. – Financial
Statements, and should be read in conjunction with such financial
statements and with the information appearing in ITEM 5. – Operating and Financial
Review and Prospects. The selected financial data for the fiscal years
ended July 31, 2006 and 2005 was extracted from the consolidated financial
statements of the Company not included in this Annual Report. Except where
otherwise indicated, all amounts are presented in accordance with Canadian
generally accepted accounting principles (“Canadian GAAP”). Reference is made to
Note 20 of the consolidated financial statements of the Company included herein
for a discussion of the material measurement differences between Canadian GAAP
and United States generally accepted accounting principles (“U.S. GAAP”) and
their effect on the Company’s financial statements.




Since
inception, the Company has financed its operations from public and private sales
of equity proceeds received upon the exercise of warrants and stock options,
and, to a lesser extent, on interest income from funds available for investment,
government grants, investment tax credits, and revenues from distribution,
licensing and contract services. While the Company estimates it has sufficient
capital and liquidity to finance current operations through the next twelve
months, the Company’s long-term liquidity depends on its ability to access the
capital markets, which depends substantially on the success of the Company’s
ongoing research and development programs. See ITEM 3.D – Risk
Factors.




The
Company has not declared any dividends since incorporation and does not
anticipate that it will do so in the foreseeable future.




10


Selected
Financial Data


Under
Canadian Generally Accepted Accounting Principles


(CDN$ in
thousands, except share and per share data)





Year
      Ended
              July
      31,
              2009
            
            
            Year
      Ended
              July
      31,
              2008
            
            
            Year
      Ended
              July
      31,
              2007
            
            
            Year
      Ended
              July
      31,
              2006
            
            
            Year
      Ended
              July
      31,
              2005Statement
      of Operations:RevenueProduct Revenue
            
            $
            3,244
            
            
            $
            2,952
            
            
            $
            2,764
            
            
            $
            3,012
            
            
            $
            2,456License Fees and
      Royalties
            
            
            597
            
            
            
            639
            
            
            
            512
            
            
            
            773
            
            
            
            1,234Research and
      Development Contracts
            
            
            -
            
            
            
            -
            
            
            
            148
            
            
            
            180
            
            
            
            42Total Revenues
            
            
            3,841
            
            
            
            3,591
            
            
            
            3,424
            
            
            
            3,965
            
            
            
            3,732ExpensesCost of Sales
            
            
            1,516
            
            
            
            1,239
            
            
            
            1,139
            
            
            
            1,341
            
            
            
            1,190Research and
      Development
            
            
            10,322
            
            
            
            5,064
            
            
            
            4,116
            
            
            
            3,368
            
            
            
            2,983Operating,
      General and Administration
            
            
            3,917
            
            
            
            3,948
            
            
            
            3,570
            
            
            
            2,609
            
            
            
            2,511Sales and
      marketing
            
            
            969
            
            
            
            809
            
            
            
            848
            
            
            
            1,113
            
            
            
            1,069Amortization
      of Intangible Assets
            
            
            12
            
            
            
            16
            
            
            
            159
            
            
            
            594
            
            
            
            1,244Amortization
      of Capital Assets
            
            
            274
            
            
            
            254
            
            
            
            287
            
            
            
            315
            
            
            
            330Stock-Based
      Compensation
            
            
            1,023
            
            
            
            44
            
            
            
            47
            
            
            
            1,710
            
            
            
            1,470Interest Income,
      Net
            
            
            (339
            )
            
            
            (645
            )
            
            
            (496
            )
            
            
            (270
            )
            
            
            (137
            )Foreign
      Exchange Loss (Gain)
            
            
            133
            
            
            
            (327
            )
            
            
            (9
            )
            
            
            16
            
            
            
            78Impairment of Intangible
      Assets
            
            
            98
            
            
            
            -
            
            
            
            1,332
            
            
            
            -
            
            
            
            428Total Expenses
            
            
            17,925
            
            
            
            10,402
            
            
            
            10,993
            
            
            
            10,796
            
            
            
            11,166Loss Before Income
      Taxes
            
            
            (14,084
            )
            
            
            (6,811
            )
            
            
            (7,569
            )
            
            
            (6,831
            )
            
            
            (7,434
            )Income Taxes
            
            
            (18
            )
            
            
            (153
            )
            
            
            (105
            )
            
            
            (108
            )
            
            
            (191
            )Net Loss for the
      Period
            
            
            (14,102
            )
            
            
            (6,964
            )
            
            
            (7,674
            )
            
            
            (6,939
            )
            
            
            (7,625
            )Basic and Diluted Loss Per
      Share
            
            
            (0.27
            )
            
            
            (0.16
            )
            
            
            (0.22
            )
            
            
            (0.22
            )
            
            
            (0.28
            )Weighted Average Number of
      Shares Outstanding
            
            
            52,001,636
            
            
            
            42,469,362
            
            
            
            35,615,335
            
            
            
            31,409,495
            
            
            
            26,959,055Balance
      Sheet:Working
      Capital
            
            
            15,296
            
            
            
            19,166
            
            
            
            11,468
            
            
            
            10,900
            
            
            
            6,688Shareholders
    Equity
            
            
            17,063
            
            
            
            20,522
            
            
            
            12,734
            
            
            
            13,881
            
            
            
            10,302Capital Stock
            
            
            81,576
            
            
            
            71,964
            
            
            
            57,350
            
            
            
            51,944
            
            
            
            43,570Total Assets
            
            
            19,319
            
            
            
            21,666
            
            
            
            14,273
            
            
            
            15,469
            
            
            
            11,450










11


Selected
Financial Data


Under
U.S. Generally Accepted Accounting Principles


(CDN$ in
thousands, except share and per share data)





Year
      Ended
              July
      31,
              2009
            
            
            Year
      Ended
              July
      31,
              2008
            
            
            Year
      Ended
              July
      31,
              2007
            
            
            Year
      Ended
              July
      31,
              2006
            
            
            Year
      Ended
              July
      31,
              2005Statement
      of Operations:RevenueProduct Revenue
            
            $
            3,244
            
            
            $
            2,952
            
            
            $
            2,764
            
            
            $
            3,012
            
            
            $
            2,456License Fees and
      Royalties
            
            
            597
            
            
            
            639
            
            
            
            512
            
            
            
            773
            
            
            
            1,234Research and Development
      Contracts
            
            
            -
            
            
            
            -
            
            
            
            148
            
            
            
            180
            
            
            
            42Total Revenues
            
            
            3,841
            
            
            
            3,591
            
            
            
            3,424
            
            
            
            3,965
            
            
            
            3,732ExpensesCost of Sales
            
            
            1,516
            
            
            
            1,239
            
            
            
            1,139
            
            
            
            1,341
            
            
            
            1,190Research and
      Development
            
            
            10,322
            
            
            
            5,064
            
            
            
            4,360
            
            
            
            3,566
            
            
            
            3,118Operating, General and
      Administration
            
            
            3,917
            
            
            
            3,948
            
            
            
            3,570
            
            
            
            2,609
            
            
            
            2,511Sales and
    marketing
            
            
            969
            
            
            
            809
            
            
            
            848
            
            
            
            1,113
            
            
            
            1,069Amortization of Intangible
      Assets
            
            
            12
            
            
            
            16
            
            
            
            12
            
            
            
            12
            
            
            
            12Amortization of Capital
      Assets
            
            
            274
            
            
            
            254
            
            
            
            287
            
            
            
            315
            
            
            
            330Stock-Based
      Compensation
            
            
            1,023
            
            
            
            44
            
            
            
            47
            
            
            
            1,710
            
            
            
            -Interest Income,
      Net
            
            
            (339
            )
            
            
            (645
            )
            
            
            (496
            )
            
            
            (270
            )
            
            
            (137
            )Foreign Exchange Loss
      (Gain)
            
            
            133
            
            
            
            (327
            )
            
            
            (9
            )
            
            
            16
            
            
            
            78Impairment of Intangible
      Assets
            
            
            98
            
            
            
            -
            
            
            
            -
            
            
            
            -
            
            
            
            -Total Expenses
            
            
            17,925
            
            
            
            10,402
            
            
            
            9,758
            
            
            
            10,412
            
            
            
            8,171Loss Before Income
      Taxes
            
            
            (14,084
            )
            
            
            (6,811
            )
            
            
            (6,334
            )
            
            
            (6,447
            )
            
            
            (4,439
            )Income Taxes
            
            
            (18
            )
            
            
            (153
            )
            
            
            139
            
            
            
            90
            
            
            
            (56
            )Net Loss for the
      Period
            
            
            (14,102
            )
            
            
            (6,964
            )
            
            
            (6,195
            )
            
            
            (6,357
            )
            
            
            (4,495
            )Basic and Diluted Loss Per
      Share
            
            
            (0.27
            )
            
            
            (0.16
            )
            
            
            (0.17
            )
            
            
            (0.20
            )
            
            
            (0.17
            )Weighted Average Number of
      Shares Outstanding
            
            
            52,001,636
            
            
            
            42,469,362
            
            
            
            35,615,335
            
            
            
            31,409,495
            
            
            
            26,959,055Balance
      Sheet:Working Capital
            
            
            15,296
            
            
            
            19,166
            
            
            
            11,468
            
            
            
            10,900
            
            
            
            6,688Shareholders
    Equity
            
            
            17,063
            
            
            
            20,522
            
            
            
            12,882
            
            
            
            12,463
            
            
            
            8,494Capital Stock
            
            
            81,576
            
            
            
            71,964
            
            
            
            57,350
            
            
            
            51,944
            
            
            
            43,570Total Assets
            
            
            19,319
            
            
            
            21,666
            
            
            
            14,421
            
            
            
            14,051
            
            
            
            9,642





12


3.A.3.  Exchange
Rates




The
following tables set forth the rate of exchange for the Canadian Dollar for the
periods listed therein. For purposes of these tables, the rate of exchange means
the noon rate reported by the Bank of Canada as a web service. The table sets
forth the number of Canadian Dollars required under that formula to buy one U.S.
Dollar. The average rate means the average of the exchange rates on the last day
of each month during the period. The noon rate on October 20, 2009, as reported
by the Bank of Canada for the purchase of one Canadian Dollar with U.S. Dollars
was US$0.9524 (US$1.00 = CDN$1.050). Unless otherwise indicated, in this annual
report on Form 20-F, all references herein are to Canadian Dollars.




The table
below sets out the average exchange rates for each of the following fiscal
years:




Canadian
Dollars per U.S. Dollar One ($1.00)





Average for the PeriodYears
      Ended2009
            2008
            2007
            2006
            20051.1758
            1.0070
            1.1258
            1.1551
            1.2418






The table
below sets out the high and low exchange rates for each of the following
months:




Canadian
Dollars per U.S. Dollar One ($1.00)




Sep.
      ‘09
            Aug.
      ‘09
            Jul.
      ‘09
            Jun.
      ‘09
            May.
      ‘09
            Apr.
      ‘09Low
            1.0649
            1.0701
            1.0790
            1.0827
            1.0872
            1.1940High
            1.1048
            1.1072
            1.1655
            1.1625
            1.1872
            1.2643





3.B.  Capitalization
and Indebtedness




Not
Applicable.




3.C.  Reasons
For The Offer And Use Of Proceeds




Not
Applicable.




3.D.  Risk Factors




In
addition to the other information presented in this Annual Report, the following
should be considered carefully in evaluating the Company and its business. This
Annual Report contains forward-looking statements and information within the
meaning of U.S. and Canadian securities laws that involve risks and
uncertainties. The Company’s actual results may differ materially from the
results discussed in the forward-looking statements and information. Factors
that might cause such a difference include those discussed below and elsewhere
in this Annual Report.




13





The
Company has a history of losses and expects to continue to incur additional
losses for the foreseeable future.





Helix’s
primary focus is on the research and development of pharmaceutical product
candidates, which requires the expenditure of significant amounts of cash over a
relatively long time period. The Company’s cash flows from its distribution and
licensing activities do not, and are not expected to, provide sufficient income
to fully fund the Company’s research and development expenditures. The Company’s
total deficit as at July 31, 2009 was $72,794,000. There can be no assurance
that the Company will ever record any earnings.




Helix
has additional financing requirements and requires access to capital, which may
not be available, as a result of which there can be no assurance that the
Company will be able to carry out its business plan and continue as a going
concern.




As stated
above, the Company expects to incur losses for the foreseeable future. As of
July 31, 2009 the Company’s working capital was $15,296,000. On September 8,
2009, the Company announced the completion of a private placement, issuing
6,625,000 units at $2.05 per unit, for approximate net proceeds of $11.7
million.After taking
into consideration the Company’s anticipated revenue, planned research and
development expenditures and assuming no material unanticipated expenses, the
Company estimates that its working capital will be sufficient to fund operations
through the next twelve months, which are planned to include the completion of
two ongoing Phase II trials of Topical Interferon Alpha-2b, the filing of
IND/CTA applications for the Company’s proposed L-DOS47 Phase I/II clinical
studies, and the filing of an IND application for its proposed Topical
Interferon Alpha-2b (cervical dysplasia indication) Phase II/IIII clinical
trial. Assuming the Company receives the necessary regulatory approvals for its
planned L-DOS47 Phase I/II studies and its planned Topical Interferon Alpha-2b
Phase II/III trial, it will require additional funding in order to execute the
respective clinical investigations. The Company also plans to conduct a
confirmatory Phase III clinical trial of its Topical Interferon Alpha-2b in
parallel with its planned Phase II/III trial for the cervical dysplasia
indication. Execution of this Phase III clinical trial will also require funding
beyond the Company’s current resources, and will be contingent on regulatory
approval of a CTA application, the filing timing of which has not yet been
established. There can be no assurance that the Company will obtain the
requisite financing to conduct its planned future trials described above, or
that the trials will be undertaken at all.




The
Company has no external sources of liquidity such as bank lines of credit. The
Company will require future additional financing to carry out its business plan.
The market for both debt and equity financings for companies such as Helix has
always been challenging, and the global economic downturn and credit crisis have
added further challenges. There can be no assurance that a financing, whether
debt or equity, will be available on acceptable terms or at all. The failure to
obtain financing on a timely basis may result in the Company’s having to reduce
or delay one or more of its planned research, development and marketing programs
and to reduce related overhead, any of which could impair the Company’s current
and future value. It may also have a material adverse effect on the Company’s
ability to continue as a going concern. Any additional equity financing, if
obtained, may result in significant dilution to the existing shareholders at the
time of such financing. The Company may also seek additional funding from other
sources, including technology licensing, co-development collaborations, and
other strategic alliances, which, if obtained, may reduce the Company’s interest
in its projects or products. There can be no assurance, however, that any such
alternative sources of funding will be available.




The
Company has historically obtained, and expects to continue to obtain, its
requisite additional financing primarily by way of sales of its equity, which
may result in significant dilution to existing shareholders.




The
Company’s most recent equity sale was completed on September 8, 2009 by way of
private placement, with the Company issuing 6,625,000 units at $2.05 per unit,
for approximate net proceeds of $11.7 million. Each unit consisted of one common
share and one share purchase warrant, with each share purchase warrant entitling
the holder to purchase one additional common share at $2.87 until 5:00 pm
Toronto time on September 7, 2012. A total of 6,625,000 common shares were
issued on completion of the placement, and up to an additional 6,625,000 common
shares are issuable on exercise of the share purchase warrants. Further equity
financings will also result in dilution to existing shareholders, and such
dilution could be significant.






14






Rapid
technological change could render the Company’s technology non-competitive and
obsolete.




The
biotechnology and pharmaceutical industries are subject to rapid and substantial
technological change. Developments by others may render the Company’s products
and/or technologies non-competitive, and the Company may not be able to keep
pace with technological developments. Competitors have developed technologies
that could be the basis for competitive products. Some of these products have an
entirely different approach or means of accomplishing the desired therapeutic
effect than products being developed by the Company and may be more effective
and less costly than the products developed by the Company. In addition, other
forms of medical treatment may offer competition to the Company’s products. For
a discussion of some of the Company’s current known competition in relation to
its drug product development candidates, see ITEM 4.B – Important Business
Developments –Research and Development Activities - L-DOS47 – Market and
Competition and ITEM 4B. – Important Business Developments – Research and
Development Activities - Topical Interferon Alpha-2b – Market and
Competition.




The
Company’s products may not be accepted.




If any
products are successfully developed by the Company and approved by applicable
regulatory authorities for marketing, such products may not achieve market
acceptance. The product candidates that the Company is attempting to develop
will compete with a number of drugs and therapies marketed and manufactured by
pharmaceutical companies, as well as products currently under development by
such companies and others. The degree of market acceptance of any products
developed by the Company, if any, will depend on a number of factors, including
the establishment and demonstration in the medical community of the clinical
efficacy and safety of the Company’s products, and their potential advantage
over alternative treatment methods. Physicians, patients and/or the medical
community in general may not accept and or utilize any products that may be
developed by the Company.




Dilution
through exercise of share options could adversely affect Helix’s
shareholders.




Because
the success of Helix is highly dependent upon its employees, the Company has
granted to some or all of its key employees, directors and consultants, options
to purchase common shares as non-cash incentives. To the extent that significant
numbers of such options may be granted and exercised, the interests of the other
shareholders of the Company may be diluted. At July 31, 2009, there were
3,564,000 share purchase options outstanding with a weighted average exercise
price of $2.00 and 3,400,000 warrants outstanding with a weighted average
exercise price of $2.36. If all of these securities were exercised, an
additional 6,964,000 common shares would become issued and outstanding. This
represents an increase of 13.1% in the number of shares issued and outstanding
as at July 31, 2009 and would result in significant dilution to current
shareholders.




The
risks associated with penny stock classification could affect the marketability
of the Company’s common shares and shareholders could find it difficult to sell
their shares.




Helix’s
common shares are subject to “penny stock” rules as defined in Exchange Act Rule
3a51-1. The SEC adopted rules that regulate broker-dealer practices in
connection with transactions in penny stocks. Transaction costs associated with
purchases and sales of penny stocks are likely to be higher than those for other
securities. Penny stocks generally are equity securities with a price of less
than US$4.00 (other than securities registered on certain national securities
exchanges or quoted on the NASDAQ system, provided that current price and volume
information with respect to transactions in such securities is provided by the
exchange or system).




The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk disclosure
document that provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer’s account. The bid and offer quotations, and the broker-dealer and
salesperson compensation information, must be given to the customer orally or in
writing prior to effecting the transaction and must be given to the customer in
writing before or with the customer’s confirmation.






15






In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from such rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser’s written agreement to the transaction.
These disclosure requirements may have the effect of reducing the level of
trading activity in the secondary market for the Company’s common shares in the
United States and shareholders may find it more difficult to sell their
shares.




Helix
is dependent on key personnel and the loss of any of these individuals could
adversely affect the Company.




Helix’s
ability to continue its development of potential products, and to develop a
competitive edge in the marketplace, depends, in large part, on its ability to
attract and maintain qualified key management personnel. Competition for such
personnel is intense and the Company may not be able to attract and retain such
personnel. Helix’s growth will depend, on the efforts of its senior management,
particularly its Chief Executive Officer and Chairman of the Company’s board of
directors (the “Board”), Donald H. Segal; President and Chief Operating Officer,
John M. Docherty; Chief Scientific Officer, Heman Chao; and Chief Financial
Officer, Photios (Frank) Michalargias. The Company has entered into employment
agreements with each of these individuals. Such employment agreements have no
fixed term. The Company may terminate an employment agreement without cause on
payment of specified severance or the giving of required notice, or a
combination of both. The employee may terminate his employment agreement for
cause, or (i) on giving sixty (60) days’ notice, or (ii) within thirty (30) days
of being informed by or on behalf of the Board that the employee is required to
perform his services primarily at a location outside of the York Region or the
Greater Metropolitan Toronto area, Province of Ontario, or (iii) within six (6)
months following a change of control of the Company. In the case of termination
by the employee under (ii) or (iii) of the foregoing sentence, the Company must
pay the employee specified severance. If the Company loses the services of key
personnel, it may be unable to replace them, and its business could be
negatively affected. In addition, the Company does not carry key-man insurance
on any individuals.




U.S.
investors may not be able to enforce their civil liabilities against the Company
or its directors, controlling persons and officers.




It may be
difficult for U.S. investors to bring and enforce suits against Helix. Helix is
a company amalgamated under the CBCA. A majority of the Company’s
directors are residents of Canada, and all or substantial portions of their
assets are located outside of the United States, predominately in Canada. As a
result, it may be difficult for U.S. holders of the Company’s common shares to
effect service of process on these persons within the United States or to
realize in the United States upon judgments rendered against them. In addition,
if a judgment is obtained in the U.S. courts based on civil liability provisions
of the U.S. federal securities laws against the Company or its directors or
officers, it will be difficult to enforce the judgment in the Canadian courts
against the Company and any of the Company's non−U.S. resident executive
officers or directors. Accordingly, U.S. shareholders may be forced to bring
actions against the Company and its respective directors and officers under
Canadian law and in Canadian courts in order to enforce any claims that they may
have against the Company or its directors and officers. Nevertheless, it may be
difficult for U.S. shareholders to bring an original action in the Canadian
courts to enforce liabilities based on the U.S. federal securities laws against
the Company and any of the Company's non−U.S. resident executive officers or
directors.




As
a “foreign private issuer”, Helix is exempt from certain sections of the
Exchange Act which results in shareholders having less complete and timely data
than if Helix were a domestic U.S. issuer.




As a
“foreign private issuer,” as defined under the U.S. securities laws, we are
exempt from certain sections of the Exchange Act. In particular, we are exempt
from Section 14 proxy rules which are applicable to domestic U.S. issuers. The
submission of proxy and annual meeting of shareholder information (prepared to
Canadian standards) on Form 6-K has typically been more limited than the
submissions required of U.S. issuers and results in shareholders having less
complete and timely data, including, among others, with respect to disclosure
of: (i) personal and corporate relationships and age of directors and officers;
(ii) material legal proceedings involving the Company, affiliates of the
Company, and directors, officers, promoters and control persons; (iii) the
identity of principal shareholders and certain significant employees; (iv)
related party transactions; (v) audit fees and change of auditors; (vi) voting
policies and procedures; (vii) executive compensation; and (viii) composition of
the compensation committee. In addition, due to the Company’s status as a
foreign private issuer, the officers, directors








16








and
principal shareholders of the Company are exempt from the short-swing insider
disclosure and profit recovery provisions of Section 16 of the Exchange Act.
Therefore, these officers, directors and principal shareholders are exempt from
short-swing profits which apply to insiders of U.S. issuers. The foregoing
exemption results in shareholders having less data in this regard than is
available with respect to U.S. issuers.




The
price of the Company’s shares is volatile.




The price
of the Company’s shares, as well as market prices for securities of
biopharmaceutical and drug delivery companies generally have historically been
highly volatile, and have from time to time experienced significant price and
volume fluctuations that are unrelated to the operating performance of
particular companies. For the last two fiscal years, the price of our shares has
ranged from a low of $1.15 to a high of $2.27on
The Toronto Stock Exchange. Since listing on the OTCQX on June 23, 2009, to the
end of our last fiscal year on July 31, 2009, the price of our shares has ranged
from a low of US$1.22 to a high of US$1.97 on the OTCQX. Future announcements
concerning the Company, its competitors or other biopharmaceutical companies,
including the results of testing and limited human clinical studies,
technological innovations or new therapeutic products, governmental regulation,
developments in patent or other proprietary rights, litigation or public concern
as to the safety of products developed by the Company or others and general
market conditions may have a significant effect on the market price of the
common shares of the Company.




Indemnification
obligations to our directors and senior management may adversely affect our
finances.




We have
entered into agreements pursuant to which we will indemnify our directors and
senior management in respect of certain claims made against them while acting in
their capacity as such. If we are called upon to perform our indemnity
obligations, our finances will be adversely affected. The Company is not aware
of any matters pending or under consideration that may result in indemnification
payments to any of its present or former directors or senior
management.




If
the Company is characterized as a passive foreign investment company, our U.S.
shareholders may suffer adverse tax consequences.




As more
fully described below in ITEM
10.E – Taxation – United States Federal Income Tax Considerations –Passive
Foreign Investment Company Status, if for any taxable year our passive
income, or the value of our assets that produce (or are held for the production
of) passive income, exceed specified levels, we may be characterized as a
passive foreign investment company (“PFIC”) for U.S. federal income tax
purposes. This characterization could result in adverse U.S. tax consequences to
our U.S. shareholders, including having a gain on the disposition of our common
shares being treated as ordinary income and any resulting U.S. federal income
tax being increased by an interest charge. Rules similar to those applicable to
dispositions generally will apply to certain “excess distributions” in respect
of our common shares. We believe we were not a PFIC for the year ending July 31,
2009 and do not expect to be classified as a PFIC for the taxable year ending
July 31, 2010. However, PFIC status is determined as of the end of the taxable
year and is dependent on a number of factors, including the value of our passive
assets, the amount and type of our gross income, and our market capitalization.
Therefore, there can be no assurance that we will not become a PFIC for the
taxable year ending July 31, 2010 or in any future taxable year. Additionally,
there are no assurances that the United States Internal Revenue Service will
agree with our conclusion. U.S. shareholders should consult with their own U.S.
tax advisors with respect to the U.S. tax consequences of investing in our
common shares.




The
Company is conducting early stage research and development initiatives for
products under development which may never generate revenue.




The
Company is conducting early stage research and development initiatives, and is
currently in the process of developing new products that will require further
time consuming and costly research and development. It will be a number of
years, if ever, before these products begin to generate revenues. The Company’s
developments may never be successful in this regard. The success of the Company
will in part depend on its ability to assess the future market potential for its
products, the protection of such products, obtaining regulatory approvals, and
the quality of its research and development. To achieve sustained profitability,
the Company must, alone or with others, successfully develop, protect, obtain
regulatory approvals for, and commercialize its product candidates. In addition,
to the extent








17








the
Company relies upon others for research, development, manufacturing, regulatory,
and commercialization activities, the Company’s ability to achieve profitability
will be dependent upon the success of such outside parties. Without limiting the
generality of the foregoing, either or both of L-DOS47 or Topical Interferon
Alpha-2b, the Company’s current primary product candidates which are currently
in the pre-Phase I/II clinical trial stage and Phase II clinical trial phase,
respectively, may never be successfully developed or
commercialized.




The
Company lacks the financing, expertise, infrastructure and other resources
necessary to singularly support a new drug product from clinical development
through to marketing.




Helix’s
current objective for the commercialization of L-DOS47 is to enter into a
strategic alliance with an appropriate pharmaceutical partner at some point in
the future, after first generating value-adding clinical findings demonstrating
the safety and efficacy of L-DOS47 in patients. There can be no assurance,
however, that L-DOS47 will enter the clinical trial stage, that any such
findings will be generated, or that any such strategic alliance will be
achieved, or if achieved, that it will result in revenue to the
Company.





The
commercialization of Topical Interferon Alpha-2b is subject to an option granted
to Schering-Ploughto obtain an exclusive
worldwide license to use the Company’s BiphasixTM technology in pharmaceutical
products containing interferon-alpha. See ITEM 4.B Important Business
Developments - Topical Interferon Alpha-2b.There can be no assurance
that Schering-Plough will exercise its option or if it does exercise its option,
that any license fees or royalties will be received by the Company, other than
the initial license fee due on exercise of the option. If Schering-Plough does
not exercise its option, then Helix’s objective with respect to the
commercialization of Topical Interferon Alpha-2b would be to enter into a
strategic alliance with another appropriate pharmaceutical partner for the
commercialization of the drug product. However, there can be no assurance that
any such strategicalliance will be
achieved, or if achieved, that it will result in revenue to the
Company.





The
scientific research and development activities of Helix involve substantial
risks and uncertainties including factors beyond its control which could prevent
the Company’s products from becoming commercially viable.




Medical
and pharmaceutical research and development is a speculative venture involving
substantial risks. It is uncertain that the expenditures to be made by the
Company in connection with its research projects will result in any significant
or commercial product developments. In addition, factors beyond the control of
the Company may affect the commercial viability of any products developed or
discovered. These factors include, but are not limited to:




·
            unexpected
      toxicities or lack of efficacy of prospective products that become
      apparent during the course of research or development that makes them
      unattractive or unsuitable for human
use;


·
            preliminary
      results as seen in animal testing that are not substantiated in human
      clinical trials;


·
            other
      negative findings or factors that may become apparent during the course of
      research or development which may result in the discontinuation of the
      research or development projects;


·
            inability
      to produce products in a commercially viable format, including but not
      limited to inability to produce a product having adequate shelf-life
      stability properties to support commercial storage and distribution of the
      product;


·
            unforeseen
      prohibitive commercial production costs which may result in the Company’s
      inability to successfully compete in the
  marketplace;


·
            the
      effect of competition; and


·
            a
      variety of statutes and regulations which govern the manufacture and sale
      of human therapeutic products. These laws require the approval of
      manufacturing facilities, including adherence to “good manufacturing
      practices” during production and storage, the controlled research and
      testing of products, governmental review and approval of submissions
      requiring manufacturing, preclinical and clinical data to establish the
      safety and efficacy of the product for each use sought in order to obtain
      marketing approval, and the control of marketing activities, including
      advertising and labeling.





The
products currently under development by the Company will require significant
development, clinical testing and investment of significant funds prior to their
commercialization. The process of obtaining required approvals (such as, but not
limited to, the approval of the FDA, TPD, and comparable agencies in Europe),
can be costly and time-








18








consuming.
Future products may never be successfully developed, prove safe and effective in
clinical trials, receive applicable regulatory approvals, or have sufficient
commercial properties, such as an acceptable shelf-life, to make them
commercially viable. Further formulation work may be required to extend the
shelf-life of L-DOS47 and Topical Interferon Alpha-2b for commercial purposes,
the outcome of which is not certain and which may prevent either or both
products from being commercialized. Potential investors should be aware of the
risks, problems, delays, expenses and difficulties which may be encountered by
the Company in view of the extensive regulatory environment which controls its
business.




The
timing of the Company’s internal goals may change dramatically due to delays,
failures, additional data required by regulators and uncertainty in the
regulatory approval process.




The
Company sets internal goals for and makes public statements regarding its
expected timing of meeting the objectives material to its success, including the
filing of an IND and CTA for each of L-DOS47 and Topical Interferon Alpha-2b,
commencement and completion of clinical trials and anticipated regulatory
approvals. The actual timing of these forward-looking events can vary
dramatically due to factors such as delays or failure in pre-clinical program
activities, including without limitation, scaling-up the Company’s drug product
candidates, delays or failures in clinical trials, the need to develop
additional data required by regulators as a condition of approval, the
uncertainties inherent in the regulatory approval process and delays in
achieving manufacturing or marketing arrangements necessary to commercialize
Helix’s product candidates. The Company has previously experienced a number of
delays in its expected timing of various activities for both L-DOS47 and Topical
Interferon Alpha-2b, including without limitation, delays in completing
manufacturing scale-up activities due to third party scheduling and technical
issues, and slower than expected patient recruitment rates for the Company’s
ongoing Phase II Topical Interferon Alpha-2b clinical studies in Europe. Some of
these delays have in turn caused delays in the Company’s expected timing of
filing an IND/CTA for its planned U.S. Phase I and Polish Phase I/II clinical
trials of L-DOS47, and for its planned Phase II/III clinical trials in the
United States and Europe, respectively, of Topical Interferon Alpha-2b in
patients with HPV-positive low-grade cervical lesions. It is possible that these
or other types of delays in completing pre-IND/CTA filing activities will again
delay the Company’s planned IND/CTA filings, which may not be made within the
Company’s current anticipated timelines or at all.  Failure to meet
such timelines could have a material adverse effect on the
Company.  Without limiting the generality of the foregoing, it is
possible that the planned future IND or CTA filings will never be made in
respect of either L-DOS47 or Topical Interferon Alpha-2b or any other products
the Company attempts to develop.




The
marketability of the Company’s products may be affected by delays and the
inability to obtain necessary approvals, and following any market approval, the
Company’s products will be subject to ongoing regulatory review and requirements
which may continue to affect their marketability.




The
research, development, manufacture and marketing of pharmaceutical products are
subject to regulation by the U.S. FDA and Canadian TPD, and comparable
regulatory authorities in other countries. These national agencies and other
federal, state, provincial and local entities regulate the testing, manufacture,
safety and promotion of the Company’s products. We must receive applicable
regulatory approval of a product candidate before it can be commercialized in
any particular jurisdiction. The research, development, testing and
manufacturing of any product candidate we develop independently or in
collaboration with third parties, as well as the distribution, marketing,
promotion, advertising, and record keeping of such product candidate, are
regulated by numerous federal, state, provincial and local governmental
authorities, principally the FDA in the United States, and other similar
agencies in other countries. The approval procedures in the United States vary
depending on such factors as the novelty of the drug and its intended use and
also vary among countries. Changes in regulatory approval policies during the
development period, changes in or the enactment of additional statutes or
regulations or changes in regulatory review for each submitted product
application may cause delays in the approval or rejection of an application. The
FDA has substantial discretion in the approval process and may refuse to accept
any application, may put our IND submissions for L-DOS47 or Topical Interferon
Alpha-2b, or both, on hold for an indeterminate amount of time, or may decide
that our data is insufficient for approval and require additional preclinical,
clinical or other studies. The development and regulatory approval process in
each jurisdiction takes many years, requires the expenditure of substantial
resources, is uncertain and subject to delays. In addition, approval by a
regulatory authority of one country does not ensure the approval by regulatory
authorities of other countries. Failure to obtain regulatory approval, any delay
or setback in obtaining regulatory approval, or any limitation on drug use
required as a condition of approval could:








19






·
            adversely
      affect our ability to market any drugs we develop independently or with
      collaborators;


·
            adversely
      affect our ability to negotiate collaboration or distribution agreements
      or continue current agreements with certain collaborators or distributors,
      including our collaborator with respect to Topical Interferon Alpha-2b,
      who may determine not to provide further quantities of interferon alpha-2b
      beyond the quantity currently committed, or who may determine not to
      exercise its option, either of which would adversely affect our further
      development of Topical Interferon
Alpha-2b;


·
            impose
      additional costs and diminish any competitive advantages that we may
      attain; or


·
            adversely
      affect our ability to generate product sales and/or royalties based on
      these sales.





Even if
we obtain marketing approval in a particular jurisdiction, there may be limits
on the approval and our products will be subject to ongoing regulatory review
and regulatory requirements in that jurisdiction. If we and/or any prospective
marketing partners fail to comply with these requirements, marketing approval
and sales of any approved commercial products could be suspended, and fines and
other judicial sanctions, including product seizures, injunction actions and
criminal prosecutions could be imposed. Any regulatory approval subject to
limitations on the uses for which the product may be marketed or to conditions
of approval, could affect the marketability of the product. In addition, the
terms of approval may contain requirements for costly post-market follow-up
studies or post-market surveillance to monitor the safety or efficacy of the
product, which could reduce our revenues, increase our expenses or render the
approved product not commercially viable.




Additional
regulatory considerations in Canada and other countries may affect the price of
drugs sold and delay necessary approvals of the Company’s drugs.




Problems
could arise which could delay or prevent the commercialization of the Company’s
products currently under development, and the TPD, FDA and other foreign
regulatory agencies could be unsatisfied with the results of clinical trials and
fail to approve the marketing of such products. Certain provincial regulatory
authorities in Canada have the ability to determine whether the cost of a drug
sold within such province will be reimbursed by a provincial government health
plan by listing drugs on formularies. These provincial formularies may affect
the prices of drugs sold within provinces and the volume of drugs sold within
provinces. In addition to the regulatory approval process, pharmaceutical
companies are subject to regulations under provincial, state and federal law,
including requirements regarding occupational safety, laboratory practices,
environmental protection and hazardous substance control, and may be subject to
other present and future local, provincial, state, federal and foreign
regulations, including possible future regulations of the pharmaceutical
industry. The Company cannot predict the time required for regulatory approval,
or the extent of clinical testing and documentation that is required by
regulatory authorities. Any delays in obtaining, or failure to obtain regulatory
approvals in Canada, the United States, Europe or other foreign countries would
significantly delay the development of the Company’s markets and the receipt of
revenues from the sale of its products.




The
Company must demonstrate the safety and efficacy of its products during the
clinical trials at all stages of development in order to obtain regulatory
approval for the commercial sale of such products.




The
Company must demonstrate through pre-clinical studies and clinical trials that
its products being developed, including its L-DOS47 and Topical Interferon
Alpha-2b, are safe and efficacious before the Company can obtain regulatory
approval for the commercial sale of such products. The results from preclinical
studies and clinical trials may not be totally predictive of results obtained in
later clinical trials. The clinical trials of the Company or those of the
Company’s collaborators may not demonstrate safety and efficacy, necessary to
achieve regulatory approvals or may not result in marketable products. A number
of companies in the biotechnology and pharmaceutical industry have suffered
significant setbacks in advanced clinical trials, even after achieving promising
results in earlier trials and pre-clinical studies. The timing and success of
clinical trials depend on various factors, including:




·
            sufficient
      patient enrollment which may be affected by the incidence of the disease
      studied, the size of the patient population, the nature of the protocol,
      the proximity of patients to clinical sites, the eligibility criteria for
      a patient to participate in the study and the rate of patient drop-out.
      Patient enrollment for the Company’s ongoing Phase II trial of Topical
      Interferon Alpha-2b in patients with AGW is on track for completion by or
      around the end of the first quarter of fiscal 2010 as previously
      forecasted. Patient enrollment for the Company’s ongoing Phase II
      pharmacokinetic study of Topical Interferon Alpha-2b in patients with
      cervical dysplasia is progressing slower than originally expected, based
      on which the Company has revised the expected study timeline. Helix now
      expects it will take until the end of its third quarter of fiscal 2010 for
      the minimum planned number of patients (12 patients) to complete the
      study, and up to the end of its first quarter of fiscal 2011 for the
      maximum currently planned number of patients (28 patients) to do
      so.












20




·
              regulatory
      agency policies regarding requirements for approval of a
    drug;
 ·
              our
      capacity to produce or have produced clinical trial material in sufficient
      quantities and of sufficient quality to meet the schedule for our planned
      clinical trials; and
 ·
              performance
      by third parties, such as clinical research organizations, on whom we rely
      to support our clinical trials.


A failure
of one or more of our clinical trials can occur at any stage of testing. Failure
to complete clinical trials successfully and to obtain successful results on a
timely basis could have a material adverse effect on the Company.




Helix
has direct competition from companies and universities which may render its
technology and products obsolete or non-competitive.




Technological
competition from pharmaceutical companies, biotechnology companies and
universities is intense and is expected to increase. Many competitors and
potential competitors of the Company have substantially greater product
development capabilities and financial, scientific, marketing and human
resources than the Company. Other companies may succeed in developing products
earlier than the Company, obtaining regulatory approvals for such products more
rapidly than the Company, or in developing products that are more effective than
those proposed to be developed by the Company. Research and development by
others may render the Company’s technology or products obsolete or
non-competitive or result in treatments or cures superior to any therapy
developed by the Company. Any therapy that is successfully developed by the
Company may not be preferred to any existing or newly developed
technologies.




The
Company is dependent on third-parties and the failure of a third party to
perform, or any delay by a third party in performing its obligations, may
adversely affect the Company.




The
Company is dependent on third parties to varying degrees in virtually all
aspects of its business. With respect to L-DOS47 research and development, such
third parties are relied upon for, among other things, toxicology studies,
clinical trial assays, manufacturing drug substance and bulk drug product,
vialing bulk drug product for clinical studies, and quality control testing of
drug substance, bulk drug product and vialed drug product. With respect to
Topical Interferon Alpha-2b research and development, third parties are relied
upon for, among other things, manufacturing of product for clinical trials, the
supply of active drug substance, and conducting ongoing clinical
trials.




The
performance and interdependence of these third party service providers,
including without limitation, contract manufacturing organizations, contract
research organizations, clinical trial consultants, collaborative research
consultants, and regulatory affairs advisors, can critically affect the
Company’s performance and the achievement of its milestones.




Critical
supplies may not be available on acceptable terms or at all, service providers
may not perform, or continue to perform, as needed, or be available to provide
the required services on acceptable terms or at all. Any lack of or interruption
in supplies of raw materials, and any change in service providers or any
inability to secure new service providers, or interruption in the provision of
such services, would have an adverse impact on the development and
commercialization of the Company’s products. Without limiting the generality of
the foregoing, in the case of L-DOS47, the Company has reported that it
previously experienced challenges in successfully producing GMP engineering
batches, including third party scheduling and technical issues, resulting in
delays in the L-DOS47 development program. Furthermore, following successful
engineering batch production, the Company has experienced delays in
manufacturing its initial clinical batch of L-DOS47 again associated with third
party scheduling and technical issues, which has caused it to revise its
expected date of filing its planned U.S. Phase I and Polish Phase I/II
regulatory dossiers to the fourth quarter of fiscal 2010.






21






In the
case of Topical Interferon Alpha-2b, the Company is currently dependent on
Schering-Plough for its supply of interferon alpha-2b. The Company has granted
Schering-Plough the option to obtain an exclusive worldwide license to use the
Company’s BiphasixTM technology in pharmaceutical products containing
interferon-alpha (see ITEM 4.B
Important Business Developments). Topical Interferon Alpha-2b
incorporates the Company’s BiphasixTM technology with interferon alpha-2b. The
Company currently expects that in order to complete its development program for
Topical Interferon Alpha-2b, it will require a further supply of interferon
alpha-2b from Schering-Plough beyond the amount originally agreed to. The
Company will also require further supplies of interferon alpha-2b in order to be
able to commercialize Topical Interferon Alpha-2b, should Schering-Plough
determine not to exercise its option. There can be no assurance that
Schering-Plough will supply the Company with any such additional interferon
alpha-2b on acceptable terms or at all, or that  the Company would be
able to secure alternative supplies in a timely manner, on acceptable terms or
at all. Even if alternative supplies can be arranged, there may be challenges
from a regulatory perspective demonstrating adequately to the authorities that a
new supplier’s raw material is considered interchangeable with Schering-Plough’s
interferon alpha-2b. Accordingly, lack of continued supply from Schering-Plough
of the Company’s requirements of interferon alpha-2b, or the non-exercise by
Schering-Plough of its option, could adversely affect the Company’s Topical
Interferon Alpha-2b program, and such effect could have a materially adverse
effect on the Company’s completion of development or commercialization of
Topical Interferon Alpha-2b.




In
addition, the Company may grant to its collaborative research and development
partners rights to license and commercialize any products developed, and in fact
the Company has already granted such rights in the case of Topical Interferon
Alpha-2b. Such rights would limit (and do limit, in the case of the Topical
Interferon Alpha-2b) the Company’s flexibility in considering alternatives for
supply of critical materials and therefore, commercialization of such products.
Any failure of such arrangement would have a negative impact on the
Company.





With
respect to L-DOS47, the Company is currently dependent on, in addition to
third-party suppliers, manufacturers and consultants, the NRC and its license to
the Company of a lung cancer antibody in order to develop and commercialize
L-DOS47. Early termination of the license would have a material adverse effect
on the further development of L-DOS47 and may require the cessation of such
development, which would have a material adverse effect on the
Company.





A
substantial portion of the Company’s licensing revenues is dependent on
royalties collected from a single licensee,  and a substantial portion
of the Company’s product distribution revenues is dependent on sales of product
purchased from a single supplier. The termination of these license or supply
arrangements, or non-performance by the other parties thereto, would negatively
impact the Company’s revenues.




The
Company relies on third-party manufacturers of its products and the inability to
maintain reliable manufacturers may prevent the Company from meeting its
business objectives.




The
Company relies substantially on its ability to secure third-party manufacture of
its products for its success.




We have
relied and will continue to rely heavily on contract manufacturers for the
production of product required for our clinical studies, product formulation
work, scaling-up experiments and commercial production. We may not be able to
obtain new, or keep our current, contract manufacturers to provide these
services. Even if we do, contract manufacturers may not be reliable in meeting
our requirements for cost, quality, quantity or schedule, or the requirements of
any regulatory agencies. As a result, we may not be able to manufacture products
in quantities or qualities that would enable us to meet our business objectives.
Any such failure would materially adversely affect our business. For instance,
in the case of L-DOS47, the Company has reported that it previously experienced
challenges in successfully producing GMP engineering batches, including third
party scheduling and technical issues, resulting in delays in the L-DOS47
development program. Furthermore, following successful engineering batch
production, the Company has experienced delays in manufacturing its initial GMP
clinical batch of L-DOS47 again associated with third party scheduling and
technical issues, which has caused it to revise its expected date of filing its
planned U.S. Phase I and Polish Phase I/II regulatory to the fourth quarter of
fiscal 2010.




If we are
successful in developing the markets for our products, we would have to arrange
for their scaled-up manufacture. There can be no assurance that we will, on a
timely basis, be able to make the transition from manufacturing clinical trial
quantities to commercial production quantities successfully or be able to
arrange for scaled-up commercial contract manufacturing. Any potential
difficulties experienced by us in manufacturing scale-up,











22








including
recalls or safety alerts, could have a material adverse effect on our business,
financial condition, and results of operations.




We
have limited sales, marketing, and distribution experience.




We have
limited experience in the sales, marketing, and distribution of pharmaceutical
and medical device products. There can be no assurance that we will be able to
establish sales, marketing, and distribution capabilities or make arrangements
with our collaborators, licensees, or others to perform such activities or that
such efforts will be successful. If we decide to market any of our products
directly, we must either acquire or internally develop a marketing and sales
force with technical expertise and with supporting distribution capabilities.
The acquisition or development of a sales and distribution infrastructure would
require substantial resources, which may divert the attention of our management
and key personnel, and have a negative impact on our product development
efforts. If we contract with third parties for the sales and marketing of our
products, our revenues will be dependent on the efforts of these third parties,
whose efforts may not be successful. If we fail to establish successful
marketing and sales capabilities or to make arrangements with third parties, our
business, financial condition and results of operations would be materially
adversely affected.




If
any of our product candidates are approved for sale to the public, we may be
unable to sell our products profitably because of the uncertainty of
pharmaceutical pricing, reimbursement and healthcare reform
measures.




The
availability of reimbursement by governmental and other third-party payers
affects the market for any pharmaceutical product. These third-party payers
continually attempt to contain or reduce the costs of healthcare. There have
been a number of legislative and regulatory proposals to change the healthcare
system and further proposals are likely. Significant uncertainty exists with
respect to the reimbursement status of newly approved healthcare products. In
addition, third-party payers are increasingly challenging the price and cost
effectiveness of medical products and services. We might not be able to sell our
products profitably or recoup the value of our investment in product development
if reimbursement is unavailable or limited in scope.




Licenses
or rights to use processes, technology, products or information may be
terminated or expire, and the Company may be unable to obtain such licenses or
rights on favorable terms.




The
manufacture and sale of any products developed by the Company will involve the
use of processes, technology, products, or information, the rights to certain of
which are owned by others. Although the Company has obtained licenses or rights
with regard to the use of certain of such processes, technology, products, and
information, such as the NRC license of the lung antibody used by the Company
for L-DOS47, such licenses or rights may be terminated or expire during critical
periods and the Company might not be able to obtain licenses or other rights
which may be important to it, or, if obtained, such licenses might not be
obtained on favorable terms. Some of these licenses provide for limited periods
of exclusivity that may be extended only with the consent of the licensor and
such extensions may not be granted on any or all such licenses. This same
restriction may be contained in licenses obtained in the future. To maintain
these agreements in good standing, the Company must abide by the terms of such
agreements, and the loss of any of such agreements due to default would have a
negative impact on the Company. In particular, the loss of the NRC license for
the antibody used in L-DOS47 would have a material adverse effect on the further
development of that compound, and may require the cessation of such development,
which would have a material adverse effect on the Company. Unless earlier
terminated, the NRC license will terminate when the last patent right related to
the licensed technology expires, on a country-by-country basis. Patent
applications in respect of the technology which is the subject of the license
have been filed in Canada, the United States, and as a PCT filing. A patent
granted from the application in Canada or the United States would expire on
August 17, 2024 and May 25, 2026, respectively.




Claims
of infringement by the Company of proprietary rights owned by third-parties may
cause the Company to incur expenses in defending against such allegations, or
require the Company to modify its products or obtain licenses.




The
biotechnology and pharmaceutical industries have experienced substantial
litigation involving the manufacture, use and sale of new products that are the
subject of conflicting proprietary rights. As a result, there is a
substantial








23








risk that
the Company, or one or more of its licensors, may become subject to litigation
alleging that the Company’s or such licensor’s products and technologies
infringe on the proprietary rights of third parties. It is possible that the
Company’s products and technologies do infringe the rights of third parties.
Whether or not the Company’s or such licensors products or technologies infringe
on the proprietary rights of third parties, the Company or such licensor could
incur significant expenses in defending allegations of infringement of
proprietary rights. Further, the Company or such licensors may be required to
modify its products or obtain licenses for intellectual property rights as a
result of any alleged proprietary infringement. The Company or such licensors
may not be able to modify their products or obtain licenses on commercially
reasonable terms in a timely manner or at all, any of which could adversely
affect the Company’s business.




The
Company is dependent on its patent rights, and if patent rights are not issued
or are invalidated or circumvented, its business would be adversely
affected.




We will
be able to protect our intellectual property rights from unauthorized use by
third parties only to the extent that our intellectual property rights are
covered by valid and enforceable patents or are effectively maintained as trade
secrets. We try to protect our intellectual property position by filing patent
applications related to our proprietary technology, inventions and improvements
that are important to the development of our business. We will also, from time
to time, license rights to intellectual property which is the subject of patent
applications of third parties, such as in the case of our license from the NRC
for the antibody used in L-DOS47.  Because the patent position of
pharmaceutical companies involves complex legal and factual questions, the
issuance, scope and enforceability of patents cannot be predicted with
certainty.  Patent applications may not result in patents being
issued.   Even if issued, they may not be issued with claims
sufficiently broad to protect our products and technologies, may not provide us
with a competitive advantage against competitors with similar products or
technologies, and may be challenged, invalidated or circumvented. If our owned
or licensed patents are invalidated, or patents are not issued in respect of our
owned or licensed patent applications, we will lose the ability to exclude
others from making, using or selling the invention claimed. Moreover, an issued
patent does not guarantee us the right to practice the patented technology or
commercialize a product using that technology. Third parties may have blocking
patents that could be used to prevent us from developing our product candidates,
selling our products or commercializing the patented technology. Thus, any
patents that we own or license from others may not allow us to exploit the
rights conferred by the intellectual property protection. Furthermore, others
may independently develop products or technologies similar to those that we have
developed or discover our trade secrets. In addition, the laws of many countries
do not protect our intellectual property rights to the same extent as the laws
of Canada and the United States, and those countries may also lack adequate
rules and procedures for defending our intellectual property
rights.




Certain
of the Company’s major products may lose patent protection in the near future
and, if that occurs, the development of the Company’s products would be
adversely affected.




Patents
have a finite life, generally 20 years from the date of initial application.
Because pharmaceutical drug development is a long-term proposition involving,
among other things, years of research, clinical trials, manufacturing
scaling-up, regulatory applications and approvals, a patent applied for at the
early stages of research and development of a drug candidate may only protect
the patent holder’s rights following the drug’s commercialization for a time
period substantially less than 20 years. The amount of remaining life of a
patent will ordinarily be a substantial factor in attracting commercialization
partners for the underlying drug, and will affect the terms of the arrangement
between the Company and any such partner.




In the
case of Topical Interferon Alpha-2b, three patents arescheduled to expire in
2013 (See ITEM 4.B – Important
Business Developments – Topical Interferon Alpha-2b and Intellectual
Property). While the Company made a provisional patent application with
the U.S. Patent and Trademark Officein 2007 with a view to
further strengthening its patent portfolio for Topical Interferon Alpha-2b, such
patent may not be issued. The failure of such patent to be issued may adversely
affect the further development of Topical Interferon Alpha-2b, including by
reason of the possibility that Schering-Plough may determine not to provide the
Company with further quantities of interferon alpha-2b beyond the quantity
originally agreed to, and/or may determine not to exercise its option to obtain
a worldwide, exclusive license to make, have made, export, use, offer for sale
and sell pharmaceutical products containing alpha interferon in combination with
the BiphasixTM Technology. Any of these events could have a material adverse
effect on the Company.






24






Our
proprietary technology is difficult to protect, and the unauthorized use of our
proprietary technology by a third party may impair our ability to compete
effectively.




We rely
on trade secrets, know-how and technology, which are not protected by patents,
to maintain our competitive position. We try to protect this information by
entering into confidentiality undertakings with parties that have access to it,
such as our current and prospective distributors, collaborators, employees and
consultants. Any of these parties may breach the undertakings and disclose our
confidential information or our competitors might learn of the information in
some other way. Enforcing a claim that a third-party illegally obtained and is
using our trade secrets is expensive and time consuming and the outcome is
unpredictable. In addition, courts outside Canada and the United States may be
less willing to or may not protect trade secrets. If any trade secret, know-how
or other technology not protected by a patent were to be disclosed to or
independently developed by a competitor, our business may be materially
adversely affected.




The
Company may be exposed to liability claims which are uninsured or not
sufficiently insured, and any claims may adversely affect the Company’s ability
to obtain insurance in the future or result in negative publicity regarding the
efficacy of its products.




The sale
of products in our distribution operations, the use of any of our unapproved
products under development, the use of our products in clinical trials, and, if
regulatory approval is received, the sale of such products, may expose us to
liability claims which could materially adversely affect our business. Such
claims might be made directly by consumers, healthcare providers or by
pharmaceutical companies or others selling or consuming such products. We
currently have general liability and office contents insurance. This insurance
may not cover any potential claim or if coverage is available, may not provide
sufficient coverage to protect us against loss. We may not be able to maintain
or obtain commercially reasonable product liability insurance for future
products, and any claims under any insurance policies may adversely affect our
ability to maintain existing policies or to obtain new insurance on existing or
future products. Further, even if sufficient insurance coverage is available to
cover any potential claim, publicity associated with any such claim could
adversely affect public opinion regarding the safety or efficacy of our
products. As a result, any product liability claim or recall could materially
adversely affect our business.




The
Company will be dependent upon reimbursement from third-party payors who may
have reimbursement policies which adversely affect the Company’s ability to sell
its products on a profitable basis.




In both
domestic and foreign markets, sales of the Company’s products, if any, will be
dependent in part on the availability of reimbursement from third-party payors,
such as government and private insurance plans. Third-party payors are
increasingly challenging the prices charged for medical products and services.
The Company’s products may not be considered cost effective by these third-party
payors and reimbursement may not be available or, if available, the payors’
reimbursement policies may adversely affect the Company’s ability to sell its
products on a profitable basis.




The
Company’s business involves environmental risks that could result in accidental
contamination, injury, and significant capital expenditures in order to comply
with environmental laws and regulations.




Research,
development and commercial processes may result in residues that may be
environmentally unfriendly. The Company and its commercial collaborators are
subject to laws and regulations governing the use, manufacture, storage,
handling and disposal of such materials and certain waste products. Although the
Company believes that its safety procedures for handling and disposing of such
materials complies with the standards prescribed by such laws and regulations,
the risk of accidental contamination or injury from these materials cannot be
eliminated. In the event of such an accident, the Company could be held liable
for any damages that result and any such liability could exceed the resources of
the Company. The Company is not specifically insured with respect to this
liability. The Company (or its collaborators) may be required to incur
significant costs to comply with environmental laws and regulations in the
future; and the operations, business or assets of the Company may be materially
adversely affected by current or future environmental laws or
regulations.








25






The
Company’s finances may fluctuate based on foreign currency exchange
rates.




The
Company operates internationally and is exposed to foreign exchange risks from
various currencies, primarily the Euro and U.S. dollar. Foreign exchange risks
arise from the foreign currency translation of the Company’s integrated foreign
operation in Ireland. The net assets in Ireland consist mainly of cash and cash
equivalents, denominated in Euro dollars, which are currently used to fund
clinical trials of Topical Interferon Alpha-2b in Europe.





In
addition, foreign exchange risks arise from purchase transactions as well as
recognized financial assets and liabilities denominated in foreign currencies.
Both purchase transactions and recognized financial assets and liabilities are
primarily denominated in Euro and U.S. dollars. The Company purchases and pays
for inventory in both Euro and U.S. dollars. Purchased inventory is sold into
the Canadian marketplace in Canadian dollars. The Company also purchases and
pays for various services, such as consulting services and clinical research
costs in both Euro and U.S. dollars. In addition, the Company receives a revenue
stream from royalties denominated in Euro dollars from the license of the
Company’s Klean-PrepTM to
Helsinn.





The
Company’s main objective in managing its foreign exchange risk has been to
maintain sufficient Euro dollars on hand to support Euro forecasted cash flows
in support of ongoing clinical trials of Topical Interferon Alpha-2b in Europe
as well as a hedge against purchase transactions denominated in Euro dollars.
The Company has generally maintained minimal cash balances denominated in U.S.
dollars due to Canadian dollar’s appreciation against the U.S. dollar and the
small amount of purchase transactions denominated in U.S. dollars. As the
Company expands its research and development programs, some of these contracted
services are being denominated in U.S. dollars. The Company is currently
assessing its objectives, as it relates to U.S. denominated foreign exchange
transactions, in light of the recent appreciation of the U.S. dollar against the
Canadian dollar and other world currencies.





The
Company does not currently qualify for listing on a U.S. national exchange, but
should it eventually qualify and obtain such a listing, it may continue to rely
on Canadian requirements concerning corporate governance issues, in which case,
there exists the possibility that Canadian securities requirements will provide
less protection than those required under the U.S. national exchange
rules.




The
Company does not currently qualify for a listing on a U.S. national exchange.
Should it eventually qualify and obtain such a listing as a foreign private
issuer, then the Company may rely on certain rules of a national exchange, which
permits a foreign private issuer to follow its home country requirements
concerning certain corporate governance issues, rather than comply with the
exchange rule. Where an issuer elects to follow its home country requirements,
it must disclose in its annual reports filed with the SEC or on its website each
such U.S. requirement that it does not follow and must describe the home country
practice followed by the issuer in lieu of such requirement. Corporate
governance requirements mandated by NASDAQ for domestic issuers but in respect
of which the Company could elect to follow its home country practice, and which
could present a material risk to investors, include majority independence of the
board of directors and quorum requirements for shareholder
meetings.




Pursuant
to National Policy 58-201, “Corporate Governance Guidelines”, of the Canadian
Securities Administrators, the Company is encouraged, but not required, to have
a majority of independent directors, within the meaning of such policy. The
Company currently has a majority of independent directors and the audit
committee is composed of three directors, all of whom are independent, as
required pursuant to Canadian securities rules. Certain of the Company’s Board
members may not be deemed independent pursuant to NASDAQ requirements. With
respect to quorum for shareholder meetings, NASDAQ requires a minimum quorum of
33-1/3% of the Company’s outstanding shares. The Company has adopted new
by-laws, subject to confirmation by shareholders, which provide that a quorum of
shareholders is present at a meeting of shareholders, if the holders of 10% of
the shares entitled to vote at the meeting are present in person or represented
by proxy, provided that a quorum shall not be less than two persons. If the new
by-laws are not confirmed by shareholders, then the quorum requirement will be
two persons present in person, each being a shareholder entitled to vote at the
meeting or a duly appointed proxy holder or representative for a shareholder so
entitled.







26







ITEM
4.  INFORMATION
ON THE COMPANY




4.A.  History and Progress of the
Company




The legal
and commercial name of the Company is Helix BioPharma Corp. Helix is a Canadian
corporation which was originally formed upon the amalgamation of International
Helix Biotechnologies Inc. (“IHB”) and Intercon Pharma Inc. (“IPI”) on July 31,
1995. On April 30, 2008, Helix further amalgamated, by way of short-form
vertical amalgamation under the CBCA, with four wholly-owned subsidiaries. The
Company is a biopharmaceutical company specializing in the field of cancer
therapy. Helix is actively developing innovative products for the treatment and
prevention of cancer based on its proprietary technologies.




The
Company’s common shares trade on the Toronto Stock Exchange in Canada under the
symbol “HBP” as well as on the OTC International Market in the U.S. under the
symbol “HXBPF”. In addition, although the Company did not seek to be listed on
the Berlin-Bremen, Frankfurt, Munich, Stuttgart and XETRA stock exchanges, the
Company’s common shares also trade on these exchanges under the symbol
“HBP”.




The
Company’s principal executive offices are located at 305 Industrial Parkway
South, #3, Aurora, Ontario, Canada, L4G 6X7. The Company’s telephone number is
(905) 841-2300.




Our
capital expenditures, which principally consist of purchases of manufacturing
and scientific equipment, for the previous three fiscal years are as
follows:




Fiscal
      Year
            
            Capital
      Expenditures
            
            PurposeFiscal
      2009
            
            $
            932,000
            
            Purchase
      of Capital AssetsFiscal
      2008
            
            $
            266,000
            
            Purchase
      of Capital AssetsFiscal
      2007
            
            $
            63,000
            
            Purchase
      of Capital Assets





All
capital expenditures are related to furniture, fixtures, computers, scientific
testing and processing equipment. All capital equipment is located in both
Canada and the United States. There have been no divestures of capital
assets.




In
addition, the Company is projecting an additional $174,400 in capital
expenditures for fiscal 2010 but has not currently made any commitments to
suppliers. The foregoing expenditures will be paid out of the Company’s cash
resources.




The
only interests Helix has in other companies are the 29,678 common shares of
Orchid Cellmark Inc., a publicly traded company listed on the NASDAQ. These
shares are held as available for sale.




4.B.  Important Business
Developments




Corporate
Overview




Helix was
originally formed upon the amalgamation of International Helix Biotechnologies
Inc. and Intercon Pharma Inc. pursuant to Articles of Amalgamation on July 31,
1995 under the CBCA. On April 30, 2008, Helix further amalgamated, by way of
short-form vertical amalgamation under the CBCA, with four wholly-owned
subsidiaries.Helix is a
biopharmaceutical company developing novel products for the treatment and
prevention of cancer. Ongoing revenue consists of (i) product revenue including
the distribution in Canada of Klean-PrepTM and (ii) royalty payments from
Helsinn-Birex relating to its license of the Company’s Klean-PrepTM technology.
The Company has also, in the past, earned contract revenue from research and
development work performed for Apotex Inc. (“Apotex”). The Company does not
anticipate earning any additional contract revenue as it currently has no
existing plans to contract its research and development services out to third
parties. Instead, the Company is focusing its resources on the development of
its L-DOS47 and Topical Interferon Alpha-2b. To date, proceeds from the issuance
of our common shares have primarily financed our research and development
initiatives.






27






As the
Company has several projects in the development stage, it expects to incur
additional losses and will require additional financial resources. The
continuation of the Company’s research and development activities and the
commercialization of its products are dependent upon the Company’s ability to
successfully complete its research programs, protect its intellectual property
and finance its cash requirements on an ongoing basis. It is not possible to
predict the outcome of future research and development activities or the
financing thereof.




The
Company conducts some of its own research and development activities through its
laboratory facilities in Saskatoon, Saskatchewan, and Edmonton, Alberta, Canada.
The Saskatoon facility is primarily dedicated to drug development with emphasis
on quality control testing. The Edmonton facility is primarily dedicated to
cancer drug discovery and research. In addition, the Company contracts specific
projects with several universities and other third-party research and
development organizations, as discussed in greater detail below under the
heading “Royalty and
In-licensing Commitments”.




Research
and Development Activities




Helix is
focused on developing novel products for the treatment and prevention of cancer.
According to the American Cancer Society, cancer is now the second leading cause
of death in the developed world, only marginally behind death due to heart
disease. The American Cancer Society estimated that there would be 12 million
new cases of cancer worldwide in 2007, and 7.6 million deaths due to cancer that
year. It has further predicted that the number of cancer deaths, will rise to
17.5 million by 2050.




Helix is
principally focused on pursuing the clinical development of two emerging drug
products with distinct anti-cancer applications: L-DOS47 and Topical Interferon
Alpha-2b. L-DOS47 is the first drug product candidate to emerge from the
Company’s DOS47TM development program, and is under development for the treatment
of lung adenocarcinoma, the most common form of lung cancer. Topical Interferon
Alpha-2b is currently under development for two HPV-induced indications:
cervical LSIL and AGW.




Discussed
below is the current research and development stage of each of L-DOS47 and
Topical Interferon Alpha-2b, and the next steps the Company currently plans to
undertake for each drug candidate. For a general discussion of the regulatory
phases each candidate must achieve prior to commercialization, see “Pharmaceutical Regulatory
Environment” below. As both drug candidates are in the early stages of
development and their continued development will depend on successfully reaching
a number of milestones over the next several years, it is not possible at this
time to estimate costs and timing to commercial production, or whether
commercial production will occur at all. See alsoITEM 3.D – Risk
Factors.




DOS47TM – A broad anti-cancer
therapeutic candidate




DOS47TM
was conceived to offer a novel approach to cancer therapy by leveraging a
natural process in the body called the urea cycle, to produce an anti-cancer
effect. DOS47TM is based upon a naturally occurring enzyme called urease that
essentially reverses the urea cycle by breaking down urea into metabolites that
include ammonia and hydroxyl ions. By doing so at the site of cancerous tissues
in the body, DOS47TM is believed to modify the microenvironmental conditions of
cancerous cells in a manner that leads to their death.




Among
these theorized effects, DOS47TM is believed to stimulate an increase in the pH
of the microenvironment surrounding the cancerous cells, effectively reversing
the acidic extra-cellular conditions that are known to be necessary for cancer
cell survival. The local production of ammonia at the site of cancerous tissues
is thought to readily diffuse into the cancer cells to exert a potent cytotoxic
effect by interfering with their critical metabolic functions. In addition, the
enzymatic action of urease at the site of cancerous cells is believed to be
repetitive and sustainable due to the plentiful supply of urea that is furnished
by the body. Urease is isolated by Helix’s manufacturer, BioVectra, from a
naturally occurring plant, jack beans.




The
Company has been awarded two DOS47TM patents from the U.S. patent office, both of
which will expire in 2022. As a result, Helix has patent protection covering the
use of targeted DOS47TM-based therapeutics alone and combined with certainweakly basic
chemotherapeutic drugs in adjunct treatment applications.








28








Helix
intends to pursue the development of DOS47TM both as a monotherapy and as an
adjunct therapy in combination with certain chemotherapeutics, with a view to
maximizing its DOS47TM commercialization potential.




Helix
continues to explore opportunities to expand its product pipeline with new
DOS47TM-based therapeutics pending the identification of further tumor targeting
agents, such as the lung adenocarcinoma-specific antibody component of
L-DOS47.




L-DOS47




Helix’s
L-DOS47 is a new drug in development that offers an innovative approach to the
treatment of lung cancer. L-DOS47 is designed to function by using a
plant-derived compound called urease to act upon a natural substance in the body
called urea in order to produce a potent cancer cell killing effect (see “Cancer Cell Killing
Mechanism” below). L-DOS47 is an immunoconjugate combining the urease
enzyme and a lung adenocarcinoma-specific camelid single domain
antibody.




We
believe L-DOS47 is unique among cancer therapeutics currently on the market
today because its pharmacological effect is based on a biochemical enzyme
reaction, whereby the urease compound reacts with the naturally occurring urea
in a continuous manner.




In
addition, L-DOS47 is designed to act in a targeted manner, affecting lung cancer
cells, of the adenocarcinoma type, preferentially over any other cells in the
body. In order to do this, L-DOS47 applies a variation on a technology that has
been used in medicines for many years. Specifically, the L-DOS47 drug molecule
includes, in addition to the urease compound, a highly specialized single domain
antibody, designed to identify an antigenic site predominantly associated with
lung adenocarcinoma cells. The antibody was licensed from the NRC in 2005. See
“Royalty and In-Licensing
Commitments – License Agreement with National Research Council” below. A
patent application in respect of the antibody has been filed in Canada, the
United States and as a PCT filing.




Helix
subsequently conducted a series of laboratory investigations that demonstrated
the anti-cancer capabilities of the conjugated L-DOS47 drug product using lung
cancer laboratory models. . Selected scientific findings from its pre-clinical
in-vivo and in-vitro research and
development work on DOS47TM were published in the Journal of Experimental
Therapeutics and Oncology (Volume 5, Number 2, 2005, pp 93-99) and, in 2006, a
poster presentation was given at the 5th Annual Congress on Recombinant
Antibodies Conference in Zurich, Switzerland.




During
fiscal 2007, Helix made significant progress in its preclinical development
program for L-DOS47. Pharmacology studies were conducted in animals
demonstrating that L-DOS47 inhibits the growth of tumors derived from a human
lung adenocarcinoma cell line. In addition, pilot repeat-dose toxicology studies
in primate and rodent species were conducted, through which L-DOS47 was well
tolerated at doses within and above the dose range shown to be efficacious in
the tumor growth inhibition studies. These findings are paramount in providing
critical supportive evidence for IND/CTA filing.




In
parallel with these studies, Helix advanced its scale-up manufacturing program
in anticipation of furnishing product for future clinical testing. Helix signed
an initial agreement with BioVectra, a division of Diagnostic Chemicals Limited,
to manufacture L-DOS47 bulk drug product for human clinical testing, building
upon preliminary work the Company had conducted together with a former
manufacturing partner.




During
fiscal 2008, Helix signed a second agreement with BioVectra to further advance
GMP production of the L-DOS47 active drug substance to a scale that is suitable
for human clinical testing. The agreement with BioVectra has no fixed term. The
agreement is designed to provide the Company with sufficient L-DOS47 bulk drug
product to initiate the Company’s planned Phase I/II clinical trial. The total
cost to the Company of services rendered and equipment provided under the
agreement was estimated to be up to $2 million in the aggregate in respect of
current contracted amounts of product, which has now substantially been paid. It
is expected that the Company will require additional quantities of product to
complete the planned Phase I/II study. Helix may terminate the agreement at any
time on ninety (90) days’ notice. In addition, either party may terminate the
agreement with BioVectra (i) due to an uncured material breach of the other
party, (ii) within certain timelines in respect of a force majeure event
which








29








affects
the other party’s performance, (iii) in respect of the other party’s insolvency,
including certain compromises with creditors, or (iv) on the other party’s
dissolution or ceasing to carry on business.




Also
during fiscal 2008, a process for vialing L-DOS47 in a lyophilized (i.e.
freeze-dried) format was developed through the services of KBI and the Company
subsequently identified a fill finish solution provider, CBL, for the purposes
of vialing bulk drug product for human clinical testing. Jack M. Kay, a director
of Helix, is also a director of Cangene Corporation, the parent company of
CBL.




During
fiscal 2009, Helix completed further animal pharmacology and primate repeat-dose
toxicology studies employing the services of Charles River Laboratories. As
well, Helix continued to advance its scale-up, GMP manufacturing program at
BioVectra and CBL, together with the analytical support of KBI, including the
production of GMP engineering batches of L-DOS47. Also during fiscal 2009, Helix
conducted a pre-IND meeting with the FDA through which it has gained information
pertaining to FDA’s Phase I IND submission requirements for L-DOS47. Based on
the pre-IND meeting stipulations, Helix has planned the remaining activities
through to compiling and filing its planned U.S. Phase I and Polish Phase I/II
regulatory dossiers. These activities will include, but not be limited to: (i)
completion of definitive, GLP, rodent and primate, repeat-dose toxicology
studies; (ii) development of additional drug substance and drug product quality
control assays; (iii) the manufacture of the initial GMP clinical batch of
L-DOS47; (iv) obtaining several months of real-time stability data on the
product; (v) the development of the necessary clinical testing framework
including study design and documentation development; and (vi) hiring the
necessary contract research organizations and study support resources to execute
the studies once approved. While all activities leading up to the planned U.S.
Phase I and Polish Phase I/II regulatory dossier filings are progressing, the
Company recently had to reject an initial GMP clinical batch due to a deviation
from its established manufacturing process that caused suspected contamination
during the fermentation production step. Production of the required GMP clinical
batch is now scheduled to be completed by the end of the Company’s second
quarter of fiscal 2010 to be followed by stability testing. The Company
previously expected to file its Phase I/II regulatory dossiers before the end of
its second quarter of fiscal 2010, however based on the estimated delay for
completing the remaining program activities and assuming successful and timely
completion of these activities, the Company now expects its U.S. Phase I and
Polish Phase I/II IND/CTA filings to occur in its fourth quarter of fiscal
2010.  Achieving this revised filing target will depend on the success
of all of the other remaining activities described above that are necessary
prior to compiling and filing these dossiers.




Helix’s
objective for the commercialization of L-DOS47 is to enter into a strategic
alliance with an appropriate pharmaceutical company at some point in the future.
Before doing so, Helix plans to endeavor to generate value-adding clinical
findings demonstrating the safety and efficacy of L-DOS47 in
patients.





Conducting
the U.S. Phase I and Polish Phase I/II clinical trials will require substantial
funding beyond the Company’s current resources, for which the Company continues
to seek additional capital. SeeITEM 5.B - Liquidity and Capital
Resources.




Cancer
Cell Killing Mechanism




It has
been documented that many tumors produce an acidic microenvironment. This unique
feature provides a growth advantage selective to the cancer calls and also
enhances their invasive characteristics. This environment also reduces the
effectiveness of some commonly used anti-neoplastic agents and therefore impedes
treatment directly.




Helix has
developed DOS47TM to combat these unique tumor characteristics
directly.




DOS47TM
acts by breaking down urea, a natural metabolite, into ammonia in the
interstitial medium surrounding the cancer cells. Ammonia is toxic to cancer
cells and provides a direct cytotoxic effect on the tumor. Ammonia also raises
pH of the interstitial fluids reversing the hostile environment of the tumor and
generates a favorable condition for some commonly used anti-neoplastic
chemotherapeutics.




L-DOS47
was designed to induce these effects in a targeted manner. It is armed with a
lung adenocarcinoma antibody which is expected to deliver DOS47TM to lung
adenocarcinoma cells directly through the blood streams.






30






Market
and Competition




Helix
believes that there is a substantial market opportunity for L-DOS47 given that
(i) its target therapeutic indication, lung adenocarcinoma, represents a
significant and unmet medical need afflicting some 40 to 50 percent of the
estimated 1.5 million new lung cancer patients annually worldwide and (ii)
therapeutics for such oncology applications have commonly been high revenue
generators for the pharmaceutical sector.




According
to the American Cancer Society, lung cancer is one of the most common forms of
cancer and is the leading cause of death due to cancer in men and the second
leading cause of death due to cancer in women. The American Cancer Society has
published that there were 215,020 new cases of lung cancer and 161,840 deaths
due to lung cancer in 2008. According to the American Lung Association, more
people die each year of lung cancer than of colon, breast, and prostate cancers
combined.




According
to the ACS Lung Cancer Study and the AMC Cancer Reference Information, lung
cancer occurs in a variety of types. Of these, the most common and deadly type
is adenocarcinoma of the lung, which accounts for upwards of 40%-50% of all
cases of lung cancer.




Treatment
strategies today for patients with adenocarcinoma of the lung are of limited
effectiveness and, given the mortality rates, they are generally considered to
be more palliative than curative. If detected early, surgical removal of the
cancerous tissue is currently a patient’s best option. However, in the vast
majority of cases (70-80%), the cancer is not typically identified until it has
advanced to a level at which surgical intervention is no longer an
option.




In the
cases of inoperable adenocarcinomas of the lung, treatment strategies consist of
one or more of today’s leading chemotherapeutic drugs for lung cancer (e.g.
platinum therapy, Taxol®,
Taxotere® and
Gemzar®) used
in combination with thoracic radiation therapy. Typically, these regimens
relieve symptoms and, at best, delay progression of the disease.




Technological
competition from pharmaceutical companies, biotechnology companies and
universities is intense and is expected to increase. Many competitors and
potential competitors have substantially greater product development
capabilities and financial, scientific, marketing and human resources than the
Company. However, despite the wide range of available therapies today, and the
intense competition, cancer mortality rates have not improved substantially in
recent history. In fact, according to the American Cancer Society, it is
estimated that over half of the people diagnosed with cancer in the world today
will die within 5 years; a mortality rate that is virtually unchanged in the
past decade.




Topical Interferon
Alpha-2b




Helix is
developing Topical Interferon Alpha-2b for the treatment of low-grade cervical
lesions and AGW caused by HPV infections. HPV is one of the most common sexually
transmitted infections, causing AGW, cervical dysplasia and linked to the
development of a variety of cancers. According to the Centers for Disease
Control and Prevention (the “CDC”), more than 50 percent of sexually active men
and women in the United States will acquire a genital HPV infection at some
point in their lives. There are currently approximately 20 million people in the
United States infected with HPV, with more than six million new cases arising
each year. According to the CDC, by age 50, at least 80% of women will have
acquired a genital HPV infection.




Helix’s
Topical Interferon Alpha-2b formulation incorporates the Company’s patented
BiphasixTM technology (see “BiphasixTM Topical Formulation
System” below). The BiphasixTM
technology facilitates the delivery of macromolecules such as interferon
alpha-2b across the surface of skin/mucosal tissues. Topical Interferon Alpha-2b
is designed to deliver interferon alpha-2b therapy to the basal epidermal layer,
combating HPV infections where they would otherwise cause abnormal cellular
proliferation.




Human
leukocyte-derived interferon alpha-2b is a well established recombinantly
produced drug therapy with potent antiviral effects that is available today in
injectable preparations only. Helix’s Topical Interferon Alpha-2b is intended to
offer a superior cream dosage form of interferon alpha-2b, specially designed
for the treatment of dermatological disease states.






31






In
December 2000, the Company signed an agreement with Schering Corporation, a
subsidiary of Schering-Plough Corporation (“Schering-Plough”), granting it the
option to obtain an exclusive worldwide license to use the Company’s BiphasixTM
technology in pharmaceutical products containing interferon-alpha. As part of
the agreement, Schering-Plough agreed to supply to the Company, at no charge, a
quantity of interferon alpha-2b for use in the Company’s Topical Interferon
Alpha-2b development program as approved by Schering-Plough, which Helix has
agreed to use diligent efforts to conduct. Helix may require additional
interferon alpha-2b beyond the quantity originally stated in the agreement,
which will require Schering-Plough’s written approval. Schering-Plough’s option
may be exercised at any time up to sixty (60) days following its receipt of
notice of the successful completion of Phase III clinical trials. Included in
the option agreement are terms for the grant of a license to Schering-Plough for
the life of the associated patents. Helix’s issued patents have expiration dates
ranging from 2013 through 2019 in the United States. Helix currently has an
additional patent pending in the United States that if issued, would expire in
2027. Helix has previously filed patent applications relating to Topical
Interferon Alpha-2b in Europe and may file further applications in Europe, the
United States and elsewhere. If issued, these additional patents may further
extend the term of any license granted to Schering-Plough. In the event that
Schering-Plough exercises its option, the parties shall have a period of ninety
(90) days to negotiate in good faith and enter into a mutually acceptable
license agreement for Topical Interferon Alpha-2b. The license agreement shall
incorporate the following license fees and royalties:




License
fees




$250,000                       
Exercise of option (within sixty (60) days of phase III completion)


$500,000                       
NDA filing in the U.S. for Primary Indication


$500,000                       
HRD filing in the EU for Primary Indication


$2
million                      NDA
approval in the U.S. for Primary Indication


$1
million                      HRD
approval in the EU for Primary Indication


$2
million                      NDA
approval in the U.S. for Secondary Indication


$1
million                      HRD
approval in the EU for Secondary Indication


$3
million                      When
Net Sales first reach $50 million per year


$5
million                      When
Net Sales first reach $100 million per year


$8
million                      When
Net Sales first reach $150 million per year


--------


$23.25
million                Total
fees





Each of
the above license fees is only payable once on the first occurrence of the
relevant triggering event. No fees have been paid to date as Schering-Plough has
not yet exercised its option.





Royalties





5% on Net
Sales up to $50 million


6% on Net
Sales between $50-$100 million


7% on Net
Sales over $100 million





The
option agreement will terminate on the expiry of sixty (60) days following
Schering-Plough’s receipt of notice of the successful completion of Phase III
clinical trials, or in the event of material breach by either party, thirty (30)
days after the non-breaching party has given notice of the breach and such
breach remains uncured.





Topical
Interferon Alpha-2b (Cervical dysplasia / LSIL Indication)




Since
establishing the agreement with Schering-Plough, Helix has conducted a
comprehensive work program with its Topical Interferon Alpha-2b.




In
November 2004, the Company commenced a Phase II clinical study at a university
in Germany and on June 2, 2005, opened an additional two clinical studies in
Berlin.




The
multi-center study in Germany was designed to assess the safety and
effectiveness of Topical Interferon Alpha-2b treatment in patients with
HPV-positive cervical LSIL. LSIL represents the mild-to-moderate forms of
cervical








32








dysplasia
that may progress to cervical cancer in women. In the United States alone, an
estimated 1.4 million women annually are diagnosed with LSIL, according to Mark
Schiffman, M.D. and Diane Solomon, M.D., Archives of Pathology and Laboratory
Medicine, Findings to Date
From the ASCUS-LSIL Triage Study, Vol. 127, 946-49 (March 10, 2003). At
present, there is no pharmaceutical therapy available to these
patients.




The
primary study endpoint was cytological in nature, whereby subjects were being
evaluated for evidence of resolution of their abnormal Papanicolaou (“Pap”)
smear. Other study assessments included pre- and post-
treatment histological examinations by way of colposcopy and qualitative
assessment of HPV+ status using polymerase chain reaction testing.




The study
enrolled 20 patients and a group of 21 untreated women were separately studied
as a control population with the expectation of giving a meaningful comparison
for assessing the impact of treatment with Topical Interferon Alpha-2b, against
today’s standard of care for newly diagnosed LSIL patients, which is no
treatment.




On March
30, 2007, the Company announced positive results from the study. Nearly half
(46.7%) of the women in the treated per-protocol population experienced
resolution of their abnormal Pap smears, compared with only 15.8% of the
per-protocol control subjects. Furthermore, the relative difference in the
Pap-response rate improved substantially when only the more advanced PapIIID
per-protocol women were analyzed. In this subset, none (0.0%) of the untreated
control subjects experienced normalization of their Pap smear versus 42.9% of
the treated patients.




Based on
these findings, Helix plans to progress to large, randomized, placebo-controlled
double-blind studies, so as to evaluate the product in an expanded patient
population in patients with low-grade cervical lesions. Through the course of
Helix’s interactions with opinion leaders and regulators in the field of women’s
health while developing its Topical Interferon Alpha-2b product candidate, it
has continually refined its clinical trial designs and target patient population
for the clinical testing of this therapy. For the purposes of its planned U.S.
Phase II/III and European Phase III IND/CTA filings, as confirmed via its recent
FDA pre-IND meeting, Helix plans to study patients with HPV-positive low-grade
cervical lesions, comprising a LSIL finding on Pap smear testing combined with a
CIN1 or CIN2 finding on colposcopy.




Helix’s
objective is to perform two parallel confirmatory pivotal efficacy trials,
requiring approximately 400 patients per trial over a two-year period, intended
to support marketing authorizations. Building upon the completed German Phase II
trial, Helix is pursuing a Phase II/III designation for the U.S. trial, since
there has not been any previous clinical experience with the product in North
America, and a Phase III designation for the European trial. Helix intends to
conduct the European trial at centers in Germany and Austria, and has completed
a scientific advice meeting with the German regulatory authority, at which Helix
obtained guidance concerning the Phase III CTA preparation and submission
requirements for Topical Interferon Alpha-2b. Helix has also completed a pre-IND
meeting with the FDA in preparation for its planned U.S. Phase II/III filing,
through which further IND preparation and submission guidance was obtained for
this product candidate. Based on its consultation with the regulatory
authorities, Helix has planned the remaining activities through to compiling and
filing its planned U.S. and European regulatory dossiers. These activities will
include, but not be limited to: (i) assessing the data from a minimum of the
first 12 patients and, if these results indicate further data is needed, a
currently planned maximum of 28 patients completing its ongoing Phase II
pharmacokinetic study; (ii) completion of its ongoing 100 Kg GMP scale-up
engineering batch manufacturing program at CPL; (iii) the development of the
necessary clinical testing framework including study design and documentation
development; and (iv) hiring the necessary contract research organizations and
study support resources to execute the studies once approved.




While the
Company’s Phase II pharmacokinetic study is progressing, the rate of enrollment
has been slower than originally expected.  In order to enhance the
patient recruitment rate, the Company intends to open additional clinical sites
during the Company’s second quarter of fiscal 2010, assuming the patient
recruitment rate improves as planned, Helix now expects it will take until
the end of its third quarter of fiscal 2010 for the minimum planned number of
patients (12 patients) to complete the study, and up to the end of its first
quarter of fiscal 2011 for the maximum currently planned number of patients (28
patients) to do so.




On June
15, 2009, Helix had announced that its U.S. IND filing was not expected before
the end of Helix’s fiscal 2010 first quarter ending October 31,
2009.  Given the anticipated timelines associated with
completing  remaining pre-filing activities, Helix now projects that
its U.S. Phase II/III IND filing will occur, at the earliest, in its
fourth








33








quarter
of fiscal 2010. Although the timing of filing the European CTA for its
corresponding confirmatory Phase III trial has not yet been established, it is
not expected to precede the filing of its planned U.S. Phase II/III
IND.




Helix has
entered into an agreement with a U.S. contract manufacturing organization, CPL,
to scale-up the Topical Interferon Alpha-2b GMP production process to a 100 Kg
batch manufacturing scale as a level it has deemed suitable for the planned U.S.
Phase II/III and European Phase III trials. Pursuant to this agreement, CPL is
to provide the Company with batches of Topical Interferon Alpha-2b for use in
clinical trials. Prices are on a per-batch basis. As this agreement is intended
to continue after the Phase II/III and Phase III trials currently contemplated,
it is not possible for Helix to estimate the total amount it will ultimately pay
to CPL. Helix may terminate the agreement at any time on ninety (90) days’
notice. In addition, either party may terminate the agreement (i) due to an
uncured material breach of the other party, (ii) within certain timelines in
respect of a force majeure event which affects the other party’s performance,
(iii) in respect of the other party’s insolvency, including certain compromises
with creditors, or (iv) on the other party’s dissolution or ceasing to carry on
business.




As
previously described, Helix projects that its parallel confirmatory efficacy
trials for Topical Interferon Alpha-2b will require approximately a two- year
period to complete, followed thereafter by the preparation and filing of
marketing applications. The Company does not currently have an estimated
timeline for commencement or completion of these trials.  Conducting
these trials will require substantial funding beyond the Company’s current
resources, for which the Company continues to seek additional capital. SeeITEM 5.B - Liquidity and Capital
Resources.




Topical
Interferon Alpha-2b (AGW Indication)




At the
end of the calendar year 2005, the Company announced approval from Sweden’s drug
regulatory authority, the MPA, to conduct a Phase II clinical trial of Topical
Interferon Alpha-2b in patients with HPV-induced AGW. The Company, subsequently,
on December 11, 2006 announced the commencement of patient enrollment. The trial
was initiated at multiple centers in Sweden.




The Phase
II clinical trial of Topical Interferon Alpha-2b is of a multi-center, double
blind, randomized placebo-controlled trial design. This trial involves a team of
investigators across multiple centers with expected enrollment of 120 patients,
comparing treatment to placebo over an examination span of four-months per
patient. Helix has previously announced that this clinical trial was progressing
at a slower pace than originally anticipated due to a lower than expected
patient enrollment rate. Helix received approval in fiscal 2008 by the MPA for a
clinical protocol amendment with a view to improving the enrollment rate. In
addition, Helix received approval in fiscal 2009 from German regulators to open
approximately ten additional study centers, so as to attract further patients to
the trial. Helix has also signed an agreement with a prominent German
dermatologist, Professor Dr. med. Eggert Stockfleth of the Department of
Dermatology, Skin Cancer Center Charité, Universitätsmedizin Berlin, to act as
the German coordinating investigator overseeing the German study activities. In
light of these improvement measures, the patient recruitment rate has increased
significantly such that enrollment is on track for completion by or around the
end of the Company’s first quarter of fiscal 2010 in June 2009.




The
Company expects that it will need to conduct larger, double-blind trials, the
timing of which have not yet been established, beyond the trial currently
underway before seeking marketing authorizations for the AGW therapeutic
indication. To this end, Helix is awaiting the results from the ongoing Phase II
AGW trial prior to initiating further development plans for this
indication.




The
BiphasixTMTopical Formulation System




The
BiphasixTM Topical Formulation System is a technology for microencapsulating
therapeutic compounds in multilayered, lipid-based microvesicles. These
microvesicles have complex structures that include a variety of compartments
into which drug molecules can be integrated.




The
principal application of the technology is in the preparation of topical dosage
forms for the dermal (into the skin) or mucosal (into the mucosal tissues)
delivery of large, molecular weight, drug compounds. It is hypothesized that the
BiphasixTM Topical Formulation System accomplishes this by: (i) causing a
temporary increase in the











34








permeation
of the skin and mucosal tissues following application, sufficient to allow drug
molecules to travel through intercellular pathways to their targeted site(s) of
action; and (ii) allowing drug delivery to occur in a controlled manner over
time.




Market
and Competition




Helix
believes that there is a considerable and untapped marketplace for Topical
Interferon Alpha-2b as a treatment for the millions of women annually suffering
from LSIL or presenting with abnormal Pap smears. As such, Topical Interferon
Alpha-2b could have the potential to offer a form of preventative therapy in the
cervical cancer field where virtually none exists today.




In
addition, Helix is also developing Topical Interferon Alpha-2b as a treatment
for externally manifested ano-genital warts, which are also caused by infection
with HPV, albeit generally by different subtypes of the virus. This could expand
the potential market for the product further. Each year in the United States
alone, there are over 750,000 new cases of ano-genital warts diagnosed,
according to Domino, Frank J., The 5-Minute Clinical Consult 2008, 296
(Lippincott Williams & Wilkins 2008).




Helix is
not aware of any other interferon alpha-2b cream product under development
today, although there are other products being developed or sold by our
competitors which are also intended to treat such diseases. Helix believes that
its BiphasixTM formulation is specialized and unique among today’s dermal
delivery vehicles in being able to offer a stable cream dosage form capable of
delivering interferon alpha-2b into the skin and mucosal tissues.




Helix
believes that the main products which may offer noteworthy competition for
Topical Interferon Alpha-2b as a treatment for cervical and ano-genital HPV
infections are emerging HPV vaccines. Companies such as Merck and Co. (“Merck”)
and GlaxoSmithKline Inc. (“Glaxo”) have developed vaccines that are designed to
protect against infection from several specific subtypes of HPV. Merck’s
product, Gardasil®, has
received marketing approval in the United States and several other countries and
is already being sold. Glaxo’s product, Cervarix®, has
been launched in Europe and recently received approval in the United States.
Merck is also developing a new broad spectrum HPV vaccine, V502, which is
presently under Phase II clinical development.




While
such vaccines have the potential to be significant medical advancements, they
are designed primarily to offer a means to prevent adolescent youths from
becoming infected in the first place, rather than to treat patients once
infection has occurred. Due to the fact such vaccines are intended to be
essentially prophylactic in nature rather than therapeutic, their field of use
is limited. Furthermore, they may have significant limitations related to the
scope and duration of their effectiveness as well as their general acceptance
from certain socio-cultural perspectives. For example, some experts believe that
a vaccine may lead to controversy because some parents will have problems
considering giving a vaccine against an STD to pre-teens. Other parents might
not want to vaccinate their children against an STD at all, believing that their
children could not be at risk. Others believe that a vaccine might encourage
promiscuity, since it could foster the mistaken belief that it protects against
all STDs and/or cancers in general.




In
contrast, Topical Interferon Alpha-2b is expected to offer a broadly applicable
and efficacious therapeutic option to persons that contract virtually any of the
wide variety of HPV subtypes linked to the development of cervical cancer and
ano-genital warts.




Beyond
emerging prophylactic vaccines, various other products may also prove to offer
competition to Helix’s Topical Interferon Alpha-2b. Other companies recognize
the need for effective therapies for HPV-induced cervical and ano-genital
lesions and are exploring the development of a variety of new drug treatments.
Furthermore, in the case of ano-genital warts, various topical preparations are
already available today delivering therapies such as 5-FU, podophylotoxin, green
tea extract and imiquimod with mixed safety and efficacy profiles.




In
addition to the use of Topical Interferon Alpha-2b as a treatment for
HPV-induced cervical and ano-genital lesions, Helix believes that there is
potential to develop the product for additional indications. Specifically,
injectable interferon alpha-2b therapy has already been indicated for, or
experimentally tested by others against additional widespread dermatological
disease states including actinic keratosis, anal dysplasia, Kaposi’s
sarcoma,








35








basal
cell carcinoma and malignant melanoma. In contrast to injectable administration,
Helix believes that its topical preparation could conceivably offer a superior
means of delivering potent interferon alpha-2b therapy for the treatment of
conditions such as these. However, the Company is not currently allocating
resources to these other potential clinical indications, since we are currently
directing our resources toward the treatment of HPV-induced cervical and
ano-genital lesions.




The
following is a list of some of the companies which, based on publicly available
information, are developing products which offer competition for Helix’s Topical
Interferon Alpha-2b: Tigris Pharmaceutical Inc., 3M Pharmaceuticals and Takeda
Global Research and Development Center, Inc., Cancer Research Technology Ltd.,
Nventa BioPharmaceuticals Corporation (formerly Stressgen Biotechnologies
Corporation), MediGene AG, MGI Pharma, Transgene S.A., Roche, and
Migenix.




The
competitive impacts of these and similar products on Helix’s market penetration
with its Topical Interferon Alpha-2b remain to be determined, if and when
commercialized. However, it should be noted that many competitors and potential
competitors have substantially greater product development capabilities and
financial, scientific, marketing and human resources than the
Company.





Revenue
Generating Activities




Our total
revenues by category, as well as selected information regarding our largest
customer, are as follows:




Fiscal
      2009
            
            
            Fiscal
      2008
            
            
            Fiscal
      2007Product
      Revenue
            
            $
            3,244,000
            
            
            $
            2,952,000
            
            
            $
            2,764,000License
      Fees and Royalty Revenue
            
            
            597,000
            
            
            
            639,000
            
            
            
            512,000Research
      and Development Contract Revenue
            
            
            0
            
            
            
            0
            
            
            
            148,000Total
      Revenue
            
            $
            3,841,000
            
            
            $
            3,591,000
            
            
            $
            3,424,000Percentage
      of revenue generated by two largest customers(1)
            
            
            50
            %
            
            
            55
            %
            
            
            46
            %Percentage
      of accounts receivable owed from two largest customers
            
            
            19
            %
            
            
            33
            %
            
            
            29
            %





(1) The
Company’s two largest customer are Helsinn-Birex Pharmaceuticals Ltd.
(“Helsinn”), a subsidiary of Helsinn Healthcare SA, a Swiss company and McKesson
Corp. (“McKesson”).




Our total
revenues by geographic location are as follows:




Revenue
      (percentage of total revenues)
            
            Fiscal
              2009
            
            
            Fiscal
              2008
            
            
            Fiscal
              2007Product
      Revenue
            
            $
            3,244,000
            
            
            $
            2,952,000
            
            
            $
            2,764,000Canada
            
            
            94
            %
            
            
            94
            %
            
            
            94
            %Europe
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %United
      States
            
            
            6
            %
            
            
            6
            %
            
            
            6
            %License
      Fees and Royalty Revenue
            
            $
            597,000
            
            
            $
            639,000
            
            
            $
            512,000Canada
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %Europe
            
            
            85
            %
            
            
            84
            %
            
            
            100
            %United
      States
            
            
            15
            %
            
            
            16
            %
            
            
            0
            %Research
      and Development Contract Revenue
            
            $
            0
            
            
            $
            0
            
            
            $
            148,000Canada
            
            
            0
            %
            
            
            0
            %
            
            
            100
            %Total
      Revenue
            
            $
            3,841,000
            
            
            $
            3,591,000
            
            
            $
            3,424,000Canada
            
            
            80
            %
            
            
            77
            %
            
            
            80
            %Europe
            
            
            13
            %
            
            
            15
            %
            
            
            15
            %United
      States
            
            
            7
            %
            
            
            8
            %
            
            
            5
            %






36





Revenue
originating outside of Canada represents license fee and royalty revenues earned
by the Company’s Irish subsidiary and the licensing of technology to Lumera
Corporation, a U.S. company. The preponderance of the Company’s capital assets
are located in Canada.




Drug Distribution in
Canada




The
Company distributes the following products within several markets in
Canada:




·
            Orthovisc®
      a treatment for osteoarthritis of the
knee;


·
            Gastrointestinal
      products, including the Company’s own
  Klean-PrepTM;


·
            ImunovirTM,
      an immune system modulating drug;
and


·
            Branded
      products and over-the-counter drugs which are available without
      prescription.





Product
revenue in fiscal 2009 totaled $3,244,000 and represents an increase of $292,000
or 9.9% when compared to product revenue in fiscal 2008 of $2,952,000. Product
sales of Orthovisc®grew
significantly in fiscal 2009.




Product
revenue in fiscal 2008 totaled $2,952,000 and represents an increase of $188,000
or 6.8% when compared to product revenue in fiscal 2007 of $2,764,000. Product
sales of Klean-PrepTM
continued to grow in fiscal 2008 and were more than offset by lower sales of
Orthovisc®in
Canada.




In
February 2004, the Company signed a five year extension of its exclusive
distribution agreement with Anika Therapeutics for the distribution of
Orthovisc®in
Canada. Subsequent to July 31, 2009, the contract was extended to March 31,
2011. In August 2009, Anika Therapeutics received marketing approval from Health
Canada to market Monovisc®, for
which the Company will also have exclusive distribution rights in
Canada.




The
Company’s contract with Newport Pharmaceuticals for the distribution of
ImunovirTM in
Canada was verbally renewed in December of 2003. Revenues from ImunovirTM
represent approximately 7.0% of product revenue. Either party may terminate this
agreement at any time. The Company is currently in discussion with Newport
Pharmaceuticals to complete a written contract as it relates to the distribution
of ImunovirTM in
Canada.




Operations




All
customer service, warehousing and distribution activities are subcontracted to a
third-party. The Company believes it could timely replace this relationship with
one of similar quality and expense if needed.




Marketing




Products
are marketed to Canadian physicians and selected pharmacists via a combination
of sales representatives and targeted direct mail programs aimed at maintaining
product awareness and providing information about new treatment indications and
pricing. Orthovisc®has
direct representation in all of the major Canadian markets, while
Klean-PrepTM is
currently promoted primarily in Ontario.




Competition




The
Company experiences intense competition in all of its therapeutic categories
with competitors much larger in size and with substantially more financial
resources. Many competitors and potential competitors of the Company have
substantially greater product development capabilities and financial,
scientific, marketing and human resources than the Company. Other companies may
succeed in developing products earlier than the Company, obtaining regulatory
approvals for such products more rapidly than the Company, or in developing
products that are more effective than those proposed to be developed by the
Company. Research and development by others may render the Company’s technology
or products obsolete or non-competitive or result in treatments or cures
superior to any therapy developed by the Company. Any therapy that is
successfully developed by the Company may not be preferred to any existing or
newly developed technologies.






37






The
Company is experiencing competition to sales of its Klean-PrepTM in Canada. The
competing products are perceived as being easier to use with equivalent
efficacy. To date the Company has not experienced any downturn in sales due to
these competitors. While the Company is not aware of imminent additional entries
into this marketplace, other companies may begin to consider entering this
therapeutic area based on its recent growth rate.





Orthovisc®
has been facing competition from a single-injection product. This product is
more convenient for patients versus the 3-injection regimen of Orthovisc®.
However, several physicians have reported to the Company that based on their
clinical impressions, there is a perceived reduction in efficacy of the
competing product. The Company will commence distribution of a single-injection
product during 2009, subject to Health Canada approval on a timely basis, which
should help it to capture sales lost to this latest competitor. The Company is
aware of two other competitors who are currently conducting clinical trials on
single-dose products and their introductions to the Canadian marketplace are
expected at the end of calendar 2009 or the beginning of calendar
2010.





Product
Revenue




In
February 2004, the Company signed a five (5) year extension of its exclusive
distribution agreement with Anika Therapeutics for the distribution of
Orthovisc®in
Canada. Subsequent to July 31, 2009, the contract was extended to March 31,
2011. In August 2009, Anika Therapeutics received marketing approval from Health
Canada to market Monovisc®, for
which the Company will also have exclusive distribution rights in
Canada.




Revenue
is expected to increase marginally in the foreseeable future. The Company
continues to actively pursue new product opportunities. Some capacity currently
exists for the addition of new products within the existing infrastructure
without the need to incur additional fixed costs. All product revenue is
generated from sales to third-party customers.




The
Company’s revenues by product, licensee fees and royalties, and research and
development contract revenue are as follows:




Product
            
            Fiscal
              2009
            
            
            Fiscal
              2008
            
            
            Fiscal
              2007Orthovisc
      - $'s
            
            
            1,625,000
            
            
            
            1,373,000
            
            
            
            1,521,000Orthovisc
      - %
            
            
            42.3
            %
            
            
            38.2
            %
            
            
            44.4
            %Klean-Prep
      - $'s
            
            
            1,252,000
            
            
            
            1,251,000
            
            
            
            939,000Klean-Prep
      - %
            
            
            32.6
            %
            
            
            34.8
            %
            
            
            27.4
            %Immunovir
      - $'s
            
            
            243,000
            
            
            
            194,000
            
            
            
            198,000Immunovir
      - %
            
            
            6.3
            %
            
            
            5.4
            %
            
            
            5.8
            %Normacol
      - $'s
            
            
            200,000
            
            
            
            158,000
            
            
            
            132,000Normacol
      - %
            
            
            5.2
            %
            
            
            4.4
            %
            
            
            3.9
            %Returns,
      Discounts & Allowances - $'s
            
            
            (76,000
            )
            
            
            (24,000
            )
            
            
            (26,000
            )Returns,
      Discounts & Allowances - %
            
            
            -2.0
            %
            
            
            -0.6
            %
            
            
            -0.8
            %Total
      - $'s
            
            
            3,244,000
            
            
            
            2,952,000
            
            
            
            2,764,000Total
      - % of total revenue
            
            
            84.5
            %
            
            
            82.2
            %
            
            
            80.7
            %Licensee
      Fees and RoyaltiesKlean-Prep
      - $'s
            
            
            508,000
            
            
            
            538,000
            
            
            
            512,000Klean-Prep
      - %
            
            
            13.2
            %
            
            
            15.0
            %
            
            
            15.0
            %Biochip
      Technology - $'s
            
            
            89,000
            
            
            
            101,000
            
            
            
            -Biochip
      Technology - %
            
            
            2.3
            %
            
            
            2.8
            %
            
            
            0.0
            %Total
      - $'s
            
            
            597,000
            
            
            
            639,000
            
            
            
            512,000Total
      - % of total revenue
            
            
            15.5
            %
            
            
            17.8
            %
            
            
            15.0
            %Research
      and Development Contract RevenueResearch
      and development - $'s
            
            
            -
            
            
            
            -
            
            
            
            148,000Research
      and development - %
            
            
            0.0
            %
            
            
            0.0
            %
            
            
            4.3
            %Total
      - $'s
            
            
            -
            
            
            
            -
            
            
            
            148,000Total
      - % of total revenue
            
            
            0.0
            %
            
            
            0.0
            %
            
            
            4.3
            %Total
      - $'s
            
            
            3,841
      ,000
            
            
            
            3,591,000
            
            
            
            3,424,000Total
      - % of total revenue
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %








38






International
Licensing




Klean-PrepTM




The
Company licenses its proprietary gastro-intestinal lavage product,
Klean-PrepTM to
Helsinn. The license agreement extends to December 31, 2016, and grants Helsinn
the right to sell Klean-PrepTM in
all countries of the world, excluding the United States and Canada. The Company
earns royalties on the sale of Klean-PrepTM,
which is sold internationally in over 25 countries.




Biochip
Technology




Helix has
developed biochips based on its proprietary technology as well as from acquired
technology. Helix’s biochips are designed for use by biopharmaceutical
research companies, institutions and organizations in the study of protein
interactions for the purpose of discovering and developing
biopharmaceuticals and diagnostics.




On
January 25, 2005, the Company announced that it had entered into an exclusive
sub-licensing agreement with Lumera Corporation for Helix’s biochip technology,
for the purpose of commercializing protein chip sets for the emerging protein
array market. The technology subject to the Lumera license included Helix’s
proprietary heterodimer technology, as well as molecular sensing technology
licensed by the Company from the Governors of the University of Alberta and
McGill University. The licensing agreement with Lumera called for both upfront
and milestone payments in addition to future royalty payments.




Lumera
terminated the sub-license effective December 19, 2008, and paid the required
termination payment of US$75,000. As the Company is focusing on the development
of its L-DOS47 and Topical Interferon Alpha-2b drug candidates it does not
intend to further develop its biochip technology. The Company has since
terminated its license of molecular sensing technology with the University of
Alberta and McGill University.




Research and Development
Contract Revenue




Helix has
conducted third-party topical formulation development work on a fee-for-service
basis, in addition to contributing to the ongoing product development and
quality assurance functions associated with the Company’s Topical Interferon
Alpha-2b development program.




In
February 2005, the Company entered into an agreement to identify and
characterize a lead formulation for Apotex. This contract was fully completed
and the final payment received in the third quarter of fiscal 2007.




The
Company currently has no plans to contract its research and development services
out to third parties and is focusing its resources on the development of the
Company’s L-DOS47 and Topical Interferon Alpha-2b.




Royalty
and In-licensing Commitments




License Agreement with
National Research Council




Helix
announced on May 2, 2005 that it had begun to develop its lung cancer-specific
drug compound L-DOS47. For this purpose, Helix entered into a worldwide
exclusive license with the NRC, through which it obtained the right








39








to
combine an antibody that specifically binds to lung adenocarcinoma cells with
minimal cross reactivity to other tissues with Helix’s DOS47TM technology. Unless
earlier terminated pursuant to the license agreement, the license terminates
when the last patent right related to the licensed technology expires, on a
country-by-country basis. The Company is required to pay a royalty of 3% of net
sales, with a minimum royalty of $10,000 per year. The Company is also required
to make certain milestone payments as follows: $25,000 upon successful
completion of Phase I clinical trials; $50,000 upon successful completion of
phase IIb clinical trials; $125,000 upon successful completion of phase III
clinical trials; and $200,000 upon receipt of market approval by a regulatory
authority. A patent application in respect of the antibody has been filed in
Canada, the United States, and as a PCT filing. See Research and Development Activities
– L-DOS47 above.




Amended Royalty Agreement
with Dr. Foldvari




Certain
of the Company’s products are subject to the following royalty payments to Dr.
Marianna Foldvari, a former director and officer of a former subsidiary of the
Company:




·
            2%
      of the Company’s net sales revenue received from the marketing,
      manufacture, distribution or sale of certain products;
  or


·
            in
      the case of sub-license revenue, 2% of license fees or other revenue
      received by the Company related to the marketing, manufacture,
      distribution or sale of certain products which revenue is not allocated by
      the Company to the further development of the
  product.





Included
in the products subject to the foregoing 2% royalty are PGE1, Alpha Interferon,
Gamma Interferon, Acyclovir, Corticosteroids, Methotrexate, Minoxidil,
Miconazole, and Tetracycline. Accordingly, any future revenue generated through
the commercialization of Topical Interferon Alpha-2b will also be subject to
this royalty. The royalty agreement expires on March 27, 2017. See ITEM 7.B – Related Party
Transactions below for additional information regarding Dr.
Foldvari.




Other
Agreements




In
addition to the foregoing, the Company also has:




·
            payment
      commitments to the University of Saskatchewan Technologies Inc. in respect
      of the licensing or sale by the Company of any prospective products which
      utilize the BiphasixTM technology and contain prostaglandin E1. The Company
      does not currently contemplate developing any such
    products;


·
            an
      agreement dated July 10, 2000, pursuant to which the Company pays a
      sliding scale percentage based fee to RFB Associates (“RFB”) in the event
      a healthcare acquisition or product license is consummated between the
      Company and a company introduced by RFB. As a result of introducing the
      Company to Anika Therapeutics which resulted in the finalizing of an
      in-license arrangement for the rights to distribute Anika Therapeutics’
      product in Canada, the company pays RFB a percentage based fee. The fee is
      5% of the consideration paid to Anika Therapeutics by the Company, up to
      and including $1,000,000; plus 4% in excess of $1,000,000 and up to
      $2,000,000; plus 3% in excess of $2,000,000 and up to $3,000,000; plus 2%
      in excess of $3,000,000 and up to $4,000,000; plus 1% in excess of
      $4,000,000. The agreement is subject to a minimum royalty of $25,000 and
      can be terminated by either party on 30 days prior notice except for any
      fees associated to an arrangement which was previously
      consummated;


·
            a
      License Agreement with the University of Alberta respecting certain
      heterodimer technology, provided, however, due to the Company’s current
      focus on L-DOS47 and Topical Interferon Alpha-2b, the Company is currently
      assessing the status of this
agreement;


·
            a
      Research Agreement with the NRC for research and development pertaining to
      the Company’s heterodimer technologies, pursuant to which the Company is
      committed to a 1% royalty on sales revenue from all licensed products and
      services to the NRC. The Company has requested that this agreement be
      terminated; and


·
            a
      Royalty Sharing Agreement dated September 24, 1998 with the Vaccine and
      Infectious Disease Organization (“VIDO”). The agreement with VIDO applies
      to those patents and other intellectual properties, which the parties
      agree, may be made subject to the agreement from time to time. VIDO will
      have the right to exploit such property in the animal health care
      industry, and the Company will have the right to exploit such property in
      the human health care industry, with each party having the right to
      receive one-third of the license fees, royalties or other revenue
      generated from the area exploited by the other. In the case of direct
      product sales made by the Company or VIDO, the other party will be
      entitled to a royalty on the net sales revenue received by the selling
      party, at a royalty rate to be negotiated. As no intellectual property has
      been made subject to the agreement with VIDO, Helix is in the process of
      reviewing the status of this
agreement.






40





The
Company’s previous license agreement with the University of Alberta and McGill
University with respect to a portion of the biochip technology was terminated by
agreement of the parties subsequent to the Company’s last fiscal year, in
October, 2009.





Pharmaceutical
Regulatory Environment




New drug
development




Helix
operates within a highly regulated environment. Regional and country specific
laws and regulations define the data required to show safety and efficacy of
pharmaceutical products, as well as govern testing, approval, manufacturing,
labeling and marketing of drugs. These regulatory requirements are a major
factor in determining whether a marketable product may be successfully developed
and the amount of time and expense associated with this
development.




For a
pharmaceutical company to launch a new prescription or non-prescription drug,
whether innovative (original) or a generic version of a known drug, it must
demonstrate to the national regulatory authorities in the countries in which it
intends to market the new drug, such as the FDA and the TPD, that the drug is
both effective and safe. The system of new drug approvals in North America is
one of the most rigorous in the world.




A
potential new drug must first be tested in the laboratory (“in vitro studies”) and in
several animal species (“pre-clinical”) before being evaluated in humans
(“clinical studies”). Pre-clinical studies primarily involve in vitro evaluations of the
therapeutic activity of the drug and in vivoevaluations of the
pharmacokinetic, metabolic and toxic effects of the drug in selected animal
species.




Ultimately,
based on data generated during pre-clinical studies, extrapolations will be made
to evaluate the potential risks versus the potential benefits of use of the drug
in humans under specific conditions of use. Upon successful completion of the
pre-clinical studies, the drug typically undergoes a series of evaluations in
humans, including healthy volunteers and patients with the targeted
disease.




Before
undertaking clinical studies, the pharmaceutical company sponsoring the new drug
must submit to the FDA, TPD, or other applicable regulatory body, an IND
submission. The IND application must contain specified information including the
results of the pre-clinical or clinical tests completed at the time of the
application. Since the method of manufacture may affect the efficacy and safety
of a drug, information on manufacturing methods and standards and the stability
of the drug substance and dosage form must also be presented.




The
activities which are typically completed prior to obtaining approval for
marketing in North America may be summarized as follows:




Pre-clinical
studies: Conducted in the laboratory using animal models to gain data on the
efficacy and metabolism of the therapeutic as well as to identify potential
safety issues.




Filing of
an IND: The pre-clinical results are submitted to the FDA, TPD, or other
applicable regulatory body, for approval prior to testing in
humans.




Phase I
Trials: Clinical trials conducted on a small number of subjects to assess safety
and the patterns of drug distribution and metabolism in the body. In some cases
the initial human testing is conducted on patients and not on healthy
volunteers, and therefore it is possible that these studies may show efficacy
results typically obtained in Phase II studies. These are referred to as Phase
I/II trials.






41






Phase II
Trials: Research on groups of patients with the disease in order to develop
efficacy, dosages and additional safety data. Typically, a Phase IIa trial uses
escalating dose groups and a Phase IIb trial uses a specific dosage with a
larger number of patients than a Phase IIa trial, and adds a placebo arm to the
trial.




Phase III
Trials: Large multi-center, well controlled studies conducted with patients to
provide statistically relevant proof of efficacy and safety of the therapeutic.
Phase II/III trials refer to a combined trial where efficacy and safety are
demonstrated.




Following
Phase III, the drug sponsor submits a New Drug Application to the FDA or a New
Drug Submission to the TPD for marketing approval. Once the data is reviewed and
approved by the appropriate regulatory authorities such as TPD and FDA, the drug
is deemed ready for sale.




The TPD,
FDA and other applicable regulatory bodies will determine whether the drug will
be a prescription or non-prescription product based on factors such as the age
and history of the drug, the number of patients having reported adverse effects,
and how well the drug is documented with respect to safety and efficacy. Given
that innovative (original) drugs have no long-term history of public use, it is
unlikely that an innovative drug would be approved in the first instance as a
non-prescription product.




The
approval process for new drugs in Europe is comparable to the approval process
of the FDA.




Additional government
regulation




In
addition to the governmental approvals required in connection with the
development of new drugs, government regulation requires detailed inspection and
control of research and laboratory procedures, clinical studies, manufacturing
procedures and marketing and distribution methods, all of which significantly
increases the level of difficulty and the costs involved in obtaining and
maintaining the regulatory approval for marketing new and existing products.
Moreover, regulatory measures adopted by governments provide for possible
withdrawal of products from the market and suspension or revocation of the
required approvals for their production and sale in certain exceptional cases.
See ITEM 3.D – Risk Factors –
The marketability of the Company’s products may be affected by delays and the
inability to obtain necessary approvals, and following any market approval, the
Company’s products will be subject to ongoing regulatory review and requirements
which may continue to affect their marketability.




Intellectual
Property




Patents
and other proprietary rights are valuable to Helix, although the patent
positions of biotechnology companies such as Helix are generally uncertain and
involve complex legal and factual issues. The Company has no assurance that any
of its patent applications will result in the issuance of any patents. Even
issued patents may not provide the Company with a competitive advantage against
competitors with similar technologies, or who have designed around the Company’s
patents. Furthermore, the Company’s patents may be struck down if challenged.
The laws of many countries do not protect our intellectual property to the same
extent as the laws of the United States.




Because
of the substantial length of time and expense associated with developing new
products, the pharmaceutical, medical device, and biotechnology industries place
considerable importance on obtaining patent protection for new technologies,
products, and processes. The Company’s policy is to file patent applications to
protect inventions, technology, and improvements that are important to the
development of our business and with respect to the application of our products
and technologies to the treatment of a number of disease indications. The
Company’s policy also includes regular reviews related to the development of
each technology and product in light of its intellectual property protection,
with the goal of protecting all key research and developments by
patent.




We seek
patent protection in various jurisdictions of the world. We own patents and
patent applications relating to our products and technologies in the United
States, Canada, Europe, and other jurisdictions around the world. We own
trademark registrations and trademark applications associated with our
Klean-PrepTM, BiphasixTM and DOS47TM technologies in various jurisdictions. The
scope and duration of our intellectual property rights vary from country to
country depending on the nature and extent of our intellectual property filings,
the applicable statutory provisions governing the intellectual property, and the
nature and extent of our legal rights. We will continue to seek intellectual
property protection as appropriate. We require our employees, consultants,
outside scientific collaborators, and sponsored researchers to enter into
confidentiality agreements with us that contain assignment of invention clauses
outlining ownership of any intellectual property developed during the course of
the individual’s relationship with us.






42






The
Company currently owns or has licensed 18 U.S. patents, of which 7 are in
respect of the BiphasixTM technology, 2 are in respect of the DOS47TM technology,
and the remaining are with respect to other technology not currently under
development by Helix. The Company also has several more patent applications
pending in the United States, including one provisional patent application that
Helix filed in 2007 with a view to further strengthening its patent portfolio
for Topical Interferon Alpha-2b, specifically for the cervical LSIL indication.
The Company files its patent applications in the United States along with
corresponding PCT Filings to further international patent
protection.  The Company has also licensed a patent application from
NRC for the L-DOS47 antibody.  See Item 4B - Important Business
Developments - License Agreement with National Research
Council.




In the case of Topical Interferon
Alpha-2b, 3 patents arescheduled to expire in 2013. While the
Company made a provisional patent application with the U.S. Patent and Trademark
Officein 2007 with a view to further
strengthening its patent portfolio for Topical Interferon Alpha-2b, such patent
may not be issued. The failure of such patent to be issued may adversely affect
the further development of Topical Interferon Alpha-2b, including by reason of
the possibility that Schering-Plough may determine not to provide the Company
with further quantities of interferon alpha-2b beyond the quantity originally
agreed to, and/or may determine not to exercise its option to obtain a
worldwide, exclusive license to make, have made, export, use, offer for sale and
sell pharmaceutical products containing alpha interferon in combination with the
BiphasixTM Technology.




See also
ITEM 3.D – Risk
Factors.





4.C.  Organizational
Structure




The
Company was amalgamated on July 31, 1995 under the CBCA. As of April 30, 2008,
the Company reorganized its corporate structure. As a result, the Company
currently has the following wholly-owned subsidiaries:




Company
            Date
      of Incorporation
            Jurisdiction
            OwnershipIntercon
      Pharma Limited
            July
      31, 1986
            Ireland
            100%
      by
              Helix
      BioPharma CorpHelix
      Product Development (Ireland) Limited
            March
      24, 2004
            Ireland
            100%
      by
              Intercon
      Pharma LimitedHelix
      BioPharma Inc.
            December
      4, 2000
            Delaware
            100%
      by
              Helix
      BioPharma Corp




4.D.  Property,
Plants and Equipment




The
Company’s head office is located in a 6,000-sq. ft. leased office and warehouse
space located north of Toronto in Aurora, Ontario, Canada. Administration, sales
and marketing functions are located at the Aurora office. The Company has
renewed the lease for an additional two years, ending February 2010 along with
an option to renew the lease for an additional one year.




The
Company leases 8,400 sq. ft. of laboratory premises located in Saskatoon,
Saskatchewan under a lease that was recently renewed and expires on January 31,
2011. The laboratory is currently being used for the further development of
Topical Interferon Alpha-2b.




The
Company leases approximately 4,155 sq. ft. in Edmonton, Alberta under a new
lease arrangement that expires on June 30, 2014. These premises house the
Company’s oncology research laboratory.








43






The
Company has no manufacturing capacity.




The
Company believes that its existing facilities are adequate to meet its needs for
the foreseeable future.




ITEM
4A.  UNRESOLVED
STAFF COMMENTS




Not
Applicable.




ITEM
5.  OPERATING AND FINANCIAL REVIEW AND
PROSPECTS




The
following discussion should be read in conjunction with the audited consolidated
financial statements of Helix for the years ended July 31, 2009, 2008 and 2007
and the accompanying notes thereto, which have been prepared in accordance with
Canadian GAAP.




5.A.  Operating
Results




Overview




Helix
BioPharma Corp. is a Canadian biopharmaceutical company specializing in the
field of cancer therapy. The Company is actively developing products for the
treatment and prevention of cancer based on its proprietary technologies.
Helix’s product development initiatives include its L-DOS47 and Topical
Interferon Alpha-2b new drug candidates. Our research and development
activities are currently being financed primarily by the issuance of our common
shares. Ongoing revenue consists of (i) product revenue including the
distribution in Canada of Klean-PrepTM and Orthovisc® and (ii) royalty payments
from Helsinn-Birex relating to its license of the Company’s Klean-PrepTM
technology.




As the
majority of the Company’s resources are focused on two emerging drug products in
the development stage, the Company expects to incur additional losses for the
foreseeable future and will require additional financial resources. The
continuation of the Company’s research and development activities and the
commercialization of its products is dependent upon the Company’s ability to
successfully complete its research programs, protect its intellectual property
and finance its cash requirements on an ongoing basis. It is not possible to
predict the outcome of future research and development activities or the
financing thereof. If the Company is unable to raise additional funds, there is
substantial doubt about its ability to continue as a going concern and realize
our assets and pay our liabilities as they become due. On September 8, 2009, the
Company completed a private placement, issuing 6,625,000 units at $2.05 per
unit, for approximate net proceeds of $11.7 million. The Company’s management
believes that the Company’s current level of cash and cash equivalents will be
sufficient to execute the Company’s currently planned expenditures for the next
twelve months. See ITEM 5.B
-Liquidity and Capital Resources below.




Critical
Accounting Policies and Estimates




The
Company prepares its audited consolidated financial statements in accordance
with Canadian GAAP. These accounting principles require management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date of
the audited consolidated financial statements and the reported amounts of
revenue and expenses during the reporting periods.




Significant
areas requiring the use of estimates are the determination of the fair value of
stock options granted for estimating stock-based compensation expenses,
determination of useful lives and assessment of impairment in the value of
long-lived assets, such as capital assets, acquired technology under development
and patents, the allocation of proceeds to share purchase warrants and the
determination of valuation allowance of future tax assets. In determining these
estimates, the Company relies on assumptions regarding applicable industry
performance and prospects, as well as general business and economic conditions
that prevail and are expected to prevail. These assumptions are limited by the
availability of reliable comparable data and the uncertainty of predictions
concerning future events. The Company believes that the estimates and
assumptions upon which it relies are reasonable based upon information available
at the time that these estimates and assumptions are made. Actual results could
differ from these estimates.






44






Stock-Based
Compensation




The
Company accounts for stock-based compensation and other stock-based payments
made in exchange for goods and services provided by employees and non-employees
in accordance with the recommendations of The Canadian Institute of Chartered
Accountants’ (“CICA”) Handbook Section 3870, “Stock-based Compensation and other
Stock-based Payments” (“Section 3870”). Section 3870 established standards for
recognition, measurement and disclosure of stock-based compensation and other
stock-based payments made in exchange for goods and services provided by
employees and non-employees. The standard requires that a fair value based
method of accounting be applied to all stock-based payments to employees and
non-employees and to employee awards that are direct awards of stock, which call
for settlement in cash or other assets, or are appreciation rights that call for
settlement by the issuance of equity instrument. The fair value of stock options
is measured at the grant date using the Black-Scholes option pricing model and
the compensation cost is amortized over the options’ vesting period for employee
awards and the service period for non-employee awards. Forfeitures are accounted
for as they occur. An additional expense or a negative expense may be recorded
in subsequent periods based on changes in the assumptions used to calculate fair
value, until the measurement date is reached and the compensation expense is
finalized.




Impairment of Long-Lived
Assets




The
Company’s long-lived assets include capital assets and intangible assets with
finite lives. The Company considers a two-step process to determine whether
there is impairment of long-lived assets held for use. The first step determines
when impairment is recognized while the second measures the amount of the
impairment. An impairment loss is recognized when the carrying amount on a
long-lived asset exceeds the sum of the undiscounted cash flows expected to
result from its use and eventual disposition. An impairment loss is measured as
the amount by which the long-lived asset’s carrying amount exceeds its fair
value. To test for a measure impairment, long-lived assets are grouped at the
lowest level for which identifiable cash flows are largely independent. Future
events could cause management to conclude that impairment indicators exist and
that the carrying values of the Company’s property and/or equipment acquired are
impaired. Any resulting impairment loss could have a material adverse impact on
the Company’s financial position and results of operations. Intangible asset
write-downs during the 2009, 2008 and 2007 fiscal years totaled $98,000, $0 and
$1,332,000, respectively.




The Allocation of Proceeds
to Share Purchase Warrants




The
Company allocates proceeds from the issuance of capital, which includes
warrants, based on fair value. Assumptions used take into account the offering
price, the intrinsic value of the warrants, the price paid for the warrants, and
the offering proceeds, in order to determine the share equivalent for each
series of warrant issued.




Income
Taxes




The
Company follows the asset and liability method of accounting for income taxes.
Under this method, future income tax assets and liabilities are recognized for
the future tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Future income tax assets and liabilities are measured
using enacted or substantively enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on future tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the date
of substantive enactment. Given the Company’s history of net losses and expected
future losses, the Company is of the opinion that it is more likely than not
that these tax assets will not be realized in the foreseeable future and
therefore, a full valuation allowance has been recorded against these income tax
assets. As a result, no future income tax assets or liabilities are recorded on
the Company’s balance sheets.




45


Selected
Annual Data




The data
below is presented in accordance with Canadian GAAP and refers to Canadian
Dollars, in thousands, except for share and per share data.




Year
      Ended
              July
      31,
              2009
            
            
            Year
      Ended
              July
      31,
              2008
            
            
            Year
      Ended
              July
      31,
              2007Statement
      of Operations:RevenueProduct Revenue
            
            $
            3,244
            
            
            $
            2,952
            
            
            $
            2,764License Fees and
      Royalties
            
            
            597
            
            
            
            639
            
            
            
            512Research
      and Development Contracts
            
            
            -
            
            
            
            -
            
            
            
            148Total Revenues
            
            
            3,841
            
            
            
            3,591
            
            
            
            3,424ExpensesCost of Sales
            
            
            1,516
            
            
            
            1,239
            
            
            
            1,139Research and
      Development
            
            
            10,322
            
            
            
            5,064
            
            
            
            4,116Operating,
      General and Administration
            
            
            3,917
            
            
            
            3,948
            
            
            
            3,570Sales
      and marketing
            
            
            969
            
            
            
            809
            
            
            
            848Amortization
      of Intangible Assets
            
            
            12
            
            
            
            16
            
            
            
            159Amortization
      of Capital Assets
            
            
            274
            
            
            
            254
            
            
            
            287Stock-Based
      Compensation
            
            
            1,023
            
            
            
            44
            
            
            
            47Interest Income,
      Net
            
            
            (339
            )
            
            
            (645
            )
            
            
            (496
            )Foreign
      Exchange Loss (Gain)
            
            
            133
            
            
            
            (327
            )
            
            
            (9
            )Impairment of Intangible
      Assets
            
            
            98
            
            
            
            -
            
            
            
            1,332Total Expenses
            
            
            17,925
            
            
            
            10,402
            
            
            
            10,993Loss Before Income
      Taxes
            
            
            (14,084
            )
            
            
            (6,811
            )
            
            
            (7,569
            )Income Taxes
            
            
            (18
            )
            
            
            (153
            )
            
            
            (105
            )Net Loss for the
      Period
            
            
            (14,102
            )
            
            
            (6,964
            )
            
            
            (7,674
            )Basic and Diluted Loss Per
      Share
            
            
            (0.27
            )
            
            
            (0.16
            )
            
            
            (0.22
            )Weighted Average Number of
      Shares Outstanding
            
            
            52,001,636
            
            
            
            42,469,362
            
            
            
            35,615,335Balance
      Sheet:Working Capital
            
            
            15,296
            
            
            
            19,166
            
            
            
            11,468Shareholders
    Equity
            
            
            17,063
            
            
            
            20,522
            
            
            
            12,734Capital Stock
            
            
            81,576
            
            
            
            71,964
            
            
            
            57,350Total Assets
            
            
            19,319
            
            
            
            21,666
            
            
            
            14,273







46


The data
below is presented in accordance with U.S. GAAP and refers to Canadian Dollars,
in thousands, except for share and per share data.




Year
      Ended
              July
      31,
              2009
            
            
            Year
      Ended
              July
      31,
              2008
            
            
            Year
      Ended
              July
      31,
              2007Statement
      of Operations:RevenueProduct Revenue
            
            $
            3,244
            
            
            $
            2,952
            
            
            $
            2,764License Fees and
      Royalties
            
            
            597
            
            
            
            639
            
            
            
            512Research and Development
      Contracts
            
            
            -
            
            
            
            -
            
            
            
            148Total Revenues
            
            
            3,841
            
            
            
            3,591
            
            
            
            3,424ExpensesCost of Sales
            
            
            1,516
            
            
            
            1,239
            
            
            
            1,139Research and
      Development
            
            
            10,322
            
            
            
            5,064
            
            
            
            4,360Operating, General and
      Administration
            
            
            3,917
            
            
            
            3,948
            
            
            
            3,570Sales and
    marketing
            
            
            969
            
            
            
            809
            
            
            
            848Amortization of Intangible
      Assets
            
            
            12
            
            
            
            16
            
            
            
            12Amortization of Capital
      Assets
            
            
            274
            
            
            
            254
            
            
            
            287Stock-Based
      Compensation
            
            
            1,023
            
            
            
            44
            
            
            
            47Interest Income,
      Net
            
            
            (339
            )
            
            
            (645
            )
            
            
            (496
            )Foreign Exchange Loss
      (Gain)
            
            
            133
            
            
            
            (327
            )
            
            
            (9
            )Impairment of Intangible
      Assets
            
            
            98
            
            
            
            -
            
            
            
            -Total Expenses
            
            
            17,925
            
            
            
            10,402
            
            
            
            9,758Loss Before Income
      Taxes
            
            
            (14,084
            )
            
            
            (6,811
            )
            
            
            (6,334
            )Income Taxes
            
            
            (18
            )
            
            
            (153
            )
            
            
            139Net Loss for the
      Period
            
            
            (14,102
            )
            
            
            (6,964
            )
            
            
            (6,195
            )Basic and Diluted Loss Per
      Share
            
            
            (0.27
            )
            
            
            (0.16
            )
            
            
            (0.17
            )Weighted Average Number of
      Shares Outstanding
            
            
            52,001,636
            
            
            
            42,469,362
            
            
            
            35,615,335Balance
      Sheet:Working Capital
            
            
            15,296
            
            
            
            19,166
            
            
            
            11,468Shareholders
    Equity
            
            
            17,063
            
            
            
            20,522
            
            
            
            12,882Capital Stock
            
            
            81,576
            
            
            
            71,964
            
            
            
            57,350Total Assets
            
            
            19,319
            
            
            
            21,666
            
            
            
            14,421







Revenue




Revenue
consists of:




·
            product
      revenue, including the distribution in Canada of Klean-PrepTM and
      Orthovisc®;




·
            royalty
      payments from Helsinn relating to its license of the Company’s Klean-PrepTM
      technology; and




·
            contract
      revenue from research and development work conducted for a third-party.
      The last quarter to include any contract revenue from a third-party is the
      quarter ended April 30, 2007. The Company currently has no existing plans
      to contract its research and development services out to others, and
      instead, is focusing its resources on the development of the Company’s
      L-DOS47 and Topical Interferon
Alpha-2b.








47





Our total
revenues by category are as follows:





Fiscal
              2009
            
            
            Fiscal
              2008
            
            
            Fiscal
              2007Product
      Revenue
            
            $
            3,244,000
            
            
            $
            2,952,000
            
            
            $
            2,764,000License
      Fees and Royalty Revenue
            
            
            597,000
            
            
            
            639,000
            
            
            
            512,000Research
      and Development Contract Revenue
            
            
            0
            
            
            
            0
            
            
            
            148,000Total
      Revenue
            
            $
            3,841,000
            
            
            $
            3,591,000
            
            
            $
            3,424,000Percentage
      of revenue generated by two largest customer
            
            
            50
            %
            
            
            55
            %
            
            
            46
            %





Product
Revenue




Product
revenue has remained consistent over the last three fiscal years with moderate
growth. Product revenue consists mainly of revenue from the sale in Canada of
Klean-PrepTM and Orthovisc®.




License Fees and
Royalties




License
fees and royalties consist of fees received from Helsinn-Birex pursuant to a
license agreement granting Helsinn-Birex the right to sell Klean-PrepTM and fees
received from Lumera pursuant to an exclusive sub-license agreement with respect
to our biochip technology.




The
Company’s license arrangement with Lumera provided for certain minimum royalty
payments, which were received by the Company in the third quarter of fiscal
2008. Lumera terminated this sub-license agreement effective December 19,
2008.




Research and Development
Contracts




Research
and development contract revenue consists of payments made to the Company, with
respect to third-party typical formulation work on a fee-for-service basis. The
Company currently does not have plans to contract our research and development
services to others and is focusing its resources on the development of L-DOS47
and Topical Interferon Alpha-2b.




Our total
revenues by geographic location are as follows:




Revenue
      (percentage of total revenues)
            
            Fiscal
              2009
            
            
            Fiscal
              2008
            
            
            Fiscal
              2007Product
      Revenue
            
            $
            3,244,000
            
            
            $
            2,952,000
            
            
            $
            2,764,000Canada
            
            
            94
            %
            
            
            94
            %
            
            
            94
            %Europe
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %United
      States
            
            
            6
            %
            
            
            6
            %
            
            
            6
            %License
      Fees and Royalty Revenue
            
            $
            597,000
            
            
            $
            639,000
            
            
            $
            512,000Canada
            
            
            0
            %
            
            
            0
            %
            
            
            0
            %Europe
            
            
            85
            %
            
            
            84
            %
            
            
            100
            %United
      States
            
            
            15
            %
            
            
            16
            %
            
            
            0
            %Research
      and Development Contract Revenue
            
            $
            0
            
            
            $
            0
            
            
            $
            148,000Canada
            
            
            0
            %
            
            
            0
            %
            
            
            100
            %Total
      Revenue
            
            $
            3,841,000
            
            
            $
            3,591,000
            
            
            $
            3,424,000Canada
            
            
            80
            %
            
            
            77
            %
            
            
            80
            %Europe
            
            
            13
            %
            
            
            15
            %
            
            
            15
            %United
      States
            
            
            7
            %
            
            
            8
            %
            
            
            5
            %






48






Revenue
originating outside of Canada represents license fee and royalty revenues earned
by the Company’s Irish subsidiary and the licensing of technology to Lumera
Corporation, a U.S. company. The preponderance of the Company’s capital assets
are located in Canada.




Drug
Distribution in Canada




The
Company distributes the following products within several markets in
Canada:




·
            Orthovisc®
      a treatment for osteoarthritis of the
knee;


·
            Gastrointestinal
      products, including the Company’s own
  Klean-PrepTM;


·
            ImunovirTM,
      an immune system modulating drug;
and


·
            Branded
      products and over-the-counter drugs which are available without
      prescription.





In
February 2004, the Company signed a five year extension of its exclusive
distribution agreement with Anika Therapeutics for the distribution of
Orthovisc®in
Canada. Subsequent to July 31, 2009, the contract was extended to March 31,
2011. In August 2009, Anika Therapeutics received marketing approval from Health
Canada to market Monovisc®, for
which the Company will also have exclusive distribution rights in
Canada.




The
Company’s contract with Newport Pharmaceuticals for the distribution of
ImunovirTM in
Canada was verbally renewed in December of 2003. The Company is currently in the
process of formalizing a written agreement with Newport Pharmaceuticals.
Revenues from ImunovirTM represent approximately 6.0% of product revenue. Either
party may terminate this agreement at any time.




Cost of
Sales




Cost of
sales consists of all laid-down costs (sum of product and transportation costs)
plus third-party warehousing, handling and distribution costs.




Research and
Development




Included
in research and development expenditures are costs associated with salaries and
fringe benefits, patents, consulting services, third party contract
manufacturing, clinical research organization services, leases for research
facilities, utilities, administrative expenses and allocations of corporate
costs. Current research and development expenditures consist solely of costs
related to the development of our L-DOS47 and Topical Interferon Alpha-2b
products. Such expenditures vary based upon the various stages of completion
that our products have achieved during a particular period.




For
L-DOS47, Helix has commenced expanded animal testing and is currently in the
process of developing clinical testing protocols so as to satisfy IND regulatory
filing requirements and from there intends to seek approval from regulators in
the U.S and Poland to commence Phase I and Phase I/II clinical studies,
respectively, with the product.




For
Topical Interferon Alpha-2b, the Company is working on two HPV-induced
indications: low-grade cervical lesions and AGW. As it relates to the cervical
indication, the Company plans to progress to large, randomized,
vehicle-controlled double-blind studies, so as to evaluate the product in an
expanded patient population. Helix is therefore preparing for both an IND and a
CTA filing in the United States and Europe respectively. Helix’s objective is to
perform two parallel confirmatory pivotal efficacy trials, requiring
approximately 400 patients per trial over a two-year period, intended to support
marketing authorizations. With respect to AGW, a Phase II trial is ongoing at
centers in Sweden and Germany, with a view to completing patient enrollment by
the end of Helix’s first quarter of fiscal 2010.




Operating, General and
Administrative Costs




Operating,
general and administrative costs consist of administrative wages, audit and
consultancy services, insurance, and costs associated with being a public
company.






49






Sales and
Marketing:




Sales and
marketing expenses consist of sales related wages, commissions and marketing,
advertising and promotion, regulatory fees and quality compliance associated
with the Company’s product distribution business in Canada.




Amortization of Intangible
and Capital Assets




Amortization
of intangible assets consists of capitalized patents. Amortization of capital
assets consists of normal amortization charges for furniture, scientific
equipment and computers.




Stock-Based
Compensation




Stock-based
compensation expense consists of the ongoing amortization of compensation costs
of stock options granted on June 30, 2005 and December 17, 2008, over the course
of their vesting period. The June 30, 2005 stock options were fully vested by
the end of fiscal 2008.




Interest Income,
Net




Interest
income, net, consists of interest earned from funds deposited on account with
financial institutions.




Foreign Exchange
Loss/Gain




Foreign
exchange gain/loss consists of exchange transactions from purchases denominated
in foreign currency plus foreign exchange translations associated with the
Company’s integrated foreign operation in Europe which consist mainly of cash,
denominated in Euro dollars.




Impairment of Intangible
Assets




Intangible
assets are subject to an impairment test under Canadian GAAP. When the carrying
amount of the intangible assets is greater than the fair value of the intangible
asset, the excess is charged to the income statement as an
impairment.




Income
Taxes




All
income taxes paid by the Company are attributable to the Company’s operations in
Ireland.




Summary
of Quarterly Results (Canadian GAAP)




The
following tables summarize the Company’s unaudited quarterly consolidated
financial information for the previous three fiscal years. This data has been
derived from the unaudited consolidated financial statements, which were
prepared on the same basis as the annual consolidated financial statements and,
in the Company’s opinion, include all adjustments necessary, consisting solely
of normal recurring adjustments, for the fair presentation of such
information.




Our
revenues per quarter for the previous three fiscal years are as
follows:




Revenue
            
            FirstQuarter
            
            
            SecondQuarter
            
            
            ThirdQuarter
            
            
            FourthQuarterFiscal
      2009
            
            $
            1,119,000
            
            
            $
            863,000
            
            
            $
            924,000
            
            
            $
            935,000Fiscal
      2008
            
            $
            885,000
            
            
            $
            791,000
            
            
            $
            1,018,000
            
            
            $
            897,000Fiscal
      2007
            
            $
            826,000
            
            
            $
            892,000
            
            
            $
            864,000
            
            
            $
            842,000





The
Company has generatedrevenues principally
from two sources: product sales; and license fees and royalties. Until the third
quarter of fiscal 2007, the Company also generated revenues from contract
research and development.






50






Revenue
over the last twelve fiscal quarters has been relatively stable except for the
increase in the third quarter of fiscal 2008 and the first quarter of fiscal
2009. In the third quarter of fiscal 2008, the Company received a minimum
royalty payment of US$100,000 from Lumera Corporation and in addition
experienced higher sales of Klean-PrepTM in
Canada. In the first quarter of 2009, the Company received a final payment from
Lumera Corporation of US$75,000 when it provided the Company with notice of
termination of its sub-license agreement with the Company.




Product
sales consist mainly of revenue from the sale in Canada of both Klean-PrepTM and
Orthovisc®.




Our net
earnings (loss) per quarter for the previous three fiscal years are as
follows:




Net
      (Loss)
            
            First
      Quarter
            
            
            Second
      Quarter
            
            
            Third
      Quarter
            
            
            Fourth
      QuarterFiscal
      2009
            
            $
            (2,321,000
            )
            
            $
            (4,252,000
            )
            
            $
            (4,134,000
            )
            
            $
            (3,395,000
            )Fiscal
      2008
            
            $
            (1,644,000
            )
            
            $
            (1,526,000
            )
            
            $
            (1,139,000
            )
            
            $
            (2,655,000
            )Fiscal
      2007
            
            $
            (1,342,000
            )
            
            $
            (1,900,000
            )
            
            $
            (1,523,000
            )
            
            $
            (2,909,000
            )





Up to and
including the first quarter of fiscal 2009, quarterly net losses remained in the
range between $1,139,000 and $2,909,000. The larger fourth quarter net loss in
fiscal 2007 reflects a one-time write down of intellectual property. As of the
fourth quarter of 2008 (and each subsequent quarter), the net losses mainly
reflect higher research and development activities. In addition, the Company
incurred various one time costs in the second and third quarters of fiscal 2009
associated with the Form 20-F registration statement which was filed with the
U.S. Securities and Exchange Commission (the “SEC”).




Year
Ended July 31, 2009 vs. Year Ended July 31, 2008




Results from
Operations




The
Company recorded a loss of $14,102,000 and $6,964,000, respectively, for the
fiscal periods ended July 31, 2009 and 2008, for a loss per common share of
$0.27 and $0.16, respectively.




The
higher loss in fiscal 2009 mainly reflects higher research and development
expenditures, stock-based compensation expense associated with stock options
granted in the second quarter, lower interest income and a foreign exchange
loss.




Revenues




Total
revenues in fiscal 2009 were $3,841,000 and represent an increase of $250,000 or
7.0% when compared to total revenues in fiscal 2008 of $3,591,000. Product
revenue contributed to the increase in revenue in fiscal 2009 when compared to
fiscal 2008 and was offset slightly by a decrease in license fees and
royalties.




Product
Revenue




Product
revenue in fiscal 2009 totalled $3,244,000 and represents an increase of
$292,000 or 9.9% when compared to product revenue in fiscal 2008 of $2,952,000.
Product sales of Orthovisc® grew in fiscal 2009 while Klean-PrepTM revenue
remained relatively stable.




License Fees and
Royalties




License
fees and royalties in fiscal 2009 totalled $597,000 and represent a decrease of
$42,000 or 6.6% when compared to fiscal 2008. The decrease reflects lower
Klean-PrepTM royalty revenue from Helsinn-Birex which was offset by the final
payment from Lumera Corporation of US$75,000 when it provided the Company with
notice of termination of its sub-license agreement.







51




Cost of
Sales




Cost of
sales in fiscal 2009 and fiscal 2008 totalled $1,516,000 and $1,239,000,
respectively. As a percentage of product revenues, cost of sales in fiscal 2009
and fiscal 2008 were 46.7% and 42.0%, respectively. In addition to some foreign
exchange, cost of sales was also impacted by higher distribution costs. The
increase in cost of sales on a percentage basis was mainly the result of lower
average sales per units sold especially for Orthovisc®. Lower pricing was
offered on Orthovisc® to assist in customer retention for a scheduled launch of
a new, single injection product in the first quarter of fiscal
2010.




Research and
Development




The
following table sets forth the research and development expenditures for L-DOS47
and Topical Interferon Alpha-2b during fiscal 2009 and 2008:




Research/Development
      Expenditures
            
            Fiscal
      2009
            
            
            Fiscal
      2008DOS47
            
            $
            4,389,000
            
            
            $
            2,876,000Topical
      Interferon Alpha-2b
            
            $
            5,933,000
            
            
            $
            2,188,000Total
      Research and Development Expenditures
            
            $
            10,322,000
            
            
            $
            5,064,000





Research
and development expenditures in fiscal 2009 totalled $10,322,000 and represent
an increase of $5,258,000 or 103.8% when compared to fiscal 2008. L-DOS47 and
Topical Interferon Alpha-2b reflect an increase of 52.6% and 171.2%,
respectively. The increase in research and development expenditures associated
with L-DOS47 are primarily related to the scale-up manufacturing program and
ongoing collaborative research initiatives in anticipation of furnishing product
for future clinical testing. The increase in research and development
expenditures associated with Topical Interferon Alpha-2b reflect the ongoing
costs for the AGW Phase II clinical trial in Sweden and Germany in addition to
scale-up manufacturing costs, preparatory work and start-up of the European
Phase II pharmacokinetic study in patients with low-grade cervical
lesions.




Research
and development expenditures in fiscal 2010 are projected to increase in the
range of 45% to 60% over such expenditures in fiscal 2009 as preparations
continue for the planned IND/CTA filings for a U.S. Phase I clinical study and a
Polish Phase I/II clinical study for L-DOS47 and a U.S. Phase II/III clinical
trial and a European Phase III clinical trial for Topical Interferon Alpha-2b
(low-grade cervical lesions indication).




Operating, General and
Administration




Operating,
general and administration expenses in fiscal 2009 totalled $3,917,000 and
represent a decrease of $31,000 or 0.8% when compared to fiscal 2008. The
operating, general and administration expenditures include one time costs
associated with the filing of a Form 20-F registration statement with the SEC,
which became effective during the third quarter of fiscal 2009. Other
expenditures included in operating, general and administration expenditures are
costs associated with the implementation of a new financial reporting system and
expenditures associated with capital raising initiatives. Offsetting some of the
aforementioned increases in expenditures are lower wages and benefits from the
foregoing of accrued vacation days by management during the current fiscal year
and lower wages and benefits due to a one-time charge relating to the
resignation of the Company’s previous Chairman, and executive bonuses paid, in
fiscal 2008.





Sales and
Marketing:




Sales and
marketing expenses in fiscal 2009 totalled $969,000 and represent an increase of
$160,000 or 19.8% when compared to fiscal 2008. The increase mainly reflects
higher sale agent commission resulting form higher product revenues along with
increased advertising and promotional expenditures.







52






Amortization of Intangible
and Capital Assets




Amortization
of intangible assets in fiscal 2009 totalled $12,000 and represents a decrease
of $4,000 when compared to fiscal 2008. The lower amortization expense of
intangible assets was the result of the write-down of in tangible assets in the
fourth quarter of fiscal 2009.




Amortization
of capital assets in fiscal 2009 increased $20,000 when compared to fiscal 2008.
The higher amortization expense of capital assets in fiscal 2009 is the result
of higher capital acquisitions in the current fiscal year.




Stock-Based
Compensation




Stock-based
compensation expenses in fiscal 2009 totalled $1,023,000 and represent an
increase of $979,000 when compared to fiscal 2008. The stock-based compensation
expense in fiscal 2009 relates to the ongoing amortization of compensation costs
of 2,070,000 stock options granted on December 17, 2008 over their vesting
period. The stock options vested 25% on the date of grant and 25% at each
anniversary date thereafter. The Company did not issue any stock options in
fiscal 2008. The stock-based compensation expense for fiscal 2008 represents the
ongoing amortization of compensation costs of stock options granted on June 30,
2005, over their vesting period.





Interest Income,
Net




Interest
income totalled $339,000 in 2009 and $645,000 in fiscal 2008. The decrease in
interest income in fiscal 2009 reflects lower interest rates earned on deposits
resulting from the global financial crisis.




Foreign Exchange
Loss/Gain




The
Company recorded a foreign exchange loss of $133,000 in fiscal 2009 and a
foreign exchange gain of $327,000 in fiscal 2008. Foreign exchange losses mainly
reflect the lower Canadian dollar exchange rate relative to the U.S. dollar with
the largest impact related to the second and third quarters of fiscal 2009. Also
impacting the foreign exchange loss in the year is the foreign currency
translation of the Company’s integrated foreign operation in Ireland. The net
assets in Ireland consist mainly of cash and cash equivalents, denominated in
Euro dollars, which are used to fund clinical trials of Topical Interferon
Alpha-2b in Europe.




Impairment of Intangible
Assets




Impairment
of intangible assets totaled $98,000 in fiscal 2009 and $nil in fiscal 2008.
During the fourth quarter of fiscal 2009, the Company reviewed its capitalized
intangible assets and determined that expected future cash flows may not exceed
their carrying values. As a result, the carrying value of the related
intellectual property became impaired and was written down.




Income
Taxes




Income
tax expenses totalled $18,000 in fiscal 2009 and $153,000 in fiscal 2008. Income
taxes are attributable to the Company’s operations in Ireland.




Year
Ended July 31, 2008 vs. Year Ended July 31, 2007




Results from
Operations




The
Company recorded a loss of $6,964,000 and $7,674,000, respectively, for the
fiscal periods ended July 31, 2008 and 2007, for a loss per common share of
$0.16 and $0.22, respectively.




Product
revenue along with license fees and royalties contributed to the increase in
revenue in fiscal 2008 when compared to fiscal 2007 while research and
development contract revenue of $0 in fiscal 2008 was lower than fiscal 2007.
The Canadian dollar’s increasing strength over the last three fiscal years
moderated in fiscal 2008.






53






Overall
expenses in fiscal 2008 were lower than in fiscal 2007. Higher interest income
and foreign exchange gains in fiscal 2008 offset higher research and development
expenditures and operating, general and administrative expenditures, in addition
to a one time write down of intangible assets in fiscal 2007.




Revenues




Total
revenues in fiscal 2008 were $3,591,000 and represent an increase of $167,000 or
4.9% when compared to total revenues in fiscal 2007 of $3,424,000. Product
revenue along with license fees and royalties contributed to the increase in
revenue in fiscal 2008 when compared to fiscal 2007, while research and
development contract revenue of $0 in fiscal 2008 was lower than fiscal
2007.




Product
Revenue




Product
revenue in fiscal 2008 totalled $2,952,000 and represents an increase of
$188,000 or 6.8% when compared to product revenue in fiscal 2007 of $2,764,000.
Product sales of Klean-PrepTM continued to grow in fiscal 2008 and more than
offset lower sales of Orthovisc® in Canada. Orthovisc® revenue now appears to be
relatively stable.




License Fees and
Royalties




License
fees and royalties in fiscal 2008 totalled $639,000 and represent an increase of
$127,000 or 24.8% when compared to fiscal 2007. The increase is mainly the
result of a milestone payment from the sub-licensing arrangement of the
Company’s biochip technology to Lumera Corporation. Subsequent to the end of
fiscal 2008, Lumera provided notice of its termination of the sub-license
agreement effective December 19, 2008 and paid the required termination payment
of US$75,000.




Research and Development
Contracts




Research
and development contract revenue in fiscal 2008 totaled $0 and represents a
decrease of $148,000 when compared to fiscal 2007. The Company completed a
research and development contract in the third quarter of fiscal 2007. The
Company currently has no plans to contract its research and development services
out to third parties, as the Company is focusing its resources on the
development L-DOS47 and Topical Interferon Alpha-2b.




Cost of
Sales




Cost of
sales in fiscal 2008 and 2007 totalled $1,239,000 and $1,139,000, respectively.
As a percentage of product revenues, cost of sales in fiscal 2008 and 2007 were
42.0% and 41.2%, respectively. The Canadian dollar’s strength over the last
three fiscal years has moderated in fiscal 2008 and was range bound during the
year, reflecting slightly higher cost of sales.




Research and
Development




The
following table sets forth the research and development expenditures for L-DOS47
and Topical Interferon Alpha-2b during fiscal 2008 and 2007:




Research/Development
      Expenditures
            
            Fiscal
      2008
            
            
            Fiscal
      2007DOS47
            
            $
            2,876,000
            
            
            $
            2,302,000Topical
      Interferon Alpha-2b
            
            $
            2,188,000
            
            
            $
            1,814,000Total
      Research and Development Expenditures
            
            $
            5,064,000
            
            
            $
            4,116,000





Research
and development expenditures in fiscal 2008 totalled $5,064,000 and represent an
increase of $948,000 or 23.0% when compared to fiscal 2007. L-DOS47 and Topical
Interferon Alpha-2b reflect an increase of 24.9% and 20.6%, respectively. The
increase in L-DOS47 research and development expenditures reflect advancing
preclinical costs in preparation for pre-IND meetings and a Phase I IND filing
which is anticipated to occur before July 31, 2009, being the end of the fourth
quarter of fiscal 2009. The increase in research and development expenditures
related to Topical Interferon Alpha-2b reflect additional costs of preparing to
open additional sites in Germany for the AGW clinical trial and the expected
Phase IIb/III IND/CTA filings for the LSIL clinical trial, anticipated to occur
before the end of the fourth quarter of fiscal 2009.






54






Operating, General and
Administration




Operating,
general and administration expenses in fiscal 2008 totalled $3,948,000 and
represent an increase of $378,000 or 10.6% when compared to fiscal 2007.
Operating, general and administration expenses in fiscal 2008 reflect higher
audit and consulting fees and a one time charge of $434,000 relating to the
resignation of the Company’s Chairman. Offsetting these costs were lower legal
fees associated with the January 2008 annual general meeting.




Sales and
Marketing:




Sales and
marketing expenses in fiscal 2008 totalled $809,000 and represent a decrease of
$39,000 or 4.6% when compared to fiscal 2007. The decrease reflects lower
advertising and promotions which were offset by higher product quality and
compliance costs.




Amortization of Intangible
and Capital Assets




Amortization
of intangible assets in fiscal 2008 totalled $16,000 and represents a decrease
of $143,000 when compared to fiscal 2007. Certain intangible assets were fully
amortized in fiscal 2007 and prior years, resulting in the lower amortization
expense in fiscal 2008 and on a forward-going basis. Intangible assets are
amortized on a straight-line basis. Amortization of capital assets in fiscal
2008 decreased marginally when compared to fiscal 2007.




Stock-Based
Compensation




Stock-based
compensation expenses in fiscal 2008 totalled $44,000 and represent a decrease
of $3,000 when compared to fiscal 2007. The Company did not issue any stock
options in fiscal 2008 and the stock-based compensation expenses during the year
represent the ongoing amortization of compensation costs of stock options
granted on June 30, 2005, over their vesting period.




Interest Income,
Net




Interest
income totalled $645,000 in fiscal 2008 and $496,000 in 2007. The increase is
primarily the result of higher on hand cash balances in fiscal 2008 versus
fiscal 2007.




Foreign Exchange
Loss/Gain




The
Company recorded a foreign exchange gain of $327,000 in fiscal 2008, which
compares favourably to the foreign exchange gain of $9,000 which was realized in
fiscal 2007. The Canadian dollar’s strength over the last three fiscal years
moderated in fiscal 2008 while the Euro dollar appreciated against all
currencies. The net assets in Europe consist mainly of cash and cash
equivalents, denominated in Euro dollars and are used to fund clinical trials of
the Topical Interferon Alpha-2b in Europe.




Impairment of Intangible
Assets




Impairment
of intangible assets totaled $0 in fiscal 2008 and $1,332,000 in fiscal 2007.
The Company previously determined that expected future cash flows may not exceed
the carrying value of its biochip technology and in fiscal 2007 recorded an
impairment of its biochip technology.




Income
Taxes




Income
tax expenses totalled $153,000 in fiscal 2008 and $105,000 in fiscal 2007.
Income taxes are attributable to the Company’s operations in Ireland where
royalty revenue remained flat on a year over year basis.






55






Recent
Canadian Accounting Pronouncements




Effective
August 1, 2008, the Company adopted the new accounting standards that were
issued by The Canadian Institute of Chartered Accountants (“CICA”): Handbook
Section 1400 “General standards on financial statement presentation”, Handbook
Section 1506 “Accounting Changes”, Handbook Section 1535 “Capital Disclosures”,
Handbook Section 3031 “Inventories”, Handbook Section 3862 “Financial
Instruments – Disclosures” and Handbook Section 3863 “Financial Instruments –
Presentation”







General Standards on
Financial Statement Presentation





Section
1400 includes requirements to assess and disclose an entity’s ability to
continue as going concern, as disclosed in note 2 of the consolidated financial
statement. The adoption of this change did not have an impact on the Company’s
consolidated financial statements.





Accounting
Changes





Section
1506, Accounting Changes allows for voluntary changes in accounting policy only
when they result in the financial statements providing reliable and more
relevant information. In addition, Section 1506: requires changes in accounting
policy to be applied retrospectively unless doing so is impracticable; requires
prior period errors to be corrected retrospectively; and calls for enhanced
disclosures about the effects of changes in accounting policies, estimates and
errors on the financial statements. The adoption of this standard did not have
any impact on the Company's consolidated financial statements.





Capital
Disclosures





Section
1535 establishes standards for disclosing information about an entity’s capital
and how it is managed. It requires the disclosure of information about: an
entity’s objectives, policies and processes for managing capital; compliance
with any capital requirements; and if it has not complied, the consequences of
such non-compliance. The Company has included disclosures recommended by Section
1535 in note 10 of the Company’s consolidated financial statements.





Inventories





Section
3031 introduces significant changes to measurement and disclosure of
inventories, including the requirement to measure inventories at the lower of
cost or net realizable value, the allocation of overhead based on normal
capacity, the use of a specific cost method for inventories that are not
ordinarily interchangeable or goods and services produced for specific purposes,
and the reversal of previous write-downs to net realizable value when there is
subsequent increase in the value of inventories. Inventory carrying amounts,
amounts recognized as an expense, write-downs and the reversals of write-downs
are required to be disclosed. The Company’s cost of inventories is comprised of
all laid down costs and are valued at the lower of cost, determined on a
first-in, first-out basis, and net realizable value. The Company adopted the
standard on a prospective basis. This section did not have a material impact on
the Company’s consolidated financial statements.





Financial
Instruments





Section
3862 on Financial Instruments – Disclosures; and Section 3863, Financial
Instruments – Presentation increase the emphasis on risk associated with both
recognized and unrecognized financial instruments and how these risks are
managed. Section 3863 replaces Section 3861, Financial Instruments – Disclosure
and Presentation. The new disclosure requirements pertaining to these Sections
are contained in note 11 of the consolidated financial statements.





Credit Risk and Fair Value
of Financial Assets and Financial Liabilities





In
January 2009, the CICA issued EIC Abstract 173 “Credit Risk and the Fair Value
of Financial Assets and Financial Liabilities”. The EIC requires the Company to
take into account the Company’s own credit risk and the credit risk of the
counterparty in determining the fair value of financial assets and financial
liabilities, including derivative instruments. The adoption of this change did
not have an impact on the Company’s consolidated financial
statements.






56





Recent
U.S. Accounting Pronouncements




Fair Value
Measurements





In
September 2006, the FASB issued FASB Statement No. 157 (“SFAS 157”), Fair Value
Measurements, which defines fair value, establishes a framework for measuring
fair value under GAAP, and expands disclosures about fair value measurements.
SFAS 157 applies to other accounting pronouncements that require or permit fair
value measurements. The new statement is effective for financial statements
issued for fiscal years beginning after November 15, 2007, and for interim
periods within those fiscal years, specifically August 1, 2008 for the Company.
The adoption of SFAS 157 did not have any impact on the Company’s consolidated
financial statements.





Fair Value
Options





In
February 2007, the FASB issued FASB Statement No. 159 (“SFAS 159”), The Fair
Value Options for Financial Assets and Financial Liabilities, which permits
entities to choose to measure many financial instruments and certain warranty
and insurance contracts at fair value on a contract-by-contract basis. SFAS 159
applies to all reporting entities, including not-for-profit organizations, and
contains financial statement presentation and disclosure requirements for assets
and liabilities reported at fair value as a consequence of the election. SFAS
159 is effective as of the beginning of an entity's first year that begins after
November 15, 2007, specifically August 1, 2008 for the Company. The adoption of
SFAS 159 did not have any impact on the Company’s consolidated financial
statements.





Accounting for Advanced
Payments and Development Activities





In June
2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue
No. 07-3, Accounting for Advance Payments for goods or Services to be Received
for Use in Future Research and Development Activities (“EITF 07-3”). EITF07-3
provides clarification surrounding the accounting for non-refundable research
and development advance payments, whereby such payments should be recorded as an
asset when the advance payment is made and recognized as an expense when the
research and development activities are performed. This issue is effective for
fiscal years beginning after December 15, 2007, specifically August 1, 2008 for
the Company. The adoption of EITF07-3 did not have any impact on the Company’s
consolidated financial statements.





Subsequent
Events





In May
2009, the FASB issued FASB Statement No. 165, Subsequent Events (“SFAS 165”).
SFAS 165 is intended to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued. SFAS 165 sets forth:


·
            The
      period after the balance sheet date during which management of a reporting
      entity should evaluate events or transactions that may occur for potential
      recognition or disclosure in the financial
  statements;


·
            The
      circumstances under which an entity should recognize events or
      transactions occurring after the balance sheet date in its financial
      statements; and


·
            The
      disclosures that an entity should make about events or transactions that
      occurred after the balance sheet
date.





SFAS 165
is effective for the Company's fiscal year ending July 31, 2009. The adoption of
SFAS 165 did not have any impact on the Company's consolidated financial
statements.





5.B.
Liquidity and Capital Resources




Since
inception, the Company has financed its operations from public and private sales
of equity, the exercise of warrants and stock options, and, to a lesser extent,
on interest income from funds available for investment, government grants,
investment tax credits, and revenues from distribution, licensing and contract
services. Since the Company does not have net earnings from its operations, the
Company’s long-term liquidity depends on its ability to access the capital
markets, which depends substantially on the success of the Company’s ongoing
research and development programs.






57






At July
31, 2009, 2008 and 2007, the Company had cash and cash equivalents totaling
$14,494,000, $19,057,000 and $11,379,000, respectively. The increase in cash and
cash equivalents is the result of several private placements. In fiscal 2007,
the Company completed a private placement issuing 3,650,000 units at $1.93 per
unit, for gross proceeds of $7,044,500. Each unit consisted of one common share
and one common share purchase warrant. The common share purchase warrants
expired, unexercised on March 31, 2008. In fiscal 2008, the Company completed
another private placement issuing 10,040,000 common shares at $1.68 per common
share, for gross proceeds of $16,867,200. In fiscal 2009, the Company completed
a private placement, issuing 6,800,000 units at $1.68 per unit, for gross
proceeds of $11,424,000. Each unit consists of one common share and one-half
common share purchase warrant with each whole common share purchase warrant
entitling the holder to purchase, subject to adjustment, one common share at a
price of $2.36 until October 1, 2011. Subsequent to the fiscal year ended July
31, 2009, the Company completed an additional private placement. On September 8,
2009, the Company completed a private placement, issuing 6,625,000 units at
$2.05 per unit, for approximate net proceeds of $11.7 million.





At July
31, 2009, 2008 and 2007, the total number of common shares issued was
53,175,335, 46,375,335 and 36,335,335, respectively, and the Company’s working
capital was $15,296,000, $19,166,000 and $11,468,000, respectively.




Based on
our planned expenditures and assuming no unanticipated expenses, we estimate
that our cash reserves and expected cash from operations will be sufficient to
meet our anticipated cash needs for working capital and capital expenditures for
the next twelve months.




The
Company has no external sources of liquidity such as bank lines of credit. The
Company will require future additional financing to carry out its business plan.
The market for both debt and equity financings for companies such as Helix has
always been challenging, and the global economic downturn and credit crisis have
added further challenges. The failure to obtain financing on a timely basis may
result in the Company’s having to reduce or delay one or more of its planned
research, development and marketing programs and to reduce related overhead, any
of which could impair the Company’s current and future value. It may also have a
material adverse effect on the Company’s ability to continue as a going concern.
Any additional equity financing, if obtained, may result in significant dilution
to the existing shareholders at the time of such financing.




The
Company may also seek additional funding from other sources, including
technology licensing, co-development collaborations, and other strategic
alliances, which, if obtained, may reduce the Company’s interest in its projects
or products. There can be no assurance, however, that any such alternative
sources of funding will be available.




Capital
Expenditures




In fiscal
2010, the Company is planning to spend approximately $174,400 in capital
expenditures, primarily on computers, scientific testing and processing
equipment. The Company is financing these expenditures from internal cash
resources and all capital equipment is located in both Canada and the United
States. There have been no divestures of capital assets.




Capital
expenditures made since the beginning of the Company’s last three fiscal years
are as follows:




Fiscal
      Year
            
            Capital
      Expenditures
            
            PurposeFiscal
      2009
            
            $
            932,000
            
            Purchase
      of Capital AssetsFiscal
      2008
            
            $
            266,000
            
            Purchase
      of Capital AssetsFiscal
      2007
            
            $
            63,000
            
            Purchase
      of Capital Assets





The
majority of capital expenditures for each of the three fiscal years mainly
represent manufacturing and scientific equipment in connection with third-party
manufacturing of clinical supplies and research/development work for both
L-DOS47 and Topical Interferon Alpha-2b.




Capital
divestitures made since the beginning of the Company’s last three fiscal years
have been $0.






58






Financial
Instruments




The
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate fair values due to their short-term
maturities. Financial instruments potentially exposing the Company to
concentrations of credit risk consist of accounts receivable, which are limited
to a large international pharmaceutical company and Canadian pharmaceutical
wholesalers and pharmacies. The Company adopts credit policies and standards to
monitor the evolving health care industry. Management is of the opinion that any
risk of credit loss is significantly reduced due to the financial strength of
the Company’s major customers. Cash and cash equivalents are invested, at times,
in certain risk free interest bearing instruments of varying maturities.
Consequently, the Company is exposed to interest rate risk as a result of
holding investments of varying maturities. The Company is exposed to foreign
exchange risk as a result of transactions in currencies other than its
functional currency, the Canadian dollar. The majority of the Company’s revenues
are transacted in Canadian Dollars, with a portion denominated in Euros and to a
lesser extent, in U.S. Dollars. Purchases of inventory are primarily transacted
in U.S. Dollars while other expenses, consisting of the majority of salaries,
operating costs and overhead are incurred primarily in Canadian Dollars.
Research and development expenditures are incurred in both Euros and Canadian
Dollars. The Company maintains net monetary asset and/or liability balances in
foreign currencies and does not engage in currency hedging activities using
financial instruments.




Cash
Flow




Cash used
in fiscal 2009 operating activities totaled ($13,157,000) including the
($14,102,000) net loss. Significant adjustments included: stock-based
compensation related to earlier stock option grants of $1,023,000; amortization
of capital assets of $274,000; foreign exchange loss of $133,000; write-down of
intangible assets $98,000 and ($718,000) in changes in non-cash working capital
balances related to operations. On a monthly basis, the average monthly cash
expenditures were approximately $1,096,000 in fiscal 2009, $583,000 in 2008, and
$507,000 in 2007; the higher monthly expenditures in fiscal 2009 were primarily
due to higher research and development expenditures, one time costs associated
with the filing of a Form 20-F registration statement with the SEC, which became
effective during the third quarter of fiscal 2009 and costs associated with the
implementation of a new financial reporting system and capital raising
initiatives. Cash used in fiscal 2008 ended July 31, 2008 operating activities
totaled ($6,997,000) including the ($6,964,000) net loss. Significant
adjustments included: amortization of capital assets of $254,000; amortization
of intangible assets of $16,000; stock-based compensation related to earlier
stock option grants of $44,000; foreign exchange gain of ($327,000); and
($20,000) in changes in non-cash working capital balances related to operations.
Cash used in fiscal 2007 ended July 31, 2007 operating activities totaled
($6,079,000) including the ($7,674,000) net loss. Significant adjustments
included: amortization of capital assets of $287,000; amortization of intangible
assets of $159,000; stock-based compensation related to earlier stock option
grants of $47,000; write-down of intangible assets of $1,332,000, foreign
exchange gain of ($9,000); and ($221,000) in changes in non-cash working capital
balances related to operations.




Cash
provided from financing activities in fiscal 2009, 2008, and 2007 was
$9,659,000, $14,614,000 and $6,480,000 respectively. All of the cash provided
from financing activities is attributable to the Company completing various
rounds of private placement financings.





In fiscal
2009, the use of funds from investing activities reflected capital purchases of
$932,000. In fiscal 2008, the use of funds from investing activities reflected
capital purchases of $266,000. Cash provided from fiscal 2007 investing
activities was $6,577,000 and predominately reflects $6,640,000 in redemptions
of short-term investments. When appropriate, the Company maintains excess funds
in risk free, short-term interest bearing investments and redeems these funds as
required for its daily operating requirements. Also, in fiscal 2007, the use of
funds from investing activities reflected capital purchases of
$63,000.




As of
July 31, 2009, the Company had $14,916,000 in tax loss carry-forwards which
expire between fiscal 2013 and 2029. The only corporate taxes owed related to
the Company’s integrated foreign subsidiary in Ireland.









59







5.C.  Research
and Development, Patents and Licenses, etc.




The
Company’s primary focus is research and development of innovative products for
the treatment and prevention of cancer based on its proprietary technologies.
The Company currently incurs research and development expenditures solely on the
development of L-DOS47 and Topical Interferon Alpha-2b.




Internally
generated research costs, including the costs of developing intellectual
property and registering patents, are expensed as incurred. Internally generated
development costs are expensed as incurred unless such costs meet the criteria
for deferral and amortization under Canadian generally accepted accounting
principles. To date, the Company has not deferred any internally generated
development costs.




Included
in research and development expenditures are costs associated with salaries and
fringe benefits, patents, consulting services, third-party contract
manufacturing, clinical research organization services, leases for research
facilities, utilities, administrative expenses and allocations of corporate
costs.




5.D.  Trend
Information




For
additional information on the current status of the Company’s product
development and research programs, see ITEM 5.A – Operating Results –
Overview as well as ITEM 4.B – Important Business
Developments.




5.E.  Off-Balance
Sheet Arrangements




The
Company has no material off-balance sheet arrangements in place at this
time.




5.F.  Tabular
Disclosure of Contractual Obligations




The
following table depicts the Company’s contractual commitments at July 31,
2009:




Total
            
            
            <1
      year
            
            
            1-3
      Years
            
            
            3-5
      Years
            
            
            >5
      YearsRoyalty
      and in-licensing (1)
            
            $
            150,000
            
            
            $
            10,000
            
            
            $
            20,000
            
            
            $
            20,000
            
            
            $
            100,000Clinical
      Research Organizations (2)
            
            $
            1,312,000
            
            
            $
            958,000
            
            
            $
            354,000
            
            
            $
            0
            
            
            $
            0Contract
      Manufacturing Organizations (3)
            
            $
            671,000
            
            
            $
            671,000
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0Collaborative
      Research Organizations (4)
            
            $
            1,195,000
            
            
            $
            934,000
            
            
            $
            261,000
            
            
            $
            0
            
            
            $
            0Purchasing
      (5)
            
            $
            1,696,000
            
            
            $
            935,000
            
            
            $
            761,000
            
            
            $
            0
            
            
            $
            0Operating
      Leases (6)
            
            $
            902,000
            
            
            $
            381,000
            
            
            $
            326,000
            
            
            $
            195,000
            
            
            $
            0Consulting
      Services (7)
            
            $
            277,000
            
            
            $
            277,000
            
            
            $
            0
            
            
            $
            0
            
            
            $
            0TOTALS
            
            $
            6,203,000
            
            
            $
            4,166,000
            
            
            $
            1,722,000
            
            
            $
            215,000
            
            
            $
            100,000





(1)
            Does
      not include future royalty and milestone
  payments.


(2)
              The
      Company has three separate CRO supplier agreements, whereby the CRO’s will
      provide collaborative services related to the management of a phase II
      clinical trial in Sweden and Germany for Topical Interferon Alpha-2b in
      patients with ano-genital warts, who are positive with HPV and the phase
      II pharmacokinetic study in
Germany.


(3)
            The
      Company has two separate CMO supplier agreements related to the Company’s
      Topical Interferon Alpha-2b program.  The one CMO agreement
      relates to the manufacturing of clinical trial kits to support the current
      phase II clinical trials of patients with ano-genital wart clinical trials
      in Sweden and Germany and the phase II pharmacokinetic evaluation in
      patients with cervical dysplasia.  The second CMO agreement
      relates to the GMP scale-up manufacturing program in support of a planned
      Phase IIb and III trials in the United States and Europe
      respectively.  The Company has three separate CMO supplier
      agreements related to the Company’s L-DOS47 program, all of which are
      interrelated in the scale-up of L-DOS47 in preparation for human clinical
      trials.


(4)
            The
      Company has one Collaborative Research master service agreement relating
      to the Company’s L-DOS47 program.  The nature of the services
      includes assay development, animal studies ongoing future clinical sample
      analysis.















60




(5)
              Orthovisc®
      purchase commitments.  The Company has inventory purchase
      commitments of $1,696,000 with one supplier through to March
      2011.
 (6)
              The
      Company owes $902,000 under various operating lease agreements with
      remaining terms of up to June 2014 for office and warehouse and research
      premises.
 (7)
              The
      Company has entered into a consulting services arrangement for both
      research and development consulting services of $277,000 through fiscal
      2010.


ITEM
6.  DIRECTORS, SENIOR MANAGEMENT, AND
EMPLOYEES




6.A.  Directors
and Senior Management




Directors
and Senior Management





Name
            Positions
            Date
      First Elected or Appointed a Director or OfficerDonald
      H. Segal
              Born:
      September 12, 1947
              Chairman
      of the Board
              Chief
      Executive Officer
              Director
      (non-independent)
            Donald
      H. Segal; M.Sc., Ph.D., has over 33 years experience in the pharmaceutical
      and bio-technology industries. Prior to joining the Company in 1995, he
      founded and managed two life science companies that he subsequently sold;
      these companies manufactured human diagnostic test kits for both the
      domestic and international markets. He has served on the Biotechnology
      Panel for the Natural Sciences and Engineering Research Council of Canada
      as one of the representatives from the business sector involved in the
      research granting system. He was Executive Vice President for the Company
      from July 1995 to April 2004, when he was appointed President/Chief
      Executive Officer. Donald H. Segal’s business functions, as Chief
      Executive Officer, include supervision of the Company’s corporate affairs
      and responsibility for developing new financial, partnering and other
      strategic initiatives for the Company. As a director, Dr. Segal
      participates in management oversight and helps to ensure compliance with
      our corporate governance policies and standards.
            July
              1995       61
   
 Name
            Positions
            Appointed a Director or
  OfficerJohn
      M. Docherty
              Born:
      December 7, 1969
              President
              Chief
      Operating Officer
              Director
      (non-independent)
            John
      M. Docherty, M.Sc., has extensive multi-disciplinary experience in the
      pharmaceutical and bio-technology industries. Since joining Helix in 1999
      in the position of Pharmaceutical Development Manager, he has played an
      integral role in implementing the development plan for the Company’s lead
      product, the patented injection-less Interferon Alpha-2b cream. After he
      was appointed Vice President of Corporate Development in June 2002, he
      liaised with strategic partners and sought and developed new opportunities
      for in-licensing and out-licensing of technology. Since his appointment as
      President in November 2007, his business functions include enhancing the
      Company’s public profile, overseeing advancing clinical programs, and
      managing the Company’s day-to-day operations. He holds a B.Sc. in
      Toxicology and a M.Sc. in Pharmacology from the University of Toronto.
      Prior to joining the Company, he was a corporate and operational strategy
      consultant with PricewaterhouseCoopers Pharmaceutical Consulting Group,
      from 1998 to 1999.
            June
              2002Kenneth
      A. Cawkell
              Born:
      June 25, 1951
              Corporate
      Secretary
              Director
      (non-independent)
              Compensation
      Committee member
              Governance
      Committee member
            Kenneth
      A. Cawkell, LLB, has been a partner in the law firm of Cawkell Brodie
      Glaister LLP since 1987 and has experience in intellectual property law
      and technology transfer. He has served as Corporate Secretary since July
      1995 and he also served as the Company’s Interim Chief Financial Officer
      from August 2004 to May 2005. He serves on the board of directors of a
      number of TSX Venture Exchange listed companies: since 1998, MBMI
      Resources Inc.; since 2003, TIO Networks Corp. (formerly Info Touch
      Technologies Corp.); since 2007, Solarvest BioEnergy Inc. (formerly, GCH
      Capital Partners Inc.); since 2007, Garson Gold Corp; and since July 2008,
      Centurion Minerals Ltd. As a director, Mr. Cawkell participates in
      management oversight and helps to ensure compliance with our corporate
      governance policies and standards.
            July
              1995     62
   
 Name
            Positions
            Appointed a Director or
      OfficerW.
      Thomas Hodgson
              Born:
      January 7, 1953
              Director
      (independent)
              Audit
      Committee Chair
              Compensation
      Committee member
            W.
      Thomas Hodgson, MBA, is currently Senior Partner and Chairman of
      Greenbrook Capital Partners Inc., a financial advisory firm, and acts as
      an advisor to the chairman of Magna International Inc. Mr. Hodgson has
      been a board member of MI Development Inc. and was President, Chief
      Executive Officer and director of Magna Entertainment Corp. from March
      2005 to March 2006. From November 2002 to March 2005, Mr. Hodgson was
      President of Strategic Analysis Corporation. Prior to that, Mr. Hodgson
      held senior positions with Canadian financial institutions and U.K.
      companies since 1979, including Canadian Imperial Bank of Commerce, Canada
      Permanent Trust Co. Central Guaranty Trust, where he served as President
      and Chief Executive Officer, Marathon Asset Management Inc., where he
      served as President, and GlobalNetFinancial.com, where he served as Chief
      Operating Officer and laterally President and Chief Executive Officer. Mr.
      Hodgson holds an MBA from Queen’s University, Kingston,
      Ontario.
            April
              2008Jack
      M. Kay
              Born:
      November 14, 1940
              Director
      (independent)
              Governance
      Committee Chair
              Audit
      Committee member
            Jack
      M. Kay is President and Chief Operating Officer of Apotex Inc., the
      largest Canadian-owned group of pharmaceutical companies. He has over 35
      years of senior operational, sales and marketing experience within the
      pharmaceutical industry. He is a director of several institutional and
      charitable organizations, including past Chairman of both the Humber River
      Regional Hospital and the International Schizophrenia Foundation. He
      currently is Vice Chairman of the Canadian Generic Pharmaceutical
      Association. He is also a director of Cangene Corporation, a TSX traded
      public company. As an independent director, Mr. Kay supervises management
      and helps to ensure compliance with corporate governance policies and
      standards.
            January
      2005Gordon
      M. Lickrish
              Born:
      January 1, 1937
              Director
      (independent)
              Compensation
      Committee Chair
              Governance
      Committee member
              Audit
      Committee member
            Gordon
      M. Lickrish, M.D., FRCS(C) has a private medical practice in the area of
      Gynaecology/Oncology. He was formerly the Head of the Pre-Invasive
      Program, Department of Obstetrics and Gynaecology, Division of Gynaecology
      and Oncology at the Toronto General Hospital and Princess Margaret
      Hospital. Prior to August 2003, he was a Professor at the University of
      Toronto and Professor Emeritus, thereafter. As an independent director,
      Dr. Lickrish supervises management and helps to ensure compliance with
      corporate governance policies and standards.
            January
      2007    63
   
 Name
            Positions
            Appointed a Director or
      OfficerSlawomir
      Majewski(1)
              Born:
      June 9, 1956
              Director
      (independent)
              Compensation
      Committee member
              Governance
      Committee member
            Dr.
      Slawomir Majewski, M.D., Director, has been the Head of the Department of
      Dermatology and Venereology, Center of Diagnostics and Treatment of STD,
      Warsaw Medical University, Poland, since 1998; Professor, Department of
      Dermatology, Warsaw School of Medicine, since 1993; and Chief of the
      Laboratory of Immunology in the Department of Dermatology, Warsaw School
      of Medicine, since 1985. He has held a number of positions in various
      professional associations and is author or co-author of over 600
      publications, including 300 papers and over 300 abstracts. Dr. Majewski
      has been a Member of the International Editorial Committee of the Journal
      of American Academy of Dermatology since 2004; and, since 2002, has been a
      member of the International Steering Committee of the FUTURE II Study on
      GARDASIL (quadrivalent anti HPV6, 11, 16, 18 vaccines).
            January
      2008  Kazimierz
      Roszkowski-Sliz(2)
              Born:
      June 1, 1952
              Director
      (independent)
            Dr.
      Kazimierz Roszkowski-Sliz, M.D., Ph.D., was appointed to the Board on
      August 17, 2009. Dr. Roszkowski-Sliz specializes in the field of lung
      disease and lung cancers, and is a director at the National Tuberculosis
      and Lung Diseases Research Institute in Warsaw, where he is also head of
      the clinical department. In addition, Dr. Roszkowski-Sliz consults on lung
      diseases issues for the Polish Ministry of Health. He holds an M.D. from
      the Medical Academy in Warsaw and a Ph.D. from the Postgraduate Medical
      Centre in Warsaw. Dr. Roszkowski-Sliz has also published over 230
      papers.
            August
      2009Photios
      (Frank) Michalargias
              Born:
      June 25, 1963
              Chief
      Financial Officer
            Photios
      (Frank) Michalargias, CA, possesses over 17 years of senior management
      experience in both public and private industry; and is experienced in
      transition and growth management, strategic planning and the raising of
      debt and equity financing. From 2004 to mid 2005, he was Chief Financial
      Officer of AP Plasman Corporation, a tier one North American automotive
      parts supplier controlled by Schroder Ventures International. From 2002
      through to mid 2004, he was Senior Finance Director for CFM Corporation, a
      public company listed on the Toronto Stock Exchange. Mr. Michalargias’
      previous tenures include senior financial roles with Trailmobile
      Corporation, Huhtamaki Oyi and Unilever. He holds a Commerce and Economics
      degree from the University of Toronto and is a Chartered Accountant and a
      member of the Ontario Institute of Chartered Accountants. Mr.
      Michalargias’ business functions, as Chief Financial Officer, include
      financial administration; responsibility for accounting and financial
      statements; liaising with auditors, the financial community and
      shareholders; and coordination of expenses/taxes activities of the
      Company.
            June
              2005    64
  
 Name
            Positions
            Appointed a Director or
      OfficerHeman
      Chao
              Born:
      January 9, 1963
              Chief
      Scientific Officer
            Heman
      Chao, Ph.D., is a biochemist with expertise in proteomics technologies. He
      has been President of Sensium Technologies Inc., a Company subsidiary,
      since November 2004 until it was wound up into the Company in April 2008.
      From 1999 to June 2002, he was Manager of Sensium Technologies Inc. From
      June 2002 to 2004, he was Vice President of Technology for the Company;
      his title was changed from Vice President of Technology to Vice President
      of Research for the Company in late 2004. Prior to joining the Company, he
      was a research fellow in the federally funded Protein Engineering Network
      of Centres of Excellence coordinating multi-center research.
            June
              2002William
      Chick
              Born:
      March 12, 1953
              VP
      Product Distribution
            William
      Chick became the Vice President Product Distribution for Helix after the
      legal amalgamation of Rivex Pharma Inc. and Helix. He joined Rivex Pharma
      Inc. in 1997 as Vice President Sales and Marketing. From 1985 to 1997, Mr.
      Chick worked in the sales and marketing departments and was director of
      marketing for Allergan Canada, an international pharmaceutical company
      that specializes in eye care. From 1977 to 1985, he held various sales and
      marketing positions at Hydron Canada, a soft contact lens manufacturer.
      Mr. Chick holds a B.Sc. in Biology from the University of
      Toronto.
            December
              2007


(1)
            Dr.
      Majewski, stepped down from the Board to assume the advisory role of
      European medical director for Helix, effective August 11,
      2009.


(2)
            Dr.
      Kazimierz Roszkowski-Sliz was appointed to the Board on August 17,
      2009.




There are
no family relationships between any of our directors or senior management. There
are no arrangements or understandings with major shareholders, customers,
suppliers or others, pursuant to which any person referred to above was selected
as a director or member of senior management.




6.B.  Compensation




Director
Compensation




Outside
or non-management directors are paid a fee of $2,000 per month for acting as a
director. The Chair of each committee of the Board and the Corporate Secretary
are paid an additional $1,000 per month for acting in such
capacity.




Directors
also participate in the Company’s 2008 Stock Option Plan. Options may expire
earlier than their stated term, in various circumstances, including termination
of the optionee’s position as a director. Where a director resigns or is not
re-elected, his option will terminate one year from the date of his termination
as a director.





Directors
are entitled to reimbursement for reasonable travel and other out-of-pocket
expenses incurred in connection with attendance at meetings of the Board. The
Board may award special remuneration to any director undertaking any special
services on behalf of the Company other than services ordinarily required of a
director. Other than indicated below, no director received any compensation for
his services as a director, including committee participation and/or special
assignments.





In the
fiscal year ended July 31, 2009, Donald H. Segal, Chairman of the Board and
Chief Executive Officer of the Company, and John M. Docherty, President, Chief
Operating Officer and a director of the Company, received the








65








compensation
set out in the Senior Management Compensation Table below. They were not
compensated in their capacities as directors, or in the case of Donald H. Segal,
in his capacity as Chairman of the Board, and accordingly, are not included in
the Director Compensation Table below.




Directors
that are not employed by the Company are paid a fee of $2,000 per month for
acting as a director. The chair of each committee of the Board and, since
December 17, 2008, the Corporate Secretary, are paid an additional $1,000 per
month for acting in those capacities. The Company’s directors also participate
in the Company’s stock option plan.





Director Compensation
Table





During
the most recently completed financial year ended July 31, 2009, the
non-management directors were granted the following options, and earned the
following fees:





Name
            
            Fees
      Earned ($)
            
            Share-based
      awards  ($)(3)
            
            Option-based
      awards
              ($)(4)
            
            Non-equity incentive plan
      compensation ($)(3)
            Pension
      Value ($)
            All
      other compensation ($)
            
            Total ($)Kenneth
      A. Cawkell
            
            $
            31,000
            
            Nil
            
            $
            122,000
            
            Nil
            Nil
            Nil
            
            $
            153,000Jack
      M.
              Kay
            
            $
            36,000
            
            Nil
            
            $
            122,000
            
            Nil
            Nil
            Nil
            
            $
            158,000Gordon
      M. Lickrish
            
            $
            36,000
            
            Nil
            
            $
            122,000
            
            Nil
            Nil
            Nil
            
            $
            158,000W.
      Thomas Hodgson
            
            $
            36,000
            
            Nil
            
            $
            122,000
            
            Nil
            Nil
            Nil
            
            $
            158,000Slawomir
      Majewski (1)
            
            $
            24,000
            
            Nil
            
            $
            122,000
            
            Nil
            Nil
            Nil
            
            $
            146,000Kazimierz
      Roszkowski-Sliz (2)
            
            Nil
            
            Nil
            
            Nil
            
            Nil
            Nil
            Nil
            
            Nil


(1)
            Dr.
      Majewski, stepped down from the Board on August 11, 2009 to assume the
      advisory role of European medical director for
  Helix.


(2)
            Dr.
      Kazimierz Roszkowski-Sliz was appointed to the Board on August 17, 2009,
      subsequent to the 2009 fiscal year
end.


(3)
            The
      Company does not grant any share based
awards.


(4)
            In
      establishing the fair value of the option awards, the Black-Scholes model
      was used with the following
assumptions:


Risk-free
      interest
      rate:                            
      0%


Dividend
      yield:                                   
      2.44%


Expected
      volatility of share price:  
64.30%


Expected
      life:                                     
      8 years


The
      estimated fair value of options granted during the fiscal year ended July
      31, 2009 is $1.22 per option. The options were granted December 17, 2008
      and vest 25% on the day of grant, and 25% on each of the first, second and
      third anniversaries of the day of
grant.











66







Outstanding Share-Based and
Option-Based Awards – Non-Management Directors





The
following table sets out incentive option-based awards held by each
non-management director as of July 31, 2009, the end of the most recently
completed financial year. The Company has not granted any share-based
awards.





Name
            Options-
      based awards
            Share- based awards(4)Number
      of securities underlying unexercised options
            Option
      exercise price
              ($)
            Option
      expiry date
            Value
      of unexercised
              in-the-money
      options(3)
              ($)
            Number
      of shares or units of shares that have not vested
            Market
      or payout value of shares or units of shares that have not
      vested
              ($)Kenneth
      A. Cawkell
            100,000
              75,000
              25,000
            $1.68
              $2.00
              $3.00
            17-Dec-2016
              30-Jun-2010
              31-Jul-2011
            $46,000
              $10,500
              $0
            0
              0
              0
            $0
              $0
              $0Jack
      M.
              Kay
            100,000
              75,000
              25,000
            $1.68
              $2.00
              $3.00
            17-Dec-2016
              30-Jun-2010
              31-Jul-2011
            $46,000
              $10,500
              $0
            0
              0
              0
            $0
              $0
              $0Gordon
      M. Lickrish
            100,000
              20,000
            $1.68
              $2.00
            17-Dec-2016
              30-Jun-2010
            $46,000
              $2,800
            0
              0
            $0
              $0W.
      Thomas Hodgson
            100,000
            $1.68
            17-Dec-2016
            $46,000
            0
            $0Slawomir
      Majewski (1)
            100,000
            $1.68
            17-Dec-2016
            $46,000
            0
            $0Kazimierz
      Roszkowski-Sliz (2)
            0
            n/a
            n/a
            $0
            0
            $0


(1)
            Dr.
      Majewski stepped down from the Board to assume the advisory role of
      European medical director for Helix, effective August 11,
      2009.


(2)
            Dr.
      Kazimierz Roszkowski-Sliz was appointed to the Board on August 17, 2009,
      subsequent to the end of the 2009 fiscal
year.


(3)
            Calculated
      as the difference between the market value of the common shares subject to
      option at July 31, 2009, the end of the last fiscal year, and the option
      exercise price for the common
shares.


(4)
            The
      Company does not grant any share-based
awards.




Incentive Plan Awards –
value vested or earned during the year – Non-Management
Directors





The
following table sets out the incentive plan awards value vested to or earned by
each non-management director during our financial year ended July 31,
2009.




Incentive
      Plan Awards – Value Vested or Earned -
Directors




Name
            
            Option-based awards - Value
      vested during the year(4)
            
            
            Share-based awards - Value
      vested during the year(3)
            
            
            Non-equity incentive plan
      compensation - Value earned during the year(3)Kenneth
      A. Cawkell
            
            $
            0
            
            
            $
            0
            
            
            $
            0W.
      Thomas Hodgson
            
            $
            0
            
            
            $
            0
            
            
            $
            0Jack
      M. Kay
            
            $
            0
            
            
            $
            0
            
            
            $
            0Gordon
      M. Lickrish
            
            $
            0
            
            
            $
            0
            
            
            $
            0Slawomir
      Majewski (1)
            
            $
            0
            
            
            $
            0
            
            
            $
            0Kazimierz
      Roszkowski-Sliz (2)
            
            $
            0
            
            
            $
            0
            
            
            $
            0


(1)
            Dr.
      Majewski, stepped down from the Board to assume the advisory role of
      European medical director for Helix, effective August 11,
      2009.


(2)
            Dr.
      Kazimierz Roszkowski-Sliz was appointed to the Board on August 17,
      2009.


(3)
            The
      Company does not grant any share-based awards or have a non-equity
      incentive compensation plan.


(4)
            25%
      of options granted during fiscal 2009, vested on the date of issue. As
      such, the vested options have no value when compared to market price.
      Other options which vested during the year were not
      in-the-money.








67





Directors’ and Officers’
Liability Insurance; Indemnity Payments





The
Company purchases annual insurance coverage for directors' and officers'
liability. The current term (March 1, 2009 to March 1, 2010) premium of
US$94,012 is paid entirely by the Company. The insurance coverage under the
policy is limited to an aggregate of $15,000,000. The Company has deductibles
under the policy of $50,000 or $150,000, depending on the claim. No deductibles
apply to claims under the policy made by directors or officers. The Company
indemnifies its directors and officers against any and all claims or losses
reasonably incurred in the performance of their service to the Company to the
extent permitted by law.





No
indemnification under section 124 of the Canada Business Corporations
Act has been paid or is to be paid for the last completed financial
year.





Senior
Management Compensation




The
following table sets forth certain information regarding the compensation for
the fiscal year ended July 31, 2009 of (i) the Chief Executive Officer and Chief
Financial Officer of the Company and (ii) the three most highly compensated
executive officers, or the three most highly compensated individuals acting in a
similar capacity, other than the CEO and CFO, at July 31, 2009, whose total
compensation was, individually, more than $150,000 for the fiscal year 2009
(calculated in accordance with the prescribed form), or who would have been such
an executive officer but for the fact that the individual was neither an
executive officer of the Company, nor acting in a similar capacity, at the end
of the 2009 fiscal year (collectively, the “Named Executive Officers” or
“NEOs”).






Summary
      Compensation Table




Name
      and principle position
            Fiscal
              Year
            Salary
              ($)
            Share-based
              awards
              ($)
            Options- based awards(1)
            Non-equity
      incentive plan compensation ($)
            Pension
              Value
              ($)
            All other compensation(3)
              ($)
            Total
              ($)Number
      of securities underlying options
            Value
      based on grant date fair value ($)
            Annual
      incentive plans(2)
            Long-term incentive
      plans(4)Donald
      H.
              Segal
              
              Chief
      Executive Officer
            2009
              2008
              2007
            $332,500
              $290,833
              $271,667
            $0
              $0
              $0
            250,000
              0
              0
            $305,000
              $0
              $0
            $122,500
              $50,000
              $0
            $0
              $0
              $0
            $0
              $0
              $0
            $116,832
              $89,511
              $93,336
            $876,832
              $430,344
              $365,003Photios
      (Frank) Michalargias
              
              Chief
      Financial Officer
            2009
              2008
              2007
            $223,750
              $215,833
              $196,667
            $0
              $0
              $0
            250,000
              0
              0
            $305,000
              $0
              $0
            $57,500
              $50,000
              $0
            $0
              $0
              $0
            $0
              $0
              $0
            $18,196
              $9,779
              $9,622
            $604,446
              $275,612
              $206,289John
      M. Docherty
              
              President
      & COO
            2009
              2008
              2007
            $205,000
              $170,625
              $156,250
            $0
              $0
              $0
            250,000
              0
              0
            $305,000
              $0
              $0
            $77,000
              $50,000
              $0
            $0
              $0
              $0
            $0
              $0
              $0
            $15,594
              $6,987
              $6,832
            $602,594
              $227,612
              $163,082Heman
              Chao
              
              Chief
      Scientific Officer
            2009
              2008
              2007
            $190,000
              $170,625
              $156,250
            $0
              $0
              $0
            250,000
              0
              0
            $305,000
              $0
              $0
            $70,000
              $50,000
              $0
            $0
              $0
              $0
            $0
              $0
              $0
            $17,807
              $10,061
              $9,622
            $582,807
              $230,686
              $165,872William
      Chick(5)
              
              VP
      Product Distribution
            2009
              2008
              2007
            $122,500
              $117,293
              $110,002
            $0
              $0
              $0
            250,000
              0
              0
            $305,000
              $0
              $0
            $0
              $0
              $0
            $0
              $0
              $0
            $0
              $0
              $0
            $62,068
              $62,179
              $59,102
            $489,568
              $179,472
              $169,104





(1)
            In
      establishing the fair value of the option awards, the Black-Scholes model
      was used with the following
assumptions:


Risk-free
      interest
      rate:                             
      0%


Dividend
      yield:                                     
      2.44%


Expected volatility of share price: 64.30%


Expected
      life:                                       8
      years


The
      estimated fair value of options granted during the fiscal year ended July
      31, 2009 is $1.22 per option. The options were granted December 17, 2008
      and vest 25% on the day of grant, and 25% on each of the first, second and
      third anniversaries of the day of
grant.


(2)
            Consists
      of performance bonus earned in the fiscal
year.


(3)
            “All
      Other Compensation” includes automobile allowance, the Company’s
      contribution to life, disability, Company paid health benefits premiums,
      extended health insurance premiums, payments in lieu of accrued vacation
      for all Named Executive Officers except William Chick, sales commissions
      for William Chick only, and contributions by the Company to a registered
      retirement savings plan (“RRSP”).


(4)
            The
      Company does not have a non-equity based long-term incentive
      plan.


(5)
            Mr.
      Chick’s sales commissions, included in “All Other Compensation” in the
      above table were $50,510 for fiscal 2009; $51,581for fiscal 2008; and
      $48,966 for fiscal 2007.





On
December 17, 2008, the Board revised the base salaries, bonus entitlement, and
other annual compensation of Donald Segal, Photios (Frank) Michalargias, John
Docherty and Heman Chao (the “Senior Executives”).  Each Senior
Executive is paid the following annual salary, commencing as of November 1,
2008, and was entitled to earn a performance bonus for the 2009 fiscal year of
an amount up to the following percentage of such salary (an “Eligible
Bonus”):


Name
            Title
            Salary
            BonusDonald  Segal
            Chief
      Executive Officer
            $350,000
            35%Photios
      (Frank) Michalargias
            Chief
      Financial Officer
            $230,000
            25%John
      Docherty
            President
      and Chief Operating Officer
            $220,000
            35%Heman
      Chao
            Chief
      Scientific Officer
            $200,000
            35%





Twenty
percent (20%) of each Senior Executive’s Eligible Bonus was based on group bonus
performance criteria consisting of financing and financial targets as well as
completing registration of the Company’s shares with the SEC, while the
remaining 80% was based on criteria specific to such Senior
Executive.  Specific performance criteria included advancements in
development activities for the Company’s lead drug development programs;
advancements in research; financial, accounting, taxation and financing matters;
matters concerning corporate governance and key personnel; and activities
designed to expand the Company’s public profile.  Subsequent to the
end of the 2009 fiscal year, the Compensation Committee considered the
performance bonuses for the 2009 fiscal year and noted that there had been
significant progress on all performance criteria.  The Committee also
noted that the performance criteria not fully achieved resulted from events
which were beyond the executives’ control.  As a consequence, the
Compensation Committee determined that in certain cases, a discretionary bonus
was appropriate. The Board approved the following bonuses $122,500 for Don
Segal; $57,500 for Photios (Frank) Michalargias; $77,000 for John Docherty;
and $70,000 for Heman Chao.







68





Outstanding Share-Based and
Option-Based Awards - Named Executive Officers





The
following table details the stock option awards outstanding for the Named
Executive Officers at the end of the most recently completed financial
year.




Name
            Option-based
      awards
            Share-based
      awards(1)Number
      of securities underlying unexercised options
            Option
      exercise price
              ($)
            Option
      expiry date
            Value
      of unexercised
              in-the-money
      options
              ($)
            Number
      of shares or units of shares that have not vested
            Market
      or payout value of shares or units of shares that have not
      vested
              ($)Donald
      H.
              Segal
            250,000
              125,000
              200,000
            $1.68
              $2.00
              $3.00
            17-Dec-2016
              30-Jun-2010
              31-Jul-2011
            $115,000
              $17,500
              $0
            0
              0
              0
            $0
              $0
              $0Photios
      (Frank) Michalargias
            250,000
              100,000
              50,000
            $1.68
              $2.00
              $3.00
            17-Dec-2016
              30-Jun-2010
              31-Jul-2011
            $115,000
              $14,000
              $0
            0
              0
              0
            $0
              $0
              $0John
      M. Docherty
            250,000
              100,000
              100,000
            $1.68
              $2.00
              $3.00
            17-Dec-2016
              30-Jun-2010
              31-Jul-2011
            $115,000
              $14,000
              $0
            0
              0
              0
            $0
              $0
              $0Heman
              Chao
            250,000
              100,000
              100,000
            $1.68
              $2.00
              $3.00
            17-Dec-2016
              30-Jun-2010
              31-Jul-2011
            $115,000
              $14,000
              $0
            0
              0
              0
            $0
              $0
              $0William
      Chick
            250,000
              75,000
            $1.68
              $2.00
            17-Dec-2016
              30-Jun-2010
            $115,000
              $10,500
            0
              0
            $0
              $0


(1)
      The Company does not grant any share-based
  awards.





Incentive Plan Awards –
value vested or earned during the year - Named Executive
Officers





The
following table sets out the incentive plan awards value vested to or earned by
each Named Executive Officer at the end of the most recently completed financial
year.





Name
            
            Option-based
      awards - Value vested during the year(1)
            
            
            Share-based
      awards - Value vested during the year(2)
            
            
            Non-equity
      incentive plan compensation - Value earned during the year(3)Donald
      H. Segal
            
            $
            0
            
            
            $
            0
            
            
            $
            122,500Photios
      (Frank) Michalargias
            
            $
            2,167
            
            
            $
            0
            
            
            $
            57,500John
      M. Docherty
            
            $
            0
            
            
            $
            0
            
            
            $
            77,000Heman
      Chao
            
            $
            0
            
            
            $
            0
            
            
            $
            70,000William
      Chick
            
            $
            0
            
            
            $
            0
            
            
            $
            0





(1)
            On
      December 17, 2008, options to purchase up to 250,000 common shares were
      granted to each Named Executive Officer. Twenty-five percent of such
      options (62,500) vested on the day of grant. As such, the vested options
      have no value when compared to market price. Other options which vested
      during the year were not
in-the-money.


(2)
            The
      Company does not grant any share-based awards or have a non-equity
      incentive compensation plan for its
directors.


(3)
            Performance
      Bonus for fiscal 2009.  As William Chick receives sales
      commissions, he does not participate in a bonus
  plan.








69





Termination
and Change of Control Benefits





Dr.
Segal’s employment agreement, dated for reference August 6, 2008, as amended,
currently provides for his employment by the Company as the Company’s Chief
Executive Officer. The employment agreement has no fixed term, and currently
provides for a base salary of $350,000, an annual performance-based bonus to be
agreed upon, term life and disability insurance, and other employee benefits as
provided to other senior employees, including the grant of stock options from
time to time as approved by the Board or a relevant Board committee. In the
event of termination of employment by the Company without cause (including the
removal of the employee from his position, the failure to reappoint him to his
position, making a fundamental change in his responsibilities not accepted by
him, or compelling him to work outside the York Region in Ontario without his
consent), or by the employee within 6 months following a change of control of
the Company (as defined in the employment agreement), or by the employee within
30 days of a material breach by the Company, then the Company will pay the
employee severance equal to two times the aggregate compensation paid to the
employee for the previous 12 months, and will either extend all insurance
coverage for the following 24 months or pay the employee an amount equal to the
cost of coverage for such period. In the event that the employee dies or becomes
disabled, the Company will pay the salary accrued to the date of deemed
termination and for one year subsequent to termination, plus a pro-rated portion
of the annual bonus most recently paid to the employee.





The
employment agreements with the Company’s President and Chief Operating Officer,
Chief Financial Officer and Chief Scientific Officer, as amended, contain
substantially the same terms as Dr. Segal’s employment agreement, except
primarily as to base salary. These employment agreements have no fixed term, and
provide for a current base salary of $230,000 for Photios (Frank) Michalargias,
Chief Financial Officer, $220,000 for John M. Docherty, President and Chief
Operating Officer, and $200,000 for Heman Chao, Chief Scientific Officer. They
also provide for an annual performance-based bonus to be agreed upon and other
employee benefits as provided to other senior employees, including the grant of
stock options from time to time as approved by the Board or a Board committee.
In the event of termination of employment by the Company without cause
(including the removal of the Named Executive Officer from his position, the
failure by the Company to reappoint him to his position, or making a fundamental
change in his responsibilities not accepted by him), or by the Named Executive
Officer within 6 months following a change of control of the Company (as defined
in the employment agreement), or by the Named Executive Officer within 30 days
of a material breach by the Company, then the Company will pay the employee
severance equal to one year’s annual salary, plus an additional one month annual
salary for every full year of employment completed by the employee, up to an
additional 12 months, plus an amount equal to the amount of any bonus paid
during the previous 12 months, and will either extend all insurance and benefits
coverage for the following 12 months or pay the employee an amount equal to the
cost of coverage for such period. In the event that the employee dies or becomes
disabled, then the Company will pay the salary accrued to the date of deemed
termination and for one year subsequent to termination, plus a pro-rated portion
of the annual bonus most recently paid to him.





William
Chick’s employment agreement currently provides for his employment as the
Company’s VP Product Distribution. The employment agreement has no fixed term,
and currently provides for an annual base salary of $122,500, an annual car
allowance of $6,000 and performance compensation of 1.5% of the first $1.5M of
gross sales, plus 2% of gross sales thereafter, standard employee benefits as
provided to other senior employees, including the grant of stock options from
time to time as approved by the Board or a relevant Board committee. In the
event of termination of employment by the Company without cause, then the
Company is required to give at least 9 months notice or payment of 9 months
salary.





In the
event of termination other than for cause of William Chick, all options to
purchase common shares held by him will terminate on the earlier of the original
expiry date(s) of such options or 30 days, and up to one year, following
termination, as determined by the Compensation Committee. In the event of
termination other than for cause of any other Named Executive Officer, all
options to purchase common shares then held by such executive will terminate on
the earlier of the original expiry date(s) of such options or one year following
termination of employment. In the case of termination of any Named Executive
Officer for cause, all options then held by such executive shall terminate on
the date of termination for cause.






70





All
employment arrangements with the Company’s Named Executive Officers include (i)
non-solicitation obligations to the Company continuing for 24 months following
termination of the officer’s employment with the Company; (ii) non-disclosure
covenants requiring the officer to keep the Company’s confidential information
confidential and prohibiting its use other than on behalf and for the benefit of
the Company, both during employment and for an indefinite period thereafter; and
(iii) covenants providing that intellectual property created or developed by the
officer during or, in certain circumstances, after termination of, his or her
employment with the Company belong to the Company.





Pursuant
to the terms of our 2008 Stock Option Plan, upon a change of control (as defined
in the 2008 Stock Option Plan), all options granted under the 2008 Stock Option
Plan shall immediately vest, notwithstanding any contingent vesting provision to
which such options may have otherwise been subject.





Securities
Authorized For Issuance under Equity Compensation Plans




The
Company grants share options to its directors, senior management and employees
from time to time. As at July 31, 2009, the securities authorized for issuance
under the equity compensation plans were as follows:




Plan
      Category
            Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
            Weighted
      average exercise price of outstanding options, warrants and
      rights
            Number
      of securities remaining available for future issuance under equity
      compensation plans (excluding those in the second
  column)Stock
      option plan (approved by shareholders)
            5,317,533
            $2.00
            1,753,533





For
information about stock options, see ITEM 6.E – Share
Ownership.




Options/Stock
Appreciation Rights Granted/Cancelled During the Most Recently Completed Fiscal
Year




At the
beginning of fiscal 2009, there were 2,030,000 stock options outstanding. During
fiscal 2009, a total of 2,070,000 stock options were granted to our senior
management, directors, employees and consultants. During fiscal 2009, 536,500
stock options expired. As at July 31, 2009 the number of stock options issued
and outstanding totaled 3,564,000.




Options/Stock
Appreciation Rights Exercised During the Most Recently Completed Fiscal
Year




During
the most recently completed fiscal year, no stock options were exercised by the
Company’s senior management, directors and/or employees/consultants. There are
no stock appreciation rights outstanding.




Directors’
and Senior Management’ Liability Insurance




The
Company purchases annual insurance coverage for directors’ and senior
management’s liability. The current term (March 1, 2009 to March 1, 2010)
premium of US$94,012 is paid entirely by the Company. The insurance coverage
under the policy is limited to an aggregate of US$15,000,000. The Company has
deductibles under the policy of $50,000 or $150,000, depending on the claim. No
deductibles apply to claims under the policy made by directors or senior
management.




6.C.  Board
Practices




Each
director holds office until the next annual general meeting of the Company or
until his successor is elected or appointed, unless his office is earlier
vacated in accordance with the Articles of Amalgamation, or with the provisions
of the CBCA. The Company’s senior management are appointed to serve at the
discretion of the Board, subject to the terms of the employment agreements
described above. The Board and committees of the Board schedule regular meetings
over the course of the year.






71






Terms
of Office




The Board
presently consists of seven directors. Each director holds office until the next
annual general meeting of the Corporation or until his successor is elected or
appointed, unless his office is earlier vacated in accordance with the Articles
of the Corporation, or with the provisions of the CBCA. See ITEM 6.A – Directors and Senior
Managementand ITEM 6.C
– Board Practices above.




Directors’
Service Contracts




The
Company receives a director’s consent from each of the independent directors
upon their acceptance of their director’s position. The Company enters into an
Indemnity Agreement with each director, indemnifying such director against any
and all claims or losses reasonably incurred in the performance of their service
to the Company to the extent permitted by law. The Company also enters into
stock option agreements with the directors to whom options have been granted. No
indemnification under section 124 of the CBCAhas been paid or is to
be paid for the last completed financial year.




Effective
August 11, 2009 Dr. Majewski, stepped down from the Board to assume the advisory
role of European medical director for Helix.




Board
Meetings and Committees; Annual Meeting Attendance




During
fiscal 2009, the Board held six meetings. For various reasons, Board members may
not be able to attend a Board meeting. All Board members are provided
information related to each of the agenda items before each meeting, and,
therefore, can provide counsel outside the confines of regularly scheduled
meetings.




The
following sets out the attendance records of our Board members during fiscal
2009:




Name
            Board
            Audit
      Committee
            Compensation
      Committee
            Governance
      CommitteeDonald
      H. Segal
            6
      of 6
            n/a
            n/a
            n/aJohn
      M. Docherty
            6
      of 6
            n/a
            n/a
            n/aKenneth
      A. Cawkell
            6
      of 6
            n/a
            6
      of 6
            2
      of 2W.
      Thomas Hodgson
            6
      of 6
            5
      of 5
            5
      of 6
            n/aJack
      M. Kay
            6
      of 6
            5
      of 5
            n/a
            2
      of 2Gordon
      M. Lickrish
            6
      of 6
            5
      of 5
            6
      of 6
            2
      of 2Slawomir
      Majewski (1)
            4
      of 6
            n/a
            1
      of 6
            0
      of 2Kazimierz
      Roszkowski-Sliz (2)
            n/a
            n/a
            n/a
            n/a





(1)
            Dr.
      Majewski, stepped down from the Board to assume the advisory role of
      European medical director for Helix, effective August 11,
      2009.


(2)
            Dr.
      Kazimierz Roszkowski-Sliz was appointed to the Board on August 17,
      2009.




Audit
Committee




The
Company has an Audit Committee, which recommends to the Board the engagement of
the independent auditors of the Company and reviews with the independent
auditors the scope and results of the Company’s audits, the Company’s internal
accounting controls, and the professional services furnished by the independent
auditors to the Company. The Company has an Audit Committee charter, last
approved by the Board on October 20, 2009, a copy of which, is attached as an
Exhibit to this Annual Report. Audit Committee members were last appointed on
December 17, 2008 subsequent to the Company’s annual general meeting held the
previous day.




The Audit
Committee is currently comprised of three members: W. Thomas Hodgson (Chair),
Jack M. Kay and Gordon Lickrish, all of whom are independent directors. The
Board has determined that Mr. Hodgson satisfies the criteria of “audit committee
financial expert”. All members of the audit committee are financially literate,
meaning








72








they have
the ability to read and understand a set of financial statements that present a
breadth and level of complexity of accounting issues that are generally
comparable to the breadth and complexity of the issues that can reasonably be
expected to be raised by the Company’s financial statements. A brief description
of the education and experience of each of our audit committee members is set
forth below.




W. Thomas
Hodgson, MBA, is currently Senior Partner and Chairman of Greenbrook Capital
Partners Inc., a financial advisory firm, and acts as an advisor to the chairman
of Magna International Inc.  Mr. Hodgson has been a board member of MI
Development Inc. and was President, Chief Executive Officer and director of
Magna Entertainment Corp. from March 2005 to March 2006. From November 2002 to
March 2005, Mr. Hodgson was President of Strategic Analysis Corporation. Prior
to that, Mr. Hodgson held senior positions with Canadian financial institutions
and U.K. companies since 1979, including Canadian Imperial Bank of Commerce,
Canada Permanent Trust Co. Central Guaranty Trust, where he served as President
and Chief Executive Officer, Marathon Asset Management Inc., where he served as
President, and GlobalNetFinancial.com, where he served as Chief Operating
Officer and laterally President and Chief Executive Officer. Mr. Hodgson holds
an MBA from Queen’s University, Kingston, Ontario.




Jack M.
Kay is President and Chief Operating Officer of Apotex Inc., the largest
Canadian-owned group of pharmaceutical companies. He has over 35 years of senior
operational, sales and marketing experience within the pharmaceutical industry.
He is a director of several institutional and charitable organizations,
including past Chairman of both the Humber River Regional Hospital and the
International Schizophrenia Foundation. He currently is Vice Chairman of the
Canadian Generic Pharmaceutical Association. He is also a director of Cangene
Corporation, a TSX  traded public company.




Gordon M.
Lickrish, M.D., FRCS(C) has a private medical practice in the area of
Gynaecology/Oncology. He was formerly the Head of the Pre-Invasive Program,
Department of Obstetrics and Gynaecology, Division of Gynaecology and Oncology
at the Toronto General Hospital and Princess Margaret Hospital. Prior to August
2003, he was a Professor at the University of Toronto and Professor Emeritus,
thereafter.




The Audit
Committee is responsible for reviewing the Company’s financial reporting
procedures, internal controls and the performance of the Company’s external
auditors. The Audit Committee is also responsible for reviewing the annual and
quarterly financial statements and accompanying Management’s Discussion and
Analysis prior to their approval by the full Board. The Audit Committee also
reviews the Company’s financial controls with the auditors of the Company on an
annual basis.




The
Company’s independent auditor is accountable to the Board and to the Audit
Committee. The Board, through the Audit Committee, has the ultimate
responsibility to evaluate the performance of the independent auditor, and
through the shareholders, to appoint, replace and compensate the independent
auditor. Any non-audit services must be pre-approved by the Audit
Committee.




Governance
Committee




Governance
Committee members were last appointed on December 17, 2008, subsequent to the
Company’s annual general meeting held on the previous day. The current members
of the Governance Committee are Jack M. Kay, Kenneth A. Cawkell, and Gordon M.
Lickrish. Of the three, only Kenneth A. Cawkell is not independent. The
Governance Committee has both governance and nominating responsibilities, which
includes the responsibility of identifying new candidates for Board nominations
who have the requisite knowledge and experience, orientation of new board
members and continuing education of board members.




Compensation
Committee




Compensation
Committee members were last appointed on December 17, 2008 subsequent to the
Company’s annual general meeting held on the previous day, and originally
comprised Gordon M. Lickrish (Chair), W. Thomas Hodgson, Kenneth A. Cawkell and
Slawomir Majewski. Of the four, only Kenneth A. Cawkell is not independent.
Slawomir Majewski ceased to be a member of this Committee on August 11, 2009
when he resigned as a director.








73








The
Compensation Committee’s purpose includes making recommendations to the Board
regarding the overall compensation of the executive officers to assure that they
are compensated effectively in a manner consistent with the Company’s business,
goals and objectives, stage of development, financial condition and prospects,
and the competitive environment; (ii) advising the Board on the compensation of
non-employee directors; (iii)  making recommendations to the Board
with respect to incentive-compensation plans and equity-based plans and
administering the Company’s compensation plans. On an annual basis, the
Compensation Committee shall recommend to the Board annual and long-term
performance goals for the executive officers, evaluate the executive officers’
performance against those goals, and recommend to the Board the executive
officers’ compensation, including salaries, bonuses, stock options, and other
benefits, based on this evaluation.




6.D.  Employees




The
number of employees as at July 31 of each of the last three fiscal years is as
follows:




Name
            2009
            2008
            2007Research
      & Development
            23
            22
            22Operating
      General & Administration
            3
            3
            4Sales
      & Marketing
            1
            1
            1Total
            27
            26
            27




None of
the Company’s employees are covered by collective bargaining
agreements.





6.E.  Share
Ownership




The
following two tables provide information as to the share ownership in the
Company (including disclosure on an individual basis of the number of shares and
percentage of the Company’s shares outstanding of that class) held by the
persons listed and options granted to them on the Company’s shares.




Beneficial
ownership of shares is determined under rules of the SEC and generally includes
any shares over which a person exercises sole or shared voting or investment
power. Ordinary shares subject to options are deemed to be outstanding for the
purpose of computing the ownership percentage of the person holding these
options, but are not deemed to be outstanding for the purpose of computing the
ownership percentage of any other person.




Directors’
share ownership




The
following table indicates the common shares and stock options outstanding for
each director at October 20, 2009.




Name
            Number
      of common shares
            Percentage of ownership(1)
            Number of securities underlying
      unexercised options(2)
            Option
      exercise price
            Option
      expiry date
            Common shares plus stock
      options(3)
            Percentage of
      ownership(4)Donald
      H.
              Segal
            1,387,000
            2.61%
            250,000
              125,000
              200,000
            $1.68
              $2.00
              $3.00
            17-Dec-2016
              30-Jun-2010
              31-Jul-2011
            1,837,000
            3.05%John
      M. Docherty
            100
            **
            250,000
              100,000
              100,000
            $1.68
              $2.00
              $3.00
            17-Dec-2016
              30-Jun-2010
              31-Jul-2011
            325,100
            **Kenneth
      A. Cawkell
            102,100
            **
            100,000
              75,000
              25,000
            $1.68
              $2.00
              $3.00
            17-Dec-2016
              30-Jun-2010
              31-Jul-2011
            252,100
            **  Jack
      M.
                Kay
              381,700
              **
              100,000
                75,000
                25,000
              $1.68
                $2.00
                $3.00
              17-Dec-2016
                30-Jun-2010
                31-Jul-2011
              531,700
              **Gordon
      M. Lickrish
              10,000
              **
              100,000
                20,000
              $1.68
                $2.00
              17-Dec-2016
                30-Jun-2010
              80,000
              **W.
      Thomas Hodgson
              10,000
              **
              100,000
              $1.68
              17-Dec-2016
              60,000
              **Slawomir
      Majewski (5)
              1,915,600
              3.60%
              100,000
              $1.68
              17-Dec-2016
              1,965,600
              3.28%Kazimierz
      Roszkowski-Sliz (6)
              0
              **
              0
              n/a
              n/a
              0
              **


** Less
than 1% ownership






74




(1)
            Based
      on 59,800,335 common shares issued and outstanding on October 20,
      2009


(2)
            All
      stock options exercisable to acquire common shares (vested and
      unvested)


(3)
            Total
      number of common shares plus all stock option that will have vested within
      60 days of October 20, 2009


(4)
            Ownership
      percentage assumes aggregate beneficial ownership of common shares and
      common shares acquirable upon exercise of options within 60 days of
      October 20, 2009


(5)
            Dr.
      Slawomir Majewski resigned from the Board on August 11,
    2009.


(6)
            Dr.
      Kazimierz Roszkowski-Sliz was appointed to the Board on August 17,
      2009.





Senior
Managements’ share ownership




The
following table indicates the common shares and stock options outstanding for
each senior manager at October 20, 2009.




Name
            Number
      of common shares
            Percentage of ownership(1)
            Number of securities underlying
      unexercised options(2)
            Option
      exercise price
            Option
      expiry date
            Common shares plus stock
      options(3)
            Percentage of
      ownership(4)Donald
      H.
              Segal
            1,387,000
            2.61%
            250,000
              125,000
              200,000
            $1.68
              $2.00
              $3.00
            17-Dec-2016
              30-Jun-2010
              31-Jul-2011
            1,837,000
            3.05%Photios
      (Frank) Michalargias
            0
            **
            250,000
              100,000
              50,000
            $1.68
              $2.00
              $3.00
            17-Dec-2016
              30-Jun-2010
              31-Jul-2011
            275,000
            **John
      M. Docherty
            100
            **
            250,000
              100,000
              100,000
            $1.68
              $2.00
              $3.00
            17-Dec-2016
              30-Jun-2010
              31-Jul-2011
            325,100
            **Heman
              Chao
            0
            **
            250,000
              100,000
              100,000
            $1.68
              $2.00
              $3.00
            17-Dec-2016
              30-Jun-2010
              31-Jul-2011
            325,000
            **William
      Chick
            5,000
            **
            250,000
              75,000
            $1.68
              $2.00
            17-Dec-2016
              30-Jun-2010
            205,000
            **


** Less
than 1% ownership


(1)
            Based
      on 59,800,335 common shares issued and outstanding on October 20,
      2009


(2)
            All
      stock options exercisable to acquire common shares (vested and
      unvested)


(3)
            Total
      number of common shares plus all stock option that will have vested within
      60 days of October 20, 2009


(4)
            Ownership
      percentage assumes aggregate beneficial ownership of common shares and
      commons shares acquirable upon exercise of options within 60 days of
      October 20, 2009








75





Stock
Options




Incentive
stock options are granted by the Company in accordance with the rules and
policies of the Toronto Stock Exchange, the CBCA, and the Ontario Securities
Commission, including the number of common shares under option, the exercise
price and expiration date of such options, and any amendments thereto. The
Company adopted its initial formal written stock option plan on April 25, 1996
(the “Old Plan”), and amended and restated the Old Plan on November 30,
2000.




As of
October 20, 2008, the Board, subject to regulatory and shareholder approval,
adopted a new stock option plan entitled the “2008 Stock Option Plan” (the “2008
Plan”). The Company’s shareholders approved the 2008 Plan at the annual general
meeting held December 16, 2008 and the Board implemented the 2008 Plan on
December 17, 2008. The 2008 Plan replaces the Old Plan, and all options
previously outstanding under the Old Plan continue to be outstanding under, and
governed by, the 2008 Plan.




The
principal purposes of the Company’s stock option program are: to provide the
Company with the advantages of the incentive inherent in share ownership on the
part of employees, officers, directors, and consultants responsible for the
continued success of the Company; to create in such individuals a proprietary
interest in, and a greater concern for, the welfare and success of the Company;
to encourage such individuals to remain with the Company; and to attract new
employees, officers, directors and consultants to the Company.




Summary
of 2008 Plan





The
following is a summary of the 2008 Plan:




Principal
Purposes:The principal purposes of the 2008 Plan are to
provide the Company with the advantages of the incentive inherent in share
ownership on the part of employees, officers, directors, and consultants
responsible for the continued success of the Company; to create in such
individuals a proprietary interest in, and a greater concern for, the welfare
and success of the Company; to encourage such individuals to remain with the
Company; and to attract new employees, officers, directors and consultants to
the Company.




Benefit to
Shareholders:  The 2008 Plan is expected to benefit
shareholders by enabling the Company to attract and retain personnel of high
caliber by offering them an opportunity to share in any increase in value of the
Company’s common shares resulting from their efforts.




Administration:  The
Board has delegated authority for administration of the 2008 Plan to the
Compensation Committee.




Eligibility:  Options
to purchase common shares of the Company may be granted to directors, officers,
employees or consultants of the Company or its affiliates (“Eligible
Persons”).




Options
Available:  The options may be granted to purchase up to 10% of
the Company’s outstanding shares from time to time. Based on the Company’s
current issued and outstanding shares, options to purchase up to 5,980,033
common shares may be granted under the 2008 Plan. There are currently options to
purchase a total of 3,564,000 shares outstanding under the 2008 Plan, leaving
(based on the Company’s current issued and outstanding shares) a total of
2,416,033 common shares available for grant. Additional common shares will
automatically become available for grant under the 2008 Plan upon any increase
in the Company’s issued and outstanding shares, to the extent of 10% of such
increase.






76






Additional Option
Grants:  The number of common shares under options which have
been exercised, and the number under those unexercised options which have
expired or been cancelled, can be the subject of another option
grant.




Limitations on
Insiders:  The number of common shares issuable to insiders, at
any time, under the 2008 Plan and all other security based compensation
arrangements of the Company, cannot exceed 10% of the Company’s issued and
outstanding common shares, and the number of common shares issued to insiders,
within any one year period, under the 2008 Plan and all other security based
compensation arrangements of the Company, cannot exceed 10% of the Company’s
issued and outstanding common shares.




Limitation on any Single
Optionee:  The number of common shares which may be subject to
options granted to any one person under the 2008 Plan may not exceed 5% of the
issued and outstanding common shares of the Company.




Exercise
Price:  The Compensation Committee establishes the exercise
price of all options granted, which price may not be less than the closing price
of the Company’s common shares on The Toronto Stock Exchange on the trading day
immediately preceding the date of grant of the option.




Vesting:  Options
may be subject to such vesting requirements, if any, as are determined by the
Compensation Committee. Upon a change of control of the Company, all unvested
options shall immediately vest.




Termination and
Adjustments:  Each option shall expire at such time as is
determined by the Compensation Committee on the grant of such option, but in no
event more than 10 years from the date of grant. In the event that an option’s
expiration date falls during the period of any trading blackout period
self-imposed by the Company or within four business days thereafter, such
options may be exercised until the end of the fifth business day following the
expiration of the blackout period. Subject to the foregoing, all options will
terminate on the earliest of the following dates:




·
            the
      expiration date specified for such option in the option agreement with the
      Company evidencing such option;


·
            where
      the optionee’s position as an Eligible Person is removed or terminated for
      just cause, the date of such termination for just
  cause;


·
            where
      the optionee’s position as an Eligible Person terminates due to the death
      or disability of the optionee, one year following such
      termination;


·
            where
      the optionee’s position as an Eligible Person terminates for a reason
      other than the optionee’s disability, death, or termination for just cause
      (termination for such other reason being hereinafter referred to as a
      “Voluntary Termination”), and the optionee has no continuing business
      relationship with the Company or an affiliate as an Eligible Person in any
      other capacity:


·
            where
      the optionee held the position of a director of the Company or an
      affiliate, one year after the date of Voluntary Termination;
      or


·
            where
      the optionee held any other position with the Company or an affiliate,
      such period of time after the date of Voluntary Termination, which shall
      be not less than 30 days nor more than one year, as is determined by the
      Compensation Committee at the time the option is granted, subject to
      extension by the Compensation Committee in its sole discretion, at any
      time during the duration of the option, up to but not beyond one year
      following the date of Voluntary
Termination.





The
retirement of a director at a meeting of shareholders pursuant to the constating
documents of the Company and the re-election of such director at such meeting is
deemed not to be a retirement, or termination of the position of, such
director.




Anti-dilution:  The
2008 Plan has anti-dilution provisions for the Company to make appropriate
adjustments to outstanding options in certain events, including a share
consolidation, stock split, stock dividend, reorganization or other similar
alteration.




Assignability:  The
options are non-transferable and non-assignable.








77






Amendment:  Subject
to the limitation in the next sentence, the Compensation Committee may amend the
plan or any option agreement, including without limitation: in order to make
changes of a clerical nature or changes to clarify the meaning of existing
provisions; to change the vesting provisions of an option; to reflect any
requirements of applicable regulatory bodies or stock exchanges; to extend the
term of an option held by an Eligible Person who is not an insider; to reduce
the option price of an option held by an Eligible Person who is not an insider;
and to change the categories of Persons who are Eligible Persons. The
Compensation Committee shall not, without the approval of the shareholders of
the Company, have the right to: amend an option agreement in order to increase
the number of common shares which may be issued pursuant to any option granted
under the 2008 Plan; reduce the option exercise price of any option granted
under the 2008 Plan then held by an insider; or extend the term of any option
granted under the 2008 Plan then held by an insider.




Other:  There is no
ability for the Company to transform an option into a stock appreciation right
involving an issuance of securities from treasury. The Company has not provided
any financial assistance to any optionee to facilitate the exercise of options.
There are no entitlements previously granted and subject to ratification by the
shareholders.





ITEM
7.  MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS




7.A.  Major
Shareholders.




7.A.1.a.  Beneficial
Owners of More Than 5% of Helix Common Shares.




The
following table sets forth certain information, as known to the Company or as
can be ascertained from public filings, regarding shareholders that are the
beneficial owners of 5% or more of the Company’s common shares, not including
officers and directors of the Company:




Name of Beneficial
      Owner(1)
            
            Number
      of shares Beneficially Owned
            
            
            Percent
              of
      ClassSylwester
      and Dorota Cacek (2)
            
            
            9,710,000
            
            
            
            15.55
            %Witold
      Zaraska (3)
            
            
            5,960,000
            
            
            
            9.49
            %Herald
      Janssen (4)
            
            
            3,622,059
            
            
            
            6.06
            %Wojciech
      Hajduk
            
            
            3,600,000
            
            
            
            6.02
            %Isabela
      Flejseirowicz
            
            
            3,600,000
            
            
            
            6.02
            %Zbigniew
      Lobacz (5)
            
            
            3,420,000
            
            
            
            5.56
            %Winered
      Investments Limited (6)
            
            
            3,280,000
            
            
            
            5.34
            %





(1)
            Beneficial
      ownership has been determined in accordance with Rule 13d-3 under the
      Exchange Act. Unless otherwise noted, we believe that all persons named in
      the table have sole voting and investment power with respect to all common
      shares beneficially owned by them. These amounts include all outstanding
      share warrants, all of which are exercisable within 60 days of October 20,
      2009.


(2)
            Consists
      of 7,060,000 common shares and warrants to purchase up to 2,650,000 common
      shares at a price of $2.36 per share, subject to adjustment, prior to
      October 1, 2011.


(3)
            Consists
      of 2,980,000 common shares and warrants to purchase up to an additional
      2,980,000 common shares at a price of $2.87 per share, subject to
      adjustment, prior to September 8,
2012.


(4)
            Mr.
      Janssen beneficially owns, controls or directs a total of 3,622,059 common
      shares of the Company: 2,035,698 common shares through International Penta
      Financial Services AG; 146,212 common shares through Genesis Investment
      Funds Limited; 1,440,029 common shares through Genesis Energy Investment
      Company; and 120 common shares through Genesis Industry Holding
      Establishment.


(5)
            Consists
      of 1,710,000 common shares and warrants to purchase up to an additional
      1,710,000 common shares at a price of $2.87 per share, subject to
      adjustment, prior to September 8,
2012.


(6)
            Consists
      of 1,640,000 common shares and warrants to purchase up to an additional
      1,640,000 common shares at a price of $2.87 per share, subject to
      adjustment, prior to September 8,
2012.









78






7.A.1.b.  Significant
Changes in Major Shareholders’ Holdings.




With the
exception of the 3,622,059 shares held by Herald Janssen which were amassed over
time, and the participation in private placements of equity in the Company by
the remaining shareholders set forth in the above table, there has not been a
significant change in the percentage ownership held by any major shareholders
during the past three years.




On
December 19, 2007 the Company issued 10,040,000 common shares at $1.68 per
share. As a result of this placement, Wojciech Hajduk and Isabela Flejseirowicz
became shareholders of the Company, acquiring 3,600,000 common shares
each.




On
October 2, 2008, the Company issued 6,800,000 units through a private placement
at a unit price of $1.68. Each unit consists of one common share and one-half of
one common share purchase warrant, with each whole common share purchase warrant
entitling the holder to purchase, subject to adjustment, one common share at a
price of $2.36. As a result of this private placement, Sylwester and Dorota
Cacek became “insiders” of the Company, currently holding approximately 13.28%
of the Company’s outstanding shares, and they will hold approximately 15.55%
after exercise of the warrants acquired by them in the private
placement.




On
September 8, 2009, the Company issued 6,625,000 units through a private
placement at a unit price of $2.05. Each unit consists of one common share and
one common share purchase warrant, with each common share purchase warrant
entitling the holder to purchase, subject to adjustment, one common share at a
price of $2.87. As a result of this private placement, Witold Zaraska, Zbigniew
Lobacz and Winered Investments Limited became shareholders of the Company,
acquiring the shares and warrants set out in the above table.




7.A.1.c.  Different Voting
Rights. The Company’s major shareholders do not have different voting
rights.




7.A.2.  U.S. Share
Ownership. As of September 30, 2009, there were a total of 179 holders of
record of our common shares, of which 2 were registered with addresses in the
United States. We believe that the number of beneficial owners is substantially
greater than the number of record holders, because a large portion of our common
shares are held of record in broker “street names.” As of September 30, 2009
United States holders of record held approximately 3.31% of our outstanding
common shares.





7.A.3.  Control of
Company. The Company is a publicly owned Canadian corporation, the shares
of which are owned by Canadian residents, United States’ residents, and other
foreign residents. The Company is not controlled by any foreign government or
other person(s) except as described in ITEM 4.A – History and Progress of
the Company and ITEM
6.E – Share Ownership.





7.A.4.  Change
of Control of Company Arrangements.




Not
Applicable.




7.B.  Related
Party Transactions




During
the 2009, 2008 and 2007 fiscal years, the Company paid $287,000, $267,000 and
$255,000, respectively, to Cawkell Brodie Glaister LLP, legal counsel to the
Company, for legal services rendered. Kenneth A. Cawkell, Corporate Secretary
and a director of the Company, is a partner of Cawkell Brodie Glaister
LLP.




The
Company has identified a complete fill finish solution provider, Chesapeake
Biological Laboratory in Baltimore, for the purposes of vialing bulk drug
product of L-DOS47 for human clinical testing. Jack M. Kay, a director of Helix
is also a director of Cangene Corporation, the parent company of Chesapeake
Biological Laboratory. During the 2009, 2008 and 2007 fiscal years, the Company
paid $156,000, $0 and $0, respectively to Chesapeake Biological
Laboratory.




The
Company is party to an agreement with Apotex, a Canadian pharmaceutical company,
to identify and characterize a lead formulation for Apotex’s topical therapeutic
product line. Apotex is considered a related party, as Jack M. Kay, a director
of the Company, is also the President and Chief Operating Officer of Apotex.
During the 2009, 2008 and 2007 fiscal years, the Company received $0, $0 and
$148,000, respectively, for contracted research and development services
provided to Apotex.






79






Effective
September 2006, the Company terminated its contractual arrangement to pay Dr.
Marianna Foldvari, a former director of a subsidiary company, for consulting
services. Prior to September 2006, the Company paid the director $2,500 per
month for consulting services.




Management
believes the transactions referenced above were on terms at least as favorable
to the Company as the Company could have obtained from unaffiliated
parties.




7.C.  Interests
of Experts and Counsel




Not
Applicable.




ITEM
8.  FINANCIAL INFORMATION




8.A.  Consolidated
Statements and Other Financial Information




The
Company’s Audited Consolidated Financial Statements for the fiscal years ended
July 31, 2009, 2008 and 2007 are stated in Canadian Dollars and are prepared in
accordance with Canadian GAAP, the application of which, in the case of the
Company, conforms in all material respects for the periods presented with U.S.
GAAP, except as discussed in Note 20 to the financial statements.




The
financial statements as required under ITEM 17. – Financial
Statements are attached hereto. The audit report of KPMG LLP, independent
registered public accounting firm, is included herein immediately preceding the
Company’s Audited Consolidated Financial Statements.




8.A.7.  Legal/Arbitration
Proceedings




The
directors and the senior management of the Company do not know of any material,
active or pending, legal proceedings against them, nor is the Company involved
as a plaintiff in any material proceeding or pending litigation.




The
directors and the senior management of the Company know of no active or pending
proceedings against anyone that might materially adversely affect an interest of
the Company.




8.A.8.  Dividend
Distributions




The
Company has not paid, and has no current plans to pay, dividends on its common
shares. We currently intend to retain future earnings, if any, to finance the
development of our business. Any future dividend policy will be determined by
the Board, and will depend upon, among other factors, our earnings, if any,
financial condition, capital requirements, any contractual restrictions with
respect to the payment of dividends, the impact of the distribution of dividends
on our financial condition, tax liabilities, and such economic and other
conditions as the Board may deem relevant.




8.B.  Significant
Changes




No
undisclosed significant change has occurred since the date of the annual
financial statements.




ITEM
9.  THE OFFER AND LISTING




Not
Applicable, except for Item 9.A.4 and Item 9.C only.







80




9.A.4  Common
Share Trading Information




The
Company’s common shares began trading on the Toronto Stock Exchange in Toronto,
Ontario, Canada, on June 3, 1996. The current stock symbol is
“HBP”.




The
following table lists the volume of trading and the high and low sales prices on
the Toronto Stock Exchange for the Company’s common shares for: the last six
months; the last nine fiscal quarters; and the last five fiscal
years.




Period
      Ended
            
            High
            
            
            LowMonthlySeptember
      30, 2009
            
            $
            3.20
            
            
            $
            2.20August
      31, 2009
            
            $
            2.48
            
            
            $
            2.15July
      31, 2009
            
            $
            2.27
            
            
            $
            1.39June
      30, 2009
            
            $
            1.51
            
            
            $
            1.30May
      31, 2009
            
            $
            1.48
            
            
            $
            1.20April
      30, 2009
            
            $
            1.54
            
            
            $
            1.28QuarterlyJuly
      31, 2009
            
            $
            2.27
            
            
            $
            1.20April
      30, 2009
            
            $
            1.80
            
            
            $
            1.15January
      31, 2009
            
            $
            1.92
            
            
            $
            1.60October
      31, 2008
            
            $
            1.63
            
            
            $
            1.20July
      31, 2008
            
            $
            1.60
            
            
            $
            1.15April
      30, 2008
            
            $
            1.95
            
            
            $
            1.40January
      31, 2008
            
            $
            2.22
            
            
            $
            1.58October
      31, 2007
            
            $
            1.85
            
            
            $
            1.25YearlyJuly
      31, 2009
            
            $
            2.27
            
            
            $
            1.15July
      31, 2008
            
            $
            2.21
            
            
            $
            1.20July
      31, 2007
            
            $
            2.75
            
            
            $
            1.01July
      31, 2006
            
            $
            4.70
            
            
            $
            1.65July
      31, 2005
            
            $
            4.30
            
            
            $
            1.79





The
Company’s common shares began trading on the OTCQX International market on June
23, 2009, with the trading symbol of “HXBPF”.




The
Company’s common shares began trading on the Frankfurt Stock Exchange on January
3, 2000, with the trading symbol of “HBP.F”.




The
Company’s common shares began trading on the Stuttgart Stock Exchange on
September 11, 2000, with the trading symbol of “HBP.SG”.




The
Company’s common shares began trading on the Munich Stock Exchange on September
11, 2000, with the trading symbol of “HBP.MU”.




The
Company’s common shares began trading on the Berlin-Bremen Stock Exchange on
September 13, 2000, with the trading symbol of “HBP.BE”.




The
Company’s common shares began trading on the XETRA Exchange, based in Frankfurt,
Germany, on January 1, 2003, with the trading symbol of “HBP.DE”.






81






The
Company’s common shares began trading on the OTCQX International Market, based
in New York, on June 23, 2009, with the trading symbol of “HXBPF”.




9.B.  Plan
of Distribution




Not
Applicable.




9.C.  Markets




The
Company’s common shares trade on the Toronto Stock Exchange in Canada and on the
OTCQX International market in the United States. In addition, although the
Company did not seek to be listed on the Berlin-Bremen, Frankfurt, Munich,
Stuttgart and XETRA stock exchanges in Europe, the Company’s common shares trade
on these exchanges.




9.D.  Selling
Shareholders




Not
Applicable.




9.E.  Dilution




Not
Applicable.




9.F.  Expenses
of the Issue




Not
Applicable.




ITEM
10.  ADDITIONAL INFORMATION




10.A.  Share
Capital




Not
Applicable.




10.B.  Memorandum
and Articles of Association




Helix
BioPharma Corp. was originally formed upon the amalgamation of International
Helix Biotechnologies Inc. and Intercon Pharma Inc. pursuant to Articles of
Amalgamation on July 31, 1995 under the CBCA. In January 2000, the shareholders
of the Company amended the articles of the Company by special resolution to
reduce the minimum number of directors from six to five. In January 2006, the
shareholders of the Company amended the articles of the Company by special
resolution to grant authority to the Board to appoint one additional director,
at any time until the Company’s next annual general meeting following the
amendment, to hold office until such annual general meeting. In January 2007,
the shareholders of the Company amended the articles of the Company by special
resolution to grant authority to the Board to appoint one or more additional
directors, at any time, to hold office until the Company’s next annual general
meeting following the appointment, but the total number of directors so
appointed may not exceed one-third of the number of directors elected at the
previous annual meeting of shareholders. In April 2008, the Company completed a
short-form vertical amalgamation with four wholly-owned subsidiaries pursuant to
Articles of Amalgamation registered April 30, 2008.




The Board
has repealed the former By-Law
No. 1 of the Company, as amended, and has adopted new By-Law No. 1
(2009), subject to confirmation by the shareholders at the Company’s 2009
annual shareholders’ meeting.  If the new by-law is not confirmed by
shareholders, then the former by-law will again become effective. There are no
substantive differences between the new by-law and the former by-law regarding
the matters discussed in this Item 10. -  Additional
Information.









82







10.B.1.  Register,
Entry Number and Purposes




Our
current Certificate and Articles of Amalgamation were registered on April 30,
2008. Our corporation number in Canada is 447631-0. Neither the Certificate nor
the Articles of Amalgamation contain a statement of the Company’s objects and
purposes.




10.B.2.  Directors’
Powers




Pursuant
to our by-laws and the CBCA, a director or officer who is a party to, or who is
a director or officer of or has a material interest in any person who is a party
to, a material contract or proposed material contract with the Company, shall
disclose the nature and extent of his interest at the time and in the manner
provided by the CBCA. Any such contract or proposed contract shall be referred
to the Board or shareholders for approval even if such contract is one that in
the ordinary course of the Company’s business would not require approval by the
Board or shareholders, and a director interested in a contract so referred to
the Board shall not vote on any resolution to approve the same unless the
contract or transaction: (i) relates primarily to his or her remuneration as a
director, officer, employee or agent of the Company or an affiliate; (ii) is for
indemnity or insurance of or for the director or officer as permitted by the
CBCA; or (iii) is with an affiliate.




Directors
shall be paid such remuneration for their services as the Board may determine
from time to time, and will be entitled to reimbursement for traveling and other
expenses properly incurred by them in attending meetings of the Board or any
committee thereof. Neither the Company’s articles or by-laws require an
independent quorum for voting on director compensation. Directors are not
precluded from serving the Company in any other capacity and receiving
remuneration therefor. A director is not required to hold shares of the Company.
There is no age limit requirement respecting the retirement or non-retirement of
directors.




The
directors may, on behalf of the Company:




·
            Borrow
      money upon the credit of the
Company;


·
            Issue,
      reissue, sell or pledge bonds, debentures, notes or other evidences of
      indebtedness or guarantee of the Company, whether secured or
      unsecured;


·
            To
      the extent permitted by the CBCA, give a guarantee on behalf of the
      Company to secure performance of any present or future indebtedness,
      liability or obligation of any person;
and


·
            Mortgage,
      hypothecate, pledge or otherwise create a security interest in all or any
      currently owned or subsequently acquired real or personal, movable or
      immovable, property of the Company including book debts, rights, powers,
      franchises and undertakings, to secure any such bonds, debentures, notes
      or other evidences of indebtedness or guarantee or any other present or
      future indebtedness, liability or obligation of the
    Company.





Nothing
in the Company’s by-laws limits or restricts the borrowing of money by the
Company on bills of exchange or promissory notes made, drawn, accepted or
endorsed by or on behalf of the Company.




These
borrowing powers may be varied by way of an amendment to our articles or
by-laws. Both types of amendments would require shareholder approval, however,
in the case of a by-law amendment made by the directors, the amendment will be
effective until confirmed or rejected by shareholders.




10.B.3.  The
Rights, Preferences and Restrictions Attaching to Each Class of the Company’s
Shares




Common
Shares




The
holders of the common shares are entitled to vote at all meetings of the
shareholders, except meetings at which only holders of a specified class of
shares are entitled to vote. Each common share carries with it the right to one
vote. Subject to the rights, privileges, restrictions and conditions attaching
to any other class or series of shares of the Company, the holders of the common
shares are entitled to receive any dividends declared and payable by the Company
on the common shares. Dividends may be paid in money or property or by issuing
fully paid shares of the Company. Subject to the rights, privileges,
restrictions and conditions attaching to any other class or series of shares






83








No shares
have been issued subject to call or assessment. There are no pre emptive or
conversion rights and no provisions for redemption or purchase for cancellation,
surrender, or sinking or purchase funds. The common shares must be issued as
fully-paid and non-assessable, and are not subject to further capital calls by
the Company. The common shares are without par value. All of the common shares
rank equally as to voting rights, participation in a distribution of the assets
of the Company on a liquidation, dissolution or winding-up of the Company and
the entitlement to dividends.




Preferred
Shares




The
Company does not currently have any preferred shares outstanding. The Company’s
preferred shares may at any time and from time to time be issued in one or more
series. The directors may from time to time, by resolution passed before the
issue of any preferred shares of any particular series, fix the number of
preferred shares in, and determine the designation of the preferred shares of,
that series and create, define and attach special rights, privileges,
restrictions and conditions to the preferred shares of that series, including,
but without limiting the generality of the foregoing, the voting rights, if any,
attached to the preferred shares of any series, the rate or amount of dividends,
whether cumulative, non-cumulative or partially cumulative, the dates, places
and currencies of payment thereof, the consideration for, and the terms and
conditions of, any purchase for cancellation or redemption thereof, including
redemption after a fixed term or at a premium, conversion or exchange rights,
the terms and conditions of any share purchase plan or sinking fund; provided,
however, that no special right, privilege, restriction or condition so created,
defined or attached shall contravene the provisions of the next
paragraph.




The
company’s preferred shares of each series shall, with respect to the payment of
dividends and the distribution of assets or return of capital, in the event of
liquidation, dissolution or winding-up of the Company, whether voluntary or
involuntary, or any other return of capital or distribution of the assets of the
Company among its shareholders for the purpose of winding up its affairs, rank
on a parity with the preferred shares of every other series and be entitled to
preference over the common shares and over any other shares of the Company
ranking junior to the preferred shares. The Company’s preferred shares of any
series may also be given such other preferences, not inconsistent with the
Company’s articles, over the Company’s common shares, and any other shares of
the Company ranking junior to such preferred shares as may be fixed in
accordance with the preceding paragraph.




10.B.4.  Procedures
to Change the Rights of Shareholders




In order
to change the rights of our shareholders, the Company would need to amend our
Articles of Amalgamation to effect the change. Such an amendment would require
the approval of holders of two-thirds of the Company’s common shares, and any
other shares carrying the right to vote at any general meeting of the
shareholders of the Company, cast at a duly called special meeting. For certain
amendments such as those creating a class of preferred shares, a shareholder is
entitled under the CBCA to dissent in respect of such a resolution amending the
Articles of Amalgamation and, if the resolution is adopted and the Company
implements such changes, demand payment of the fair value of the shareholder’s
common shares. In addition, for certain amendments, the separate approval of
holders of two-thirds of one or more classes of shares, or in some cases, of one
or more series of shares, is required.




10.B.5.  Ordinary
and Extraordinary Shareholders’ Meetings




An annual
meeting of shareholders must be held not later than fifteen months after holding
the last preceding annual meeting but no later than six months after the end of
the Company’s preceding financial year. The Board has the power to call a
special meeting of shareholders at any time. The Board must call a general
meeting of shareholders if requisitioned to do so by not less than holders of
five percent of the issued shares of the Company that carry the right to vote at
a meeting, for the purpose stated in the shareholder requisition.




Notice of
the date, time and location of each meeting of shareholders must be given not
less than 21 days before the date of each meeting to each director, to the
auditor and to each shareholder who at the close of business on the record date
for notice is entered in the securities register as the holder of one or more
shares carrying the right to








84








vote at
the meeting. Notice of a meeting of shareholders called for any other purpose
other than consideration of the minutes of an earlier meeting, financial
statements, reports of the directors or auditor, setting or changing the number
of directors, the election of directors and reappointment of the incumbent
auditor, must state the general nature of the special business in sufficient
detail to permit the shareholder to form a reasoned judgment on such business,
must state the text of any special resolution to be submitted to the meeting,
and must, if the special business includes considering, approving, ratifying,
adopting or authorizing any document or the signing of or giving of effect to
any document, have attached to it, a copy of the document or state that a copy
of the document will be available for inspection by shareholders at the
Company’s records office or another accessible location.




The only
persons entitled to be present at a meeting of shareholders are those entitled
to vote, the directors of the Company and the auditor of the Company. Any other
person may be admitted only on the invitation of the chairman of the meeting or
with the consent of the meeting. In circumstances where a court orders a meeting
of shareholders, the court may direct how the meeting may be held, including who
may attend the meeting.




10.B.6.  Limitations
on Rights to Own Securities




No share
may be issued until it is fully paid.




Neither
Canadian law nor our articles or by-laws limit the right of a non-resident to
hold or vote common shares of the Company, other than as provided in the
Investment Canada Act (the “Investment Act”), as amended by the World Trade
Organization Agreement Implementation Act. The Investment Act generally
prohibits implementation of a direct reviewable investment by an individual,
government or agency thereof, corporation, partnership, trust or joint venture
that is not a “Canadian,” as defined in the Investment Act (a “non-Canadian”),
unless, after review, the minister responsible for the Investment Act is
satisfied that the investment is likely to be of net benefit to Canada. An
investment in the common shares of the Company by a non-Canadian (other than a
“WTO Investor,” as defined below) would be reviewable under the Investment Act
if it were an investment to acquire direct control of the Company, and the value
of the assets of the Company were CDN$5.0 million or more (provided that
immediately prior to the implementation of the investment the Company was not
controlled by WTO Investors). An investment in common shares of the Company by a
WTO Investor (or by a non-Canadian other than a WTO Investor if, immediately
prior to the implementation of the investment the Company was controlled by WTO
Investors) would be reviewable under the Investment Act if it were an investment
to acquire direct control of the Company and the value of the assets of the
Company equaled or exceeded an amount determined by the Minister on an annual
basis ($312 million for 2009). A non-Canadian, whether a WTO Investor or
otherwise, would be deemed to acquire control of the Company for purposes of the
Investment Act if he or she acquired a majority of the common shares of the
Company. The acquisition of less than a majority, but at least one-third of the
shares, would be presumed to be an acquisition of control of the Company, unless
it could be established that the Company is not controlled in fact by the
acquirer through the ownership of the shares. In general, an individual is a WTO
Investor if he or she is a “national” of a country (other than Canada) that is a
member of the World Trade Organization (“WTO Member”) or has a right of
permanent residence in a WTO Member. A corporation or other entity will be a
“WTO Investor” if it is a “WTO Investor-controlled entity,” pursuant to detailed
rules set out in the Investment Act. The United States is a WTO Member. Certain
transactions involving our common shares would be exempt from the Investment
Act, including:




·
            an
      acquisition of the shares if the acquisition were made in the ordinary
      course of that person’s business as a trader or dealer in
      securities;


·
            an
      acquisition of control of the Company in connection with the realization
      of a security interest granted for a loan or other financial assistance
      and not for any purpose related to the provisions of the Investment Act;
      and


·
            an
      acquisition of control of the Company by reason of an amalgamation,
      merger, consolidation or corporate reorganization, following which the
      ultimate direct or indirect control in fact of the Company, through the
      ownership of voting interests, remains
  unchanged.




In
accordance with the provisions of the Competition Act (Canada”) an
investment giving rise to the acquisition or establishment, directly or
indirectly, by one or more persons of control over or a significant interest in
the whole or a part of a business of a competitor, supplier, customer or other
person may be subject to substantive review by the Commissioner of Competition,
the officer responsible for administering the Competition Act.
 
 Under the
Competition Act
(Canada), a pre-merger notification must be submitted to the Commissioner of
Competition under that Act in respect of proposed transactions that exceed
certain financial and other threshholds.  If notice must be given, it must
be provided within legally-mandated time periods.  The Commissioner may
then take several courses of action including taking no action, requesting
additional information or documentation or challenging the
transaction by referring it to the Competition Tribunal, which may result in an
order under the Competition
Act requiring the parties not to proceed with the
transaction.







85







10.B.7.  Impediments
to Change of Control




There are
no provisions of our articles or by-laws that would have an effect of delaying,
deferring or preventing a change in control of the Company and that would
operate only with respect to a merger, acquisition or corporate restructuring
involving the Company.




10.B.8.  Shareholder
Ownership Disclosure Threshold in Bylaws




Neither
our articles nor by-laws contain a provision governing the ownership threshold
above which shareholder ownership must be disclosed.




10.B.9.  Significant
Differences with Applicable U.S. Law




With
respect to items 2 through 8 above, the corporate law applicable to the Company
is not significantly different from that provided under the corporation law
statutes in most U.S. jurisdictions.




10.B.10.  Special
Conditions for Changes in Capital




The
conditions imposed by the Company’s Articles of Amalgamation are not more
stringent than required under the CBCA.




10.C.  Material Contracts




Summaries
of the material contracts referred to in Exhibits 4.1 – 4.16 are included
in this Annual Report under ITEM 4.B. – Important Business
Developments, ITEM 6.B.
– Compensation – Senior Management Compensation and ITEM 6.E. – Stock Options.
The contracts referred to in Exhibits 4.17 and 4.18 relate to the Company’s
private placement on September 8, 2009 (the “Placement”) of 6,625,000
units at $2.05 per unit, one being the Form of Subscription Agreement for
the Placement and the other being a Finder’s Agreement (“Finder’s
Agreement”), entered into between the Company and ACM Alpha Consulting
Management Est. (“ACM”). Pursuant to the Finder’s Agreement, ACM received a fee
of 12.5% of the proceeds of the Placement, and also receives a fixed monthly
amount of 30,000 Swiss Francs to cover all its reasonable out-of-pocket
expenses. The agreement terminates on December 31, 2009.




10.D.  Exchange
Controls




Canada
has no system of exchange controls. There are no Canadian restrictions on the
repatriation of capital or earnings of a Canadian public company to non-resident
investors. There are no laws in Canada or exchange restrictions affecting the
remittance of dividends, profits, interest, royalties and other payments to
non-resident holders of the Company’s securities, except as discussed in ITEM 10.E – Taxation
below.




Restrictions
on Share Ownership by Non-Canadians




There are
no limitations under the laws of Canada or in the organizing documents of the
Company on the right of foreigners to hold or vote securities of the Company,
except that the Investment Act may require review and approval by the Minister
of Industry (Canada) of certain acquisitions of “control” of the Company by a
“non-Canadian”. The threshold for acquisitions of control is generally defined
as being one-third or more of the voting shares of the Company. “Non-Canadian”
generally means an individual who is not a Canadian citizen, or a corporation,
partnership, trust or joint venture that is ultimately controlled by
non-Canadians.




10.E.  Taxation




Canadian
Federal Income Tax Considerations




The
Company believes the following is a brief summary of the material principal
Canadian federal income tax consequences to a U.S. Holder (as defined below) of
common shares of the Company who deals at arm’s length with the Company, holds
the shares as capital property and who, for the purposes of the Income Tax Act (Canada) (the
“Tax Act”) and the Canada –
U.S. Income Tax Convention (the “Treaty”), is at all relevant times
resident in the United States, is not and is not deemed to be resident in Canada
and does not use or hold and is not deemed to use or hold the shares in carrying
on a business in Canada. Special rules, which are not discussed below, may apply
to a U.S. Holder that is an insurer that carries on business in Canada and
elsewhere. U.S. Holders are urged to consult their own tax advisors with respect
to their particular circumstances.






86






This
summary is based upon the current provisions of the Tax Act, the regulations
thereunder in force at the date hereof, all specific proposals to amend such
regulations and the Tax Act publicly announced by or on behalf of the Minister
of Finance (Canada) prior to the date hereof and the current provisions of the
Convention and the current administrative practices of the Canada Revenue Agency
published in writing prior to the date hereof. This summary does not otherwise
take into account or anticipate any changes in law or administrative practices
whether by legislative, governmental or judicial decision or action, nor does it
take into account tax laws of any province or territory of Canada or of the
United States or of any other jurisdiction outside Canada.




For the
purposes of the Tax Act, all amounts relating to the acquisition, holding or
disposition of the common shares must be converted into Canadian dollars based
on the relevant exchange rate applicable thereto.




This summary does not address all
aspects of Canadian federal income taxation that may be relevant to any
particular U.S. Holder in light of such holder’s individual circumstances.
Accordingly, U.S. Holders should consult with their own tax advisors for advice
with respect to their own particular circumstances.




Under the
Tax Act and the Treaty, a U.S. Holder of common shares will generally be subject
to a 15% withholding tax on dividends paid or credited or deemed by the Tax Act
to have been paid or credited on such shares. The withholding tax rate is 5%
where the U.S. Holder is a corporation that beneficially owns at least 10% of
the voting shares of the Company and the dividends may be exempt from such
withholding in the case of some U.S. Holders such as qualifying pension funds
and charities.




A U.S.
Holder will generally not be subject to tax under the Tax Act on any capital
gain realized on a disposition of common shares, provided that the shares do not
constitute “taxable Canadian property” to the U.S. Holder at the time of
disposition. Generally, common shares will not constitute taxable Canadian
property to a U.S. Holder provided that such shares are listed on a designated
stock exchange (which currently includes the TSX) at the time of the disposition
and, during the 60-month period immediately preceding the disposition, the U.S.
Holder, persons with whom the U.S. Holder does not deal at arm’s length, or the
U.S. Holder together with all such persons has not owned 25% or more of the
issued shares of any series or class of the Company’s capital
stock.




If the
common shares constitute taxable Canadian property to a particular U.S. Holder,
any capital gain arising on their disposition may be exempt from Canadian tax
under the Convention if at the time of disposition the common shares do not
derive their value principally from real property situated in
Canada.




United
States Federal Income Tax Considerations




The
following discussion summarizes certain U.S. federal income tax consequences to
a U.S. Holder of our common shares. A “U.S. Holder” means a holder of our common
shares who is:




·
            an
      individual who is a citizen or resident of the United States for U.S.
      federal income tax purposes;


·
            a
      corporation (or other entity taxable as a corporation for U.S. federal
      income tax purposes) created or organized in the United States or under
      the laws of the United States or any political subdivision thereof, or the
      District of Columbia;


·
            an
      estate, the income of which is subject to U.S. federal income tax
      regardless of its source; or


·
            a
      trust (i) if, in general, a court within the United States is able to
      exercise primary supervision over its administration and one or more U.S.
      persons have the authority to control all of its substantial decisions, or
      (ii) that has in effect a valid election under applicable U.S. Treasury
      Regulations to be treated as a U.S.
person.





Unless
otherwise specifically indicated, this discussion does not consider the U.S. tax
consequences to a person that is not a U.S. Holder (a “Non−U.S. Holder”). This
discussion considers only U.S. Holders that will own our common shares as
capital assets (generally, for investment) and does not purport to be a
comprehensive description of all of the tax considerations that may be relevant
to each U.S. Holder’s decision to purchase our common shares.






87






This
discussion is based on current provisions of the Internal Revenue Code of 1986,
as amended (the “Code”), current and proposed Treasury Regulations promulgated
thereunder, and administrative and judicial decisions as of the date hereof, all
of which are subject to change, possibly on a retroactive basis. This discussion
does not address all aspects of U.S. federal income taxation that may be
relevant to any particular U.S. Holder in light of such holder’s individual
circumstances. In particular, this discussion does not address the potential
application of the alternative minimum tax or the U.S. federal income tax
consequences to U.S. Holders that are subject to special treatment, including
U.S. Holders that:




·
            are
      broker-dealers or insurance
companies;


·
            have
      elected mark-to-market accounting;


·
            are
      tax-exempt organizations or retirement
plans;


·
            are
      financial institutions or “financial services
  entities;”


·
            hold
      our common shares as part of a straddle, “hedge” or “conversion
      transaction” with other
investments;


·
            acquired
      our common shares upon the exercise of employee stock options or otherwise
      as compensation;


·
            own
      directly, indirectly or by attribution at least 10% of our voting
      power;


·
            have
      a functional currency that is not the U.S.
  Dollar;


·
            are
      grantor trusts;


·
            are
      certain former citizens or long-term residents of the United States;
      or


·
            are
      real estate investment trusts or regulated investment
      companies.





If a
partnership (or any other entity treated as a partnership for U.S. federal
income tax purposes) holds our common shares, the tax treatment of the
partnership and a partner in such partnership will generally depend on the
status of the partner and the activities of the partnership. Such a partner or
partnership should consult its own tax advisor as to its tax consequences of
acquiring, owning and disposing of our common shares.




In
addition, this discussion does not address any aspect of state, local or
non-U.S. tax laws or the possible application of U.S. federal gift or estate
taxes.




Each
holder of our common shares is advised to consult its own tax advisor with
respect to the specific tax consequences to it of acquiring, owning or disposing
of our common shares, including the applicability and effect of federal, state,
local and foreign income tax and other laws to its particular
circumstances.




Distributions




Subject
to the discussion below under “Passive Foreign Investment Company
Status,” a U.S. Holder will be required to include in gross income as
ordinary dividend income the amount of any distribution paid on our common
shares, including any non-U.S. taxes withheld from the amount paid, to the
extent the distribution is paid out of our current or accumulated earnings and
profits as determined for U.S. federal income tax purposes. Distributions in
excess of such earnings and profits will be applied against and will reduce the
U.S. Holder’s tax basis in our common shares and, to the extent in excess of
such tax basis, will be treated as gain from the sale or exchange of our common
shares. The dividend portion of such distributions generally will not qualify
for the dividends received deduction available to corporations.




Subject
to the discussion below under “Passive Foreign Investment Company
Status,” dividends that are received by U.S. Holders that are
individuals, estates or trusts will be taxed at the rate applicable to long-term
capital gains (a maximum rate of 15% for taxable years beginning on or before
December 31, 2010), provided that such dividends meet the requirements of
“qualified dividend income.” For this purpose, qualified dividend income
generally includes dividends paid by a non-U.S. corporation if certain holding
period and other requirements are met and the non-U.S. corporation is eligible
for benefits of a comprehensive income tax treaty with the United States, which
benefits include an information exchange program and is determined to be
satisfactory by the U.S. Secretary of the Treasury. The IRS has determined that
the U.S.-Canada Tax Treaty is satisfactory for this purpose. Dividends that fail
to meet such requirements, and dividends received by corporate U.S. Holders, are
taxed at ordinary income rates. No dividend received by a U.S. Holder will be a
qualified dividend (i) if the U.S. Holder held the common











88








share
with respect to which the dividend was paid for less than 61 days during the
121-day period beginning on the date that is 60 days before the ex-dividend date
with respect to such dividend, excluding for this purpose, under the rules of
Code Section 246(c), any period during which the U.S. Holder has an option to
sell, is under a contractual obligation to sell, has made and not closed a short
sale of, is the grantor of a deep-in-the-money or otherwise nonqualified option
to buy, or has otherwise diminished its risk of loss by holding other positions
with respect to, such common share (or substantially identical securities); or
(ii) to the extent that the U.S. Holder is under an obligation (pursuant to a
short sale or otherwise) to make related payments with respect to positions in
property substantially similar or related to the common share with respect to
which the dividend is paid. If we were to be a “passive foreign investment
company” (as such term is defined in the Code) for any taxable year, dividends
paid on our common shares in such year or in the following taxable year would
not be qualified dividends. In addition, a non-corporate U.S. Holder will be
able to take a qualified dividend into account in determining its deductible
investment interest (which is generally limited to its net investment income)
only if it elects to do so; in such case the dividend will be taxed at ordinary
income rates.




Distributions
of current or accumulated earnings and profits paid in foreign currency to a
U.S. Holder (including any non-U.S. taxes withheld therefrom) generally will be
includible in the income of a U.S. Holder in a U.S. Dollar amount calculated by
reference to the exchange rate on the day the distribution is received. A U.S.
Holder that receives a foreign currency distribution and converts the foreign
currency into U.S. Dollars subsequent to receipt may have foreign exchange gain
or loss based on any appreciation or depreciation in the value of the foreign
currency against the U.S. Dollar, which will generally be U.S. source ordinary
income or loss.




U.S.
Holders will have the option of claiming the amount of any non-U.S. income taxes
withheld at source either as a deduction from gross income or as a
dollar-for-dollar credit against their U.S. federal income tax liability.
Individuals who do not claim itemized deductions, but instead utilize the
standard deduction, may not claim a deduction for the amount of the non-U.S.
income taxes withheld, but such amount may be claimed as a credit against the
individual’s U.S. federal income tax liability. The amount of non-U.S. income
taxes which may be claimed as a credit in any taxable year is subject to complex
limitations and restrictions, which must be determined on an individual basis by
each U.S. Holder. These limitations include, among others, rules which limit
foreign tax credits allowable with respect to specific classes of income to the
U.S. federal income taxes otherwise payable with respect to each such class of
income. A U.S. Holder will be denied a foreign tax credit with respect to
non-U.S. income tax withheld from a dividend received on our common shares if
such U.S. Holder has not held the common shares for at least 16 days of the
31-day period beginning on the date which is 15 days before the ex-dividend date
with respect to such dividend, or to the extent such U.S. Holder is under an
obligation to make related payments with respect to substantially similar or
related property. Any days during which a U.S. Holder has substantially
diminished its risk of loss on the common shares are not counted toward meeting
the required 16-day holding period. Distributions of current or accumulated
earnings and profits generally will be foreign source passive income for U.S.
foreign tax credit purposes.




Disposition of Common
Shares




Subject
to the discussion below under “Passive Foreign Investment Company
Status,” upon the sale, exchange or other disposition of our common
shares, a U.S. Holder will recognize capital gain or loss in an amount equal to
the difference between such U.S. Holder’s tax basis in such common shares, which
is usually the cost of such shares, and the amount realized on the disposition.
A U.S. Holder that uses the cash method of accounting calculates the U.S. Dollar
value of the proceeds received on the sale as of the date that the sale settles,
while a U.S. Holder that uses the accrual method of accounting is required to
calculate the value of the proceeds of the sale as of the “trade date,” unless
such U.S. Holder has elected to use the settlement date to determine its
proceeds of sale. Capital gain from the sale, exchange or other disposition of
common shares held more than one year is long-term capital gain, and is eligible
for a reduced rate of taxation for individuals (currently a maximum rate of 15%
for taxable years beginning on or before December 31, 2010). Gains recognized by
a U.S. Holder on a sale, exchange or other disposition of common shares
generally will be treated as U.S. source income for U.S. foreign tax credit
purposes. A loss recognized by a U.S. Holder on the sale, exchange or other
disposition of common shares generally is allocated to U.S. source income. The
deductibility of capital losses recognized on the sale, exchange or other
disposition of common shares is subject to limitations. A U.S. Holder that
receives foreign currency upon disposition of common shares and converts the
foreign currency into U.S. Dollars subsequent to the settlement date or trade
date (whichever date the taxpayer was required to use to calculate the value of
the proceeds of sale) may have foreign exchange gain








89








or loss
based on any appreciation or depreciation in the value of the foreign currency
against the U.S. Dollar, which will generally be U.S. source ordinary income or
loss.




Passive Foreign Investment
Company Status




We would
be a passive foreign investment company (a “PFIC”) if (taking into account
certain “look-through” rules with respect to the income and assets of our
corporate subsidiaries in which we own at least 25 percent (by value) of the
stock) either (i) 75 percent or more of our gross income for the taxable year
was passive income or (ii) the average percentage (by value) of our total assets
that are passive assets during the taxable year was at least 50
percent.




If we
were a PFIC, each U.S. Holder would (unless it made one of the elections
discussed below on a timely basis) be taxable on gain recognized from the
disposition of our common shares (including gain deemed recognized if the common
shares are used as security for a loan) and upon receipt of certain “excess
distributions” (generally, distributions that exceed 125% of the average amount
of distributions in respect to such common shares received during the preceding
three taxable years or, if shorter, during the U.S. Holder’s holding period
prior to the distribution year) with respect to our common shares as if such
income had been recognized ratably over the U.S. Holder’s holding period for the
common shares. The U.S. Holder’s income for the current taxable year would
include (as ordinary income) amounts allocated to the current taxable year and
to any taxable year period prior to the first day of the first taxable year for
which we were a PFIC. Tax would be computed at the highest ordinary income tax
rate in effect for each other taxable year period to which income is allocated,
and an interest charge on the tax as so computed would also apply. Additionally,
if we were a PFIC, U.S. Holders who acquire our common shares from decedents
(other than nonresident aliens) would be denied the normally available step-up
in basis for such shares to fair market value at the date of death and, instead,
would have a tax basis in such shares equal to the lesser of the decedent’s tax
basis or the fair market value of such shares on the date of the decendent’s
death.




As an
alternative to the tax treatment described above, a U.S. Holder could elect to
treat us as a “qualified electing fund” (a “QEF”), in which case the U.S. Holder
would be taxed currently, for each taxable year that we are a PFIC, on its pro
rata share of our ordinary earnings and net capital gain (subject to a separate
election to defer payment of taxes, which deferral is subject to an interest
charge). Special rules apply if a U.S. Holder makes a QEF election after the
first taxable year in its holding period in which we are a PFIC. In the event
that we conclude that we will be classified as a PFIC, we will make a
determination at such time as to whether we will be able to provide U.S. Holders
with the information that is necessary to make a QEF election. Amounts
includable in income as a result of a QEF election will be determined without
regard to our prior year losses or the amount of cash distributions, if any,
received from us. A U.S. Holder’s basis in its common shares will increase by
any amount included in income and decrease by any amounts not included in income
when distributed because such amounts were previously taxed under the QEF rules.
So long as a U.S. Holder’s QEF election is in effect with respect to the entire
holding period for its common shares, any gain or loss realized by such holder
on the disposition of its common shares held as a capital asset ordinarily will
be capital gain or loss. Such capital gain or loss ordinarily would be long-term
if such U.S. Holder had held such common shares for more than one year at the
time of the disposition. For non-corporate U.S. Holders, long-term capital gain
is generally subject to a maximum U.S. federal income tax rate of 15% for
taxable years beginning on or before December 31, 2010. The QEF election is made
on a shareholder-by-shareholder basis, applies to all common shares held or
subsequently acquired by an electing U.S. Holder and can be revoked only with
the consent of the IRS.




As an
alternative to making the QEF election, a U.S. Holder of PFIC stock which is
publicly traded may in certain circumstances avoid certain of the tax
consequences generally applicable to holders of a PFIC by electing to mark the
stock to market and recognizing as ordinary income or loss, each taxable year
that we are a PFIC, an amount equal to the difference as of the close of the
taxable year between the fair market value of the PFIC stock and the U.S.
Holder’s adjusted tax basis in the PFIC stock. Special rules apply if a U.S.
Holder makes a mark-to-market election after the first taxable year in its
holding period in which we are a PFIC. Losses would be allowed only to the
extent of net mark-to-market gain previously included by the U.S. Holder under
the election for prior taxable years. This election is available for so long as
the Company’s common shares constitute “marketable stock,” which includes stock
of a PFIC that is “regularly traded” on a “qualified exchange or other market.”
Generally, a “qualified exchange or other market” includes a national market
system established pursuant to Section 11A of the Exchange Act, or a foreign
securities exchange that is regulated or supervised by a governmental authority
of the country in








90





which the
market is located and that has certain characteristics. A class of stock that is
traded on one or more qualified exchanges or other markets is “regularly traded”
on an exchange or market for any calendar year during which that class of stock
is traded, other than in de minimis quantities, on at least 15 days during each
calendar quarter, subject to special rules relating to an initial public
offering. It is not entirely clear whether any of the OTCBB, Toronto Stock Exchange,
Berlin-Bremen Stock Exchange, Frankfurt Stock Exchange, Munich Stock Exchange,
Stuttgart Stock Exchange or XETRA Exchange are qualified exchanges or other
markets, or whether there will be sufficient trading volume with respect to the
Company’s common shares, and accordingly, whether the common shares will be
“marketable stock” for these purposes. Furthermore, there can be no assurances
that the Company’s common shares will continue to trade on any of the exchanges
listed above.




We
believe we were not a PFIC for the year ending July 31, 2009 and do not expect
to be classified as a PFIC for the year ending July 31, 2010. However, PFIC
status is determined as of the end of each taxable year and is dependent on a
number of factors, including the value of our passive assets, the amount and
type of our gross income, and our market capitalization. Therefore, there can be
no assurance that we will not become a PFIC for the current taxable year ending
July 31, 2010 or in a future taxable year. We will notify U.S. Holders in the
event we conclude that we will be treated as a PFIC for any taxable
year.




Non−U.S.
Holders




Except as
described in “Information
Reporting and Backup Withholding” below, a Non-U.S. Holder of common
shares will not be subject to U.S. federal income or withholding tax on the
payment of dividends on, or the proceeds from the disposition of, our common
shares, unless, in the case of U.S. federal income taxes:




·
            such
      item is effectively connected with the conduct by the Non-U.S. Holder of a
      trade or business in the United States and, in the case of a resident of a
      country which has a treaty with the United States, such item is
      attributable to a permanent establishment or, in the case of an
      individual, a fixed place of business, in the United States;
      or


·
            the
      Non-U.S. Holder is an individual who holds the common shares as a capital
      asset and is present in the United States for 183 days or more in the
      taxable year of the disposition of our common shares and certain other
      conditions are met.





Information Reporting and
Backup Withholding




U.S.
Holders (other than exempt recipients, such as corporations) generally are
subject to information reporting requirements with respect to dividends paid on,
or proceeds from the disposition of, our common shares. U.S. Holders are also
generally subject to backup withholding (currently at a rate of 28%) on
dividends paid on, or proceeds from the disposition of, our common shares unless
the U.S. Holder provides IRS Form W−9 or otherwise establishes an
exemption.




Non-U.S.
Holders generally are not subject to information reporting or backup withholding
with respect to dividends paid on, or proceeds from the disposition of, our
common shares, provided that such Non-U.S. Holder provides taxpayer
identification number, certifies to its foreign status, or otherwise establishes
an exemption.




The
amount of any backup withholding will be allowed as a credit against a U.S. or
Non-U.S. Holder’s U.S. federal income tax liability and may entitle such holder
to a refund, provided that certain required information is furnished to the
IRS.




10.F.  Dividends
and Paying Agents




Not
Applicable.




10.G.  Statement
by Experts




Not
Applicable.






91






10.H.  Documents
on Display




The
Company’s documents can be viewed at its Canadian office, located at: 305
Industrial Parkway South, #3, Aurora, Ontario, Canada, L4G 6X7. The Company’s
reports, registration statements and other information can be inspected on the
SEC’s website at www.sec.gov and such information can also be inspected and
copies ordered at the public reference facilities maintained by the SEC at the
following location: 100 F Street NE, Washington, D.C. 20549.




10.I.  Subsidiary
Information




SeeITEM 4.C – Organizational
Structure.




ITEM
11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




The
Company is exposed to a variety of financial risks by virtue of its activities:
market risk (including currency and interest rate risk); credit risk; and
liquidity risk. The overall risk management program focuses on the
unpredictability of financial markets and seeks to minimize potential adverse
effects on financial performance.





Risk
management (the identification and evaluation of financial risk) is carried out
by the finance department, in close cooperation with management. The finance
department is charged with the responsibility of establishing controls and
procedures to ensure that financial risks are mitigated in accordance with the
approved policies.





The
Company does not currently have any long-term debt and the Company does utilize
interest rate swap contracts to hedge against interest rate swaps. In addition,
the Company does not use financial instruments for trading purposes and is not
party to any leverage derivatives. The Company also does not currently engage in
hedging transactions.





Currency
Risk





The
Company operates internationally and is exposed to foreign exchange risks from
various currencies, primarily the Euro and U.S. dollar. Foreign exchange risks
arise from the foreign currency translation of the Company’s integrated foreign
operation in Ireland. The net assets in Ireland consist mainly of cash and cash
equivalents, denominated in Euro dollars, which are currently used to fund
clinical trials of Topical Interferon Alpha-2b in Europe. In addition, foreign
exchange risks arise from purchase transactions, as well as recognized financial
assets and liabilities denominated in foreign currencies. The Company also
receives a revenue stream from royalties denominated in Euro dollars from the
license of the Company’s Klean-PrepTM to
Helsinn-Birex Pharmaceuticals Ltd., a subsidiary of Helsinn Healthcare SA, a
Swiss company.





The
Company’s main objective in managing its foreign exchange risk has been to
maintain sufficient Euro dollars on hand to support Euro forecasted cash flows
in support of ongoing clinical trials of Topical Interferon Alpha-2b in Europe
as well as a hedge against purchase transactions denominated in Euro dollars.
The Company has generally maintained minimal cash balances denominated in U.S.
dollars due to the Canadian dollar’s appreciation against the U.S. dollar and
the small amount of purchase transactions denominated in U.S. dollars. As the
Company expands its research and development programs, some of these contracted
services are being denominated in U.S. dollars. The Company is currently
assessing its objectives, as it relates to U.S. denominated foreign exchange
transactions, in light of the ongoing weakness of the U.S. dollar against the
Canadian dollar and other world currencies.





Although
any fluctuation in the exchange rates of the foreign currencies listed above
could have a significant impact on the Company’s results from operations, the
fluctuations would not impair or enhance the ability of the Company to pay its
foreign-denominated expenses.





Interest
Rate Risk





The
Company is exposed to interest rate risk arising from fluctuations in interest
rates received on its cash and cash equivalents. The impact of interest rate
fluctuations will vary as the amount of cash and cash equivalents the Company
holds, changes. The Company does not use derivative instruments to reduce its
exposure to interest rate risk.






92




The
Company manages its interest rate risk by maximizing the interest income earned
on excess funds while maintaining the liquidity necessary to conduct its
operations on a day-to-day basis. The Company limits its investing of excess
funds to risk-free financial instruments, such as Bankers’
Acceptances.





Fluctuations
in the market rates of interest do not have a significant impact on the
Company’s results of operations due to the relatively short term maturity of any
investments held by the Company at any given point in time.





ITEM
12.  DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES




Not
Applicable.






PART
II




ITEM
13.  DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES




None.




ITEM
14.  MATERIAL
MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS




Not
Applicable.




ITEM
15.  RESERVED




Not
Applicable.




ITEM
15T  CONTROLS AND PROCEDURES




15T.A           Disclosure
Controls and Procedures




Disclosure
controls and procedures are designed to provide reasonable assurance that all
material information required to be publicly disclosed by a public company is
gathered and communicated to management, including the certifying officers, on a
timely basis so that the appropriate decisions can be made regarding public
disclosure. As at July 31, 2009, the Chief Executive Officer and the Chief
Financial Officer evaluated the effectiveness of our disclosure controls and
procedures (as this term is defined in the rules adopted by Canadian securities
regulatory authorities and the United States Securities and Exchange
Commission).
 
 Based on
this evaluation, the Chief Executive Officer and the Chief Financial Officer
have concluded that, as at July 31, 2009, due to the material weaknesses in
internal controls over financial reporting, as set out below, the Company’s
disclosure controls and procedures  are not effective in providing
reasonable assurance that all material information required to be publicly
disclosed by a public company is gathered and communicated to management,
including the certifying officers, on a timely basis so that the appropriate
decisions can be made regarding public disclosure.
 
 Management
has specifically identified material weaknesses described in the “Management’s
Annual Report on Internal Control over Financial Reporting” section
below.
 
 Management
believes, based on its knowledge, that (i) this report does not contain any
untrue statements of a material fact or omit to state a material fact necessary
to make the statements not misleading, in light of the circumstances under which
they were made, with respect to the period covered by this report and, (ii) the
financial statements, and other financial information included in this report,
fairly present in all material respects our financial condition, results of
operations and cash flows at, and for, the periods presented in this
report.





15T.B           Management’s
Annual Report on Internal Control over Financial Reporting




Internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements in accordance with Canadian generally accepted accounting
principles and the requirements of the Securities and Exchange Commission in the
United States, as applicable. Management is responsible for establishing and
maintaining adequate internal control over financial reporting. Because of its
inherent limitations, internal control over financial reporting can provide only
reasonable assurance and may not prevent or detect misstatements and/or fraud.
Furthermore, projections of any evaluation of effectiveness to future periods
are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures
may deteriorate.




Management
has assessed the design and operating effectiveness of internal controls over
financial reporting as at July 31, 2009. In making this assessment, we used the
criteria set forth in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based
on this assessment, management concluded that internal control over financial
reporting was not operating effectively as of July 31,
2009.  Management has identified the material weaknesses noted
below:





(i) The
Company has insufficient personnel with an appropriate level of technical
accounting knowledge, experience and training to ensure complex and non-routine
transactions are accounted for in accordance with GAAP.  This control
deficiency, which is pervasive in nature, creates a reasonable possibility that
a material misstatement of the annual financial statements would not have been
prevented or detected on a timely basis.





(ii) The
Company does not have a sufficient number of personnel to enable effective
segregation of duties over the preparation of financial statements and related
note disclosures. Specifically, all complex and non-routine accounting and
taxation matters are handled directly by the CFO, with no other internal review,
as there are no other senior executives who have significant financial
accounting or taxation background, and therefore, may not have the necessary
knowledge or skill to perform a detailed review of the CFO’s
work.   In addition, certain other personnel with financial
transaction initiation and reporting responsibilities had incompatible duties
that allowed for note disclosures without adequate independent
review.  This control deficiency, which is pervasive in nature, did
result in adjustments to note disclosures in the financial statements and
creates a reasonable possibility that a material misstatement of the annual
financial statements would not have been prevented or detected on a timely
basis.






93


The above
control deficiencies, which are pervasive in impact, resulted in adjustments to
the financial statements, which on their own and in total were not material in
nature.  Nevertheless, there is a reasonable possibility that a
material misstatement of the annual financial statements would not have been
prevented or detected on a timely basis.
 
 Attestation
Report of the Registered Public Accounting Firm
 
 This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permits the Company to provide only
management’s report in this annual report.
 
 Changes
in Internal Control over Financial Reporting and Planned Remediation
Activities
 During
the second half of fiscal 2009, the Company hired a Controller as a stepped
solution to deal with the issue associated with absolute segregation of
duties.
 
 Any
future changes in either the number or level of in-house technical expertise, to
address all possible complex and non-routine accounting transactions, will be
dependant upon the growth, complexity and stage of development of the Company’s
operations.
 
 Management
will continue to review internal controls and procedures and, if appropriate,
implement changes to its current internal control processes in an attempt to
reduce or eliminate material weaknesses in the future.




ITEM
16.  RESERVED




ITEM
16A.AUDIT COMMITTEE FINANCIAL
EXPERT




The Board
has determined that W. Thomas Hodgson satisfies the criteria of “audit committee
financial expert” and is independent in accordance with The NASDAQ stock
exchange listing rule 5605(a)(2).





ITEM
16B.CODE OF ETHICS




The Board
has adopted a written Code of Business Conduct and Ethics for Directors,
Officers and Employees. The Company’s Code of Business Conduct and Ethics for
Directors, Officers and Employees may be inspected on the Company’s website at:
www.helixbiopharma.com.




ITEM
16C.   PRINCIPLE ACCOUNTING FEES AND
SERVICES




The
aggregate amounts billed by our auditors to us for each of the fiscal years 2009
and 2008 for audit fees, audit-related fees, tax fees and all other fees are set
forth below:





Item
            
            2009
            
            
            2008Amount
            
            
            Percentage
            
            
            Amount
            
            
            PercentageAudit-Fees
            
            $
            110,000
            
            
            
            23.5
            %
            
            $
            89,000
            
            
            
            30.5
            %Audit-Related
      Fees
            
            $
            0
            
            
            
            0.0
            %
            
            $
            0
            
            
            
            0.0
            %Tax
      Fees(1)
            
            $
            9,200
            
            
            
            2.0
            %
            
            $
            23,000
            
            
            
            7.8
            %All
      Other Fees(2)
            
            $
            348,000
            
            
            
            74.5
            %
            
            $
            180,500
            
            
            
            61.7
            %Total
            
            $
            467,200
            
            
            
            100.0
            %
            
            $
            292,500
            
            
            
            100.0
            %





(1)
            “Tax
      fees” consist of fees for tax consultation and tax compliance
      services.


(2)
            “Other
      Fees” consist principally of fees associated with the filing of a Form
      20-F registration statement with the
SEC.





Our
auditor is KPMG LLP, Chartered Accountants, Yonge Corporate Centre, 4100 Yonge
Street, Toronto, Ontario M2P 2H3.





All audit
and non-audit services performed by our auditors are pre-approved by our Audit
Committee.





ITEM
16D.        EXEMPTIONS FROM THE LISTING
STANDARDS FOR AUDIT COMMITTEES




Not
Applicable.




ITEM
      16E.
            PURCHASES
      OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
    PURCHASERS




Neither
the Company nor, to our knowledge, any affiliated purchaser has made any
purchases of our registered shares during the last fiscal year.




ITEM
16F.        CHANGES IN REGISTRANT’S
CERTIFYING ACCOUNTANT




Not
Applicable.






94






ITEM
16G.        CORPORATE
GOVERNANCE




Not
Applicable.




ITEM
17. FINANCIAL
STATEMENTS




The
Company’s consolidated financial statements are stated in Canadian Dollars and
are prepared in accordance with Canadian GAAP, the application of which, in the
case of the Company, conforms in all material respects for the periods presented
with U.S. GAAP, except as discussed in Note 20 to the consolidated financial
statements.




The
consolidated financial statements as required under ITEM 17 are attached hereto
and found immediately following the text of this Annual Report and are
incorporated by reference herein. The audit report of KPMG LLP, independent
registered public accounting firm, is included herein immediately preceding the
audited consolidated financial statements.




a.           Audited Financial
Statements




Report of
Independent Registered Public Accounting Firm, dated October 20,
2009.




Consolidated
Balance Sheets at July 31, 2009 and 2008.




Consolidated
Statements of Operations and Comprehensive Loss for the years ended July 31,
2009, 2008 and 2007.




Consolidated
Statements of Cash Flows for the years ended July 31, 2009, 2008 and
2007.




Notes to
Consolidated Financial Statements.




ITEM
18.  FINANCIAL
STATEMENTS




The
Company has elected to provide financial statements pursuant to ITEM
17.




ITEM
19.  EXHIBITS




1.1
            Certificate
      and Articles of Amalgamation, incorporated herein by reference to Exhibit
      1.1 to the Form 20-FR12G/A registration statement filed by Helix with the
      SEC on February 5, 20091.2
            Amended
      and Restated Bylaws, incorporated herein by reference to Exhibit 1.2 to
      the Form 20-FR12G/A registration statement filed by Helix with the SEC on
      February 5, 20091.3
            By-Law
      No. 1 (2009)4.1
            L-DOS47
      cGMP Process Development, Scale Up and Clinical Supplies Manufacturing
      Agreement, between the Company and BioVectra, dated May 4, 2008,
      incorporated herein by reference to Exhibit 4.1 to the Form 20-FR12G/A
      registration statement filed by Helix with the SEC on February 5,
      2009†4.2
            Topical
      Interferon Alpha-2b GMP Process Development, Scale Up and Clinical
      Supplies Manufacturing Agreement, between the Company and CPL, dated April
      3, 2008, incorporated herein by reference to Exhibit 4.2 to the Form
      20-FR12G/A registration statement filed by Helix with the SEC on February
      5, 2009†4.3
            Technology
      License Agreement between the Company and NRC, dated April 28, 2005,
      incorporated herein by reference to Exhibit 4.3 to the Form 20-FR12G/A
      registration statement filed by Helix with the SEC on February 5,
      2009†4.4
            Material
      Transfer and License Option Agreement, between the Company and Schering
      Corporation, dated December 18, 2000, incorporated herein by reference to
      Exhibit 4.4 to the Form 20-FR12G/A registration statement filed by Helix
      with the SEC on February 5, 2009†4.5
            Employment
      Agreement with Heman Chao, dated August 6, 2008, incorporated herein by
      reference to Exhibit 4.5 to the Form 20-FR12G/A registration statement
      filed by Helix with the SEC on February 5,
2009   95
   4.6
            Amendment
      to Employment Agreement with Heman Chao, dated October 1,
    20094.7
            Employment
      Agreement with Photios (Frank) Michalargias, dated August 6, 2008,
      incorporated herein by reference to Exhibit 4.6 to the Form 20-FR12G/A
      registration statement filed by Helix with the SEC on February 5,
      20094.8
            Amendment
      to Employment Agreement with Photios (Frank) Michalargias, dated October
      1, 20094.9
            Employment
      Agreement with John M. Docherty, dated August 6, 2008, incorporated herein
      by reference to Exhibit 4.7 to the Form 20-FR12G/A registration statement
      filed by Helix with the SEC on February 5, 20094.10
            Amendment
      to Employment Agreement with John M. Docherty, dated October 1,
      20094.11
            Employment
      Agreement with Donald H. Segal, dated August 6, 2008, incorporated herein
      by reference to Exhibit 4.8 to the Form 20-FR12G/A registration statement
      filed by Helix with the SEC on February 5, 20094.12
            Amendment
      to Employment Agreement with Donald H. Segal, dated October 1,
      20094.13
            Form
      of Indemnity Agreement4.14
            Form
      of Stock Option Agreement for December 17, 2008 Plan (Standard),
      incorporated herein by reference to Exhibit 4.10 to the Form 20-FR12G/A
      registration statement filed by Helix with the SEC on February 5,
      20094.15
            Form
      of Stock Option Agreement for December 17, 2008 Plan (Directors Only),
      incorporated herein by reference to Exhibit 4.11 to the Form 20-FR12G/A
      registration statement filed by Helix with the SEC on February 5,
      20094.16
            Stock
      Option Plan, implemented December 17, 2008, incorporated herein by
      reference to Exhibit 4.12 to the Form 20-FR12G/A registration statement
      filed by Helix with the SEC on February 5, 20094.17
            Form
      of Subscription Agreement between the Company and the subscribers to the
      Company’s private placement on September 8, 2009 of 6,625,000 units at
      $2.05 per unit4.18
            Finder’s
      Agreement dated July 1, 2009 between the Company and ACM Alpha Consulting
      Management Est. relating to the Company’s private placement on September
      8, 2009 of 6,625,000 units at $2.05 per unit4.19
            Employment Agreement with William H. Chick, dated July 25, 19974.20
            Amendment to Employment Agreement with William H. Chick, dated October 1,
      20098.1
            List
      of Subsidiaries: See ITEM 4.C - Organizational
      Structure.13.1
            Certification
      of Chief Executive Officer of the Registrant pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002. *13.2
            Certification
      of Chief Financial Officer of the Registrant pursuant to Section 906 of
      the Sarbanes-Oxley Act of 2002.*15.1
            Audit
      Committee Charter


†           Portions
of this exhibit have been omitted and filed separately with the secretary of the
Securities and


Exchange
Commission pursuant to a confidential treatment request.





*           This
document is being furnished in accordance with SEC Release Nos. 33-8212 and
34-47551.





WHERE
TO FIND ADDITIONAL INFORMATION




We file
reports and other information with SEC located at 100 F Street NE, Washington,
D.C. 20549; you may obtain copies of our filings with the SEC by accessing their
website located at www.sec.gov. Further,
we file reports under Canadian regulatory requirements on SEDAR; you may access
our reports filed on SEDAR by accessing their website at www.sedar.com.




96


SIGNATURES




The
registrant hereby certifies that it meets all of the requirements for filing on
Form 20-F and that it has duly caused and authorized the undersigned to sign
this annual report on its behalf.




HELIX BIOPHARMA
CORP.




/s/ Donald H.
Segal


Donald H.
Segal


Chairman and Chief
Executive Officer




Date:
October 29, 2009























MANAGEMENT’S
RESPONSIBILITY FOR FINANCIAL INFORMATION





The
accompanying consolidated financial statements of Helix BioPharma Corp. and
other financial information contained in this annual report are the
responsibility of management. The consolidated financial statements have been
prepared in conformity with Canadian generally accepted accounting principles,
using management’s best estimates and judgments, where appropriate. In the
opinion of management, these consolidated financial statements reflect fairly
the financial position and the results of operations and cash flows of the
Company within reasonable limits of materiality. The financial information
contained elsewhere in this annual report has been reviewed to ensure
consistency with that in the consolidated financial statements.





To assist
management in discharging these responsibilities, the Company maintains an
effective system of procedures and internal controls which is designed to
provide reasonable assurance that its assets are safeguarded against loss from
unauthorized use or disposition, that transactions are executed in accordance
with management’s authorization and that the financial records form a reliable
base for the preparation of accurate and reliable financial
information.





The Board
of Directors ensures that management fulfils its responsibilities for the
financial reporting and internal control. The Board of Directors exercises this
responsibility through its independent Audit Committee comprising a majority of
unrelated and outside directors. The Audit Committee meets periodically with
management and annually with the external auditors to review audit
recommendations and any matters that the auditors believe should be brought to
the attention of the Board of Directors. The Audit Committee also reviews the
consolidated financial statements and recommends to the Board of Directors that
the statements be approved for issuance to the shareholders.





The
consolidated financial statements have been audited by KPMG LLP, Chartered
Accountants, which has full and unrestricted access to the Audit Committee.
KPMG’s report on the consolidated financial statements is presented
herein.








/s/ Donald H.
      Segal
            /s/ Photios (Frank)
      MichalargiasDonald H.
      Segal
            Photios (Frank)
      MichalargiasChief Executive
      Officer
            Chief Financial
      Officer


F-1
  
  KPMGLLP
              Telephone(416)
      228-7000Chartered
      Accountants
              Telefax (416)
      228-7123Yonge Corporate
      Centre
              www.kpmg.ca4100 Yonge Street,
      Suite 200North York, ON, M2P
      2H3





REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors of


Helix
BioPharma Corp.





We have
audited the accompanying consolidated balance sheets of Helix BioPharma Corp.
(the “Company”) as of July 31, 2009 and 2008 and the related consolidated
statements of operations and comprehensive loss, deficit and cash flows for each
of the years in the three-year period ended July 31, 2009.  These
consolidated financial statements are the responsibility of the Company’s
management.  Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.





We
conducted our audits in accordance with Canadian generally accepted auditing
standards.  We also conducted our audits in accordance with the
standards of the Public Company Accounting Oversight Board (United
States).  Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement.  An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements.  An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation.  We believe
that our audits provide a reasonable basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respect, the financial position of the Company as of July 31,
2009 and 2008 and the results of its operations and its cash flows for each of
the years in the three-year period ended July 31, 2009 in conformity with
Canadian generally accepted accounting principles.





Canadian
generally accepted accounting principles vary in certain significant respects
from accounting principles generally accepted in the United States of
America.  Information relating to the nature and effect of such
differences is presented in note 20 to the consolidated financial
statements.





As
discussed in note 4 to the consolidated financial statements, effective August
1, 2008, the Company adopted The Canadian Institute of Chartered Accountants’
Handbook Section 1506, Accounting Changes, Section 1535, Capital Disclosures,
Section 3031, Inventories, Section 3862, Financial Instruments –Disclosure and
Section 3863, Financial Instruments – Presentation.  The effect to
these changes is discussed in note 4 to the consolidated financial
statements.








/s/ KPMG
LLP


Chartered
Accountants, Licensed Public Accountants


Toronto,
Canada


October
20, 2009












KPMG LLP,
is a Canadian limited liability partnership and a member firm of the
KPMG


network
of independent member firms affiliated with KPMG International, a Swiss
cooperative.


KPMG
Canada provides services to KPMG LLP.






HELIX
BIOPHARMA CORP.
 Consolidated
Balance Sheets
 As of
July 31, 2009 and 2008 (In
thousands of Canadian dollars)
  2009
                
                2008AssetsCurrent
      assets:Cash
      and cash equivalents
                
                $
                14,494
                
                $
                19,057Accounts
      receivable
                
                
                1,053
                
                
                349Inventory
                
                
                858
                
                
                458Prepaid
      and other expenses
                
                
                1,049
                
                
                44617,454
                
                
                20,310Investment
      (notes 4 and
      5)
                
                
                56
                
                
                95Capital
      assets (note
      6)
                
                
                1,809
                
                
                1,151Intangible
      assets (note
      7)
                
                
                –
                
                
                110$
                19,319
                
                $
                21,666Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Accounts
      payable
                
                $
                1,299
                
                $
                598Accrued
      liabilities
                
                
                834
                
                
                546Deferred
      lease credit
                
                
                25
                
                
                –2,158
                
                
                1,144Deferred
      lease credit – non current:
                
                
                98
                
                
                –Shareholders’
      equity (note
      8):
                
                
                17,063
                
                
                20,522Future
      operations (note
      1)Commitments
      and contingencies (note
      9)Subsequent
      events (note
      19)$
                19,319
                
                $
                21,666
    
 On behalf
of the Board of Directors:
 
 
 /s/ Donald H. Segal
                    Donald
      H. Segal,
                    Chair,
      Board of Directors
                  /s/ W. Thomas Hodgson
                    W. Thomas Hodgson,
                    Chair, Audit
  Committee
 
  F-3
 HELIX
BIOPHARMA CORP.
 Consolidated Statements
of Operations and Comprehensive Loss
 Years
ended July 31, 2009, 2008 and 2007 (In
thousands of Canadian dollars, except per share amounts)
 2009
                  
                  
                  
                  2008
                  
                  
                  
                  2007Revenue:Product
      revenue
                  
                  $
                  3,244
                  
                  
                  $
                  2,952
                  
                  
                  $
                  2,764License
      fees and royalties
                  
                  
                  597
                  
                  
                  
                  639
                  
                  
                  
                  512Research
      and development contract
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  1483,841
                  
                  
                  
                  3,591
                  
                  
                  
                  3,424Expenses:Cost
      of sales
                  
                  
                  1,516
                  
                  
                  
                  1,239
                  
                  
                  
                  1,139Research and development
                  
                  
                  10,322
                  
                  
                  
                  5,064
                  
                  
                  
                  4,116Operating,
      general and administration
                  
                  
                  3,917
                  
                  
                  
                  3,948
                  
                  
                  
                  3,570Sales
      and marketing
                  
                  
                  969
                  
                  
                  
                  809
                  
                  
                  
                  848Amortization of intangible assets
                  
                  
                  12
                  
                  
                  
                  16
                  
                  
                  
                  159Amortization
      of capital assets
                  
                  
                  274
                  
                  
                  
                  254
                  
                  
                  
                  287Stock-based
      compensation
                  
                  
                  1,023
                  
                  
                  
                  44
                  
                  
                  
                  47Interest
      income
                  
                  
                  (339
                  )
                  
                  
                  (645
                  )
                  
                  
                  (496
                  )Foreign
      exchange loss (gain)
                  
                  
                  133
                  
                  
                  
                  (327
                  )
                  
                  
                  (9
                  )Impairment
      of intangible assets
                  
                  
                  98
                  
                  
                  
                  –
                  
                  
                  
                  1,33217,925
                  
                  
                  
                  10,402
                  
                  
                  
                  10,993Loss
      before income taxes
                  
                  
                  (14,084
                  )
                  
                  
                  (6,811
                  )
                  
                  
                  (7,569
                  )Income
      taxes (note
      12)
                  
                  
                  18
                  
                  
                  
                  153
                  
                  
                  
                  105Net
      loss for the year
                  
                  
                  (14,102
                  )
                  
                  
                  (6,964
                  )
                  
                  
                  (7,674
                  )Other
      comprehensive loss, net of tax:Decrease
      in fair value of available-for-sale investments (net of tax of
      $nil)
                  
                  
                  (39
                  )
                  
                  
                  (54
                  )
                  
                  
                  –Total
      comprehensive loss
                  
                  $
                  (14,141
                  )
                  
                  $
                  (7,018
                  )
                  
                  $
                  (7,674
                  )Loss
      per share (note
      14):Basic
                  
                  $
                  (0.27
                  )
                  
                  
                  (0.16
                  )
                  
                  
                  (0.22
                  )Diluted
                  
                  
                  (0.27
                  )
                  
                  
                  (0.16
                  )
                  
                  
                  (0.22
                  )Weighted
      average number of common shares used in the calculation of basic and
      diluted loss per share
                  
                  
                  52,001,636
                  
                  
                  
                  42,469,362
                  
                  
                  
                  35,615,335
  Consolidated
Statements of Deficit
 Years
ended July 31, 2009, 2008 and 2007 (In thousands of Canadian
dollars)
 2009
                
                
                2008
                
                
                2007Net
      loss for the year
                
                $
                (14,102
                )
                
                $
                (6,964
                )
                
                $
                (7,674
                )Deficit,
      beginning of year
                
                
                (58,692
                )
                
                
                (51,728
                )
                
                
                (44,054
                )Deficit,
      end of year
                
                $
                (72,794
                )
                
                $
                (58,692
                )
                
                $
                (51,728
                )
   F-4
 HELIX
BIOPHARMA CORP.
 Consolidated Statements
of Cash Flows
 Years
ended July 31, 2009, 2008 and 2007 (In
thousands of Canadian dollars)
 Cash
      provided by (used in):
                
                
                2009
                
                
                
                2008
                
                
                
                2007Operating
      activities:Loss
      for the year
                
                $
                (14,102
                )
                
                $
                (6,964
                )
                
                $
                (7,674
                )Items
      not involving cash:Amortization
      of capital assets
                
                
                274
                
                
                
                254
                
                
                
                287Amortization
      of intangible assets
                
                
                12
                
                
                
                16
                
                
                
                159Deferred
      lease credit
                
                
                123
                
                
                
                -
                
                
                
                -Stock-based
      compensation
                
                
                1,023
                
                
                
                44
                
                
                
                47Impairment
      of intangible assets
                
                
                98
                
                
                
                -
                
                
                
                1,332Foreign
      exchange loss (gain)
                
                
                133
                
                
                
                (327
                )
                
                
                (9
                )Change
      in non-cash working capital:Accounts
      receivable
                
                
                (704
                )
                
                
                553
                
                
                
                (24
                )Inventory
                
                
                (400
                )
                
                
                81
                
                
                
                (121
                )Prepaid
      and other expenses
                
                
                (603
                )
                
                
                (259
                )
                
                
                (27
                )Accounts
      payable and accrued liabilities
                
                
                989
                
                
                
                (395
                )
                
                
                (49
                )(13,157
                )
                
                
                (6,997
                )
                
                
                (6,079
                )Financing
      activities:Proceeds
      from the issue of warrantsand
      common shares, net of issue costs
                
                
                9,659
                
                
                
                14,614
                
                
                
                6,4809,659
                
                
                
                14,614
                
                
                
                6,480Investing
      activities:Redemption
      (purchase) of short-term investments, net
                
                
                –
                
                
                
                –
                
                
                
                6,640Purchase
      of capital assets
                
                
                (932
                )
                
                
                (266
                )
                
                
                (63
                )(932
                )
                
                
                (266
                )
                
                
                6,577Effect
      of exchange rate changes on cash and cash equivalents
                
                
                (133
                )
                
                
                327
                
                
                
                9Increase
      (decrease) in cash and cash equivalents
                
                
                (4,563
                )
                
                
                7,678
                
                
                
                6,987Cash
      and cash equivalents, beginning of year
                
                
                19,057
                
                
                
                11,379
                
                
                
                4,392Cash
      and cash equivalents, end of year
                
                $
                14,494
                
                
                $
                19,057
                
                
                $
                11,379Supplemental
      cash flow information:Interest
      received
                
                $
                349
                
                
                $
                652
                
                
                $
                496Interest
      paid
                
                
                1
                
                
                
                1
                
                
                
                2Income
      taxes paid
                
                
                82
                
                
                
                4
                
                
                
                –
  
 F-5
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
  1.      Future
operations
  Helix’s
principal business activities are focused on biopharmaceuticals, primarily in
the areas of cancer prevention and treatment.  In addition, the
Company earns revenues from its drug distribution business in Canada and
international licensing activities.   The Company has funded its
research and development activities through the issuance of common shares and
warrants and limited commercial activities.
 
 As the
Company has several projects in the research and development stage, it expects
to incur additional losses and require additional financial resources. The
continuation of the Company’s research and development activities and the
commercialization of its products are dependent upon the Company’s ability to
successfully complete its research programs, protect its intellectual property
and finance its cash requirements on an ongoing basis.  It is not
possible to predict the outcome of future research and development activities or
the financing thereof.
 
 2.      Basis
of presentation
  The
consolidated financial statements presented have been prepared on a
going-concern basis, which assumes that the Company will continue in operation
for the foreseeable future and, accordingly, will be able to realize on its
assets and discharge its liabilities in the normal course of
operations.  The Company's ability to continue as a going concern is
dependent on obtaining additional investment capital and the achievement of
profitable operations. There can be no assurance that the Company will be
successful in increasing revenue or raising additional investment capital to
generate sufficient cash flows to continue as a going concern. These
consolidated financial statements do not reflect the adjustments that might be
necessary to the carrying amount of reported assets, liabilities, revenue and
expenses and the balance sheet classification used if the Company were unable to
continue operation in accordance with this assumption.  While the
Company estimates it has sufficient capital and liquidity to finance current
operations through the next twelve months, the Company’s long-term liquidity
depends on its ability to access the capital markets, which depends
substantially on the success of the Company’s ongoing research and development
programs.  On September 8, 2009 the Company announced the completion
of a private placement for gross proceeds of $13.6 million as disclosed in note
19.
 
 3.      Significant
accounting policies
  The
consolidated financial statements are prepared in accordance with Canadian
generally accepted accounting principles.
 
 (a) Principles
of consolidation
 The
consolidated financial statements include the assets and liabilities and results
of operations of all subsidiaries and variable interest entities (“VIEs”) where
the Company is the primary beneficiary, after elimination of intercompany
transactions and balances.  VIEs are entities in which equity
investors do not have controlling financial interest or the equity at risk is
not sufficient to permit the entity to finance its activities without additional
subordinated financial support by other parties.  The Company does not
have any investments in VIEs.
 
 (b) Use of
estimates
 The
preparation of financial statements requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the year.
Actual results could differ from those estimates.  Significant areas
requiring the use of estimates relate to the assessment of impairment in the
value of long-term investments, determination of useful lives and assessment of
impairment of long-lived assets such as capital assets, acquired technology
under development and patents, determination of fair value of stock options
granted for estimating stock-based compensation expense, the allocation of
proceeds to share purchase warrants and the determination of valuation allowance
of future tax assets.
 
 In
determining these estimates, the Company relies on assumptions regarding
applicable industry performance and prospects, as well as general business and
economic conditions that prevail and are expected to prevail.  These
assumptions are limited by the availability of reliable comparable data and the
uncertainty of predictions concerning future events.
 
 (c) Cash and
cash equivalents
 The
Company considers cash on hand, deposits in banks and bank term deposits with
maturities of 90 days or less as cash and cash equivalents.
 
 (d) Inventory
 Inventory
consisting of finished goods is valued at the lower of cost, determined on a
first-in, first-out basis, and net realizable value.  In determining
the net realizable value, the Company considers factors such as yield, turnover,
expected future demand and past experience.  Cost includes the cost to
purchase the products.  The total amount of inventories recognized as
an expense (cost of sales) during the year was $1,332,000, (2008 – $1,080,000;
2007 – $1,139,000).  There were no write-downs or reversal of
write-downs of inventory recognized as an expense (cost of sales) during the
year.
    F-6
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
 Effective
August 1, 2008, the Company adopted CICA Handbook Section 3031, Inventories, as
described in note 4(d).
  (e) Capital
assets
 Capital
assets are recorded at cost less accumulated
amortization.  Amortization is provided using the following methods
and annual rates:
 Asset
                Basic
                RateResearch,
      manufacturing and computer equipment
                Declining
      balance
                20% -
  30%Furniture and
      fixtures
                Declining
      balance
                20% -
  30%Leasehold
      improvements
                Straight line over
      lease term
                Lease
  term
 (f) Research
and development
 Internally
generated research costs, including the costs of developing intellectual
property and registering patents, are expensed as
incurred.  Internally generated development costs are expensed as
incurred unless such costs meet the criteria for deferral and amortization under
Canadian generally accepted accounting principles.  To date, the
Company has not deferred any internally generated development
costs.
 
 (g) Revenue
recognition
 Product
revenue from pharmaceutical sales is recognized when title has transferred to
the customer and the customer has assumed the risk and rewards of
ownership.  Revenue from product sales is recorded net of estimated
discounts, product returns and other charge-backs, if any.
 
 Certain
license fees are comprised of initial fees and milestone payments pursuant to
collaborative agreements and other licensing
arrangements.    Initial fees are recognized over the
estimated collaboration term on a straight-line basis.  Milestone
payments are recognized as revenue when the milestone (such as issuance of
patents by regulatory authorities or achievement of commercial sales by the
customer) is achieved and the customer is obligated to make the performance
payment.  Certain license arrangements require no continuing
involvement by the Company.  Non-refundable license fees are
recognized as revenue, when the Company has no further involvement or obligation
to perform under the arrangement, the fee is fixed or determinable and
collection of the amount is reasonably assured.
 
 Royalty
revenue is recognized when the pharmaceutical product sales are shipped by a
licensee to third parties and the royalty revenue can be determined and
collection is reasonably assured.
 
 Revenue
for research and development service contracts consists of up-front fees and
milestone payments.  Non-refundable up-front fees are recognized over
the estimated term of the service contract.  Milestone payments are
recognized as revenue when the milestone is achieved and customer acceptance is
received.
 
 (h) Foreign
currency translation
 Foreign
operations and foreign currency-denominated items are translated into Canadian
dollars.  Monetary assets and liabilities of the Company’s integrated
foreign subsidiary are translated into Canadian dollars at the rates of exchange
in effect at the balance sheet dates.  Non-monetary items are
translated at historical exchange rates.  Revenue and expenses are
translated at the exchange rates prevailing at their respective transaction
dates.  Exchange gains and losses arising on translation are included
in operating results.
 
 (i) Income
taxes
 The
Company accounts for income taxes using the asset and liability
method.  Future tax assets and liabilities are recognized for the
future taxes attributable to the temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax carrying values.  Future tax assets and liabilities are
measured using enacted or substantially enacted tax rates expected to apply to
taxable income in the years in which those temporary differences are expected to
be recovered or settled. A valuation allowance against future tax assets is
recognized when it is more likely than not that the Company will not generate
sufficient income for tax purposes to utilize tax losses in the carry-forward
period and other available tax deductions.
 
 (j) Loss per
share
 Basic
loss per share is calculated by dividing the earnings available to common
shareholders by the weighted average number of common shares outstanding during
the year.  Diluted loss per share is calculated using the treasury
stock method, which assumes that all stock options and share purchase warrants
with exercise prices below the market prices are exercised with the proceeds
used to purchase common shares of the Company at the average market price during
the year.
   F-7
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 (k) Intangible
assets
 Intangible
assets consist of acquired technology under development and
patents.  Intangible assets are amortized at the shorter of their
remaining legal or contractual life and their estimated useful life on a
straight-line basis as follows:
 
 Patents 15 - 20
years
 
 The
amortization method and estimate of the useful life of intangible assets are
reviewed annually, and tested for impairment in accordance with (m)
below.
 
 Patents
do not necessarily reflect the present or future value of the underlying science
or technology.  The amount recoverable is dependent upon the
continuing advancement of the research through various phases of clinical trials
and, ultimately, to commercialization or on the licensing of the research to
third parties, for valuable consideration.  It is not possible to
predict the outcome of research and development programs or their potential to
be licensed to third parties.
 
 (l) Stock-based
compensation
 The
Company accounts for stock-based compensation and other stock-based payments
made in exchange for goods and services provided by employees and non-employees
in accordance with the recommendations of The Canadian Institute of Chartered
Accountants’ (“CICA”) Handbook Section 3870, “Stock-based Compensation and Other
Stock-based Payments” (“Section 3870”).  Section 3870 established
standards for recognition, measurement and disclosure of stock-based
compensation and other stock-based payments made in exchange for goods and
services provided by employees and non-employees.  The standard
requires that a fair value based method of accounting be applied to all
stock-based payments to employees and non-employees and to employee awards that
are direct awards of stock, which call for settlement in cash or other assets,
or are appreciation rights that call for settlement by the issuance of equity
instruments.  The fair value of stock options is measured at the grant
date using the Black-Scholes option pricing model and the compensation cost is
amortized over the options’ vesting period for employee awards and the service
period for non-employee awards.  Forfeitures are accounted for as they
occur.
 
 (m) Impairment
of long-lived assets
 The
Company’s long-lived assets include capital assets and intangible assets with
finite lives.  The Company considers a two-step process to determine
whether there is impairment of long-lived assets held for use.  The
first step determines when impairment is recognized while the second measures
the amount of the impairment.  An impairment loss is recognized when
the carrying amount on a long-lived asset exceeds the sum of the undiscounted
cash flows expected to result from its use and eventual
disposition.  An impairment loss is measured as the amount by which
the long-lived asset’s carrying amount exceeds its fair value.  To
test for and measure impairment, long-lived assets are grouped at the lowest
level for which identifiable cash flows are largely independent.  The
Company reviews long lived assets for impairment annually or more frequently if
events or changes in circumstances indicate that the carrying amount may not be
recoverable.  The Company tested long lived assets with finite useful
lives for impairment during the year ended July 31, 2009 and recorded an
impairment charge of $98,000 (2008 – $nil; 2007 – $1,332,000) related to
patents.
  (n) Recent
Canadian accounting pronouncements not yet adopted
  (i)
              International
      financial reporting standards
(“IFRS”):
 In 2006,
the Canadian Accounting Standards Board ("AcSB") published a new strategic plan
that significantly affects financial reporting requirements for Canadian public
companies. The AcSB strategic plan outlines the convergence of Canadian GAAP
with IFRS over an expected five-year transitional period.
 
 In
February 2008, the AcSB confirmed that IFRS will be mandatory in Canada for
profit-oriented publicly accountable entities for fiscal periods beginning on or
after January 1, 2011.  The Company's first annual IFRS financial
statements will be for the year ending July 31, 2011 and will include the
comparative period of fiscal 2010.
 
 The
Company is completing a preliminary assessment of the accounting and reporting
differences under IFRS as compared to Canadian GAAP, however, management has not
yet finalized its determination of the impact of these differences on the
consolidated financial statements. As this assessment is finalized, the Company
intends to disclose such impacts in its future consolidated financial
statements.
 
 In the
period leading up to the changeover, the AcSB will continue to issue accounting
standards that are converged with IFRS, thus mitigating the impact of adopting
IFRS at the changeover date. The International Accounting Standards Board will
also continue to issue new accounting standards during the conversion period and
as a result, the final impact of IFRS on the Company's consolidated financial
statements will only be measured once all the IFRS applicable at the conversion
date are known.
 
 (ii)
              Business
      combinations:
 In
January 2009, the CICA issued Handbook Section 1582, Business Combinations,
which replaces the existing standards. This section establishes the standards
for the accounting of business combinations, and states that all assets and
liabilities of an acquired business will be
 
  F-8
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
 
 recorded
at fair value. Obligations for contingent considerations and contingencies will
also be recorded at fair value at the acquisition date. The standard also states
that acquisition-related costs will be expensed as incurred and that
restructuring charges will be expensed in the periods after the acquisition
date. This standard is effective for the Company on August 1, 2011. Earlier
adoption is permitted. The Company is currently assessing the impact this
standard will have on its consolidated financial position and results of
operations.
 
 (iii)
              Consolidated
      financial statements:
 In
January 2009, the CICA issued Handbook Section 1601, Consolidated Financial
Statements, which replaces the existing standards. This section establishes the
standards for preparing consolidated financial statements and is effective for
the Company on August 1, 2011. Earlier adoption is permitted. The Company is
currently assessing the impact this standard will have on its consolidated
financial position and results of operations.
 
 (iv)
              Non-controlling
      interests:
 In
January 2009, the CICA issued Handbook Section 1602, Non-controlling Interests,
which establishes standards for the accounting of non-controlling interests of a
subsidiary in the preparation of consolidated financial statements subsequent to
a business combination, and is effective for the Company on August 1, 2011. The
Company is currently assessing the impact this standard will have on its
consolidated financial position and results of operations.
 
 (v)
              Goodwill
      and intangible assets:
 In
February 2008, the CICA issued Handbook Section 3064, Goodwill and Intangible
Assets.  Section 3064, which replaces Section 3062, Goodwill and Other
Intangible Assets, and Section 3450, Research and Development Costs, establishes
standards for the recognition, measurement and disclosure of goodwill and
intangible assets, and is effective for the Company on August 1, 2009. The
Company is currently assessing the impact of this section on its consolidated
financial position and results of operation.
 
 (vi)
              Financial
      Instruments - Disclosures:
 In June
2009, the CICA amended Section 3862, Financial Instruments - Disclosures
("Section 3862"), to include additional disclosure requirements about fair value
measurement for financial instruments and liquidity risk disclosures. These
amendments require a three level hierarchy that reflects the significance of the
inputs used in making the fair value measurements. Fair value of assets and
liabilities included in Level 1 are determined by reference to quoted prices in
active markets for identical assets and liabilities. Assets and liabilities in
Level 2 include valuations using inputs other than the quoted prices for which
all significant inputs are based on observable market data, either directly or
indirectly. Level 3 valuations are based in inputs that are not based on
observable market data. The amendments to Section 3862 are effective for the
Company on August 1, 2009.
 
 4.      Change
in accounting policies
  Effective
August 1, 2008, the Company adopted the new accounting standards that were
issued by The Canadian Institute of Chartered Accountants (CICA): Handbook
Section 1400 “General standards on financial statement presentation”, Handbook
Section 1506 “Accounting Changes”, Handbook Section 1535 “Capital Disclosures”,
Handbook Section 3031 “Inventories”, Handbook Section 3862 “Financial
Instruments – Disclosures” and Handbook Section 3863 “Financial Instruments –
Presentation”
  (a)
              General
      standards on financial statement
presentation:
 Section
1400 includes requirements to assess and disclose an entity’s ability to
continue as going concern, as disclosed in note 2.  The adoption of
this change did not have an impact on the Company’s consolidated financial
statements.
 
 (b)
              Accounting
      changes:
 Section
1506, Accounting Changes allows for voluntary changes in accounting policy only
when they result in the financial statements providing reliable and more
relevant information; requires changes in accounting policy to be applied
retrospectively unless doing so is impracticable; requires prior period errors
to be corrected retrospectively; and calls for enhanced disclosures about the
effects of changes in accounting policies, estimates and errors on the financial
statements. The adoption of this standard did not have any impact on the
Company's consolidated financial statements.
  (c)
                Capital
      Disclosures:
 Section
1535 establishes standards for disclosing information about an entity’s capital
and how it is managed.  It requires the disclosure of information
about: (i) an entity’s objectives, policies and processes for managing capital;
compliance with any capital requirements; and if it has not complied, the
consequences of such non-compliance.  The Company has included
disclosures recommended by Section 1535 in note 10 of these consolidated
financial statements.
  F-9
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
 (d)
              Inventories:
 Section
3031 introduces significant changes to measurement and disclosure of
inventories, including the requirement to measure inventories at the lower of
cost or net realizable value, the allocation of overhead based on normal
capacity, the use of a specific cost method for inventories that are not
ordinarily interchangeable or goods and services produced for specific purposes,
and the reversal of previous write-downs to net realizable value when there is
subsequent increase in the value of inventories.  Inventory carrying
amounts, amounts recognized as an expense, write-downs and the reversals of
write-downs are required to be disclosed.  The Company’s cost of
inventories is comprised of all laid down costs and are valued at the lower of
cost, determined on a first-in, first-out basis, and net realizable
value.  The Company adopted the standard on a prospective
basis.  This section did not have a material impact on the Company’s
consolidated financial statements.
 
 (e)
              Financial
      Instruments:
 Section
3862 on Financial Instruments – Disclosures; and Section 3863, Financial
Instruments – Presentation increase the emphasis on risk associated with both
recognized and unrecognized financial instruments and how these risks are
managed.  Section 3863 replaces Section 3861, Financial Instruments –
Disclosure and Presentation.  The new disclosure requirements
pertaining to these Sections are contained in note 11 of these consolidated
financial statements.
 
 (f)
              Credit
      risk and fair value of financial assets and financial
      liabilities:
 In
January 2009, the CICA issued EIC Abstract 173 "Credit Risk and the Fair Value
of Financial Assets and Financial Liabilities”.  The EIC requires the
Company to take into account the Company’s own credit risk and the credit risk
of the counterparty in determining the fair value of financial assets and
financial liabilities, including derivative instruments. The adoption of this
change did not have an impact on the Company’s consolidated financial
statements.
 
 5.      Investment
  The
investment in shares of Orchid is categorized as
available-for-sale.  At July 31, 2009, the Company owns 29,678 common
shares in Orchid (2008 – 29,678 common shares).  Orchid’s common
shares trade on the NASDAQ, under the ticker symbol ORCH.  The closing
trading price of Orchid’s common shares was US$1.75 per share at July 31, 2009
(2008 – US$3.19 per share).
  6.      Capital
Assets
  2009
                
                
                
                
                
                
                
                
                2008Cost
                
                
                Accumulated
      amortization
                
                
                Net
      book
                  value
                
                
                Cost
                
                
                Accumulated
      amortization
                
                
                Net
      book
                  valueResearch
      equipment
                
                $
                2,908
                
                
                $
                2,088
                
                
                $
                820
                
                
                $
                2,798
                
                
                $
                1,914
                
                
                $
                884Manufacturing
      equipment
                
                
                438
                
                
                
                21
                
                
                
                417
                
                
                
                –
                
                
                
                –
                
                
                
                –Leasehold
      improvements
                
                
                359
                
                
                
                6
                
                
                
                353
                
                
                
                –
                
                
                
                –
                
                
                
                –Computer
      equipment
                
                
                737
                
                
                
                567
                
                
                
                170
                
                
                
                721
                
                
                
                504
                
                
                
                217Furniture
      and fixtures
                
                
                153
                
                
                
                104
                
                
                
                49
                
                
                
                144
                
                
                
                94
                
                
                
                50$
                4,595
                
                
                $
                2,786
                
                
                $
                1,809
                
                
                $
                3,663
                
                
                $
                2,512
                
                
                $
                1,151
  7.      Intangible
assets
 2009
                
                
                
                
                
                
                
                
                2008Cost
                
                
                Accumulated
      amortization
                
                
                Net
      book
                  Value
                
                
                Cost
                
                
                Accumulated
      amortization
                
                
                Net
      bookvaluePatents
                
                
                911
                
                
                
                911
                
                
                
                –
                
                
                
                911
                
                
                
                801
                
                
                
                110
 
 The
Company assessed the recoverability of intangible assets by determining whether
the carrying value of such assets can be recovered through undiscounted future
cash flows. As the undiscounted future cash flows associated with the customer
contracts were less than the carrying amount, the excess of the carrying amount
over the fair value determined based on discounted future cash flows was
recorded as an impairment charge of $98,000 to the consolidated statement of
operations.  For the year ended July 31, 2009, the Company recorded
intangible amortization of $12,000 (2008 – $16,000; 2007 –
$159,000).
   F-10
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
 8.      Shareholders’
Equity:
 Common shares
              
              Share
      purchase
                warrantsAmount
              
              Number
              
              
              Amount
              
              Number
              
              
              Options
              
              
              Contributed
      Surplus
              
              Deficit
              
              
              Accumulated
      other comprehensive income (loss)
              
              
              Total
      shareholders
    EquityBalances,
      July 31, 2006
              
              $
              51,944
              
              32,685,335
              
              $
              636
              
              7,910,609
              
              $
              3,602
              
              $
              1,753
              $
              (44,054
              )
              $
              –
              
              $
              13,881Net
      loss for the year
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              (7,674
              )
              
              –
              
              
              (7,674
              )Other
      comprehensive income (loss)
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –Common
      stock, issued
              
              
              5,406
              
              3,650,000
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              5,406Warrants,
      issued
              
              
              –
              
              –
              
              
              1,074
              
              3,650,000
              
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              1,074Warrants
      expired, unexercised
              
              
              –
              
              –
              
              
              (193
              )
              (2,415,000
              )
              
              –
              
              
              193
              
              –
              
              
              –
              
              
              –Stock-based
      compensation
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              47
              
              
              –
              
              –
              
              
              –
              
              
              47Stock
      options, exercised
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –Stock
      options expired, unexercised
              
              
              –
              
              
              
              
              –
              
              –
              
              
              (14
              )
              
              14
              
              –
              
              
              –
              
              
              –Balances,
      July 31, 2007:As
      previously reported
              
              
              57,350
              
              36,335,335
              
              
              1,517
              
              9,145,609
              
              
              3,635
              
              
              1,960
              
              (51,728
              )
              
              –
              
              
              12,734Changes
      in accounting policy related
                to financial instruments (note 4(f)(ii))
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              –
              
              
              148
              
              
              148Balances,
      July 31, 2007:As
      revised
              
              
              57,350
              
              36,335,335
              
              
              1,517
              
              9,145,609
              
              
              3,635
              
              
              1,960
              
              (51,728
              )
              
              148
              
              
              12,882Net
      loss for the year
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              (6,964
              )
              
              –
              
              
              (6,964
              )Other
      comprehensive income (loss)
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              –
              
              
              (54
              )
              
              (54
              )Common
      stock, issued
              
              
              14,614
              
              10,040,000
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              14,614Warrants,
      issued
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –Warrants
      expired, unexercised
              
              
              –
              
              –
              
              
              (1,517
              )
              (9,145,609
              )
              
              
              
              
              1,517
              
              –
              
              
              –
              
              
              –Stock-based
      compensation
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              44
              
              
              –
              
              –
              
              
              –
              
              
              44Options,
      exercised
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –Options,
      exercised, unexercised
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              (448
              )
              
              448
              
              –
              
              
              –
              
              
              –Balances,
      July 31, 2008
              
              $
              71,964
              
              46,375,335
              
              $
              –
              
              –
              
              $
              3,321
              
              $
              3,925
              $
              (58,692
              )
              $
              94
              
              $
              20,522Net
      loss for the year
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              (14,102
              )
              
              –
              
              
              (14,102
              )Other
      comprehensive income (loss)
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              –
              
              
              (39
              )
              
              (39
              )Common
      stock, issued
              
              
              9,612
              
              6,800,000
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              9,612Warrants,
      issued
              
              
              –
              
              –
              
              
              47
              
              3,400,000
              
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              47Warrants,
      expired, unexercised
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –Stock-based
      compensation
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              1,023
              
              
              –
              
              –
              
              
              –
              
              
              1,023Options,
      exercised
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –
              
              –
              
              
              –
              
              
              –Options,
      exercised, unexercised
              
              
              –
              
              –
              
              
              –
              
              –
              
              
              (867
              )
              
              867
              
              –
              
              
              –
              
              
              –Balances,
      July 31, 2009
              
              $
              81,576
              
              53,175,335
              
              $
              47
              
              3,400,000
              
              $
              3,387
              
              $
              4,792
              $
              (72,794
              )
              $
              55
              
              $
              17,063
 
 (a) Preferred
shares
 (i)  Authorized
10,000,000 preferred shares
 (ii)  Nil
preferred shares issued and outstanding
 
 (b) Common
shares, share purchase warrants and contributed surplus
 (i)  Authorized
unlimited common shares without par value
 (ii)  Issued
and outstanding:
 
 On
October 11, 2006, the Company announced the completion of a private placement,
issuing 3,650,000 units at $1.93 per unit, for gross proceeds of
$7,044,500.  Each unit consists of one common share and one common
share purchase warrant.  Each common share
  F-11
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
 purchase
warrant entitles the holder to purchase one common share at a price of $2.70
until March 31, 2008. Of the gross proceeds amount, $1,168,000 was allocated to
the share purchase warrants based on fair value and the residual amount of
$5,876,500 was allocated to common shares.  Share issue costs
totalling $565,000 were proportionately allocated to the share purchase warrants
($94,000) and common shares ($471,000) respectively.
 
 In
addition to the 225,000 warrants, which expired unexercised on September 22,
2006, an additional 2,190,000 warrants expired unexercised on March 1,
2007.
 
 On
December 19, 2007 the Company announced the completion of a private placement,
issuing 10,040,000 common shares at $1.68 per common share, for gross proceeds
of $16,867,200.  The costs of issuance amounted to $2,253,200 and has
been reduced from the gross proceeds and recorded in share capital.
 
 On March
31, 2008, 9,145,609 share purchase warrants expired unexercised.
 
 On
October 2, 2008, the Company completed a private placement, issuing 6,800,000
units at $1.68 per unit, for gross proceeds of $11,424,000.  Each unit
consists of one common share and one-half of one common share purchase
warrant.  Each whole common share purchase warrant entitles the holder
to purchase one common share at a price of $2.36 until 5pm (Toronto time) on
October 1, 2011. Of the gross proceeds amount, $68,000 was allocated to the
share purchase warrants based on fair value and the residual amount of
$11,356,000 was allocated to common stock.  Share issue costs
totalling $1,765,000 were proportionately allocated to the share purchase
warrants ($21,000) and common stock ($1,744,000), respectively.
 
 As at
July 31, 2009 the Company had 53,175,335 common shares, and 3,400,000 whole
common share purchase warrants issued and outstanding.  Each whole
common share purchase warrant entitles the holder to purchase one common share
at a price of $2.36 until 5pm (Toronto time) on October 1, 2011.
  (c)
              Stock
      options:
  (i)
              The
      Company’s shareholders adopted a new stock option plan at the annual
      general meeting held on December 16, 2008 reserving up to 10% of the
      Company’s outstanding common stock for granting to directors, officers and
      employees of the Company or any person or company engaged to provide
      ongoing management or consulting services.  Based on the
      Company’s current issued and outstanding common shares as at July 31,
      2009, options to purchase up to 5,317,533 common shares may be granted
      under the plan.  As at July 31, 2009, options to purchase a
      total of 3,564,000 shares have been issued and are outstanding under the
      plan.  Options are granted at the fair market value of the
      Company’s stock at the grant date, vest at the discretion of the Board,
      and may have terms of up to 10
years.
 
 (ii)
              Issued
      and outstanding
  2009
                  
                  
                  2008Number
                  
                  
                  Weighted
                    average
      exercise
                    price
      per share
                  
                  
                  Number
                  
                  
                  Weighted
                    average
      exercise price per shareOutstanding,
      beginning of year
                  
                  
                  2,030,500
                  
                  
                  $
                  2.45
                  
                  
                  
                  3,272,500
                  
                  
                  $
                  3.41Granted
                  
                  
                  2,070,000
                  
                  
                  
                  1.68
                  
                  
                  
                  –
                  
                  
                  
                  –Exercised
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –Forfeited/expired
                  
                  
                  (536,500
                  )
                  
                  
                  2.46
                  
                  
                  
                  (1,242,000
                  )
                  
                  
                  5.01Outstanding,
      end of year
                  
                  
                  3,564,000
                  
                  
                  $
                  2.00
                  
                  
                  
                  2,030,500
                  
                  
                  $
                  2.45Exercisable,
      end of year
                  
                  
                  2,015,250
                  
                  
                  $
                  2.24
                  
                  
                  
                  2,030,500
                  
                  
                  $
                  2.45
 
 F-12
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
 The
following table provides information on options outstanding and exercisable as
of July 31, 2009:
  Exercise
      Price
                
                Weighted
      average
                  remaining
      contractual
                  life
      (in years)
                
                Number
      of
                  options
                  outstanding
                
                Number
      of
                  options
                  exercisable$1.68
                
                
                
                7.38
                
                
                2,065,000
                
                
                516,250$2.00
                
                
                
                0.91
                
                
                840,500
                
                
                840,500$3.00
                
                
                
                2.00
                
                
                658,500
                
                
                658,5003,564,000
                
                
                2,015,250
 
 (iii)
              Stock-based
      compensation
 For the
year ended July 31, 2009, the Company granted 2,070,000 stock options (2008 –
nil; 2007 – nil), with a fair value of $2,525,400 (2008 – $nil; 2007 – nil) and
517,500 (2008 – 30,556; 2007 – 33,333) stock options vested with a fair value of
$631,350 (2008 – $44,000; $2007 – $47,000).
 
 The
Black-Scholes option pricing model was used to estimate the fair value of the
options at the grant date based on the following assumptions:
  Volatility
              
              
              Risk
      Free Interest Rate
              
              Expected
      Life
              
              Dividend
      Yield2009
              
              
              64.30
              %
              
              
              2.44
              %
              8
      years
              
              
              0.00
              %2008
              
              
              –
              %
              
              
              –
              %
              –
      years
              
              
              –
              %2007
              
              
              –
              %
              
              
              –
              %
              –
      years
              
              
              –
              %
 9.      Commitments
and contingencies
  The
Company’s commitments are summarized as follows:
  
 2010
                  
                  
                  
                  2011
                  
                  
                  
                  2012
                  
                  
                  
                  2013
                  
                  
                  
                  2014
                  
                  
                  
                  2015
      and beyond
                  
                  
                  
                  TotalRoyalty
      and in-licensing
                  
                  $
                  10
                  
                  
                  $
                  10
                  
                  
                  $
                  10
                  
                  
                  $
                  10
                  
                  
                  $
                  10
                  
                  
                  $
                  100
                  
                  
                  $
                  150Clinical
      research organizations
                  
                  
                  958
                  
                  
                  
                  354
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  1,312Contract
      manufacturing organizations
                  
                  
                  671
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  671Collaborative
      research organizations
                  
                  
                  934
                  
                  
                  
                  261
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  1,195Purchases
      of inventory
                  
                  
                  935
                  
                  
                  
                  761
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  1,696Operating
      leases
                  
                  
                  381
                  
                  
                  
                  224
                  
                  
                  
                  102
                  
                  
                  
                  102
                  
                  
                  
                  93
                  
                  
                  
                  –
                  
                  
                  
                  902Consulting
                  
                  
                  277
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  277$
                  4,166
                  
                  
                  $
                  1,610
                  
                  
                  $
                  112
                  
                  
                  $
                  112
                  
                  
                  $
                  103
                  
                  
                  $
                  100
                  
                  
                  $
                  6,203
 (a) Royalty
and in-licensing commitments
 (i)
              Pursuant
      to a Royalty Agreement dated March 27, 1997 with University of
      Saskatchewan Technologies Inc. (“UST”), the Company is required to pay UST
      a royalty of 2% of the net sales revenue generated from certain products
      containing prostaglandin E1, and
      in the case of sub-licenses of such products, 15% of the non-royalty
      considerations (up-front payments) received from the
      sub-licensee.
 
 (ii)
              Pursuant
      to an Amended Royalty Agreement, effective November 1, 1999, the
      Company is required to pay royalties of 2% of the Company’s net sales
      revenue received from the marketing, manufacture, distribution or sale of
      certain products, or in the case of sub-license revenue, 2% of license
      fees or other revenue received by the Company related to the marketing,
      manufacture, distribution or sale of certain products, which revenue
      is not allocated by the Company to the further development of the
      product.  Any future revenue generated through the
      commercialization of Topical Interferon Alpha-2b is subject to this
      royalty agreement, which expires on March 27,
  2017.
  F-13
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
 (iii)
              Pursuant
      to an agreement dated July 10, 2000, the Company pays a sliding scale
      percentage based fee to RFB Associates (“RFB”) in the event a healthcare
      acquisition or product license is consummated between the Company and a
      company introduced by RFB.  As a result of introducing the
      Company to Anika Therapuetics which resulted in the finalizing of an
      in-license arrangement for the rights to distribute Anika Therapeutic’s
      product in Canada, the company pays RFB percentage based
      fee.  The fee is 5% of the consideration paid to Anika by the
      Company, up to and including $1,000,000; plus 4% in excess of $1,000,000
      and up to $2,000,000; plus 3% in excess of $2,000,000 and up to
      $3,000,000; plus 2% in excess of $3,000,000 and up to $4,000,000; plus 1%
      in excess of $4,000,000.  The agreement is subject to a minimum
      royalty of $25,000 and can be terminated by either party on thirty days
      prior notice except for any fees associated to an arrangement which was
      previously consummated.
 
 (iv)
              Pursuant
      to a 20-year license agreement, expiring in 2021 (subject to earlier
      termination or extension in certain circumstances), to commercialize its
      proprietary Heterodimer Protein Technology, the Company is committed to
      make a 5% royalty payment upon the commercial launch of the first product
      or on the net sales revenue of the products that employ or utilize the
      technology under the terms of the agreement.  The Company is
      currently reviewing the status of this
  agreement.
 
 (v)
              Pursuant
      to an agreement dated April 28, 2005 with the NRC, the Company is required
      to pay a royalty of 3% of net sales, with a minimum royalty of $10,000 per
      annum generated from the use of a certain antibody to target cancerous
      tissues of the lung.  In addition to the royalty payments, the
      Company is also required to make certain milestone
      payments:  $25,000 upon successful completion of phase I
      clinical trials; $50,000 upon successful completion of phase IIb clinical
      trials; $125,000 upon successful completion of phase III clinical trials;
      and $200,000 upon receipt of market approval by regulatory
      authority.  L-DOS47 is subject to this
  agreement.
 
 (vi)
              A
      Royalty Sharing Agreement dated September 24, 1998 with the Vaccine and
      Infectious Disease Organization (“VIDO”) applies to those patents and
      other intellectual properties, which the parties agree, may be made
      subject to the agreement from time to time.  VIDO will have the
      right to exploit such property in the animal health care industry, and the
      Company will have the right to exploit such property in the human health
      care industry, with each party having the right to receive one-third of
      the license fees, royalties or other revenue generated from the area
      exploited by the other.  In the case of direct product sales
      made by the Company or VIDO, the other party will be entitled to a royalty
      on the net sales revenue received by the selling party, at a royalty rate
      to be negotiated.  As no intellectual property has been made
      subject to the agreement, Helix is currently in the process of review the
      status of this agreement.
 
 (vii)
              Pursuant
      to a 20-year license agreement, expiring in 2017 (subject to earlier
      termination or extension in certain circumstances), to commercialize its
      proprietary Molecular Sensing Technology, the Company is committed to make
      a 5% royalty payment upon the commercial launch of the first product or on
      the net sales revenue of the products that employ or utilize the
      technology under the terms of the agreement and is subject to minimum
      royalties of $50,000 in the first and second year; $100,000 in the third
      and fourth year and $200,000 in the fifth and subsequent
      years.  In a sub-license royalty arrangement, the Company is
      committed to make a payment of 35% on the total value of all consideration
      received and any non-cash components.  The Company had
      previously sub-licensed this technology to a third party, however, the
      sub-licensee gave termination notice of the sub-license on September 19,
      2008.
 
 (viii)
              Pursuant
      to the Company’s research agreement with the National Research Council of
      Canada (“NRC”) for research and development pertaining to the Company’s
      Heterodimer technologies, the Company is committed to a 1% royalty on
      sales revenue from all licensed products and services to the
      NRC.  The agreement is in the process of being
      terminated.
 
 As at
July 31, 2009, the Company has $150,000 (2008 – $36,000) in financial
obligations outstanding related to royalty and in-licensing
commitments.  To date, the Company has paid $141,000 under these
agreements.
 
 (b) Clinical
Research Organization (“CRO”) Commitments
 (i)
              The
      Company has three separate CRO supplier agreements,  whereby the
      CRO’s will provide collaborative services related to the management of a
      phase II clinical trial in Sweden and Germany for Topical Interferon
      Alpha-2b in patients with ano-genital warts, who are positive with HPV and
      the phase II pharmacokinetic study in
Germany.
 
 As at
July 31, 2009, the Company accrued $102,000 (2008 – $22,000) for research
services it had received and is committed to pay $1,312,000 for additional
research services to be received.
 
 (c) Contract
Manufacturing Organization (“CMO”) commitments
 (i)
              The
      Company has two separate CMO supplier agreements related to the Company’s
      Topical Interferon Alpha-2b program.  The one CMO agreement
      relates to the manufacturing of clinical trial kits to support the current
      phase II clinical trials of patients with
  F-14
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
  
 (ii)
              The
      Company has three separate CMO supplier agreements related to the
      Company’s L-DOS47 program, all of which are inte-related in the scale-up
      of L-DOS47 in preparation for human clinical
  trials.
 
 As at
July 31, 2009, the Company accrued $90,000 (2008 – $79,000) for Contract
Manufacturing services it had received and is committed to pay $671,000 for
additional research services to be received.
 
 (d)
              Collaborative
      Research Organization Service
Commitments
 (i)
              The
      Company has one Collaborative Research master service agreement relating
      to the Company’s L-DOS47 program.  The nature of the services
      includes assay development, animal studies ongoing future clinical sample
      analysis.
  As at
July 31, 2009, the Company accrued $36,000 (2008 – $19,000) for Collaborative
Research Organizations services it had received and is committed to pay
$1,195,000 for additional research services to be received.
 
 (e)
              Purchase
      commitments
                The Company has inventory purchase commitments of $1,696,000
      with one supplier through to March 2011.
  (e)
              Operating
      lease commitments
                The
      Company owes $902,000 under various operating lease agreements with
      remaining terms of up to June 2014 for office and warehouse and research
      premises.
 
 (f)
              Consulting
      commitments
                The
      Company has entered into a consulting services arrangement for both
      research and development consulting services of $277,000 through fiscal
      2010.
  (g)
              Contingencies
                The
      Company indemnifies its directors and officers against any and all claims
      or losses reasonably incurred in the performance of their service to the
      Company to the extent permitted by
law.
 
 Given the
nature of this indemnification, the Company is unable to reasonably estimate its
maximum potential liability as this indemnification provision does not provide
for a maximum potential amount and the amounts are dependent on the outcome of
future contingent events, the nature and likelihood of which cannot be
determined at this time.  Consequently, no amounts have been accrued in
these consolidated financial statements relating to this indemnification.
 
 10.      Capital
risk management
  The
Company’s main objectives when managing capital are to ensure the Company has
the ability to advance its research and development programs, complete its
clinical trials and meet its ongoing operating expenditures while maintaining a
flexible capital structure.
 
 The
Company does not have any credit facilities and is therefore not subject to any
externally imposed capital requirements or covenants.  The Company’s
objectives in managing capital are to ensure sufficient liquidity to finance
research and development activities, clinical trials, ongoing administrative
costs, working capital and capital expenditures.  The Company
endeavours not to unnecessarily dilute shareholders when managing the liquidity
of its capital structure.
 
 In the
management of capital, the Company includes cash and cash equivalents and
components of shareholders’ equity, in the definition of capital.
 
 Since
inception, the Company has financed its operations from public and private sales
of equity, the exercise of warrants and stock options, and, to a lesser extent,
from interest income from funds available for investment, government grants,
investment tax credits, and revenues from distribution, licensing and contract
services. Since the Company does not have net earnings from its operations, the
Company’s long-term liquidity depends on its ability to access the capital
markets, which depends substantially on the success of the Company’s ongoing
research and development programs, as well as capital market conditions and
availability.
 
 Based on
the Company’s currently planned expenditures and assuming no unanticipated
expenses, the Company estimates that its cash reserves will be sufficient to
meet anticipated cash needs for working capital and capital expenditures for the
next twelve months.
 
 F-15
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
  11.      Financial
risk management
  The
Company is exposed to a variety of financial risks by virtue of its activities:
market risk (including currency and interest rate risk), credit risk and
liquidity risk.  The overall risk management program focuses on the
unpredictability of financial markets and seeks to minimize potential adverse
effects on financial performance.
 
 Risk
management (the identification and evaluation of financial risk) is carried out
by the finance department, in close cooperation with management.  The
finance department is charged with the responsibility of establishing controls
and procedures to ensure that financial risks are mitigated in accordance with
the approved policies.
 
 (a)
              Market
      risk:
 (i)
              Currency
      risk
 The
Company operates internationally and is exposed to foreign exchange risks from
various currencies, primarily the Euro and US dollar.  Foreign
exchange risks arise from the foreign currency translation of the Company’s
integrated foreign operation in Ireland.  The net assets in Ireland
consist mainly of cash and cash equivalents, denominated in Euro dollars, which
are currently used to fund clinical trials of Topical Interferon Alpha-2b in
Europe.  In addition, foreign exchange risks arise from purchase
transactions, as well as recognized financial assets and liabilities denominated
in foreign currencies.  The Company also receives a revenue stream
from royalties denominated in Euro dollars from the licence of the Company’s
Klean-PrepTM to
Helsinn-Birex Pharmaceuticals Ltd., a subsidiary of Helsinn Healthcare SA, a
Swiss company.
 
 The
Company’s main objective in managing its foreign exchange risk has been to
maintain sufficient Euro dollars on hand to support Euro forecasted cash flows
in support of ongoing clinical trials of Topical Interferon Alpha-2b in Europe
as well as a hedge against purchase transactions denominated in Euro
dollars.  The Company has generally maintained minimal cash balances
denominated in U.S. dollars due to the Canadian dollar’s rapid appreciation
against the U.S. dollar and the small amount of purchase transactions
denominated in U.S. dollars.  As the Company expands its research and
development programs, some of these contracted services are being denominated in
U.S. dollars.
 
 Balances
in foreign currencies at July 31, 2009 are as follows:
  Euro
                  Dollars
                
                
                U.S.
                  Dollars
                
                
                Pound
                  SterlingCash
      and cash equivalents
                
                
                1,777
                
                
                
                207
                
                
                
                –Accounts
      receivable
                
                
                331
                
                
                
                –
                
                
                
                –Accounts
      payable and accrued liabilities
                
                
                181
                
                
                
                488
                
                
                
                40
 
 Any
fluctuation in the exchange rates of the foreign currencies listed above could
have a significant impact on the Company’s results from operations; however,
they would not impair or enhance the ability of the Company to pay its
foreign-denominated expenses.
 
 (ii)
              Interest
      rate risk
 Interest
rate risk is the risk that future cash flows of a financial instrument will
fluctuate because of changes in interest rates, which are affected by market
conditions.
 
 The
Company is exposed to interest rate risk arising from fluctuations in interest
rates received on its cash and cash equivalents.  The impact of
interest rate fluctuations will vary as the amount of cash and cash equivalents
the Company holds, changes.  The Company does not use derivative
instruments to reduce its exposure to interest rate risk.
 
 The
Company manages its interest rate risk by maximizing the interest income earned
on excess funds while maintaining the liquidity necessary to conduct its
operations on a day-to-day basis.  The Company limits its investing of
excess funds to risk-free financial instruments, such as Bankers’
Acceptances.
 Fluctuations
in the market rates of interest do not have a significant impact on the
Company’s results of operations due to the relatively short term maturity of any
investments held by the Company at any given point in time.
 
 (b)
              Credit
      risk:
 Credit
risk is the risk of a financial loss to the Company if a customer or
counterparty to a financial instrument fails to meet its contractual
obligation.  The carrying value amount of financial assets recorded in
the Company’s consolidated financial statements, net of any allowances or
reserves for losses, represents our estimate of maximum exposure to credit
risk.  Accounts receivable are net of allowance for doubtful accounts
of $7,000 at July 31, 2009 (July 31, 2008 – $18,000).  The Company
does not have a large customer base, which facilitates the monitoring of credit
risk and credit standing of counterparties on a regular basis.
 
 F-16
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
 
 (c)
              Liquidity
      risk:
 Liquidity
risk is the risk that the Company will not be able to meet its obligations as
they fall due.
 
 The
Company manages its liquidity by forecasting cash flow from operations and
anticipated investing and financing activities.  In addition,
management actively reviews and approves planned expenditures.
 
 The
following are the contractual maturities of the undiscounted cash flows of
financial liabilities as at July 31, 2009:
 Carrying
      amount
                    
                    
                    
                    Less
      Than one year
                    
                    
                    
                    Greater
      than one yearAccounts
      payable and accrued liabilities
                    
                    $
                    2,133
                    
                    
                    $
                    2,121
                    
                    
                    $
                    12
 Since
inception, the Company has financed its operations from public and private sales
of equity proceeds received upon the exercise of warrants and stock options,
and, to a lesser extent, from interest income from funds available for
investment, government grants, investment tax credits, and revenues from
distribution, licensing and contract services. While the Company believes it has
sufficient capital and liquidity to finance current operations through the next
twelve months, the Company’s long-term liquidity depends on its ability to
access the capital markets, which depends substantially on the success of the
Company’s ongoing research and development programs.
 
 12.      Income
taxes
  Current
income tax expense of $18,000 (2008 – $153,000; 2007 – $105,000) is attributable
to the operations of the Company’s Irish subsidiary.
 
 Under the
Income Tax Act
(Canada), certain expenditures are classified as SR & ED expenditures and
are grouped into a pool for tax purposes, which is 100% deductible in the year
incurred.  This expenditure pool can also be carried forward
indefinitely and deducted in full in any subsequent year.  The SR
& ED expenditure pool at July 31, 2009 is approximately $32,484,000 (2008 –
$22,619,000; 2007 – $17,666,000).
 
 The
Company has also earned investment tax credits on SR & ED expenditures at
July 31, 2009 of approximately $6,583,000 (2008 – $4,358,000; 2007 –
$3,854,000), which can offset Canadian income taxes otherwise payable in future
years up to 2029.
 
 The tax
effects of temporary differences of the Company and its subsidiaries that give
rise to significant portions of the future tax assets and future tax liabilities
are presented in the following table:
  2009
                  
                  
                  2008Future
      tax assets:Non-capital
      losses carried forward
                  
                  $
                  4,325
                  
                  
                  $
                  3,872Capital
      losses carried forward
                  
                  
                  21
                  
                  
                  
                  21Scientific
      Research & Experimental Development expenditure pool
                  
                  
                  9,420
                  
                  
                  
                  6,188Excess
      of tax basis over book basis of Orchid investment
                  
                  
                  153
                  
                  
                  
                  147Excess
      of tax basis over book basis of capital assets
                  
                  
                  821
                  
                  
                  
                  664Deductible
      share issue costs
                  
                  
                  909
                  
                  
                  
                  708Other
                  
                  
                  6
                  
                  
                  
                  515,655
                  
                  
                  
                  11,605Valuation
      allowance
                  
                  
                  (15,655
                  )
                  
                  
                  (11,573
                  )Total
      future tax assets
                  
                  
                  –
                  
                  
                  
                  32Future
      tax liabilities:Excess
      of book basis over tax basis of intangible assets
                  
                  
                  –
                  
                  
                  
                  (32
                  )Total
      future tax liabilities
                  
                  
                  –
                  
                  
                  
                  (32
                  )Net
      future tax liabilities
                  
                  $
                  –
                  
                  
                  $
                  –
 F-17
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
  As at
July 31, 2009, the Company has Canadian tax losses carried forward which
approximate $14,916,000 (2008 - $13,584,000; 2007 - $18,489,000) and are
available until 2029 as follows:
  2013
                  
                  $
                  3,2722014
                  
                  
                  2,4402025
                  
                  
                  5302026
                  
                  
                  2,0342027
                  
                  
                  2,8812028
                  
                  
                  5562029
                  
                  
                  3,203$
                  14,916
 13.
              Research
      and development projects
  The
Company incurs research and development expenditures primarily on two research
and development projects:  Topical Interferon Alpha-2b and
DOS47.
 
 (a)
              Topical
      Interferon Alpha-2b
 The
Company is engaged in the clinical development of Topical Interferon Alpha-2b
for the treatment of HPV-induced disease states.  Topical Interferon
Alpha-2b is currently being developed for the treatment of early-stage cervical
dysplasia and ano-genital warts caused by HPV infections.
 
 (b)
              DOS47
 The
Company’s DOS47 technology employs a novel approach to the destruction of cancer
cells which is based upon the theory that the urea cycle, a natural process in
the body, can be modified to fight cancer.  The Company intends to
pursue the development of DOS47 both as a monotherapy and as an adjunct therapy
in combination with certain chemotherapeutics, with a view to maximizing the
commercialization potential of DOS47.  The Company’s first DOS47
product candidate currently under development is L-DOS47.
 
 Included
in research and development expenditures are costs associated with salaries and
fringe benefits, patents, consulting services, third party contract
manufacturing, clinical research organization services, leases for research
facilities, utilities, administrative expenses and allocations of corporate
costs.
 
 The
following table outlines research and development costs expensed for the
Company’s significant research and development projects for the fiscal years
ended July 31, 2009, 2008 and 2007:
 2009
                  
                  
                  2008
                  
                  
                  2007DOS
      47
                  
                  
                  4,389
                  
                  
                  
                  2,876
                  
                  
                  
                  2,302Topical
      Interferon Alpha-2b
                  
                  $
                  5,933
                  
                  
                  $
                  2,188
                  
                  
                  $
                  1,814$
                  10,322
                  
                  
                  $
                  5,064
                  
                  
                  $
                  4,116
 
 14.      Loss
per share
  The share
purchase warrants and stock options outstanding for each of the periods reported
were not included in the computation of diluted loss per share because the
effect would be anti-dilutive.
 
 15.
              Related
      party transactions
 Effective
September 2006, the Company’s contractual arrangement to pay a former director
of a subsidiary company for consulting services was terminated.  Prior
to September 2006, the Company paid the director $2,500 per month for consulting
services.
 
 For the
fiscal year ended July 31, 2009, the Company paid $287,000 (2008 – $267,000;
2007 – $255,000) to Cawkell Brodie Glaister LLP, legal counsel to the Company,
for legal services rendered.  A director of the Company is a partner
of Cawkell Brodie Glaister LLP.
 
 For the
fiscal year ended July 31, 2009, the Company paid $156,000 (2008 – $nil; 2007 –
$nil) to Chesapeake Biological Laboratories (“CBL”).  On October 8,
2008, the Company signed a manufacturing service agreement, to fill-finish
L-DOS47, with CBL.  CBL is a wholly
 
 F-18
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
 owned
subsidiary of Cangene Corporation.  Cangene Corporation is controlled
by the Apotex Group which includes Apotex Inc.  A director of the
Company is also a director of Cangene Corporation and President and Chief
Operating Officer of Apotex Inc.
 
 For the
fiscal year ended July 31, 2009, the Company received $nil (2008 – $nil; 2007 –
$148,000) for contracted research and development services provided to Apotex
Inc.
 
 The
Company had the following related party transactions for the fiscal years ended
July 31:
 2009
                
                
                2008
                
                
                2007Research
      and development expense paid to a former director of a
      subsidiary
                
                $
                –
                
                
                $
                –
                
                
                $
                3Professional,
      legal and consulting fees to directors, partnerships and/or companies
                  in which directors have asubstantial
      interest
                
                
                287
                
                
                
                267
                
                
                
                255Contracted
      fill-finish services with Chesapeake Biological Laboratories
      Inc.,
                
                
                156
                
                
                
                –
                
                
                
                –Contracted
      research and development revenue with Apotex Inc.
                
                
                –
                
                
                
                –
                
                
                
                148
 These
transactions are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
 
 16.      Financial
instruments
  The
carrying amounts of cash and cash equivalents, accounts receivable, accounts
payable and accrued liabilities approximate fair values due to their short-term
maturities.
 
 Financial
instruments potentially exposing the Company to concentrations of credit risk
consist of accounts receivable, which are limited to a large international
pharmaceutical company and Canadian pharmaceutical wholesalers and
pharmacies.  The Company adopts credit policies and standards to
monitor the evolving health care industry.  Management is of the
opinion that any risk of credit loss is significantly reduced due to the
financial strength of the Company’s major customers.
 
 The
Company is exposed to foreign exchange risk as a result of transactions in
currencies other than its functional currency, the Canadian
dollar.  The majority of the Company’s revenues in fiscal 2009 are
transacted in Canadian dollars, with a portion denominated in
Euros.  Purchases of inventory are primarily transacted in U.S. and
Euro dollars while other expenses, consisting of the majority of salaries,
operating costs and overhead are incurred primarily in Canadian dollars.
Research and development expenditures are incurred in both Euros and Canadian
dollars.
 
 The
Company maintains net monetary asset and/or liability balances in foreign
currencies and does not engage in currency hedging activities using financial
instruments.
 
 17.      Segmented
information
  Management
has determined that the Company has one operating segment, which is
biopharmaceuticals.
  The
following table summarizes the various revenues by geographic region for the
fiscal years ended July 31, 2009, 2008 and 2007:
  2009
                
                
                2008
                
                
                2007Canada:Product
      revenue
                
                $
                3,057
                
                
                $
                2,780
                
                
                $
                2,601License
      fee and royalty revenue
                
                
                –
                
                
                
                –
                
                
                
                –Research
      and development contract revenue
                
                
                –
                
                
                
                –
                
                
                
                148United
      States:Product
      revenue
                
                
                187
                
                
                
                172
                
                
                
                163License
      fee and royalty revenue
                
                
                89
                
                
                
                101
                
                
                
                –Research
      and development contract revenue
                
                
                –
                
                
                
                –
                
                
                
                –Europe:Product
      revenue
                
                
                –
                
                
                $
                538
                
                
                
                –License
      fee and royalty revenue
                
                
                508
                
                
                
                –
                
                
                
                512Research
      and development contract revenue
                
                
                –
                
                
                
                –
                
                
                
                –$
                3,841
                
                
                $
                3,591
                
                
                $
                3,424
  F-19
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 The
following table summarizes the percentage of total revenue and accounts
receivable as at July 31, 2009, 2008 and 2007 represented by two
customers:
 2009
                  
                  2008
                  
                  2007Percent
      of total revenue represented by two customers
                  
                  
                  50
                  %
                  
                  
                  55
                  %
                  
                  
                  46
                  %Percent
      of total accounts receivable represented by two customers
                  
                  
                  19
                  %
                  
                  
                  33
                  %
                  
                  
                  29
                  %
 The
following table summarizes the Company’s capital assets by geographic region for
the fiscal years ended July 31, 2009 and 2008:
 2009
                    
                    
                    2008Cash
      and
                      Equivalent
                    
                    
                    Accounts
      Receivable
                    
                    
                    Inventory
                    
                    
                    Capital
      Assets
                    
                    
                    Cash
      and Equivalents
                    
                    
                    Accounts
      Receivable
                    
                    
                    Inventory
                    
                    
                    Capital
      AssetsGeographic
      regionCanada
                    
                    $
                    11,767
                    
                    
                    $
                    545
                    
                    
                    $
                    858
                    
                    
                    $
                    1,391
                    
                    
                    $
                    15,896
                    
                    
                    $
                    238
                    
                    
                    $
                    458
                    
                    
                    $
                    1,151United
      States
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    418
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Europe
                    
                    
                    2,727
                    
                    
                    
                    508
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    3,161
                    
                    
                    
                    111
                    
                    
                    
                    –
                    
                    
                    
                    –$
                    14,494
                    
                    
                    $
                    1,053
                    
                    
                    $
                    858
                    
                    
                    $
                    1,809
                    
                    
                    $
                    19,057
                    
                    
                    $
                    349
                    
                    
                    $
                    458
                    
                    
                    $
                    1,151
 
 18.      Comparative
figures
  The
comparative consolidated financial statements for the three-year period ended
July 31, 2009 have been reclassified from statements previously presented to
conform to the presentation of the current period’s consolidated financial
statements.  Specifically, sales and marketing expenses for the
three-year period ended July 31, 2009 have been separately disclosed in the
Company’s Consolidated Statements of Operations and Comprehensive
Loss.  In prior financial statement disclosures, sales and marketing
expenses were included in operating, general and administration
expenses.
 
 19.      Subsequent
events
  On
September 8, 2009, the Company announced the completion of a private placement,
issuing 6,625,000 units at $2.05 per unit, for gross proceeds of
$13,581,250.  Each unit consists of one common share and one common
share purchase warrant.  Each common share purchase warrant entitles
the holder to purchase one common share at a price of $2.87 until 5pm (Toronto
time) on September 7, 2012. The issuance of common shares and share purchase
warrants will be accounted for as a capital transaction in the Company’s first
quarter of fiscal 2010.
 
 20.      Differences
between generally accepted accounting principles in Canada and the United
States:
  The
consolidated financial statements as at July 31, 2009 and 2008 and for each of
the years in the three-year period ended July 31, 2009 have been prepared in
accordance with Canadian generally accepted accounting principles ("GAAP") which
differ in some respects from accounting principles generally accepted in the
United States ("U.S. GAAP").  The following reconciliation identifies
material differences in the Company's consolidated statements of operations and
comprehensive loss and consolidated balance sheets.
 
 (a)
              Consolidated
      statements of operations and
deficit:
 2009
                  
                  
                  2008
                  
                  
                  2007Loss
      per Canadian GAAP
                  
                  $
                  (14,102
                  )
                  
                  $
                  (6,964
                  )
                  
                  $
                  (7,674
                  )Amortization
      of intangible assets (b)(ii)
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  147Impairment
      of intangible assets (b)(ii)
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  1,332Research
      and development expense (b)(iii)
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  (244
                  )Income
      tax expense (b)(iii)
                  
                  
                  –
                  
                  
                  
                  –
                  
                  
                  
                  244Loss
      per U.S. GAAP
                  
                  $
                  (14,102
                  )
                  
                  $
                  (6,964
                  )
                  
                  $
                  (6,195
                  )Other
      comprehensive income (loss):Fair
      value adjustment of available-for-sale investments (b)(i)
                  
                  
                  (39
                  )
                  
                  
                  (54
                  )
                  
                  
                  87Total
      comprehensive loss per U.S. GAAP
                  
                  $
                  (14,141
                  )
                  
                  $
                  (7,018
                  )
                  
                  $
                  (6,108
                  )Basic
      and diluted loss per common share under U.S. GAAP
                  
                  $
                  (0.27
                  )
                  
                  $
                  (0.16
                  )
                  
                  $
                  (0.17
                  )Weighted
      average number of common shares under U.S. GAAP
                  
                  
                  52,001,636
                  
                  
                  
                  42,469,362
                  
                  
                  
                  35,615,335
  F-20
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
 Under
U.S. GAAP, the number of weighted average common shares outstanding for basic
and diluted loss per share is the same as under Canadian GAAP.
 
 (b)
                Consolidated
      balance sheets:
 2009
                
                
                2008Canada
                
                
                United
      States
                
                
                Canada
                
                
                United
      StatesShareholders’
      equity:Stock
      options (iv), (v)
                
                
                3,387
                
                
                
                2,355
                
                
                
                3,231
                
                
                
                1,761Contributed
      Surplus (iv), (v)
                
                
                4,792
                
                
                
                4,354
                
                
                
                3,925
                
                
                
                3,925Deficit,
      end of period (i), (ii), (iii), (iv), (v)
                
                
                72,794
                
                
                
                71,324
                
                
                
                58,692
                
                
                
                57,222
 
 (i)  Comprehensive
Income
 Under
Canadian GAAP, comprehensive income, which consists of net income and other
comprehensive income (“OCI”) represents changes in shareholders’ equity during a
period arising from transactions and other events with non-owner sources and
includes unrealized gains and losses on financial assets classified as
available-for-sale, unrealized foreign currency translation gains or losses
arising from self-sustaining foreign operations, and changes in the fair value
of the effective portion of cash flow hedging instruments, if any. Under
Canadian GAAP this rule became effective August 1, 2007, for the Company’s
fiscal year ending July 31, 2008, whereas under United States GAAP, this
accounting principle has been in effect for fiscal years ending after December,
15, 1998.  The Company, under Canadian GAAP recorded
available-for-sale investments at cost, but under United States GAAP adjusted
the available-for-sale investments at fair value with changes in fair value
recorded as other comprehensive income, net of income taxes.
 
 (ii)  Acquired
technology:
 Canadian
GAAP requires the capitalization and amortization of acquired technology costs.
Under United States GAAP, such acquired technology costs are charged to expense
when incurred if, at the acquisition date, the technological feasibility of this
technology has not yet been established and no future alternative uses existed.
Accordingly, for United States GAAP purposes, the costs would have been expensed
at the date of acquisition and the amortization recorded under Canadian GAAP
would be reversed.  As at July 31, 2009, the acquired technology was
fully written down and therefore no differences exist between in Canadian and
U.S. GAAP.
 
 (iii)  Income
taxes:
 Under
Canadian GAAP, investment tax credits and other research and development credits
are deducted from research and development expense for items of a current
nature, and deducted from property and equipment for items of a capital
nature.  Under U.S. GAAP, these tax credits would be reclassified as a
reduction of income tax expense.  The impact would be higher research
and development expense and an income tax recovery of $nil for the year ended
July 31, 2009 (2008 - $nil; 2007 - $244,000) with no net impact to loss for the
year or loss per share.
 
 (iv)  Stock-based
compensation to non-employees:
 Under
Canadian GAAP, the Company accounts for stock-based compensation granted to
non-employees on or after August 1, 2003 at fair value. The fair value of any
awards to non-employees granted prior to August 1, 2003 is not required to be
recorded or presented under Canadian GAAP.
 
 Under
United States GAAP, the Company accounted for stock-based compensation granted
to non-employees on or after August 1, 2003 at fair value in accordance with
Financial Accounting Standards Board (“FASB”) Statement of Financial Accounting
Standards No. 123, Accounting for Stock-based Compensation. Effective August 1,
2005, the Company adopted FASB Statement of Financial Accounting Standards No.
123 (Revised 2004), Share-based Payments ("SFAS No. 123R"). There was no impact
on the accounting for stock-based awards issued to non-employees in exchange for
services as a result of this change.
 
 The
Company had not issued any options to non-employees as at August 1,
2003.  There exists no difference between Canadian and United States
GAAP for the fair value of options granted to non-employees after August 1,
2003.
 
 (v)  Stock-based
compensation to employees:
 Under
Canadian GAAP, effective August 1, 2003, the Company accounts for stock-based
compensation granted to employees, officers and directors on or after August 1,
2003 at fair value which is measured using the Black-Scholes option pricing
model. Compensation cost is recognized over the service period. Prior to August
1, 2003, the Company accounted for stock-based awards to employees, officers and
directors using the settlement method.
  F-21
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
 Under
United States GAAP, the Company accounted for stock-based compensation,
including options and warrants granted to employees prior to August 1, 2005,
using the intrinsic value method in accordance with Accounting Principles Board
Opinion No. 25, Accounting for Stock Issued to Employees ("APB
25").  Effective August 1, 2005, the Company adopted SFAS No. 123R
using the modified prospective transition approach whereby the fair value of
awards granted or modified on or after August 1, 2005 are measured at fair
value. Some of the Company's awards have vesting conditions. The compensation
cost for each award is recognized on a straight-line basis over the service
period of the entire award.  There exists a difference between
Canadian and United States GAAP for the intrinsic and variable plan measurement
for employee and performance based options granted to employees prior to August
1, 2005 under United States GAAP and for the fair value measurement of such
awards under Canadian GAAP.  The Company’s estimate of forfeitures at
the time of granting was nil under U.S. GAAP.
 
 The
following table represents the allocation of stock-based compensation
expense.
 2009
                    
                    
                    2008
                    
                    
                    2007Research
      and Development
                    
                    $
                    402
                    
                    
                    $
                    –
                    
                    
                    $
                    –Operating,
      general and administration
                    
                    
                    497
                    
                    
                    
                    44
                    
                    
                    
                    47Sales
      and marketing
                    
                    
                    124
                    
                    
                    
                    –
                    
                    
                    
                    –$
                    1,023
                    
                    
                    $
                    44
                    
                    
                    $
                    47
 (c)
              Consolidated
      statements of cash flows:
 Cash from
operations under United States GAAP includes the adjustments to loss for the
year outlined in note 20(a).  There are no differences between United
States and Canadian GAAP as it relates to cash provided (used in) financing and
investing activities.  The increase in cash and cash equivalents for
the fiscal years 2009, 2008 and 2007 are the same for United States GAAP to that
reported under Canadian GAAP.
 
 (d)
              Income
      taxes:
 In June
2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes, an Interpretation of FASB Statement No. 109” (FIN 48), which
clarifies the accounting for uncertainty in income taxes recognized in a
company’s financial statements and prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in an income tax return. FIN 48
also provides guidance on derecognition, classification, interest and penalties,
accounting in interim periods, disclosure and transition. FIN 48 was effective
for the first interim or annual reporting period beginning after December 15,
2006, specifically August 1, 2007 for the Company. The adoption of FIN 48 did
not result in a change to the Company's opening deficit as at August 1,
2007
 
 The
Company has approximately $200,000 of total gross unrecognized benefits as of
the adoption of FIN 48 on August 1, 2007 and a total of approximately $600,000
as of July 31, 2009, which if recognized would favorably affect the income tax
rate in future periods. The Company recognizes accrued interest and penalties
related to unrecognized tax benefit in tax expense. The Company does not have
any interest and penalties accrued as of July 31, 2009 as the tax benefit
relates entirely to refundable tax credits.  Generally, all tax years
are open for examination by the major taxing jurisdictions to which the Company
is subject including federal, provincial (Ontario and Quebec) and foreign
(Ireland) jurisdictions.
 
 (e)
              Changes
      in accounting policy:
 (i)
              Fair
      value measurements:
 In
September 2006, the FASB issued FASB Statement No. 157 ("SFAS 157"), Fair Value
Measurements, which defines fair value, establishes a framework for measuring
fair value under GAAP, and expands disclosures about fair value
measurements.  SFAS 157 applies to other accounting pronouncements
that require or permit fair value measurements. The new statement is effective
for financial statements issued for fiscal years beginning after November 15,
2007, and for interim periods within those fiscal years, specifically August 1,
2008 for the Company.  The adoption of SFAS 157 did not have any
impact on the Company’s consolidated financial statements.
 
 (ii)
              Fair
      value options:
 In
February 2007, the FASB issued FASB Statement No. 159 ("SFAS 159"), The Fair
Value Options for Financial Assets and Financial Liabilities, which permits
entities to choose to measure many financial instruments and certain warranty
and insurance contracts at fair value on a contract-by-contract basis. SFAS 159
applies to all reporting entities, including not-for-profit organizations, and
contains financial statement presentation and disclosure requirements for assets
and liabilities reported at fair value as a consequence of the
election.  SFAS 159 is effective as of the beginning of an entity's
first year that begins after November 15, 2007, specifically August 1, 2008 for
the Company.  The adoption of SFAS 159 did not have any impact on the
Company’s consolidated financial statements.
  F-22
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
 (iii)
              Accounting
      for advanced payments and development
  activities:
 In June
2007, the Emerging Issues Task Force (“EITF”) reached a consensus on EITF Issue
No. 07-3, Accounting for Advance Payments for goods or Services to be Received
for Use in Future Research and Development Activities ("EITF 07-3"). EITF07-3
provides clarification surrounding the accounting for non-refundable research
and development advance payments, whereby such payments should be recorded as an
asset when the advance payment is made and recognized as an expense when the
research and development activities are performed. This issue is effective for
fiscal years beginning after December 15, 2007, specifically August 1, 2008 for
the Company.  The adoption of EITF07-3 did not have any impact on the
Company’s consolidated financial statements.
 
 (iv)
              Subsequent
      events:
 In May
2009, the FASB issued FASB Statement No. 165, Subsequent Events ("SFAS 165").
SFAS 165 is intended to establish general standards of accounting for and
disclosure of events that occur after the balance sheet date but before
financial statements are issued. SFAS 165 sets forth:
 -
              The
      period after the balance sheet date during which management of a reporting
      entity should evaluate events or transactions that may occur for potential
      recognition or disclosure in the financial
  statements.
 -
              The
      circumstances under which an entity should recognize events or
      transactions occurring after the balance sheet date in its financial
      statements.
 -
              The
      disclosures that an entity should make about events or transactions that
      occurred after the balance sheet
date.
 
 SFAS 165
is effective for the Company's fiscal year ending July 31, 2009. The adoption of
SFAS 165 did not have any impact on the Company's consolidated financial
statements.
 
 (f)
              Recent
      accounting pronouncements issued and not yet
  adopted:
 (i)  In
September 2007, the EITF reached a consensus on EITF Issue No. 07-1,
Collaborative Arrangements ("EITF 07-1"). EITF 07-1 addresses the accounting for
arrangements in which two companies work together to achieve a commercial
objective, without forming a separate legal entity. The nature and purpose of a
company's collaborative arrangements are required to be disclosed, along with
the accounting policies applied and the classification and amounts for
significant financial activities related to the arrangements. This issue will be
effective for fiscal years beginning after December 15, 2008, specifically
August 1, 2009 for the Company.  The Company is currently evaluating
the potential impact, if any, of EITF 07-1, on the Company’s consolidated
financial position, results of operations and cash flows.
 
 (ii)  In June
2008, the EITF reached a consensus on EITF Issue No. 07-5, Determining Whether
an Instrument (or an Embedded Feature) is indexed to an Entity’s Own Stock
(“EITF 07-5”).  EITF 07-5 establishes a two step process for
evaluating whether equity-linked financial instruments and embedded features are
indexed to a company’s own stock for the purposes of determining whether the
scope exception described in paragraph 11(a) of SFAS 133, Accounting for
Derivative Instruments and Hedging Activities (“SFAS 13”) can be
applied.  The Company is required to adopt the provisions of EITF 07-5
for fiscal years beginning after December 15, 2008, specifically August 1, 2009
for the Company.    The Company is currently evaluating the
potential impact, if any, of EITF 07-5, on the Company’s consolidated financial
position, results of operations and cash flows.
 
 (iii)  FASB
statement No. 141R, Business Combinations (revised 2007) (“SFAS 141R”), requires
the use of fair value accounting for business combinations.  Equity
securities issued as consideration in a business combination will are recorded
at fair value as of the acquisition date as opposed to the date when the terms
of the business combination has been agreed to and announced.  In
addition, transaction costs must be expensed under the new
standard.  The new statement is effective for financial statements
issued for fiscal years beginning on or after December 15, 2008, specifically
August 1, 2009 for the Company, and for interim periods within those fiscal
years.   The Company is currently evaluating the potential
impact, if any, of the adoption of SFAS 141R, on the Company’s consolidated
financial position, results of operations and cash flows.
 
 (iv)  FASB
statement No. 160, Non controlling Interests in Consolidated Financial
Statements - an Amendment of ACB No. 51 (“FASB 160”).  The objective
of this Statement is to improve the relevance, comparability, and transparency
of the financial information that a reporting entity provides in its
consolidated financial statements by establishing specific accounting and
reporting standard requirements.  The new statement is effective for
financial statements issued for fiscal years beginning on or after December 15,
2008, specifically August 1, 2009 for the Company, and for interim periods
within those fiscal years.  The Company is currently evaluating the
potential impact, if any, of the adoption of SFAS 160, on the consolidated
financial position, results of operations and cash flows.
 
 (v)  FASB
statement No. 161, Disclosure about Derivative Instruments and Hedging
Activities (“SFAS 161”) amends and expands the disclosure requirements in SFAS
133, Accounting for Derivative Instruments and Hedging
Activities.  The intention is to provide an enhanced understanding of
how and why an entity uses derivative instruments and related hedge items affect
an entity’s financial position,
 
 
 F-23
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years
ended July 31, 2009, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 
 financial
performance and cash flows.  The Company is required to adopt the
provisions of SFAS 161 for fiscal years beginning after November 15, 2008,
specifically August 1, 2009 for the Company.    The Company
is currently assessing the impact of SFAS 161, on the Company’s consolidated
financial position, results of operations and cash flows.
 
 (vi)  FASB
statement No. 168, Accounting Standards CodificationTM ("Codification") and the
Hierarchy of Generally Accepted Accounting Principles ("SFAS 168"), replaces
SFAS 162, The Hierarchy of Generally Accepted Accounting Principles, which
became effective November 13, 2008. The Codification will become the source of
authoritative United States GAAP recognized by the FASB to be applied by
non-governmental entities. Rules and interpretive releases of the Securities and
Exchange Commission ("SEC") under authority of federal securities laws are also
sources of authoritative United States GAAP for SEC registrants. On the
effective date of this statement, the Codification will supersede all
then-existing non-SEC accounting and reporting standards. All other
non-grandfathered non-SEC accounting literature not included in the Codification
will become non-authoritative. This statement is effective for financial
statements issued for interim and annual periods ending after September 15,
2009.  The Company is currently assessing the impact of SFAS 168, on
the Company’s consolidated financial position, results of operations and cash
flows.
 
 (g)
              Consolidated
      statement of shareholders’ equity in accordance with U.S.
      GAAP:
  Common shares
                
                Share
      purchase warrantsAmount
                
                Number
                
                
                Amount
                
                Number
                
                
                Options
                
                
                Contributed
      Surplus
                
                Deficit
                
                
                (loss)
                
                
                EquityBalances,
      July 31, 2006
                
                $
                51,944
                
                32,685,335
                
                $
                636
                
                7,910,609
                
                $
                2,132
                
                $
                1,753
                
                $ 
             (44,063
                )
                $
                61
                
                $
                12,463Net
      loss for the year
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –
                
                (6,195
                )
                
                –
                
                
                (6,195
                )Other
      comprehensive income (loss)
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –
                
                –
                
                
                87
                
                
                87Common
      stock, issued
                
                
                5,406
                
                3,650,000
                
                
                –
                
                –
                
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                5,406Warrants,
      issued
                
                
                –
                
                –
                
                
                1,074
                
                3,650,000
                
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                1,074Warrants
      expired, unexercised
                
                
                –
                
                –
                
                
                (193
                )
                (2,415,000
                )
                
                –
                
                
                193
                
                –
                
                
                –
                
                
                –Stock-based
      compensation
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                47
                
                
                –
                
                –
                
                
                –
                
                
                47Stock
      options, exercised
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –Stock
      options expired, unexercised
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                (14
                )
                
                14
                
                –
                
                
                –
                
                
                –Balances,
      July 31, 2007:As
      previously reported
                
                
                57,350
                
                36,335,335
                
                
                1,517
                
                9,145,609
                
                
                2,165
                
                
                1,960
                
                (50,258
                )
                
                148
                
                
                12,882Net
      loss for the year
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –
                
                (6,964
                )
                
                –
                
                
                (6,964
                )Other
      comprehensive income (loss)
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –
                
                –
                
                
                (54
                )
                
                (54
                )Common
      stock, issued
                
                
                14,614
                
                10,040,000
                
                
                –
                
                –
                
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                14,614Warrants,
      issued
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –Warrants
      expired, unexercised
                
                
                –
                
                –
                
                
                (1,517
                )
                (9,145,609
                )
                
                
                
                
                1,517
                
                –
                
                
                –
                
                
                –Stock-based
      compensation
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                44
                
                
                –
                
                –
                
                
                –
                
                
                44Options,
      exercised
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –Options,
      exercised, unexercised
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                (448
                )
                
                448
                
                –
                
                
                –
                
                
                –Balances,
      July 31, 2008
                
                $
                71,964
                
                46,375,335
                
                $
                –
                
                –
                
                $
                1,761
                
                $
                3,925
                
                $  
           (57,222
                )
                $
                94
                
                $
                20,522Net
      loss for the year
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –
                
                (14,102
                )
                
                –
                
                
                (14,102
                )Other
      comprehensive income (loss)
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –
                
                –
                
                
                (39
                )
                
                (39
                )Common
      stock, issued
                
                
                9,612
                
                6,800,000
                
                
                –
                
                –
                
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                9,612Warrants,
      issued
                
                
                –
                
                –
                
                
                47
                
                3,400,000
                
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                47Warrants,
      expired, unexercised
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                
                
                –
                
                
                –
                
                
                –Stock-based
      compensation
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                1,023
                
                
                –
                
                –
                
                
                –
                
                
                1,023Options,
      exercised
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –
                
                –
                
                
                –
                
                
                –Options,
      exercised, unexercised
                
                
                –
                
                –
                
                
                –
                
                –
                
                
                (429
                )
                
                429
                
                –
                
                
                –
                
                
                –Balances,
      July 31, 2009
                
                $
                81,576
                
                53,175,335
                
                $
                47
                
                3,400,000
                
                $
                2,355
                
                $
                4,354
                
                $ 
           (71,324
                )
                $
                55
                
                $
                17,063