UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON,
D.C. 20549


_____________________________


FORM
20-F


_____________________________







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





OR





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





For
the fiscal year ended ______________




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





Date
of event requiring this shell company report __________




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, e-mail:
frankm@helixbiopharma.com


fax: (905) 841-2244,
address: 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 October 31, 2008was: 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  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. N/A




Yes  No 




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: N/A




Yes  No 




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 
      Accelerated filer     
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
  International
Financial Reporting Standards as issued by the International
Accounting




Standards
Board   Other
ý




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




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). N/A  Yes  No 
















HELIX
BIOPHARMA CORP.




FORM
20-F REGISTRATION STATEMENT


TABLE
OF CONTENTS






Page


Introduction
              
              4
 Glossary
              
              6




PART
I


Item
      1.
            Identity
      of Directors, Senior Management and Advisors
            9


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.
            Directors,
      Senior Management, and Employees
            65


Item
      7.
            Major
      Shareholders and Related Party Transactions
            81


Item
      8.
            Financial
      Information
            82


Item
      9.
            The
      Offer and Listing
            83


Item
      10.
            Additional
      Information
            85


Item
      11.
            Quantitative
      and Qualitative Disclosures About Market Risk
            98


Item
      12.
            Description
      of Securities Other Than Equity Securities
            98




PART II


Item
      13.
            Defaults,
      Dividend Arrearages and Delinquencies
            98


Item
      14.
            Material
      Modifications to the Rights of Security Holders and Use of
      Proceeds
            98


Item
      15.
            Controls
      and Procedures
            98


Item
      16.
            Reserved
            98


Item
      16a.
            Audit
      Committee Financial Expert
            99


Item
      16b.
            Code
      Of Ethics
            99


Item
      16c.
            Principal
      Accountiing Fees and Services
            99


Item
      16d.
            Exemptions
      from the Listing Standards for Audit Committees
            99


Item
      16e.
            Purchases
      of Equity Securities by the Issuer and Affiliated
      Purchasers
            99




PART
III


Item
      17.
            Financial
      Statements
            99


Item
      18.
            Financial
      Statements
            100


Item
      19.
            Exhibits
            100








INTRODUCTION




Helix
BioPharma Corp. is organized under the Canada Business Corporations Act. In this
Registration Statement, 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 Registration
Statement. Our principal corporate offices are located at 305 Industrial Parkway
South, #3, Aurora, Ontario, Canada L4G 6X7. Our telephone number is (905)
841-2300.




Upon
effectiveness, we will file reports and other information with the Securities
and Exchange Commission (“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. We also file reports under Canadian regulatory
requirements on SEDAR; you may access our reports filed on SEDAR by accessing
the website www.sedar.com.




Business
of Helix BioPharma Corp.




Helix
BioPharma Corp. is a biopharmaceutical company specializing 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 generated $3.6 million in
sales revenue during its fiscal year ended July 31, 2008 and spent $5.1 million
on research and development. 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. To date, proceeds from the issuance of its common
shares and cash flows from these activities have financed Helix’s research and
development initiatives.




Financial
and Other Information




In this
Registration Statement, 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
Registration Statement on Form 20-F contains forward-looking statements and
information within the meaning of U.S. and Canadian securities laws.
Forward-looking statements and information can generally be identified by the
use of forward-looking terminology or words, such as, “continues”, “with a view
to”, “is designed to”, “pending”, “predict”, “potential”, “plans”, “expects”,
“anticipates”, “believes”, “intends”, “estimates”, “projects”, and similar
expressions or variations thereon, or statements that events, conditions or
results “can”, “might” “will”, “shall”, “may”, “must” “would”, “could”, or
“should” occur or be achieved and similar expressions in connection with any
discussion, expectation, or projection of future operating or financial
performance, events or trends. Forward-looking statements and information are
based on management’s current expectations and assumptions, which are inherently
subject to uncertainties, risks and changes in circumstances that are difficult
to predict.




The
forward-looking statements and information in this Registration Statement are
subject to various risks and uncertainties, including those described in ITEM 3.D – Risk Factors,many
of which are difficult to predict and generally beyond the control of the
Company, including without limitation:




·
            uncertainty
      as to our ability to achieve the goals and satisfy assumptions of
      management;


·
            our
      need for additional financing, which may not be available on acceptable
      terms or at all;


·
            the
      need to control costs and the possibility of unanticipated
      expenses;


·
            research
      and development risks;


·
            clinical
      trial risks;


·
            manufacturing
      and development risks;


·
            risks
      associated with personnel;


·
            risks
      associated with successfully protecting patents and trademarks and other
      intellectual property;



















4




·
              uncertainty
      whether any compounds in research or development will be successfully
      commercialized;
 ·
              uncertainties
      as to the volume and timing of sales of our
  products;
 ·
              the
      possibility that we will pursue additional development projects or other
      business opportunities;
 ·
              the
      risk that our objectives will not be met within the time lines we expect
      or at all; and
 ·
              the
      risk of exchange rate fluctuations, particularly with respect to the
      Canadian and U.S. Dollars and the
Euro.


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 Registration Statement. 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.









5


GLOSSARY




Adenocarcinoma: Cancer that
originates in glandular tissue.




AGW: Ano-genital
warts.




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.




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 FinancialAccounting 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.




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




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.




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.








6






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.




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.




PENCE: A Canadian
government-funded group formerly referred to as PENCE Inc. or the Protein
Engineering Network of Centers of Excellence. PENCE Inc. is now dissolved and
the Governors of the University of Alberta are its successor.




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.




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.








7






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











8


PART
I




ITEM
1.  IDENTITY
OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS




1.A.  Directors
and Senior Management




The
following table lists the members of the Company’s board of directors (the
“Board”). The business address of all directors is: c/o Helix BioPharma Corp.,
305 Industrial Parkway South, #3, Aurora, Ontario, Canada, L4G 6X7.




Table No.
1


Directors




Name
                                              PositionDonald
      H. Segal
                                              Chief
      Executive Officer, Chairman and DirectorKenneth
      A. Cawkell
                                              Director
      and Corporate SecretaryJack
      M. Kay
                                              DirectorGordon
      M. Lickrish
                                              DirectorSlawomir
      Majewski
                                              DirectorJohn
      M. Docherty
                                              President,
      Chief Operating Officer and DirectorW. Thomas
      Hodgson
                                              Director




The
following table lists the senior management of the Company. The business address
for all members of senior management is: c/o Helix BioPharma Corp., 305
Industrial Parkway South, #3, Aurora, Ontario, Canada, L4G 6X7.




Table No.
2


Senior
Management





Name
                                  PositionDonald
      H. Segal
                                  Chief
      Executive Officer, Chairman and DirectorJohn
      M. Docherty
                                  President,
      Chief Operating Officer and DirectorHeman
      Chao
                                  Chief
      Scientific OfficerPhotios
      (Frank) Michalargias
                                  Chief
      Financial
Officer




The
functions of our directors and senior management are described below in ITEM 6.A. – Directors and Senior
Management.




1.B.  Advisors




The
Company’s legal advisors in Canada are: Cawkell Brodie Glaister, LLP, 1188 West
Georgia Street, Suite 1260, Vancouver, British Columbia, Canada  V6E
4A2.




The
Company’s legal advisors in the United States are: Kramer Levin Naftalis &
Frankel LLP, 1177 Avenue of the Americas, New York, NY 10036.









9







1.C.  Auditors




The
Company’s auditors are: KPMG, LLP, independent registered public accounting
firm, 4100 Yonge Street, Suite 200, Toronto, Ontario, Canada M2P 2H3. KPMG, LLP
is a member of the Ontario Institute of Chartered Accountants.




KPMG LLP
has confirmed that it is independent with respect to the Company within the
meaning of the Rules of Professional Conduct of the Institute of Chartered
Accountants of Ontario and under the guidelines of the SEC and the Independence
Standards Board.




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 as of and for the three months ended
October 31, 2008 and 2007 and for the fiscal years ended July 31, 2008, 2007,
2006, 2005 and 2004 was extracted from the unaudited interim and audited annual
consolidated financial statements of the Company, of which the unaudited
consolidated financial statements for the three months ended October 31, 2008
and 2007 and the audited consolidated financial statements for the fiscal years
ended July 31, 2008, 2007 and 2006 are included in this registration
statement.




The
information contained in the selected financial data 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, 2005 and 2004 was extracted from the audited financial statements
of the Company not included in this registration statement. Reference is made to
Note 16 of the consolidated financial statements of the Company included herein
for a discussion of the material measurement differences between Canadian
generally accepted accounting principles (“Canadian GAAP”) and United States
generally accepted accounting principles (“U.S. GAAP”), and their effect on the
Company’s financial statements. Except where otherwise indicated, all amounts
are presented in accordance with Canadian GAAP.




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 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. 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


Table No.
3


Selected
Financial Data


Under
Canadian Generally Accepted Accounting Principles


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





Three
      Months Ended October 31, 2008 (unaudited)
              
              
              Three
      Months Ended October 31, 2007 (unaudited)
              
              
              Year
      Ended
                July
      31, 2008
              
              
              Year
      Ended
                July
      31, 2007
              
              
              Year
      Ended
                July
      31, 2006
              
              
              Year
      Ended
                July
      31, 2005
              
              
              Year
      Ended
                July
      31, 2004Statement
      of Operations:RevenueProduct Revenue
              
              $
              921
              
              
              $
              754
              
              
              $
              2,952
              
              
              $
              2,764
              
              
              $
              3,012
              
              
              $
              2,456
              
              
              $
              1,855License Fees and
      Royalties
              
              
              198
              
              
              
              131
              
              
              
              639
              
              
              
              512
              
              
              
              773
              
              
              
              1,234
              
              
              
              1,116Research
      and Development Contracts
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              148
              
              
              
              180
              
              
              
              42
              
              
              
              -Total Revenues
              
              
              1,119
              
              
              
              885
              
              
              
              3,591
              
              
              
              3,424
              
              
              
              3,965
              
              
              
              3,732
              
              
              
              2,971ExpensesCost of Sales
              
              
              447
              
              
              
              313
              
              
              
              1,239
              
              
              
              1,139
              
              
              
              1,341
              
              
              
              1,190
              
              
              
              895Research and
      Development
              
              
              1,641
              
              
              
              782
              
              
              
              5,064
              
              
              
              4,116
              
              
              
              3,368
              
              
              
              2,983
              
              
              
              2,726Operating,
      General and Administration
              
              
              1,310
              
              
              
              1,313
              
              
              
              4,757
              
              
              
              4,418
              
              
              
              3,722
              
              
              
              3,580
              
              
              
              3,245Amortization
      of Intangible Assets
              
              
              3
              
              
              
              7
              
              
              
              16
              
              
              
              159
              
              
              
              594
              
              
              
              1,244
              
              
              
              1,244Amortization
      of Capital
                Assets
              
              
              64
              
              
              
              66
              
              
              
              254
              
              
              
              287
              
              
              
              315
              
              
              
              330
              
              
              
              291Stock-Based
      Compensation
              
              
              -
              
              
              
              12
              
              
              
              44
              
              
              
              47
              
              
              
              1,710
              
              
              
              1,470
              
              
              
              252Interest Income,
      Net
              
              
              (205
              )
              
              
              (104
              )
              
              
              (645
              )
              
              
              (496
              )
              
              
              (270
              )
              
              
              (137
              )
              
              
              (136
              )Foreign
      Exchange Loss
                (Gain)
              
              
              150
              
              
              
              108
              
              
              
              (327
              )
              
              
              (9
              )
              
              
              16
              
              
              
              78
              
              
              
              10Impairment
      of Intangible Assets
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,332
              
              
              
              -
              
              
              
              428
              
              
              
              -Total Expenses
              
              
              3,410
              
              
              
              2,497
              
              
              
              10,402
              
              
              
              10,993
              
              
              
              10,796
              
              
              
              11,166
              
              
              
              8,527Loss
      Before Income Taxes
              
              
              (2,291
              )
              
              
              (1,612
              )
              
              
              (6,811
              )
              
              
              (7,569
              )
              
              
              (6,831
              )
              
              
              (7,434
              )
              
              
              (5,556
              )Income
      Taxes
              
              
              30
              
              
              
              32
              
              
              
              (153
              )
              
              
              (105
              )
              
              
              (108
              )
              
              
              (191
              )
              
              
              (246
              )Net Loss
      forthe
      Period
              
              
              (2,321
              )
              
              
              (1,644
              )
              
              
              (6,964
              )
              
              
              (7,674
              )
              
              
              (6,939
              )
              
              
              (7,625
              )
              
              
              (5,802
              )Basic and
      DilutedLoss Per
      Share
              
              
              (0.05
              )
              
              
              (0.05
              )
              
              
              (0.16
              )
              
              
              (0.22
              )
              
              
              (0.22
              )
              
              
              (0.28
              )
              
              
              (0.24
              )Weighted
      Average Number of
      Shares
      Outstanding
              
              
              48,518,813
              
              
              
              36,335,335
              
              
              
              42,469,362
              
              
              
              35,615,335
              
              
              
              31,409,495
              
              
              
              26,959,055
              
              
              
              24,669,632Balance
      Sheet:Working
      Capital
              
              
              26,534
              
              
              
              9,859
              
              
              
              19,166
              
              
              
              11,468
              
              
              
              10,900
              
              
              
              6,688
              
              
              
              6,027Shareholders
    Equity
              
              
              27,800
              
              
              
              11,266
              
              
              
              20,522
              
              
              
              12,734
              
              
              
              13,881
              
              
              
              10,302
              
              
              
              11,219Capital Stock
              
              
              81,576
              
              
              
              57,350
              
              
              
              71,964
              
              
              
              57,350
              
              
              
              51,944
              
              
              
              43,570
              
              
              
              38,525Total Assets
              
              
              29,420
              
              
              
              12,610
              
              
              
              21,666
              
              
              
              14,273
              
              
              
              15,469
              
              
              
              11,450
              
              
              
              12,510





11


Table No.
4


Selected
Financial Data


Under
U.S. Generally Accepted Accounting Principles


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





Three
      Months Ended October 31, 2008 (unaudited)
              
              
              Three
      Months Ended October 31, 2007 (unaudited)
              
              
              Year
      Ended
                July
      31,
                2008
              
              
              Year
      Ended
                July
      31,
                2007
              
              
              Year
      Ended
                July
      31,
                2006
              
              
              Year
      Ended
                July
      31,
                2005
              
              
              Year
      Ended
                July
      31,
                2004Statement
      of Operations:RevenueProduct Revenue
              
              $
              921
              
              
              $
              754
              
              
              $
              2,952
              
              
              $
              2,764
              
              
              $
              3,012
              
              
              $
              2,456
              
              
              $
              1,855License Fees and
      Royalties
              
              
              198
              
              
              
              131
              
              
              
              639
              
              
              
              512
              
              
              
              773
              
              
              
              1,234
              
              
              
              1,116Research
      and Development Contracts
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              148
              
              
              
              180
              
              
              
              42
              
              
              
              -Total Revenues
              
              
              1,119
              
              
              
              885
              
              
              
              3,591
              
              
              
              3,424
              
              
              
              3,965
              
              
              
              3,732
              
              
              
              2,971ExpensesCost of Sales
              
              
              447
              
              
              
              313
              
              
              
              1,239
              
              
              
              1,139
              
              
              
              1,341
              
              
              
              1,190
              
              
              
              895Research and
      Development
              
              
              1,641
              
              
              
              782
              
              
              
              5,064
              
              
              
              4,360
              
              
              
              3,566
              
              
              
              3,118
              
              
              
              2,726Operating,
      General and Administration
              
              
              1,310
              
              
              
              1,313
              
              
              
              4,757
              
              
              
              4,418
              
              
              
              3,722
              
              
              
              3,580
              
              
              
              3,245Amortization
      of Intangible Assets
              
              
              3
              
              
              
              7
              
              
              
              16
              
              
              
              12
              
              
              
              12
              
              
              
              12
              
              
              
              12Amortization
      of Capital
                Assets
              
              
              64
              
              
              
              66
              
              
              
              254
              
              
              
              287
              
              
              
              315
              
              
              
              330
              
              
              
              291Stock-Based
      Compensation
              
              
              -
              
              
              
              12
              
              
              
              44
              
              
              
              47
              
              
              
              1,710
              
              
              
              -
              
              
              
              252Interest Income,
      Net
              
              
              (205
              )
              
              
              (104
              )
              
              
              (645
              )
              
              
              (496
              )
              
              
              (270
              )
              
              
              (137
              )
              
              
              (136
              )Foreign
      Exchange Loss
                (Gain)
              
              
              150
              
              
              
              108
              
              
              
              (327
              )
              
              
              (9
              )
              
              
              16
              
              
              
              78
              
              
              
              10Impairment
      of Intangible Assets
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total Expenses
              
              
              3,410
              
              
              
              2,497
              
              
              
              10,402
              
              
              
              9,758
              
              
              
              10,412
              
              
              
              8,171
              
              
              
              7,295Loss Before
      Income
      Taxes
              
              
              (2,291
              )
              
              
              (1,612
              )
              
              
              (6,811
              )
              
              
              (6,334
              )
              
              
              (6,447
              )
              
              
              (4,439
              )
              
              
              (4,324
              )Income
      Taxes
              
              
              30
              
              
              
              32
              
              
              
              (153
              )
              
              
              139
              
              
              
              90
              
              
              
              (56
              )
              
              
              (246
              )Net Loss for
      the Period
              
              
              (2,321
              )
              
              
              (1,644
              )
              
              
              (6,964
              )
              
              
              (6,195
              )
              
              
              (6,357
              )
              
              
              (4,495
              )
              
              
              (4,570
              )Basic and
      Diluted Loss Per
      Share
              
              
              (0.05
              )
              
              
              (0.05
              )
              
              
              (0.16
              )
              
              
              (0.17
              )
              
              
              (0.20
              )
              
              
              (0.17
              )
              
              
              (0.17
              )Weighted
      Average Number
      of
      SharesOutstanding
              
              
              48,518,813
              
              
              
              36,335,335
              
              
              
              42,469,362
              
              
              
              35,615,335
              
              
              
              31,409,495
              
              
              
              26,959,055
              
              
              
              24,669,632Balance
      Sheet:Working
      Capital
              
              
              26,534
              
              
              
              9,859
              
              
              
              19,166
              
              
              
              11,468
              
              
              
              10,900
              
              
              
              6,688
              
              
              
              6,027Shareholders
      Equity
              
              
              27,800
              
              
              
              11,266
              
              
              
              20,522
              
              
              
              12,882
              
              
              
              12,463
              
              
              
              8,494
              
              
              
              7,709Capital
    Stock
              
              
              81,576
              
              
              
              57,350
              
              
              
              71,964
              
              
              
              57,350
              
              
              
              51,944
              
              
              
              43,570
              
              
              
              38,525Total
    Assets
              
              
              29,420
              
              
              
              12,610
              
              
              
              21,666
              
              
              
              14,421
              
              
              
              14,051
              
              
              
              9,642
              
              
              
              9,000





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 Foreign Exchange Rate reported by the Federal Reserve Bank of New York
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 closing
buying rate on January 30, 2009, as reported by the United States Federal
Reserve Bank of New York for the purchase of one Canadian Dollar with U.S.
Dollars was US$0.8133 (US$1.00 = CDN$1.2296).




Table No.
5


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





Average for the PeriodYears
      Ended2008
              2007
              2006
              2005
              20041.0389
              1.0740
              1.1342
              1.2113
              1.3006





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




Jan.
      ‘09
              Dec.
      ‘08
              Nov.
      ‘08
              Oct.
      ‘08
              Sept.
      ‘08
              Aug.
      ‘08Low
              1.1762
              1.1872
              1.1477
              1.0607
              1.0338
              1.0251High
              1.2766
              1.3008
              1.2952
              1.2942
              1.0797
              1.0677





3.B.  Capitalization
and Indebtedness




The
following table sets forth the capitalization and indebtedness of the Company as
of November 30, 2008. This information should be read in conjunction with the
Company’s consolidated financial statements and the notes relating to such
statements appearing elsewhere in this registration statement.




Table No.
6


Capitalization
and Indebtedness





November
      30, 2008Total
      indebtedness (short term and long
      term).............................
                      
                      
                      0Shareholders’
      equityCommon
      shares, no par valueshares
      authorized; unlimitedshares
      issued and
      outstanding...............................................
                      
                      
                      53,175,335Contributed
      surplus...................................................................
                      
                      
                      4,462,000Retained
      earnings
      (deficit)........................................................
                      
                      
                      (61,517,000
                      )Total
      shareholders’
      equity............................................................
                      
                      $
                      27,367,000Total
      capitalization.......................................................................
                      
                      $
                      27,367,000








13




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 Registration Statement, the
following should be considered carefully in evaluating the Company and its
business. This Registration Statement 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 Registration Statement.




General
Corporate Risks




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. As at October
31, 2008, the Company’s cumulative losses totaled $60,339,000. After taking into
account a 2003 charge of $674,000 related to a warrant modification, the
Company’s total deficit as at October 31, 2008 was $61,013,000. 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
October 31, 2008 the Company’s working capital was $26,534,000. After taking
into consideration the Company’s anticipated revenue, planned research and
development expenditures and assuming no material unanticipated expenses, the
Company expects that its working capital will be sufficient to fund operations
for the next twelve months, which are planned to include the filing of IND
applications for the Company’s proposed L-DOS47 Phase I clinical trial and
proposed Topical Interferon Alpha-2b (LSIL indication) clinical trial, and, if
the IND for L-DOS47 is approved, to initiate work on the L-DOS47 Phase I
clinical trial. Assuming the IND for the Company’s planned U.S. Phase II and
European Phase III clinical trials of Topical Interferon Alpha-2b (LSIL
indication) is approved, the Company estimates it will need separate financing
of approximately $30 million in order to undertake and complete these trials.
There can be no assurance that the Company will obtain the requisite financing
or that the trials will be undertaken at all. Any additional development of
L-DOS47 or Topical Interferon Alpha-2b (LSIL indication) beyond the currently
proposed clinical trials and the amount of financing needed will be dependent on
the outcomes of the trials.




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 current market for both debt and equity financings for companies such as
Helix is challenging, and 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.






14






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 October 2, 2008 by way of
private placement, with the Company issuing 6,800,000 units at $1.68 per unit,
for gross proceeds of $11,424,000. Each unit consisted of one common share and
one half of one warrant, with each whole warrant entitling the holder to
purchase one additional common share at $2.36 until 5:00 pm Toronto time on
October 1, 2011. A total of 6,800,000 common shares were issued on completion of
the placement, and up to an additional 3,400,000 common shares are issuable on
exercise of the warrants. Further equity financings will also result in dilution
to existing shareholders, and such dilution could be significant.




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
stockholders of the Company may be diluted. At December 31, 2008, there were
3,775,500 share purchase options outstanding with a weighted average exercise
price of $2.01 and 3,400,000 warrants outstanding with a weighted average
exercise price of $2.36. If all of these securities were exercised, an
additional 7,175,500 common shares would become issued and outstanding. This
represents an increase of 13.5% in the number of shares issued and outstanding
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$5.00 (other than securities registered on certain






15






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.




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 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 of Directors 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.








16






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, the officers, directors and principal
shareholders of the Company are exempt from Section 16 of the Exchange Act
regarding transactions in Company equity securities by insiders. 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 stock has ranged from
a low of $1.01 to a high of $4.70 on The Toronto Stock Exchange.
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 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.








17






We
believe we were not a PFIC for the year ending July 31, 2008 and do not expect
to be classified as a PFIC for the taxable year ending July 31, 2009. 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,
2009 or in any future taxable year. Additionally, there are no assurances that
the United States Internal Revenue Service (the “IRS”) 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.




Operational
Risks




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 several 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 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 Phase II clinical trial phase and the pre-Phase I clinical trial stage,
respectively, may never be successfully developed or
commercialized.




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






18






·
            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-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
approval. The actual timing of these forward-looking events can vary
dramatically due to factors such as delays or failure in 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. Without limiting the generality of the
foregoing, it is possible that an IND or CTA filing will never be made in
respect of either L-DOS47 or Topical Interferon Alpha-2b in the 2009 calendar
year 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 FDA and TPD, and comparable regulatory authorities
in other foreign 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 are 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 fail to comply with
these requirements, we could lose marketing approval and sales of any approved
commercial products could be suspended, and we could face fines and other
judicially imposed sanctions, including product seizures, injunction actions and
criminal prosecutions. 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.




Prior to
being made available for commercial use or sale, the Company’s products under
development require additional preclinical testing, clinical trials and
regulatory approvals, the success of which cannot be assured, nor can any
assurances be made that any product will be successfully developed.




The
Company’s lead products L-DOS47 and Topical Interferon Alpha-2b are at different
stages of development. L-DOS47 is at the preclinical stage of development. The
Company is planning to file regulatory dossiers by July 31, 2009, in order to
seek approvals to commence Phase I human clinical testing both in North America
and Europe. Pending the positive outcome of these clinical investigations,
L-DOS47 will then be required to complete further Phase II and Phase III level
studies before warranting marketing approvals. Topical Interferon Alpha-2b, on
the other hand, is at a more advanced stage of development already under
clinical investigation. A Phase II study has been completed in Europe in
patients with LSIL. Another Phase II trial is underway in Europe in patients
with AGW. The Company is planning to progress to a Phase II pharmacokinetic
evaluation in patients with LSIL, as well as to larger, double-blind Phase IIb
and Phase III trials in the United States and Europe respectively before seeking
marketing authorizations. The Company is planning to file regulatory dossiers by
July 31, 2009 for these Phase IIb and Phase III trials. Similarly, for the AGW
indication, the Company expects that it will need to conduct larger,
double-blind trials beyond the trial currently underway before seeking marketing
authorizations for this therapeutic indication. See ITEM 4.B. Important Business
Developments – Research and Development Activities - L-DOS47 and Topical
Interferon Alpha-2b.




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.






20






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 our Swedish clinical trial of Topical Interferon
      Alpha-2b has been slower than originally expected. While the Company has
      received approval for a protocol amendment, it has also recently filed a
      CTA in Germany to open approximately ten additional study centers so as to
      attract further patients to the trial. In light of the recruitment
      challenges to date, the Company is revising the time projected to complete
      patient enrollment to the end of the Company’s fiscal fourth quarter
      ending July 31, 2009. There can be no assurance that the patient
      enrollment rate will improve or that enrollment will be completed by July
      31, 2009, or at all. Failure to complete patient enrollment by July 31,
      2009 or at all will adversely affect the development of Topical Interferon
      Alpha-2b for ano-genital warts, which in turn will adversely affect the
      Company;




·
            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 in virtually all aspects of its business
and the termination of any of these relationships may have an adverse affect on
the Company’s revenues and the development and commercialization of the
Company’s products. The
Company is dependent on third parties to varying degrees in virtually all
aspects of its business. 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 Orthovisc®, which
is an FDA approved injection therapy for osteoarthritis of the
knee.






21






The
Company is the exclusive distributer of Orthovisc® which is
supplied by Anika Therapeutics, in Canada. This contract will expire in April
2009 unless extended by mutual agreement of the parties. Failure to extend this
contract would have an adverse affect on the Company’s product revenues and
would increase net loss from operations. The termination of such license or
supply arrangements, or non-performance by the other parties thereto, would
negatively impact the Company’s revenues. While Lumera Corporation terminated
its biochip sub-license with the Company effective December 19, 2008, the
termination did not have a material effect on the Company as the Company had
previously written down the value of the sub-license to nil.  The
Company is not aware of any other partners or suppliers contemplating
termination of their relationship with the Company at this time.




The
Company is also dependent on third parties for the supply of critical raw
materials and for the manufacturing of its drug product candidates. Critical
supplies may not be available on acceptable terms or at all, manufacturers may
not perform, or continue to perform, as needed, and larger capacity
manufacturers may not be available on acceptable terms or at all. Any lack of or
interruption in supplies of raw materials, and any change in manufacturers,
inability to secure new manufacturers, or interruption in manufacturing, 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
Topical Interferon Alpha-2b, the Company is currently dependent on
Schering-Plough for its supply of 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 beyond the
amount originally agreed to. A long-term supply of interferon alpha-2b may not
be available to the Company on acceptable terms or at all. The Company depends
and will continue to depend on third parties for the sourcing of certain
necessary materials. The Company’s strategy for the development and
commercialization of its products involves entering into collaborative
arrangements with pharmaceutical companies, medical and research institutions,
manufacturers, and other third parties for the research, development,
manufacturing, testing, clinical validation, commercialization and marketing of
its products. The Company may not be able to establish such collaborative
arrangements on favorable terms, or at all, or these arrangements, present or
future may not be successful.




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 manufacturers, suppliers, contract research organizations and
others, 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.




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. In the case of Topical Interferon Alpha-2b, we
have contracted with CPL to scale-up the manufacturing process for the drug
candidate for human clinical trials. In the case of L-DOS47, we rely on
BioVectra for our current supplies, and will need to identify one or more
additional contractors for vialing bulk drug product for human clinical testing.
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. If we are
successful in developing the markets for our products, we would have to arrange
for their scaled-up manufacture.




22






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, 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.








23






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
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 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
enforceability of the Company’s patents and the Company’s ability to maintain
trade secrets cannot be predicted and such patents or trade secrets may not
provide the Company with a competitive advantage against competitors with
similar products or technologies.




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. 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. Patents, if issued, may be challenged, invalidated or
circumvented. If our patents are invalidated, 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 our patented
technology. Thus, any patents that we own or license from others may not allow
us to exploit the rights conferred by our intellectual property protection. Our
future and pending 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 or may not provide us with a competitive advantage
against competitors with similar products or technologies. 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. Patents
also 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.




We also
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.






24






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.




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.








25






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.





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 the national exchange,
such as NASDAQ Rule 4350(a), 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 include:





(i)           majority
independence of the board of directors;


(ii)          procedures
regarding the compensation of officers;


(iii)         procedures
regarding the nomination of directors;


(iv)     
   adoption of an audit committee charter, contents of the
charter and certain audit committee independence requirements;


(v)          annual
shareholder meetings;


(vi)         quorum
for shareholder meetings;


(vii)        solicitation
of proxies;


(viii)       conflicts
of interest;


(ix)          matters
requiring shareholder approval; and


(x)           auditor
registration.





Items (i)
through (iii) above are not mandated by Canadian laws, regulations, instruments
or rules applicable to the Company (collectively, “Canadian rules”). Instead,
the Canadian securities administrators have published a national policy which
sets out guidelines regarding such matters, and require disclosure of a
company’s corporate governance practices respecting them in any management
information circular which solicits proxies for the election of directors. The
Canadian guidelines are substantially similar to most of NASDAQ’s
rules.





Item (iv)
above is mandated by Canadian rules, which are substantially similar to most of
NASDAQ’s rules.





Item (v)
above is mandated by Canadian rules, with the Canadian rules requiring an annual
meeting of shareholders no later than six (6) months after the end of the
Company’s preceding financial year. NASDAQ permits an annual meeting of
shareholders to be held within one year after the end of the Company’s preceding
financial year.





Item (vi)
above is mandated by the Company’s by-law, which requires a quorum of two
persons present in person, each being a shareholder entitled to vote at the
meeting or a duly appointed proxyholder or representative for a shareholder so
entitled. NASDAQ requires a minimum quorum of 33-1/3% of the Company’s
outstanding stock.





Item
(vii) is mandated by extensive Canadian rules which include NASDAQ’s
rule.








26





Item
(viii) as mandated by NASDAQ requires that each listed company conduct
appropriate review and oversight of all related party transactions for potential
conflict of interest situations on an ongoing basis by the company’s audit
committee or another independent body of the board of directors. Canadian rules
generally do not require the Company’s audit committee or another independent
body of the Board to conduct this review on an ongoing basis.  In
cases where a director or officer is interested in a material contract or
material transaction with the Company, the director or officer is required to
disclose the nature and extent of his or her interest and, in the case of a
director, he or she may not vote on the contract or transaction, unless the
contract or transaction: (a) relates primarily to his or her remuneration as a
director, officer, employee or agent of the corporation or an affiliate; (b) is
for indemnity or insurance permitted by the CBCA; or (c) is with an
affiliate.





Item (ix)
provides that certain corporate actions require shareholder approval. The rules
of the TSX on which the Company’s shares are currently listed are similar to
most of NASDAQ's rules, with certain variances.   One such
variance relates to certain thresholds imposed by the respective stock exchanges
respecting certain issuances of shares.  For example, both NASDAQ and
the TSX require shareholder approval if a company proposes to issue more than a
certain percentage of its listed common shares at a price below, in the case of
NASDAQ, the greater of book or market value of the shares, and in the case of
the TSX, the market price of the shares (as those terms are defined by the
respective stock exchanges).  The NASDAQ threshold is 20% of a
company’s outstanding common shares whereas the TSX threshold is 25% of such
shares. Similarly, both exchanges require shareholder approval if a certain
percentage of the company’s outstanding listed common shares are to be issued to
certain related parties, as more particularly described by each
exchange.  The NASDAQ threshold is 5% whereas the TSX threshold is
10%.





Item (x)
provides that each listed issuer must be audited by an independent public
accountant that is registered as a public accounting firm with the Public
Company Accounting Oversight Board. Under Canadian rules, the Company’s auditor
must be a “participating audit firm”, and must have entered into a participation
agreement with the Canadian Public Accountability Board in connection with the
Board’s program of practice inspections and the establishment of practice
requirements.





NASDAQ
does not exempt foreign private issuers from its requirements regarding audit
committee responsibilities and authority and certain requirements respecting
audit committee independence. Most of these requirements are substantially the
same as the Canadian rules.





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. 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”. 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 five fiscal years are as
follows:




Fiscal
      Year
                                          Capital
      Expenditures
                                          PurposeFiscal
      2008
                                          $266,000
                                          Purchase
      of Capital AssetsFiscal
      2007
                                          $63,000
                                          Purchase
      of Capital AssetsFiscal
      2006
                                          $258,000
                                          Purchase
      of Capital AssetsFiscal
      2005
                                          $405,000
                                          Purchase
      of Capital AssetsFiscal
      2004
                                          $392,000
                                          Purchase
      of Capital
Assets
    27


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




Principal
capital expenditures which are currently in progress include $200,000 which is
committed predominately for scientific equipment and new financial system
hardware/software in Canada and $350,000 which is committed for the purchase of
scale-up manufacturing equipment at a third-party manufacturer in the United
States. In addition, the Company is projecting an additional $350,000 in capital
expenditures for fiscal 2009 but has not currently made any commitments to
suppliers. The foregoing expenditures will be paid out of the Company’s cash
resources.




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.Helix is a
biopharmaceutical company developing novel products for the treatment 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
and cash flows from operations have primarily financed our research and
development initiatives.




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 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.








28






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




In the
early part of fiscal 2004, Helix opened an oncology research laboratory at the
University of Alberta, in Edmonton, Canada. This facility has been and continues
to be the primary center for ongoing research and development work associated
with DOS47TM. In fiscal 2005 and 2006, work associated with the DOS47TM program
primarily focused on targeted agent methodologies and analytical capabilities,
acute toxicology studies along with a series of proof of concept studies in
animals. Central to the DOS47TM’s program in the early stages of research and
development was the establishment of conjugate methodologies with the objective
of combining DOS47TM with biological targeting agents, such as
antibodies.




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. 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.








29






We
believe L-DOS47 is unique among any 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.




Helix
commenced development of the concept behind L-DOS47 in 2003. Initially, Helix
began working with the urease compound without the addition of the lung
cancer-specific antibody entity.




On
September 12, 2003, Helix announced that it had shown that urease alone
treated human breast cancer tumor xenografts in a controlled experiment
with mice. All mice that received urease responded within 48 hours of
administration, showing no trace of any remaining living cancerous tissue. Tumor
growth continued in control animals that did not receive
urease.




Subsequently
in June 2004, a preliminary series of further tumor screening studies using
urease alone were completed using immune-deficient mice bearing various human
cancer xenografts. Among those human cancers studied, mice bearing human lung
tumor xenografts appeared most sensitive showing notable growth inhibition and
tissue necrosis relative to controls. Sensitivity was also observed in mice
bearing human ovarian cancer xenografts.




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 rights to an
antibody that specifically binds to lung adenocarcinoma cells with minimal cross
reactivity to other tissues. 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. Helix has certain
royalty and milestone payment obligations pursuant to the license agreement. 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. Based on this work, Helix initiated a formal
pharmaceutical development program for L-DOS47 that is currently underway and
includes a variety of pharmacokinetic, toxicology and further efficacy modeling
studies in animals, as well as ongoing work to continue to scale-up and optimize
a cGMP manufacturing process.




In fiscal
2006, the Company continued its pre-clinical in-vivo and in-vitro research and
development work and published selected scientific findings on DOS47TM via a
publication in the Journal of Experimental Therapeutics and Oncology (Volume 5,
Number 2, 2005, pp 93-99) and a poster presentation at the 5th Annual Congress
on Recombinant Antibodies Conference in Zurich, Switzerland. During the year,
the Company contracted QSV Biologics to develop a cGMP manufacturing process for
L-DOS47 and signed an agreement with the NRC, to assist with the ongoing
characterization of the lung specific antibody previously licensed to Helix for
its L-DOS47 new drug candidate.




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 animal toxicology
studies 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 filing.




In
parallel with these studies, Helix has 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. Initial efforts to scale up the cGMP manufacturing
process for L-DOS47 faced some obstacles which affected Helix’s IND filing
estimate, previously planned for the latter half of the 2007 calendar
year.








30






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 clinical trial. The total cost
to the Company of services rendered and equipment provided under the agreement
at December 31, 2008 was $1,262,000, and is estimated to be up to $2 million in
the aggregate in respect of current contracted amounts of product. It is
expected that the Company will require additional quantities of product to
complete the planned Phase I trial. 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
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 U.S.-based KBI
Biopharma Inc. and the Company has now identified a fill finish solution
provider, Chesapeake Biological Laboratory in Baltimore, 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
Chesapeake.




Helix has
also 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 the FDA for a Phase I
clinical study in lung adenocarcinoma patients. As an integral part of the IND
process, Helix also intends to conduct a pre-IND meeting with the FDA to confirm
its IND submission plans. While all activities for the planned Phase I study are
progressing, the Company has experienced some delays with respect to its GMP
manufacturing scale-up program, which has impacted the previously projected
timeline for the initial pre-IND meeting and subsequent IND filing. The Company
now expects the pre-IND meeting to occur during the beginning of the 2009
calendar year and the Phase I IND filing to occur sometime before the end of
Helix’s fiscal fourth quarter ending July 31, 2009. In addition, Helix is
considering conducting a parallel confirmatory Phase I program in Europe, and is
actively investigating the necessary regulatory filing requirements to
facilitate this in this same time period.




Helix’s
objective for the commercialization of L-DOS47 is to enter into a strategic
alliance with a large 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.





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.






31






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
estimated that there would be 1.5 million cases of lung cancer in 2007.
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 cervical LSIL and
AGW caused by HPV infections. HPV is one of the most common sexually transmitted
infections, causing AGW, as well as being linked to 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 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.






32






InDecember 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, aquantity 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 timeup 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 negotiatein 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 US for Primary Indication


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


$2
millionNDA
approval in the US for Primary Indication


$1
millionHRD
approval in the EU for Primary Indication


$2
millionNDA
approval in the US for Secondary Indication


$1
millionHRD
approval in the EU for Secondary Indication


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


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


$8
millionWhen
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 (LSIL Indication)




Since
establishing the agreement with Schering-Plough, Helix has conducted a
comprehensive work program with its Topical Interferon Alpha-2b, culminating in
the completion of its first Phase II clinical study.




In
November 2004, the Company commenced its 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 dysplasia that may progress to cervical cancer in women.






33






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 2009. Helix is 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. Building upon the completed German Phase II trial, Helix is
pursuing a Phase IIb 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 CTA preparation and submission. Furthermore, it is Helix’s intent to
commence a small European Phase II pharmacokinetic study in human subjects prior
to initiating its planned Phase IIb/III trials. Helix intends to file the CTA
for this study during the early part of the 2009 calendar year. The study is
being designed, as mandated by regulatory authorities, in order to gather
further evidence of the absorption and elimination profile of Topical Interferon
Alpha-2b in patients with cervical dysplasia, prior to proceeding with clinical
testing of the product on a mass scale. It is Helix’s intention to use interim
findings, if possible, from this study in order to provide support for its
anticipated regulatory filings to seek approval to conduct the two parallel
confirmatory pivotal efficacy trials planned for this therapeutic indication.
Helix also intends to conduct a pre-IND meeting with the FDA similar to the
scientific advice meeting that the Company has completed with the German
regulatory authority, however, the timing of this meeting has not yet been
established.




Helix has
entered into an agreement with a U.S. contract manufacturing organization, CPL,
to further scale-up the Topical Interferon Alpha-2b GMP production process in
anticipation of the Phase IIb and III trials in the United States and Europe
respectively. 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
IIb/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. Although all activities for
the planned Phase IIb/III trials are progressing, the Company has experienced
some delays with the GMP manufacturing scale-up program and expects further
delays as a result of its intention to commence the pending human
pharmacokinetic study before commencing the planned Phase IIb/III trials. The
Company expects both Phase IIb/III IND/CTA filings to occur before the end of
the Company’s fiscal fourth quarter ending July 31, 2009, pending success with
its human pharmacokinetic study, its GMP manufacturing scale-up program and its
further proceedings with the regulatory authorities.








34






As previously described,
the Company expects the confirmatory trials to consist of a Phase IIb trial in
the U.S. and a Phase III trial in Europe. Helix expects to file the necessary
IND and CTA dossiers, respectively, before the end of the
Company’s fiscal fourth quarter ending July 31, 2009, pending success with its
pharmacokinetic study plans, ongoing GMP manufacturing scaleup program and
further proceedings with regulatory
authorities. 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. Conducting these trials will require substantial funding beyond
the Company’s current resources, for which the Company continues to seek
additional capital.




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 is progressing
at a slower pace than originally anticipated due to a lower than expected
patient enrollment rate. Helix has received approval by the MPA for a clinical
protocol amendment with a view to improving the enrollment rate. In addition,
Helix received approval 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 the recruitment
challenges to date, the Company has revised the time projected to complete
patient enrollment to the end of the Company’s fiscal fourth quarter ending July
31, 2009.




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 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.






35






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®, was
recently launched in Europe and approval is pending 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,
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.










36






Revenue
Generating Activities




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




Three
      Months Ended October 31, 2008 (unaudited)
              
              
              Three
      Months Ended October 31, 2007 (unaudited)
              
              
              Fiscal
      2008
              
              
              Fiscal
      2007
              
              
              Fiscal
      2006Product
      Revenue
              
              $
              921,000
              
              
              $
              754,000
              
              
              $
              2,952,000
              
              
              $
              2,764,000
              
              
              $
              3,012,000License
      Fees and Royalty Revenue
              
              
              198,000
              
              
              
              131,000
              
              
              
              639,000
              
              
              
              512,000
              
              
              
              773,000Research
      and Development Contract Revenue
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              148,000
              
              
              
              180,000Total
      Revenue
              
              $
              1,119,000
              
              
              $
              885,000
              
              
              $
              3,591,000
              
              
              $
              3,424,000
              
              
              $
              3,965,000Percentage
      of revenue generated by largest customer(1)
              
              
              10
              %
              
              
              15
              %
              
              
              15
              %
              
              
              15
              %
              
              
              15
              %Percentage
      of accounts receivable owed from largest customer
              
              
              10
              %
              
              
              6
              %
              
              
              28
              %
              
              
              24
              %
              
              
              23
              %





(1) The
Company’s largest customer is Helsinn, for all periods presented amounts relate
to the Klean-Prep royalty. No other customer represents 10% or more of total
revenue.





Our total
revenues by geographic location are as follows:




Revenue
      (percentage of total revenues)
              
              Three
      Months Ended October 31, 2008 (unaudited)
              
              
              Three
      Months Ended October 31, 2007 (unaudited)
              
              
              Fiscal
                2008
              
              
              Fiscal
                2007
              
              
              Fiscal
                2006Product
      Revenue
              
              $
              921,000
              
              
              $
              754,000
              
              
              $
              2,952,000
              
              
              $
              2,764,000
              
              
              $
              3,012,000Canada
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %
              
              
              100
              %License
      Fees and Royalty Revenue
              
              $
              198,000
              
              
              $
              131,000
              
              
              $
              639,000
              
              
              $
              512,000
              
              
              $
              773,000Canada
              
              
              0
              %
              
              
              0
              %
              
              
              0
              %
              
              
              0
              %
              
              
              0
              %Europe
              
              
              55
              %
              
              
              100
              %
              
              
              84
              %
              
              
              100
              %
              
              
              74
              %United
      States
              
              
              45
              %
              
              
              0
              %
              
              
              16
              %
              
              
              0
              %
              
              
              26
              %Research
      and Development Contract Revenue
              
              $
              0
              
              
              $
              0
              
              
              $
              0
              
              
              $
              148,000
              
              
              $
              180,000Canada
              
              
              0
              %
              
              
              0
              %
              
              
              0
              %
              
              
              100
              %
              
              
              100
              %Total
      Revenue
              
              $
              1,119,000
              
              
              $
              885,000
              
              
              $
              3,591,000
              
              
              $
              3,424,000
              
              
              $
              3,965,000Canada
              
              
              81
              %
              
              
              85
              %
              
              
              82
              %
              
              
              85
              %
              
              
              81
              %Europe
              
              
              10
              %
              
              
              15
              %
              
              
              15
              %
              
              
              15
              %
              
              
              14
              %United
      States
              
              
              9
              %
              
              
              0
              %
              
              
              3
              %
              
              
              0
              %
              
              
              5
              %





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;












37




·
              ImunovirTM,
      an immune system modulating drug;
and
 ·
              Branded
      products and over-the-counter drugs which are available without
      prescription.


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.




Product
revenue in fiscal 2007 totaled $2,764,000 and represents a decrease of $248,000
or 8.2% when compared to product revenue in fiscal 2006 of $3,012,000. Higher
product sales of Klean-PrepTM were
more than offset by lower sales of Orthovisc®in
Canada. Orthovisc® revenue
was steadily increasing and peaked in the third quarter of 2006 due to the entry
of a competitor into the market. Orthovisc®revenue
now appears to remain relatively stable.




In
February 2004, the Company signed a five year extension of its exclusive
distribution agreement with Anika Therapeutic for the distribution of
Orthovisc®in Canada. The Company expects to negotiate a renewal of this contract
prior to its expiration in April 2009.




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.




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.




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.






38






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 Therapeutic for the distribution of
Orthovisc®in Canada. The Company expects to negotiate a renewal of this contract
prior to its expiration in April 2009.




Assuming
the Company’s contract with Anika Therapeutics, which terminates in April 2009,
for the distribution of Orthovisc® is renewed, revenue is expected to remain
flat for 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
                              
                              Three
      Months Ended October 31, 2008
                              
                              
                              Three
      Months Ended October 31, 2007
                              
                              
                              Fiscal
                                2008
                              
                              
                              Fiscal
                                2007
                              
                              
                              Fiscal
                                2006Orthovisc
      - $'s
                              
                              
                              502,000
                              
                              
                              
                              397,000
                              
                              
                              
                              1,373,000
                              
                              
                              
                              1,521,000
                              
                              
                              
                              2,072,000Orthovisc
      - %
                              
                              
                              44.9
                              %
                              
                              
                              44.9
                              %
                              
                              
                              38.2
                              %
                              
                              
                              44.4
                              %
                              
                              
                              52.3
                              %Klean-Prep
      - $'s
                              
                              
                              310,000
                              
                              
                              
                              274,000
                              
                              
                              
                              1,251,000
                              
                              
                              
                              939,000
                              
                              
                              
                              727,000Klean-Prep
      - %
                              
                              
                              27.7
                              %
                              
                              
                              31.0
                              %
                              
                              
                              34.8
                              %
                              
                              
                              27.4
                              %
                              
                              
                              18.3
                              %Immunovir
      - $'s
                              
                              
                              61,000
                              
                              
                              
                              50,000
                              
                              
                              
                              194,000
                              
                              
                              
                              198,000
                              
                              
                              
                              169,000Immunovir
      - %
                              
                              
                              5.5
                              %
                              
                              
                              5.6
                              %
                              
                              
                              5.4
                              %
                              
                              
                              5.8
                              %
                              
                              
                              4.3
                              %Normacol
      - $'s
                              
                              
                              56,000
                              
                              
                              
                              41,000
                              
                              
                              
                              158,000
                              
                              
                              
                              132,000
                              
                              
                              
                              99,000Normacol
      - %
                              
                              
                              5.0
                              %
                              
                              
                              4.6
                              %
                              
                              
                              4.4
                              %
                              
                              
                              3.9
                              %
                              
                              
                              2.5
                              %Returns,
      Discounts & Allowances - $'s
                              
                              
                              (8,000
                              )
                              
                              
                              (8,000
                              )
                              
                              
                              (24,000
                              )
                              
                              
                              (26,000
                              )
                              
                              
                              (55,000
                              )Returns,
      Discounts & Allowances - %
                              
                              
                              -0.7
                              %
                              
                              
                              -0.9
                              %
                              
                              
                              -0.7
                              %
                              
                              
                              -0.8
                              %
                              
                              
                              -1.4
                              %Total
      - $'s
                              
                              
                              921,000
                              
                              
                              
                              754,000
                              
                              
                              
                              2,952,000
                              
                              
                              
                              2,764,000
                              
                              
                              
                              3,012,000Total
      - % of total revenue
                              
                              
                              82.3
                              %
                              
                              
                              85.2
                              %
                              
                              
                              82.2
                              %
                              
                              
                              80.7
                              %
                              
                              
                              76.0
                              %Licensee
      Fees and RoyaltiesKlean-Prep
      - $'s
                              
                              
                              109,000
                              
                              
                              
                              131,000
                              
                              
                              
                              538,000
                              
                              
                              
                              512,000
                              
                              
                              
                              571,000Klean-Prep
      - %
                              
                              
                              9.7
                              %
                              
                              
                              14.8
                              %
                              
                              
                              15.0
                              %
                              
                              
                              15.0
                              %
                              
                              
                              14.4
                              %Biochip
      Technology - $'s
                              
                              
                              89,000
                              
                              
                              
                              -
                              
                              
                              
                              101,000
                              
                              
                              
                              -
                              
                              
                              
                              202,000Biochip
      Technology - %
                              
                              
                              8.0
                              %
                              
                              
                              0.0
                              %
                              
                              
                              2.8
                              %
                              
                              
                              0.0
                              %
                              
                              
                              5.1
                              %Total
      - $'s
                              
                              
                              198,000
                              
                              
                              
                              131,000
                              
                              
                              
                              639,000
                              
                              
                              
                              512,000
                              
                              
                              
                              773,000Total
      - % of total revenue
                              
                              
                              17.7
                              %
                              
                              
                              14.8
                              %
                              
                              
                              17.8
                              %
                              
                              
                              15.0
                              %
                              
                              
                              19.5
                              %







39




Research
      and Development ContractRevenueResearch
      and development - $'s
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    148,000
                    
                    
                    
                    180,000Research
      and development - %
                    
                    
                    0.0
                    %
                    
                    
                    0.0
                    %
                    
                    
                    0.0
                    %
                    
                    
                    4.3
                    %
                    
                    
                    4.5
                    %Total
      - $'s
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    148,000
                    
                    
                    
                    180,000Total
      - % of total revenue
                    
                    
                    0.0
                    %
                    
                    
                    0.0
                    %
                    
                    
                    0.0
                    %
                    
                    
                    4.3
                    %
                    
                    
                    4.5
                    %Total
      - $'s
                    
                    
                    1,119,000
                    
                    
                    
                    885,000
                    
                    
                    
                    3,591,000
                    
                    
                    
                    3,424,000
                    
                    
                    
                    3,965,000Total
      - % of total revenue
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %
                    
                    
                    100.0
                    %




International
Licensing




Klean-PrepTM




The
Company licenses its proprietary gastro-intestinal lavage product,
Klean-PrepTM to
Helsinn-Birex Pharmaceuticals Ltd. (“Helsinn”), a subsidiary of Helsinn
Healthcare SA, a Swiss company. 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 and does not
intend to further develop its biochip technology, the Company plans to review
the status of its license with 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.






40






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 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. L-DOS47 is still in the
pre-clinical stage though the Company intends to seek approval from the FDA for
a Phase I clinical study in lung adenocarcinoma patients. The Company expects a
pre-IND meeting to occur during the first half of the 2009 calendar year and,
pending a positive outcome, a Phase I IND filing to occur sometime before the
end of Helix’s fiscal fourth quarter ending July 31, 2009. 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;


·
            a
      License Agreement with the University of Alberta and McGill University
      with respect to a portion of the Company’s biochip technology, provided,
      however, as stated above under “International Licensing -
      Biochip Technology” above, the Company plans to review the status
      of this agreement, consequent upon the termination of the corresponding
      sub-license with Lumera
Corporation;


·
            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 at the end of the 2008 calendar
year;











41




·
              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 plans to review the
      status of this agreement.


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.








42






●
            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 –
Government and Regulatory Approvals and Additional Regulatory
Considerations.




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.




43






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.




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. See also
ITEM 3.D. – Risk Factors –
Operational Risks.




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 Corp.Helix
      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 expires on January 31, 2009. The laboratory is
currently being used for the further development of Topical Interferon Alpha-2b.
The Company expects that this lease will be renewed.




The
Company leases approximately 2,800 sq. ft. in Edmonton, Alberta under a lease
that expires on January 31, 2009. The Company expects that this lease will be
renewed. These premises house the Company’s oncology research
laboratory.




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 the Company for the years ended July 31, 2008, 2007 and
2006 and the accompanying notes thereto included elsewhere in this registration
statement. This discussion contains forward-looking statements that involve
risks and uncertainties. Actual results could differ materially from those
anticipated by forward-looking information due to factors
discussed under ITEM 3.D –
Risk Factorsand ITEM
4.B – Important Business Development, and elsewhere in this registration
statement.








44








5.A.  Operating
Results




Overview




Helix
BioPharma Corp. is a Canadian biopharmaceutical company. 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. The Company has also
earned contract revenue from research and development work performed for a third
party, which ceased in the third quarter of fiscal 2007.




The
Company currently has no existing plans to contract its research and development
services out to third parties and is principally focusing its resources on
pursuing the clinical development of two emerging drug products with distinct
anti-cancer applications: L-DOS47TM and Topical Interferon Alpha-2b. To date,
proceeds from the issuance of our common shares and cash flows from these
activities have primarily financed our research and development
initiatives.




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 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. The Company’s management believes that
the Company’s current level of cash and cash equivalents will be sufficient to
execute the Company’s current planned expenditures for the next twelve
months.




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.




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








45




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 2008, 2007 and 2006 fiscal years totaled $0, $1,332,000
and $0, 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.




46


Selected
Annual and Three Month Interim 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.




Three
      Months Ended October 31, 2008 (unaudited)
              
              
              Three
      Months Ended October 31, 2007 (unaudited)
              
              
              Year
      Ended
                July
      31, 2008
              
              
              Year
      Ended
                July
      31, 2007
              
              
              Year
      Ended
                July
      31, 2006Statement
      of Operations:RevenueProduct Revenue
              
              $
              921
              
              
              $
              754
              
              
              $
              2,952
              
              
              $
              2,764
              
              
              $
              3,012License Fees and
      Royalties
              
              
              198
              
              
              
              131
              
              
              
              639
              
              
              
              512
              
              
              
              773Research
      and Development Contracts
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              148
              
              
              
              180Total Revenues
              
              
              1,119
              
              
              
              885
              
              
              
              3,591
              
              
              
              3,424
              
              
              
              3,965ExpensesCost of Sales
              
              
              447
              
              
              
              313
              
              
              
              1,239
              
              
              
              1,139
              
              
              
              1,341Research and
      Development
              
              
              1,641
              
              
              
              782
              
              
              
              5,064
              
              
              
              4,116
              
              
              
              3,368Operating,
      General and Administration
              
              
              1,310
              
              
              
              1,313
              
              
              
              4,757
              
              
              
              4,418
              
              
              
              3,722Amortization
      of Intangible Assets
              
              
              3
              
              
              
              7
              
              
              
              16
              
              
              
              159
              
              
              
              594Amortization
      of Capital Assets
              
              
              64
              
              
              
              66
              
              
              
              254
              
              
              
              287
              
              
              
              315Stock-Based
      Compensation
              
              
              -
              
              
              
              12
              
              
              
              44
              
              
              
              47
              
              
              
              1,710Interest Income,
      Net
              
              
              (205
              )
              
              
              (104
              )
              
              
              (645
              )
              
              
              (496
              )
              
              
              (270
              )Foreign
      Exchange Loss (Gain)
              
              
              150
              
              
              
              108
              
              
              
              (327
              )
              
              
              (9
              )
              
              
              16Impairment of Intangible
      Assets
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              1,332
              
              
              
              -Total Expenses
              
              
              3,410
              
              
              
              2,497
              
              
              
              10,402
              
              
              
              10,993
              
              
              
              10,796Loss Before Income
      Taxes
              
              
              (2,291
              )
              
              
              (1,612
              )
              
              
              (6,811
              )
              
              
              (7,569
              )
              
              
              (6,831
              )Income Taxes
              
              
              30
              
              
              
              32
              
              
              
              (153
              )
              
              
              (105
              )
              
              
              (108
              )Net Loss for the
      Period
              
              
              (2,321
              )
              
              
              (1,644
              )
              
              
              (6,964
              )
              
              
              (7,674
              )
              
              
              (6,939
              )Basic and Diluted Loss Per
      Share
              
              
              (0.05
              )
              
              
              (0.05
              )
              
              
              (0.16
              )
              
              
              (0.22
              )
              
              
              (0.22
              )Weighted Average Number of
      Shares Outstanding
              
              
              48,518,813
              
              
              
              36,335,335
              
              
              
              42,469,362
              
              
              
              35,615,335
              
              
              
              31,409,495Balance
      Sheet:Working Capital
              
              
              26,534
              
              
              
              9,859
              
              
              
              19,166
              
              
              
              11,468
              
              
              
              10,900Shareholders
    Equity
              
              
              27,800
              
              
              
              11,266
              
              
              
              20,522
              
              
              
              12,734
              
              
              
              13,881Capital Stock
              
              
              81,576
              
              
              
              57,350
              
              
              
              71,964
              
              
              
              57,350
              
              
              
              51,944Total Assets
              
              
              29,420
              
              
              
              12,610
              
              
              
              21,666
              
              
              
              14,273
              
              
              
              15,469










47





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.




Three
      Months Ended October 31, 2008 (unaudited)
              
              
              Three
      Months Ended October 31, 2007 (unaudited)
              
              
              Year
      Ended
                July
      31,
                2008
              
              
              Year
      Ended
                July
      31,
                2007
              
              
              Year
      Ended
                July
      31,
                2006Statement
      of Operations:RevenueProduct Revenue
              
              $
              921
              
              
              $
              754
              
              
              $
              2,952
              
              
              $
              2,764
              
              
              $
              3,012License Fees and
      Royalties
              
              
              198
              
              
              
              131
              
              
              
              639
              
              
              
              512
              
              
              
              773Research and Development
      Contracts
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              148
              
              
              
              180Total Revenues
              
              
              1,119
              
              
              
              885
              
              
              
              3,591
              
              
              
              3,424
              
              
              
              3,965ExpensesCost of Sales
              
              
              447
              
              
              
              313
              
              
              
              1,239
              
              
              
              1,139
              
              
              
              1,341Research and
      Development
              
              
              1,641
              
              
              
              782
              
              
              
              5,064
              
              
              
              4,360
              
              
              
              3,566Operating, General and
      Administration
              
              
              1,310
              
              
              
              1,313
              
              
              
              4,757
              
              
              
              4,418
              
              
              
              3,722Amortization of Intangible
      Assets
              
              
              3
              
              
              
              7
              
              
              
              16
              
              
              
              12
              
              
              
              12Amortization of Capital
      Assets
              
              
              64
              
              
              
              66
              
              
              
              254
              
              
              
              287
              
              
              
              315Stock-Based
      Compensation
              
              
              -
              
              
              
              12
              
              
              
              44
              
              
              
              47
              
              
              
              1,710Interest Income,
      Net
              
              
              (205
              )
              
              
              (104
              )
              
              
              (645
              )
              
              
              (496
              )
              
              
              (270
              )Foreign Exchange Loss
      (Gain)
              
              
              150
              
              
              
              108
              
              
              
              (327
              )
              
              
              (9
              )
              
              
              16Impairment of Intangible
      Assets
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -
              
              
              
              -Total Expenses
              
              
              3,410
              
              
              
              2,497
              
              
              
              10,402
              
              
              
              9,758
              
              
              
              10,412Loss Before Income
      Taxes
              
              
              (2,291
              )
              
              
              (1,612
              )
              
              
              (6,811
              )
              
              
              (6,334
              )
              
              
              (6,447
              )Income Taxes
              
              
              30
              
              
              
              32
              
              
              
              (153
              )
              
              
              139
              
              
              
              90Net Loss for the
      Period
              
              
              (2,321
              )
              
              
              (1,644
              )
              
              
              (6,964
              )
              
              
              (6,195
              )
              
              
              (6,357
              )Basic and Diluted Loss Per
      Share
              
              
              (0.05
              )
              
              
              (0.05
              )
              
              
              (0.16
              )
              
              
              (0.17
              )
              
              
              (0.20
              )Weighted Average Number of
      SharesOutstanding
              
              
              48,518,813
              
              
              
              36,335,335
              
              
              
              42,469,362
              
              
              
              35,615,335
              
              
              
              31,409,495Balance
      Sheet:Working
      Capital
              
              
              26,534
              
              
              
              9,859
              
              
              
              19,166
              
              
              
              11,468
              
              
              
              10,900Shareholders
      Equity
              
              
              27,800
              
              
              
              11,266
              
              
              
              20,522
              
              
              
              12,882
              
              
              
              12,463Capital
      Stock
              
              
              81,576
              
              
              
              57,350
              
              
              
              71,964
              
              
              
              57,350
              
              
              
              51,944Total
      Assets
              
              
              29,420
              
              
              
              12,610
              
              
              
              21,666
              
              
              
              14,421
              
              
              
              14,051





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.










48






Our total
revenues by category are as follows:




Three
      Months Ended October 31, 2008 (unaudited)
              
              
              Three
      Months Ended October 31, 2007 (unaudited)
              
              
              Fiscal
                2008
              
              
              Fiscal
                2007
              
              
              Fiscal
                2006Product
      Revenue
              
              $
              921,000
              
              
              $
              754,000
              
              
              $
              2,952,000
              
              
              $
              2,764,000
              
              
              $
              3,012,000License
      Fees and Royalty Revenue
              
              
              198,000
              
              
              
              131,000
              
              
              
              639,000
              
              
              
              512,000
              
              
              
              773,000Research
      and Development Contract Revenue
              
              
              0
              
              
              
              0
              
              
              
              0
              
              
              
              148,000
              
              
              
              180,000Total
      Revenue
              
              $
              1,119,000
              
              
              $
              885,000
              
              
              $
              3,591,000
              
              
              $
              3,424,000
              
              
              $
              3,965,000Percentage
      of revenue generated by largest customer
              
              
              10%
              
              
              
              15%
              
              
              
              15%
              
              
              
              15%
              
              
              
              15%





Product
Revenue




Product
revenue consists mainly of revenue from the sale in Canada of Klean-PrepTM and
Orthovisc®. Prior to the fourth quarter of fiscal 2006, Orthovisc® revenues were
steadily increasing, and then began to decline due to the entry of a competitor
into the market. Orthovisc® revenues, though reduced from the peak in the third
quarter of fiscal 2006, have remained relatively stable over the past three
quarters. Klean-PrepTM revenue has been steadily increasing on a year over year
basis.




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 quarters of fiscal
2008 and 2006. 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. We
currently have no plans to contract our research and development services to
others, because we are focusing our resources on the development of L-DOS47 and
Topical Interferon Alpha-2b.






49




Our total
revenues by geographic location are as follows:




Annual
      Revenue (percentage of total revenues)
                              
                              Three
      Months Ended October 31, 2008 (unaudited)
                              
                              
                              Three
      Months Ended October 31, 2007 (unaudited)
                              
                              
                              Fiscal
      2008
                              
                              
                              Fiscal
                                2007
                              
                              
                              Fiscal
                                2006Product
      Revenue
                              
                              $
                              921,000
                              
                              
                              $
                              754,000
                              
                              
                              $
                              2,952,000
                              
                              
                              $
                              2,764,000
                              
                              
                              $
                              3,012,000Canada
                              
                              
                              100%
                              
                              
                              
                              100%
                              
                              
                              
                              100%
                              
                              
                              
                              100%
                              
                              
                              
                              100%License
      Fees and Royalty Revenue
                              
                              $
                              198,000
                              
                              
                              $
                              131,000
                              
                              
                              $
                              639,000
                              
                              
                              $
                              512,000
                              
                              
                              $
                              773,000Canada
                              
                              
                              0%
                              
                              
                              
                              0%
                              
                              
                              
                              0%
                              
                              
                              
                              0%
                              
                              
                              
                              0%Europe
                              
                              
                              55%
                              
                              
                              
                              100%
                              
                              
                              
                              84%
                              
                              
                              
                              100%
                              
                              
                              
                              74%United
      States
                              
                              
                              45%
                              
                              
                              
                              0%
                              
                              
                              
                              16%
                              
                              
                              
                              0%
                              
                              
                              
                              26%Research
      and Development Contract Revenue
                              
                              $
                              0
                              
                              
                              $
                              0
                              
                              
                              $
                              0
                              
                              
                              $
                              148,000
                              
                              
                              $
                              180,000Canada
                              
                              
                              0%
                              
                              
                              
                              0%
                              
                              
                              
                              0%
                              
                              
                              
                              100%
                              
                              
                              
                              100%Total
      Revenue
                              
                              $
                              1,119,000
                              
                              
                              $
                              885,000
                              
                              
                              $
                              3,591,000
                              
                              
                              $
                              3,424,000
                              
                              
                              $
                              3,965,000Canada
                              
                              
                              81%
                              
                              
                              
                              85%
                              
                              
                              
                              82%
                              
                              
                              
                              85%
                              
                              
                              
                              81%Europe
                              
                              
                              10%
                              
                              
                              
                              15%
                              
                              
                              
                              15%
                              
                              
                              
                              15%
                              
                              
                              
                              14%United
      States
                              
                              
                              9%
                              
                              
                              
                              0%
                              
                              
                              
                              3%
                              
                              
                              
                              0%
                              
                              
                              
                              5%






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 Therapeutic for the distribution of
Orthovisc®in Canada. The Company intends to negotiate a renewal of this contract
prior to its expiration in April 2009.




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.




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.






50






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 the FDA for a
Phase I clinical study in lung adenocarcinoma patients.




For
Topical Interferon Alpha-2b, the Company is working on two indications: LSIL and
AGW. As it relates to LSIL, the Company plans to progress to large, randomized,
placebo-controlled double-blind studies, so as to evaluate the product in an
expanded patient population in 2009. 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, the Swedish Phase II
trial is ongoing and the Company recently filed a CTA in Germany to open
approximately ten additional study centers, so as to attract further patients to
the trial. The Company has faced challenges in the enrollment rate associated
with the AGW trial in Sweden.




Operating, General and
Administrative Costs




Operating,
general and administrative costs consist of wages and audit and consultancy
services. We incurred higher costs with our January 2007 annual shareholder
meeting. In addition, we incurred severance costs in the first quarter of fiscal
2008 with respect to the resignation of our former Chairman.




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
Expense




Stock-based
compensation expense consists of the ongoing amortization of compensation costs
of stock options granted on June 30, 2005, over the course of their vesting
period.




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.




51




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




Revenue
            First
      Quarter
            Second
      Quarter
            Third
      Quarter
            Fourth
      QuarterFiscal
      2009
            $1,119
            -
            -
            -Fiscal
      2008
            $885,000
            $791,000
            $1,018,000
            $897,000Fiscal
      2007
            $826,000
            $892,000
            $864,000
            $842,000Fiscal
      2006
            $906,000
            $1,105,000
            $1,099,000
            $855,000





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.




Product
sales consist mainly of revenue from the sale in Canada of both Klean-PrepTM and
Orthovisc®. Prior
to the fourth quarter of 2006, sales of Orthovisc® were
steadily increasing, and then began to decline due to competitive market factors
while revenues from Klean-PrepTM
continued to grow, offsetting the declines in sales of Orthovisc®.




License
fees and royalty revenues have remained consistent over the quarters, with the
exception of the third quarter for both fiscal 2008 and 2006, when the Company
received minimum royalty payments from its technology sub-license arrangement
with Lumera Corporation. Lumera terminated this sub-license agreement effective
December 19, 2008.




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)
            -
            -
            -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)Fiscal
      2006
            ($1,451,000)
            ($1,311,000)
            ($1,360,000)
            ($2,817,000)





Quarterly
net losses have remained consistent on a quarter over quarter basis with the
exception of the second quarter of fiscal 2007 and the higher than average
losses in the fourth quarters of each of the last three fiscal years. The large
increase in the second quarter of fiscal 2007 reflects the significantly higher
than normal costs for an annual shareholder meeting of Helix shareholders due to
dissident shareholder action and were mainly attributable to higher legal,
investor relations, proxy solicitation and related meeting costs. The first
quarter of fiscal 2008 has higher than normal Operating/General/Administration
expenses due to a one-time payment of $434,000 with respect to the resignation
of the Company’s Chairman. The larger fourth quarter net loss in fiscal 2008
represents the scale-up of research and development activities, while the larger
fourth quarter losses in fiscal 2007 and 2006 reflect a combination of
stock-based compensation expenses and/or one time write downs of intellectual
property.




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




Earnings
      Per Share (Loss)
            First
      Quarter
            Second
      Quarter
            Third
      Quarter
            Fourth
      QuarterFiscal
      2009
            ($0.05)
            -
            -
            -Fiscal
      2008
            ($0.05)
            ($0.04)
            ($0.03)
            ($0.04)Fiscal
      2007
            ($0.04)
            ($0.05)
            ($0.04)
            ($0.09)Fiscal
      2006
            ($0.05)
            ($0.04)
            ($0.04)
            ($0.09)





Quarterly
net loss per share has remained relatively consistent on a quarter over quarter
basis with the exception of the fourth quarters in each of the last three fiscal
years, as described above. The Company had 24,768,726 common shares issued at
the beginning of the first quarter in fiscal 2005 and issued an additional
11,560,609 common shares at prices ranging between $1.71 and $2.19 per share,
for aggregate proceeds of $21,850,500 in fiscal 2005, 2006 and 2007. In
addition, the Company issued 6,000 common shares, as a result of options
exercised in fiscal 2006. At the end of the fourth quarter of fiscal 2007, the
Company had 36,335,335 common shares issued and outstanding. In the second
quarter of fiscal 2008, the Company issued an additional 10,040,000 common
shares at a price of $1.68 per share for aggregate proceeds of $16,867,200,
resulting in 46,375,335 issued and outstanding common shares at the end of the
fiscal fourth quarter in 2008. Subsequently, on October 2, 2008, the Company
issued 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 5pm (Toronto
time) on October 1, 2011. The Company’s outstanding common shares upon closing
the private placement totaled 53,175,335.








52






Three
Months Ended October 31, 2008 vs. October 31, 2007




Loss for the
Period




During
the first quarter of fiscal 2009, the Company recorded a loss of $2,321,000 or
$0.05 per common share, resulting in a higher loss of $677,000 when compared to
the first quarter of fiscal 2008. The Company recorded a loss of $1,644,000, or
$0.05 per common share in the first quarter of fiscal 2008.




Revenues




Total
revenues in the first quarter of fiscal 2009 totaled $1,119,000 and represent an
increase of $234,000 or 26.4% when compared to total revenues in the first
quarter of fiscal 2008 of $885,000.




Product
Revenue




Product
revenues totaled $921,000 in the first quarter of fiscal 2009 and represent
82.3% of total revenues. When compared to the first quarter of fiscal 2008,
product revenues increased by $167,000 or 22.1% and are primarily driven by the
higher product sales of Orthovisc®.




License Fees and Royalty
Revenue




License
fees and royalties totaled $198,000 in the first quarter of fiscal 2009 and
represent 17.7% of revenues. When compared to the first quarter of fiscal 2008,
license fees and royalties were higher by $67,000 or 51.1%. License fees and
royalty revenues are comprised solely of royalties related to sales of
Klean-PrepTM outside of Canada except in the first quarter of fiscal 2009 which
includes a US$75,000 termination payment from Lumera Corporation.




Research and Development
Contract Revenue




The
Company had no research and development contract revenue in both the first
quarters of fiscal 2009 and 2008.




Cost of Sales and
Margins




Cost of
sales in the first quarters of fiscal 2009 and 2008 totaled $447,000 and
$313,000, respectively. Margins, on a percentage basis, in the first quarters of
fiscal 2009 and 2008 were 51.5% and 58.5%, respectively. The decrease in margins
reflects higher purchase costs resulting from a lower Canadian dollar versus
both the U.S. dollar and the Euro. In addition, some competitive pricing in the
current market has also resulted in lower pricing to customers.




Research &
Development




Research
and development costs in the first quarters of fiscal 2009 and 2008 totaled
$1,641,000 and $782,000, respectively, for an increase of $859,000. Higher
research and development costs in the first quarter of fiscal 2008 reflect
increased costs for both L-DOS47 and Topical Interferon Alpha-2b programs with
the latter representing the majority of the research and development
expenditures in the quarter. Research and development expenditures were split
relatively equally amongst the L-DOS47, LSIL and AGW initiatives, with slightly
higher expenditures associated with AGW due to the activities to enhance patient
enrollment including the expansion of the trial to open study centers in
Germany.




Operating, General &
Administration




Operating,
general and administration expenses in the first quarter of fiscal 2009 totaled
$1,310,000 and represent a decrease of $3,000 when compared to the expenses in
the first quarter of fiscal 2008 of $1,313,000. Higher legal, audit and
consulting fees in the first quarter of fiscal 2009 were offset by lower wages
due to the one time charge of $434,000 relating to the resignation of the
Company’s Chairman in the first quarter of fiscal 2008.




Amortization of Intangible
and Capital Assets




Amortization
of intangible assets in the first quarters of fiscal 2009 and 2008 totaled
$3,000 and $7,000, respectively. Amortization of capital assets in the first
quarter of fiscal 2009 and 2008 totaled $64,000 and $66,000,
respectively.






53






Stock-Based
Compensation




Stock-based
compensation expense in the first quarters of fiscal 2009 and 2008 totaled $nil
and $12,000, respectively. The stock-based compensation expense in the first
quarter of fiscal 2008 relates to the ongoing amortization of compensation costs
of stock options granted on June 30, 2005, over their vesting period. All
outstanding stock options were fully vested prior to August 1,
2008.




Interest
Income




Interest
income in the first quarters of fiscal 2009 and 2008 totaled $205,000 and
$104,000, respectively, and is mainly the result of higher cash
balances.




Foreign Exchange
Loss




Foreign
exchange losses in the first quarters of fiscal 2009 and 2008 totaled $150,000
and $108,000, respectively. Foreign exchange losses are mainly the result of 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. In addition, U.S. dollar purchases of inventory
for distribution in Canada also contributed to the foreign exchange
loss.




Income
Taxes




Income
tax expense in the first quarters of fiscal 2009 and 2008 totaled $30,000 and
$32,000, respectively. All income taxes are attributable to the Company’s
operations in Ireland.




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




Loss for the
Period




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.




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 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 more than offset lower
sales of Orthovisc® in Canada. Orthovisc® revenue now appears to be relatively
stable.






54






License Fees and Royalty
Revenue




License
fees and royalties in fiscal 2008 totaled $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 totaled $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 totaled $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 20.6% and 25.0%, 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.




As both
L-DOS47 and Topical Interferon Alpha-2b 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. Such milestones include, without limitation,
successfully completing a series of clinical trials, obtaining regulatory
approvals, and successfully up-scaling the manufacturing process through to
commercial production. In the event that one or more of these milestones are not
reached successfully or in a timely manner, the further development of the drug
product candidate will be adversely affected or abandoned, which would have a
material adverse effect on the Company.




Operating, General and
Administration




Operating,
general and administration expenses in fiscal 2008 totaled $4,757,000 and
represent an increase of $339,000 or 7.7% 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








55






Company’s
Chairman. Offsetting these costs were lower marketing promotional costs and
legal fees associated with the January 2008 annual general meeting.




Amortization of Intangible
and Capital Assets




Amortization
of intangible assets in fiscal 2008 totaled $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 totaled $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




Interest
income totaled $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 totaled $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.




Year Ended July 31, 2007 vs.
Year Ended July 31, 2006




Results from
Operations




For
fiscal 2007, the Company recorded a net loss of $7,674,000, which represents an
increase of $735,000 when compared to fiscal 2006. The net loss per common share
for fiscal 2007 was $0.22 and remained unchanged when compared to fiscal
2006.




Product
revenue, license fees and royalties as well as research and development contract
revenue all contributed to the decrease in revenue in fiscal 2007 when compared
to fiscal 2006.




The
Canadian dollar continued to strengthen in fiscal 2007 versus 2006 resulting in
lower product cost and a continued improvement in product margins.






56






Overall
expenses in fiscal 2007 and 2006 remained relatively flat, yet during these
periods, research and development and operating, general and administrative
expenditures continued to increase. Offsetting these increasing costs were lower
amortization expenses of intangible and capital assets, increasing interest
income, and a combination of either stock-based compensation expenses or one
time write downs of intangible assets.




Revenues




Total
revenues in fiscal 2007 were $3,424,000 and represent a decrease of $541,000 or
13.6% when compared to total revenues in fiscal 2006 of $3,965,000. Product
revenue, license fees and royalties as well as research and development contract
revenue all contributed to the decrease in revenue in fiscal 2007 when compared
to fiscal 2006.




Product
Revenue




Product
revenue in fiscal 2007 totaled $2,764,000 and represents a decrease of $248,000
or 8.2% when compared to product revenue in fiscal 2006 of $3,012,000. Higher
product sales of Klean-PrepTM were more than offset by lower sales of Orthovisc®
in Canada. Orthovisc® revenue was steadily increasing and peaked in the third
quarter of fiscal 2006, then declined due to the entry of a competitor into the
market.




License Fees and
Royalties




License
fees and royalties in fiscal 2007 totaled $512,000 and represent a decrease of
$261,000 or 33.8% when compared to fiscal 2006. The decrease is mainly the
result of lower milestone revenues from the sub-licensing arrangement of the
Company’s biochip technology to Lumera.




Research and Development
Contracts




Research
and development contract revenue in fiscal 2007 totaled $148,000 and represents
a decrease of $32,000 or 17.8% when compared to fiscal 2006. The total research
and development contract revenue over the last three years represents an
agreement entered into by the Company with Apotex and reflects the timing of
milestone payments. This contract was completed and the final payment received
in the third quarter of fiscal 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 Topical Interferon
Alpha-2b.




Cost of
Sales




Cost of
sales in fiscal 2007 and 2006 totaled $1,139,000 and $1,341,000, respectively.
As a percentage of product revenues, cost of sales in fiscal 2007 and 2006 were
41.2%, 44.5%, respectively. The Canadian dollar’s continued strength in fiscal
2007 and 2006 was the main reason for the lower product cost of sales and, in
turn, higher product margins.




Research and
Development




The
following table sets forth the research and development expenditures for L-DOS47
and Topical Interferon Alpha-2b during fiscal 2007 and 2006:




Research/Development
      Costs
                
                Fiscal
      2007
                
                
                Fiscal
      2006DOS47
                
                $
                2,302,000
                
                
                $
                1,328,000Topical
      Interferon Alpha-2b
                
                $
                1,814,000
                
                
                $
                1,881,000Other
                
                $
                0
                
                
                $
                159,000Total
      Research and Development Costs
                
                $
                4,116,000
                
                
                $
                3,368,000




Research
and development expenditures in fiscal 2007 totaled $4,116,000 and represent an
increase of $748,000 or 22.2% when compared to fiscal 2006. The increase is
mainly due to advancing preclinical costs related to L-DOS47. Research and
development expenditures related to Topical Interferon Alpha-2b remained
relatively flat, with lower






57






expenditures
resulting from the conclusion and reporting of the phase II German study results
in April 2007 being offset by higher expenditures from the December 2006
commencement of patient enrollment in the new phase II trial in
Sweden.




Operating, General and
Administration




Operating,
general and administration expenses in fiscal 2007 totaled $4,418,000 and
represent an increase of $696,000 or 18.7% when compared to fiscal 2006. A
shareholder proxy dispute significantly increased the cost related to the
Company’s annual shareholder meeting held on January 23, 2007 and represented
the bulk of the increase in operating, general and administration expenses. The
higher than normal costs for an annual shareholder meeting of Helix
shareholders, were mainly attributable to higher legal, investor relations,
proxy solicitation and related meeting costs. The Company incurs higher premiums
for director and officer insurance, wages and other consulting services. These
increased expenses were partially offset by lower marketing promotional costs
and sales commissions.




Amortization of Intangible
and Capital Assets




Amortization
of intangible assets in fiscal 2007 totaled $159,000 and represented a decrease
of $435,000 when compared to fiscal 2006. A certain intangible asset was fully
amortized in fiscal 2006, resulting in the lower amortization expense both in
the fiscal year and on a go forward basis. Intangible assets are amortized on a
straight-line basis. Amortization of capital assets in fiscal 2007 and 2006
decreased marginally on a year-over-year basis and was mainly the result of
lower capital asset purchases over the two fiscal years.




Stock-Based
Compensation




Stock-based
compensation expense in fiscal 2007 totaled $47,000 and represented a decrease
of $1,663,000 when compared to fiscal 2006. The Company did not issue any stock
options in fiscal 2007 and the stock-based compensation expense during the year
represents the ongoing amortization of compensation costs of stock options
granted on June 30, 2005, over their vesting period. The decrease is a result of
the expense for the fair value of the 931,000 options issued by the Company in
fiscal 2006.




Interest
Income




Interest
income totaled $496,000 in fiscal 2007 and $270,000 in 2006. The increase is
mainly the result of higher on hand cash balances and interest rates over the
two fiscal years.




Foreign Exchange
Loss/Gain




The
Company realized a foreign exchange gain of $9,000 in fiscal 2007, which
compares favorably to the foreign exchange losses realized in 2006, which
totaled $16,000. The Canadian dollar appreciation against the U.S. Dollar over
the past two years reversed the foreign exchange losses of previous years that
resulted from the net assets of the Company’s integrated foreign operation in
Europe. The net assets in Europe consist mainly of cash and cash equivalents,
denominated in euro currency and are used to fund clinical trials of the Topical
Interferon Alpha-2b in Europe.




Impairment of Intangible
Assets




An
impairment of intangible assets totaled $1,332,000 in fiscal 2007 and $0 in
2006. The Company believed 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 totaled $105,000 in fiscal 2007 and $108,000 in fiscal 2006. Income
taxes are attributable to the Company’s operations in Ireland where royalty
revenue remained flat on a year over year basis.








58






Recent
Canadian Accounting Pronouncements




Accounting
Changes




As of
August 1, 2007, the Company adopted the new recommendations of the CICA Handbook
Section 1506, Accounting Changes. Under these new recommendations, voluntary
changes in accounting policy are permitted only when they result in the
financial statements providing reliable and/or relevant information. These
recommendations also required changes in accounting policy to be applied
retrospectively, unless doing so is impracticable, requires prior period errors
to be corrected retrospectively, requires enhanced disclosures about the effect
of changes in accounting policies, estimates and errors on the financial
statements and requires disclosure of new primary sources of Canadian GAAP that
have been issued but not yet effective.




Financial
Instruments




In
January 2005, the CICA issued Handbook Section 3855, Financial Instruments –
Recognition and Measurement; Section 1530, Comprehensive Income; Section 3251,
Equity; Section 3861, Financial Instruments – Disclosure and Presentation; and
Section 3865, Hedges. The new standards were effective for interim and annual
financial statements relating to fiscal years beginning on or after October 1,
2006, specifically August 1, 2007 for the Company. The new standards require
presentation of separate statement of comprehensive income under specific
circumstances. Derivative financial instruments are recorded in the balance
sheet at fair value and the changes in fair value of derivatives designated as
cash flow hedges is reported in comprehensive income.




Capital
Disclosures




CICA
Handbook Section 1535, Capital Disclosures, requires disclosure of an entity’s
objectives, policies and processes for managing capital, quantitative data about
what the entity regards as capital and whether the entity has complied with any
capital requirements and, if it has not complied, the consequences of such
non-compliance. This standard is effective for interim and annual financial
statements relating to fiscal years beginning on or after October 1, 2007,
specifically August 1, 2008 for the Company. The Company has not yet determined
the impact of the adoption of this change on the disclosure in its consolidated
financial statements.




Financial Instruments –
Disclosure




CICA
Handbook Section 3862, Financial Instruments – Disclosure, increases the
disclosure currently required that will enable users to evaluate the
significance of financial instruments for an entity’s financial position and
performance, including disclosures about fair value. In addition, disclosure is
required of qualitative and quantitative information about exposure to risk
arising from financial instruments, including specified minimum disclosures
about liquidity risk and market risk. The quantitative disclosures must also
include a sensitivity analysis for each type of market risk to which an entity
is exposed, showing how net income and other comprehensive income would have
been affected by reasonably possible changes in the relevant risk variable. This
standard is effective for interim and annual financial statements relating to
fiscal years beginning on or after October 1, 2007, specifically August 1, 2008
for the Company. The Company has not yet determined the impact of the adoption
of this change on the disclosure in its consolidated financial
statements.




Financial Instruments –
Presentation




CICA
Handbook Section 3863, Financial Instruments – Presentation, replaces the
existing requirements on presentation of financial instruments which have been
carried forward unchanged to this section. This standard is effective for
interim and annual financial statements relating to fiscal years beginning on or
after October 1, 2007, specifically August 1, 2008 for the Company. The Company
does not expect the adoption of this standard to have any impact on the
consolidated financial statements.






59






Inventories




CICA
Handbook Section 3031, Inventories, replaces Section 3030 and establishes new
standards for the measurement and disclosure of inventories. This standard is
effective for interim and annual financial statements relating to fiscal years
beginning on or after January 1, 2008, specifically August 1, 2008 for the
Company. The Company has not yet determined the impact of the adoption of this
change on the disclosure in its consolidated financial statements.




General Standards on
Financial Statement Presentation




CICA
Handbook Section 1400, General Standards on Financial Statement Presentation,
has been amended to include requirements to assess and disclose an entity’s
ability to continue as a going concern. This standard is effective for interim
and annual financial statements relating to fiscal years beginning on or after
January 1, 2008, specifically August 1, 2008 for the Company. The Company does
not expect the adoption of these changes to have an impact on its consolidated
financial statements.




International Financial
Reporting Standards




The CICA
plans to converge Canadian GAAP with International Financial Reporting Standards
(“IFRS”) over a transition period to end in 2011. Management has not yet
determined the impact of the transition to IFRS on the Company’s consolidated
financial statements. The Company plans to address the impact of the IFRS on the
Company’s consolidated financial statements during the year ending July 31,
2009.




Recent
U.S. Accounting Pronouncements




Accounting for uncertainty
in income taxes




In June
2006, the FASB approved FASB Interpretation No. 48, Accounting for Uncertainty
in Income Taxes, in interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48
clarifies the criteria for recognizing tax benefits under FASB Statement No.
109, Accounting for Income Taxes. It also requires additional financial
statement disclosures about uncertain tax positions. FIN 48 is effective for
interim and annual financial statements issued by the Company after August 1,
2007. The implementation of FIN 48 had no impact on the Company’s opening
deficit.




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 Company is currently evaluating the potential impact, if any, of the
adoption of SFAS 157 on the consolidated financial position, results of
operations and cash flows.




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. Early adoption
is permitted subject to certain conditions; however an early adopter must also
adopt SFAS 157 at the same time. The Company does not expect the adoption of
SFAS 159 to have an impact on its consolidated financial position, results of
operations or cash flows.








60






Accounting for advanced
payments and development activities




In June
2007, the 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”). EITF 07-3 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 will be effective for fiscal years
beginning after December 15, 2007, specifically August 1, 2008 for the Company.
The adoption of EITF 07-3 did not have any impact on the Company's interim
consolidated financial statements.




Collaborative
arrangements




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 assessing the impact of
EITF 07-1 on its results of operations and financial condition.




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.




Based on
our planned expenditures and assuming no unanticipated expenses, we believe 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.




Capital
Expenditures




The
Company is currently planning to spend a total of approximately $895,000 this
fiscal year primarily on manufacturing equipment in connection with the
manufacturing in Canada and the United States of clinical trial supplies of
L-DOS47 and Topical Interferon Alpha-2b. The equipment is being purchased for
use at third-party manufacturers. The Company is financing these expenditures
from internal cash resources.




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




Fiscal
      Year
                            Capital
      Expenditures
                            PurposeFiscal
      2008
                            $266,000
                            Purchase
      of Capital AssetsFiscal
      2007
                            $63,000
                            Purchase
      of Capital AssetsFiscal
      2006
                            $258,000
                            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.




At
October 31, 2008, July 31, 2008, July 31, 2007 and July 31, 2006, the Company
had cash and cash equivalents totaling $26,911,000, $19,057,000, $11,379,000 and
$11,032,000 respectively. The increase in cash and cash






61






equivalents
is the result of a private placement completed on December 19, 2007 where the
Company issued 10,040,000 common shares for gross proceeds totaling
$16,867,200.




At
October 31, 2008 July 31, 2008, July 31, 2007 and July 31, 2006, the total
number of common shares issued was 53,175,335, 46,375,335, 36,335,335 and
32,685,335, respectively, and the Company’s working capital was $26,534,000,
$19,166,000, $11,468,000 and $10,900,000, respectively.




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 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. The
Company’s outstanding common shares upon closing the private placement totaled
53,175,335.




The
Company will continue to seek additional funding, primarily by way of equity
offerings, to carry out its business plan and to minimize risks to its
operations. The market for equity financings for companies such as Helix is
challenging, however, and there can be no assurance that additional funding by
way of equity financing will be available. The failure of the Company to obtain
additional funding on a timely basis may result in the Company reducing or
delaying one or more of its planned research, development and marketing programs
and reducing related personnel, any of which could impair the current and future
value of the business. Any additional equity financing, if secured, 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
alternative sources of funding will be available.




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 and investments are
invested in certain 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 in fiscal 2007 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 the quarter ended October 31, 2008 for operating activities totaled
($1,618,000) including a ($2,321,000) net loss. Significant adjustments
included: amortization of capital assets of $64,000; amortization of intangible
assets of $3,000; foreign exchange loss of $150,000; and $486,000 in changes in
non-cash working capital balances related to operations. Cash used in the
quarter ended October 31, 2007 for operating activities totaled ($1,643,000)
including a ($1,644,000) net loss. Significant adjustments included:
amortization of capital assets of $66,000; amortization of intangible assets of
$7,000; stock-based compensation related to earlier stock option grants of
$12,000; foreign exchange loss of $108,000; and ($192,000) in changes in
non-cash working capital balances related to operations. Cash used in fiscal
2008 for operating activities totaled ($6,997,000) including a ($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. On a monthly basis, the average monthly cash expenditures
were approximately $583,000, $507,000 and $342,000








62






in fiscal
2008, 2007 and 2006, respectively. The higher monthly expenditures in fiscal
2008 were primarily due to higher research and development expenditures; a one
time charge of $434,000 relating to the resignation of the Company’s Chairman;
higher consulting fees primarily related to the preparation of an IND filing for
L-DOS47; partially offset by lower costs associated with the January 2008 annual
general meeting. Cash used in fiscal 2007 operating activities totaled
($6,079,000) including a ($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 used in fiscal 2006 for operating
activities totaled ($4,102,000) including a ($6,939,000) net loss. Significant
adjustments included: amortization of capital assets of $315,000; amortization
of intangible assets of $594,000; stock-based compensation related to stock
option grants of $1,710,000; write-down of intangible assets of $0, foreign
exchange loss of $16,000; and $202,000 in changes to non-cash working capital
balances related to operations.




Cash
provided from financing activities in the quarters ended October 31, 2008 and
October 31, 2007 was $9,659,000 and $0, respectively. Cash provided from
financing activities in fiscal 2008, 2007 and 2006 was $14,614,000, $6,480,000
and $8,808,000, respectively. All of the cash provided from financing activities
is attributable to the Company completing various rounds of private placement
financings except for $12,000 in 2006, which was attributable to the exercise of
options.




In the
quarter ended October 31, 2008, the use of funds from investing activities
reflected capital purchases of $37,000. In the quarter ended October 31, 2007,
the use of funds from investing activities reflected capital purchases of
$50,000. 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. In fiscal 2006, the use of funds
from investing activities reflected the net purchase of short-term investments
with a value of $4,170,000 that were subsequently included in the redemption of
$6,640,000 in fiscal 2007 and capital purchases of $258,000.




As of
July 31, 2008, the Company had $13,584,000 in tax loss carry-forwards which
expire between fiscal 2009 and 2028. The only corporate taxes owed related to
the Company’s integrated foreign subsidiary in Ireland.




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.




The
following table outlines research and development costs expensed for the
Company’s significant research and development projects for the 2008, 2007 and
2006 fiscal years:




Fiscal
      2008
                    
                    
                    Fiscal
      2007
                    
                    
                    Fiscal
      2006Topical
      Interferon Alpha-2b
                    
                    $
                    2,188,000
                    
                    
                    $
                    1,814,000
                    
                    
                    $
                    1,881,000DOS47
                    
                    $
                    2,876,000
                    
                    
                    $
                    2,302,000
                    
                    
                    $
                    1,328,000Other
                    
                    $
                    0
                    
                    
                    $
                    0
                    
                    
                    $
                    159,000Total
                    
                    $
                    5,064,000
                    
                    
                    $
                    4,116,000
                    
                    
                    $
                    3,368,000








63





5.D.  Trend
Information




For
additional information on the current status of the Company’s product
development and research programs, see above 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,
2008(1):




Total
              
              
              <1
      year
              
              
              1-3
      Years
              
              
              3-5
      Years
              
              
              >5
      YearsPurchasing(2)
              
              $
              556,000
              
              
              $
              556,000
              
              
              $
              0
              
              
              $
              0
              
              
              $
              0Operating
      Leases(3)
              
              $
              213,000
              
              
              $
              177,000
              
              
              $
              36,000
              
              
              $
              0
              
              
              $
              0Consulting
      Services(4)
              
              $
              74,000
              
              
              $
              74,000
              
              
              $
              0
              
              
              $
              0
              
              
              $
              0Research
      and Manufacturing Services(5)
              
              $
              2,653,000
              
              
              $
              2,503,000
              
              
              $
              30,000
              
              
              $
              10,000
              
              
              $
              110,000TOTALS
              
              $
              3,496,000
              
              
              $
              3,310,000
              
              
              $
              66,000
              
              
              $
              10,000
              
              
              $
              110,000





(1)
            Does
      not include future royalty and milestone payments. See footnotes (6), (7)
      and (8) below.


(2)
            Orthovisc®
      purchase commitments;


(3)
            Office,
      warehouse and research facilities;


(4)
            General
      consulting services (primarily IND regulatory work);
  and


(5)
            Research
      and manufacturing services commitments related to research and development
      projects initiated via contract or agreement. Payment commitments are made
      when the relevant work is completed as per contract or
      agreement.


(6)
            Future
      royalty payments to Dr. Marianna Foldvari, a former director and officer
      of a former subsidiary of the Company, are as follows: (i) 2% of the
      Company’s net sales revenue received from the marketing, manufacture,
      distribution or sale of certain products; or (ii) 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.


(7)
            Future
      minimum royalties are payable to NRC as
follows:





National
      Research Council of Canada
              
              Total
              
              
              <1
      year
              
              
              1-3
      Years
              
              
              3-5
      Years
              
              
              >5
      YearsMinimum
      Royalties
              
              $
              160,000
              
              
              $
              10,000
              
              
              $
              30,000
              
              
              $
              10,000
              
              
              $
              110,000TOTALS
              
              $
              160,000
              
              
              $
              10,000
              
              
              $
              30,000
              
              
              $
              10,000
              
              
              $
              110,000







(8)
            Future
      milestone payments to Encorium Group Inc. and Medical Consulting, the
      contract research organizations for the Phase II clinical trial of Topical
      Interferon Alpha-2b for AGW (see ITEM 4.B. Important Business
      Developments – Research and Development Activities – L-DOS47 and Topical
      Interferon Alpha-2b), are payable as
  follows:





Encorium
      Group Inc.
              
              Total
              
              
              <1
      year
              
              
              1-3
      Years
              
              
              3-5
      Years
              
              
              >5
      YearsMilestone
      payments
              
              $
              313,035
              
              
              $
              313,035
              
              
              $
              0
              
              
              $
              0
              
              
              $
              0TOTALS
              
              $
              313,035
              
              
              $
              313,035
              
              
              $
              0
              
              
              $
              0
              
              
              $
              0





Medical
      Consulting
              
              Total
              
              
              <1
      year
              
              
              1-3
      Years
              
              
              3-5
      Years
              
              
              >5
      YearsMilestone
      payments
              
              $
              725,220
              
              
              $
              725,220
              
              
              $
              0
              
              
              $
              0
              
              
              $
              0TOTALS
              
              $
              725,220
              
              
              $
              725,220
              
              
              $
              0
              
              
              $
              0
              
              
              $
              0








64





ITEM
6.  DIRECTORS,
SENIOR MANAGEMENT, AND EMPLOYEES




6.A.  Directors
and Senior Management




Table No.
7


Directors
and Senior Management





Name
            Positions
            Age
            Date
      First Elected
              or
      Appointed a
              Director
      or
              OfficerDonald
      H. Segal
            Chief
      Executive Officer, Chairman of the Board and Director
            61
            July
      1995John
      M. Docherty
            President,
      Chief Operating Officer and Director
            39
            June
      2002Kenneth
      A. Cawkell(2)(3)
            Director
      and Corporate Secretary
            57
            July
      1995W.
      Thomas Hodgson(1)(3)
            Director,
      Chair of Audit Committee
            55
            April
      2008Jack
      M. Kay(1)(2)
            Director,
      Chair of Governance Committee
            67
            January
      2005Gordon
      M. Lickrish(1)(2)(3)
            Director,
      Chair of Compensation Committee
            71
            January
      2007Slawomir
      Majewski(3)
            Director
            52
            January
      2008Photios
      (Frank) Michalargias
            Chief
      Financial Officer
            45
            June
      2005Heman
      Chao
            Chief
      Scientific Officer
            46
            June
      2002





(1)
            Member
      of Audit Committee.


(2)
            Member
      of Governance Committee.


(3)
            Member
      of Compensation Committee.




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 successful 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. He relinquished
the title of President in November 2007 to facilitate the promotion of John M.
Docherty. 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.




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.




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,






65






Centurion
Minerals Ltd. As a director, Mr. Cawkell participates in management oversight
and helps to ensure compliance with our corporate governance policies and
standards.




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.




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.




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 vaccine). As an independent director,
Dr. Majewski supervises management and helps to ensure compliance with corporate
governance policies and standards.




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 Entertainment Corp. Mr. Hodgson has been a board member of MI
Development Inc. and was Director, President and Chief Executive Officer 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.




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 Trialmobile 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.




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








66






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.




The
directors have served in their respective capacities since their election and/or
appointment and will serve until the next Company’s annual general meeting or
until a successor is duly elected, unless the office is vacated in accordance
with the Articles of Amalgamation of the Company.




The Board
has adopted a written Code of Business Ethics to promote a culture of ethical
business conduct and relies upon the selection of persons as directors, senior
management and employees who they consider to meet the highest ethical
standards. The Company’s Code of Business Ethics can be found on the Company’s
web site at: www.helixbiopharma.com.




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




The
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.
During the 2008, 2007 and 2006 fiscal years, directors were paid an aggregate of
$162,245, $153,418 and $139,727, respectively, for their services as a director,
including committee participation. Table No. 8 details compensation paid/accrued
for fiscal 2008, 2007 and 2006 for each director.




The
Company’s directors also participate in the Company’s Stock Option Plan. During
fiscal 2008, no stock options were granted to directors. On December 16, 2008,
shareholders approved the Company’s new 2008 Stock Option Plan. On December 17,
2008, options were granted to directors under the new plan to purchase the
common shares indicated below at an exercise price of $1.68 per common share, as
follows:







Director
              Positions
              Number
      of Common
                Shares
      which may be
                purchased
      under OptionDonald
      H. Segal
              Chief
      Executive Officer, Chairman of the Board, and Director
              250,000John
      M. Docherty
              President,
      Chief Operating Officer and Director
              250,000Kenneth
      A. Cawkell
              Director
      and Corporate Secretary
              100,000W.
      Thomas Hodgson
              Director,
      Chair of Audit Committee
              100,000Jack
      M. Kay
              Director,
      Chair of Governance Committee
              100,000Gordon
      M. Lickrish
              Director,
      Chair of Compensation Committee
              100,000Slawomir
      Majewski
              Director
              100,000







The
foregoing options have a term of 8 years and shall vest over three years as
follows:


25% immediately on day of
grant;


25% first anniversary;


25% second anniversary;
and


25% third anniversary;


provided
that any outstanding options will vest immediately upon a “Change of Control” as
defined in the 2008 Stock Option Plan.






67





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. A director’s retirement and re-election at the same
meeting does not constitute a termination of the director’s position for
purposes of the expiry of his options.





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.




Senior
Management Compensation




Total
cash compensation accrued and/or paid (directly and/or indirectly) (refer to
ITEM 7.B for
information regarding indirect payments) to all of our senior management during
fiscal 2008, was $847,916.




Table No.
8 details compensation paid/accrued for the 2008, 2007 and 2006 fiscal years for
our senior management and directors.










68


Table No.
8


Senior
Management/Directors


Summary
Compensation Table





Annual
      Compensation
            Long
      Term CompensationAwards
            PayoutsName
      and Principal Position
            Fiscal
      Year
            Salary
            Bonus
            Other
              Annual
              Comp.(1)
            Securities
              Under
              Option/
      Stock Appreciation
              Rights
              Granted(2)
            Restricted
              Shares
      or
              Restricted
              Share
      Units
            LTIP
              Payouts
            All
      Other
              Comp(3)Donald
      H. Segal
              Chairman,
      Director,
              Chief
      Executive Officer(4)
            2008
              2007
              2006
            $290,833
              $271,667
              $251,667
            $50,000
              Nil
              Nil
            $6,000
              $6,000
              $6,000
            Nil
              Nil
              200,000
            Nil
              Nil
              N/A
            Nil
              Nil
              N/A
            $83,511
              $87,336
              $92,579Photios
      (Frank) Michalargias
              Chief
      Financial Officer(4)
            2008
              2007
              2006
            $215,833
              $196,667
              $180,333
            $50,000
              Nil
              Nil
            $6,000
              $6,000
              $6,000
            Nil
              Nil
              50,000
            Nil
              Nil
              N/A
            Nil
              Nil
              N/A
            $3,779
              $3,622
              $2,928John
      M. Docherty
              President(4)
            2008
              2007
              2006
            $170,625
              $156,250
              $141,667
            $50,000
              Nil
              Nil
            $6,000
              $6,000
              $6,000
            Nil
              Nil
              100,000
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            $987
              $832
              $825Heman
      Chao
              Vice
      President of Research(4)
            2008
              2007
              2006
            $170,625
              $156,250
              $141,667
            $50,000
              Nil
              Nil
            $6,000
              $6,000
              $6,000
            Nil
              Nil
              100,000
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            $4,061
              $3,622
              $3,514Kenneth
      A. Cawkell
              Corporate
      Secretary
            2008
              2007
              2006
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            $30,000
              $36,000
              $36,000
            Nil
              Nil
              25,000
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              NilJack
      M. Kay
              Director
            2008
              2007
              2006
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            $32,000
              $24,000
              $24,000
            Nil
              Nil
              25,000
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              NilGordon
      M. Lickrish
              Director
            2008
              2007
              2006
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            $30,000
              $12,000
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              NilSlawomir
      Majewski
              Director(6)
            2008
              2007
              2006
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            $13,000
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              NilW.
      Thomas Hodgson
              Director(7)
            2008
              2007
              2006
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            $12,000
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              NilJerome
      F. McElroy
              Former
      Chairman(5)
            2008
              2007
              2006
            $54,167
              $260,001
              $240,000
            Nil
              Nil
              Nil
            $390,250
              $6,000
              $6,000
            Nil
              Nil
              200,000
            Nil
              Nil
              N/A
            Nil
              Nil
              N/A
            $18,908
              $98,343
              $96,141Connor
      Gunne
              Director(6)
            2008
              2007
              2006
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            $27,245
              $39,418
              $37,727
            Nil
              Nil
              25,000
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              NilRichard
      Rossman
              Director(6)
            2008
              2007
              2006
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            $18,000
              $36,000
              $36,000
            Nil
              Nil
              25,000
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil
            Nil
              Nil
              Nil





(1)
            Other
      Annual Compensation consisted of automobile allowancesand
      directors’ compensation. Amounts paid to “non-management” directors total
      $162,245, $153,418 and $139,727, respectively for fiscal 2008, 2007 and
      2006. Amounts paid to Jerome McElroy are described in note (4) below and
      under Written Management Agreements
below.


(2)
            No
      stock appreciation rights have been granted. All securities are under
      option.




















69




(3)
              “All
      Other Compensation” included the Company’s contribution to life,
      disability, and extended health insurance or behalf of the named senior
      management, payments in lieu of vacation, and contributions by the Company
      to a registered retirement savings plan (“RRSP”) for the named senior
      management. Effective December 17, 2008, the Company will no longer make
      contributions to RRSP’s.
 (4)
              On
      December 17, 2008, the Board of Directors revised the base salaries, bonus
      entitlement, and other annual compensation of its Senior Management. See
      Written Management
      Agreements below.
 (5)
              Mr.
      McElroy resigned from the Company, effective October 15, 2007. The Company
      paid Mr. McElroy the equivalent of approximately one year’s salary and
      benefits in a lump-sum payment of $350,000 on termination, and has agreed
      to pay additional termination payments for one year of $3,000 per month
      and to make contributions to his medical benefits of $12,000 per year for
      four years.
 (6)
              Effective
      January 29, 2008, at the Company’s annual general meeting, both Connor
      Gunne and Richard Rossman stepped down as directors of the Company and
      Slawomir Majewski was elected to the
Board.
 (7)
              Appointed
      director of the Company, effective April 1,
  2008.


Directors’
and Senior Management’ Liability Insurance; Indemnity Payments




The
Company purchases annual insurance coverage for directors’ and senior
management’s liability. The current term (March 1, 2008 to March 1, 2009)
premium of $82,250 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 senior
management. The Company indemnifies its directors and senior management 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 CBCAhas been paid or is to
be paid for the last completed financial year.




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




At the
beginning of fiscal 2008, the most recently completed fiscal year, there were
3,272,500 stock options outstanding. During fiscal 2008, no stock options were
granted to our senior management, directors, and/or employees/ consultants.
During fiscal 2007, no stock appreciation rights were granted. During fiscal
2008, 1,242,000 stock options expired, and in October 2008, an additional
325,000 stock options expired. In December, 2008, an additional 2,070,000 stock
options were granted.




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. No stock
appreciation rights were exercised during this period.




The
following table gives certain information concerning stock option exercises
during fiscal 2008 by the Company’s senior management and directors. It also
gives information concerning stock option values.






70


Table No.
9


Aggregated
Stock Options Exercised in Fiscal 2008


Fiscal
Year-End Unexercised Stock Options


Fiscal
Year-End Stock Option Values


Senior
Management/Directors




Name
              Number
      of Shares Acquired on Exercise
              Aggregate
      Value Realized
              Number
      of
                Unexercised
                Options
      at
                Fiscal
                Year-End
                Exercisable/
                Unexercisable
              Value
      of
                Unexercised
                In-the-Money
                Options
      at
                Fiscal
      Year-End Exercisable/
                UnexercisableDonald
      H. Segal
              Nil
              $0
              325,000/nil
              $0/$0Photios
      (Frank) Michalargias
              Nil
              $0
              150,000/nil
              $0/$0John
      M. Docherty
              Nil
              $0
              200,000/nil
              $0/$0Heman
      Chao
              Nil
              $0
              200,000/nil
              $0/$0Kenneth
      A. Cawkell
              Nil
              $0
              100,000/nil
              $0/$0Jack
      M. Kay
              Nil
              $0
              100,000/nil
              $0/$0Gordon
      M. Lickrish
              Nil
              $0
              20,000/nil
              $0/$0Slawomir
      Majewski
              Nil
              $0
              nil/nil
              $0/$0W.
      Thomas Hodgson
              Nil
              $0
              nil/nil
              $0/$0





Stock
Options




The
Company grants share options to its directors, senior management and employees
from time to time. For information about stock options, see ITEM 6.E – Share Ownership
and Tables No. 8/9/10/11.




Change
of Control Remuneration




Other
than disclosed below in “Written Management
Agreements”, the Company has no plans or arrangements in respect of
remuneration received or that may be received by senior management of the
Company to compensate such senior management, in the event of termination of
employment (as a result of resignation, retirement, change of control) or a
change of responsibilities following a change of control, where the value of
such compensation exceeds US$100,000 per senior management. See “Written Management
Agreements”, below referencing Change of Control Remuneration for Donald
H. Segal, John M. Docherty, Heman Chao and Photios (Frank)
Michalargias.




Bonus/Profit
Sharing/Non-Cash Compensation




The
Company had previously implemented an executive bonus plan that expired on
December 31, 2008. The Company has determined that future executive bonus
entitlements are to be determined based on specific performance goals associated
with each of the executive’s job descriptions. These performance goals will be
established by the Compensation Committee in consultation with senior management
personnel. Bonuses may be paid up to a specified percentage of a senior
management’s salary, ranging between 25% - 35%.




In the
last fiscal year, pursuant to the executive bonus plan then in effect, the
Company paid a bonus of $50,000 to each of its Chief Executive Officer,
President, Chief Financial Officer and Vice President, Research in recognition
of the Company having raised over $20 million in equity financing over the
previous two years.




Pension/Retirement
Benefits




Other
than disclosed below, no funds have been set aside or accrued by the Company
since incorporation to provide pension, retirement or similar benefits for its
directors or senior management. An annual contribution has been paid every
February by the Company to Donald H. Segal to the maximum allowable of $31,500
towards his personal






71






Registered
Retirement Savings Plan. No other amounts are paid by the Company to any other
senior management of the Company. Effective December 17, 2008, the Company will
no longer make this contribution.




Other
Compensation




The
Company purchases annual life insurance coverage for Donald H. Segal with a
death benefit of $500,000 payable to the children of Dr. Segal. No senior
management and/or director of the Company received “other compensation” in
excess of the lesser of US$25,000 or 10% of such officer’s cash compensation,
and all senior management/directors as a group did not receive other
compensation which exceeded US$25,000 times the number of persons in the group
or 10% of the compensation, other than disclosed in Table No. 8, ITEM 6.Band ITEM 7.B.




Written
Management Agreements




On
October 15, 2007, the Company entered into an Agreement with Jerome F. McElroy,
pursuant to which Mr. McElroy resigned as the Chairman, a director and an
employee of the Company and as a director, officer and employee of all
affiliates of the Company. Under the terms of the Agreement, Mr. McElroy
received the equivalent of approximately one year’s salary and benefits in a
lump sum payment of $350,000, and will receive termination payments for one year
of $3,000 per month and contributions to his medical benefits of $12,000 per
year for four years. Pursuant to the terms of this Agreement, Mr. McElroy’s
previous Amended and Restated Employment Agreement described below was
terminated.




Effective
April 1, 2004, the Company entered into Amended and Restated Employment
Agreements with each of Jerome F. McElroy and Donald H. Segal. As stated above,
Mr. McElroy’s employment agreement, which provided for his employment by the
Company as its Chairman, was terminated on October 15, 2007, and contained
substantially the same terms and conditions as Dr. Segal’s employment
agreement.




Dr.
Segal’s employment agreement currently provides for his employment by the
Company as the Company’s Chief Executive Officer. Previously, the agreement also
provided for his employment as the Company’s President. The employment agreement
has no fixed term, and provides for a base salary, annual RRSP contributions to
the maximum allowable but in any event not less than $31,500, 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 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 six months following a change of control of
the Company, or by the employee within thirty (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 twelve (12)
months, and will either extend all insurance coverage for the following twenty
four (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 and car allowance 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 remaining senior management, as
amended, contain substantially the same terms, except primarily as to base
salary. These employment agreements have no fixed term, and provide for a base
salary, 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 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
Executive Officer within six (6) months following a change of control of the
Company, or by the Executive Officer within thirty (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 twelve
(12) months, plus an amount equal to the amount of any bonus and car allowance
paid during the previous twelve (12) months, and will either extend all
insurance and benefits coverage for the following twelve (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






72






pay the
salary and car allowance 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.




On
December 17, 2008, the Board revised the base salaries, bonus entitlement, and
other annual compensation of its senior management. The titles of John M.
Docherty and Heman Chao were also revised, with Mr. Docherty being appointed
President and Chief Operating Officer, and Mr. Chao being appointed Chief
Scientific Officer. Effective as of November 1, 2008, the base salaries of
senior management shall be the following: Donald H. Segal shall receive
$350,000; Photios (Frank) Michalargias shall receive $230,000; John M. Docherty
shall receive $220,000; and Heman Chao shall receive $200,000. The maximum bonus
for the senior management in fiscal 2009 is the following percentage of their
salaries: 35% for Donald H. Segal; 25% for Photios (Frank) Michalargias; 25% for
John M. Docherty; and 35% for Heman Chao. Actual bonuses will be based on
achieving milestones to be negotiated between the individuals and the
Compensation Committee annually. Vacation pay for outstanding vacation not taken
through December 31, 2008 is as follows: $49,000 for Donald H. Segal; $10,667
for Photios (Frank) Michalargias; $11,000 for John M. Docherty; and $10,000 for
Heman Chao. The Company will no longer be making any RRSP
contributions.




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.




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
Management and ITEM 6.C – Board Practices.




Directors’
Service Contracts




See ITEM 6.B – Compensation – Written
Management Agreements.




Audit
Committee and Compensation Committee




The Board
has adopted standards for determining whether a director is independent from
management. The Board reviews, consistent with the Company’s corporate
governance guidelines, whether a director has any material relationship with the
Company that would impair the director’s independent judgment. The Board has
affirmatively determined, based on its standards, that Messrs. Kay, Lickrish,
and Majewski are independent.




Board
Meetings and Committees; Annual Meeting Attendance




During
fiscal 2008, the Board held five regularly scheduled 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. All directors attended all of: (i) the total number of
meetings of the Board, while he was a director; and (ii) the total number of
meetings of committees of the Board on which the director served. Directors are
encouraged to attend annual shareholder meetings of our stockholders and all
directors attended the 2008 annual shareholders meeting.




73


The
following sets out the attendance records of our Board members during fiscal
2008:




Director
              Board
              Audit(1)
              Compensation(2)
              Governance(3)Donald
      H. Segal
              5
      of 5
              ------
              ------
              ------Jack
      M. Kay
              5
      of 5
              2
      of 4
              ------
              1
      of 1Connor
      Gunne(4)
              2
      of 5
              2
      of 4
              1
      of 1
              1
      of 1Kenneth
      A. Cawkell
              5
      of 5
              ------
              1
      of 1
              1
      of 1Richard
      Rossman(5)
              2
      of 5
              2
      of 4
              1
      of 1
              1
      of 1Gordon
      M. Lickrish(6)
              5
      of 5
              2
      of 4
              0
      of 1
              0
      of 1Jerome
      F. McElroy(7)
              0
      of 5
              ------
              ------
              ------Slawomir
      Majewski(8)
              3
      of 5
              1
      of 4
              0
      of 1
              0
      of 1W.
      Thomas Hodgson(9)
              1
      of 5
              1
      of 4
              ------
              ------John
      M. Docherty(10)
              3
      of 5
              ------
              ------
              ------





(1)
            All
      Audit Committee members attended all meetings held during their term on
      the Audit Committee during fiscal
2008.


(2)
            All
      Compensation Committee members attended all meetings held during their
      term on the Compensation Committee during fiscal
  2008.


(3)
            All
      Governance Committee members attended all meetings held during their term
      on the Governance Committee during fiscal
2008.


(4)
            Connor
      Gunne was a director for a portion of the 2008 fiscal year. He attended
      both Board meetings, both Audit Committee meetings, the one Compensation
      Committee meeting, and the one Governance Committee meeting, held prior to
      his retirement as a director in January
2008.


(5)
            Richard
      Rossman was a director for a portion of the 2008 fiscal year. He attended
      both Board meetings, both Audit Committee meetings, the one Compensation
      Committee meeting, and the one Governance Committee meeting, held prior to
      his retirement as a director in January
2008.


(6)
            Gordon
      M. Lickrish attended the two Audit Committee meetings held during his
      tenure as a member of such committee in fiscal 2008. Dr. Lickrish was not
      a member of the Compensation Committee or the Governance Committee, when
      those two committees met during fiscal
2008.


(7)
            Jerome
      F. McElroy was a director for a portion of the 2008 fiscal year, ending
      October 15, 2007. There were no Board Meetings held in fiscal 2008 prior
      to his resignation.


(8)
            Slawomir
      Majewski was a director for a portion of the 2008 fiscal year, commencing
      January 29, 2008. He attended all three of the Board meetings held in
      fiscal 2008, following his election and the one Audit Committee meeting
      held in fiscal 2008 during his tenure as a member of that committee. He
      was not a member of the Compensation Committee or the Governance Committee
      when those two committees met during fiscal
  2008.


(9)
            W.
      Thomas Hodgson was a director for a portion of fiscal 2008, commencing
      April 7, 2008. He attended both of the Board and Audit Committee meetings
      held in fiscal 2008 following his
election.


(10)
            John
      M. Docherty was a director for a portion of fiscal 2008, commencing
      January 29, 2008. He attended all three of the Board meetings held in
      fiscal 2008 following his election.




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, adopted
November 16, 2003 and amended March 5, 2008. Audit Committee members were last
appointed on December 17, 2008 subsequent to the Company’s annual general
meeting held the previous day.






74






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. Mr.
Hodgson was appointed chair of the audit committee on April 1, 2008. The Board
has determined that Mr. Hodgson satisfies the criteria of “audit committee
financial expert” and is independent in accordance with The NASDAQ stock
exchange marketplace rules 4350(b). All members of the audit committee are
financially literate, meaning 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 that is relevant to the performance of his
responsibilities is set forth below.




Of the
three Audit Committee members, all but Mr. Hodgson have extensive experience
with the affairs of the Company. Mr. Hodgson was newly appointed to the Board,
effective April 1, 2008. The Company has initiated an orientation process to
bring Mr. Hodgson’s knowledge of the Company to the same level as the other
Audit Committee members.




Mr.
Hodgson is Senior Partner and Chairman of Greenbrook Capital Partners Inc., Mr.
Kay is the President and Chief Operating Officer of Apotex Inc. and Dr. Lickrish
operates a private medical practice. By virtue of their backgrounds and
experiences, the members of the Audit Committee have the financial expertise and
ability to analyze and interpret a full set of financial statements, including
the notes attached thereto, in accordance with Canadian generally accepted
accounting principles. 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.




Dr.
Slawomir Majewski was appointed to the Audit Committee on January 29, 2008
following the Company’s annual general meeting held that day. At the time of his
appointment, Dr. Majewski was not financially literate; however he undertook to
become financially literate within a reasonable period of time following his
appointment. On April 2, 2008, W. Thomas Hodgson, who was appointed a director
of the Company on April 1, 2008, replaced Dr. Majewski on the Audit Committee.
As stated above, Mr. Hodgson is financially literate.




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 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. A new and
updated Governance Charter was approved on March 5, 2008. 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. The Company relies upon its professional
advisors to update the knowledge of the Board members in respect to changes in
relevant policies and regulations.




Compensation
Committee members were last appointed on December 17, subsequent to the
Company’s annual general meeting held on the previous day. Of the four, only
Kenneth A. Cawkell is not independent. The Compensation Committee discusses and
approves or disapproves all compensation issues that pertain to the Company. The
compensation programs of the Company are designed to reward performance and to
be competitive with the compensation agreements of other comparable
biotechnology companies. The Compensation Committee is responsible for
evaluating the compensation of the senior management of the Company and assuring
that they are compensated effectively in a manner consistent with the Company’s
business, stage of development, financial condition and prospects, and the
competitive environment. Specifically, the Compensation Committee is responsible
for: (i) annually determining the salary and bonus of each of the Company’s
senior management; (ii) determining all other forms of compensation of each of
the Company’s senior management, including without limitation, car allowances
and benefits; (iii) granting incentive stock options to purchase common shares
of the Company under the








75






Company’s
stock option plan; and (iv) amending and otherwise administering the stock
option plan of the Company. A new and updated Compensation Committee Charter was
approved on March 5, 2008.




Code
of Ethics




The Board
has adopted a written code of business conduct and ethics. All transgressions of
the code of business conduct and ethics are required to be promptly reported to
the Chair of the Board or of any committee, who in turn, reports them to the
Governance Committee. The Governance Committee is charged with investigating
alleged violations of the code of business conduct and ethics. Any findings of
the Governance Committee are then reported to the full Board, which will take
such action as it deems proper. The Company’s Code of Ethics may be inspected on
the Company’s website at: www.helixbiopharma.com.




6.D.  Employees




As of
December 31, 2008, the Company had 26 full-time employees and three part-time
employees/consultants, including the senior management; 22 of these employees
are engaged in research and development initiatives. As of July 31, 2008, July
31, 2007 and July 31, 2006, the Company had, 26, 27 and 24 full-time employees,
respectively, and three part-time employees/consultants. None of the Company’s
employees are covered by collective bargaining agreements.




6.E.  Share
Ownership




The
following table sets forth certain information regarding the beneficial
ownership of our outstanding common shares for: (i) each person who, to the
knowledge of the Company, beneficially owns 5% or more of the outstanding common
shares; (ii) each of our directors individually; (iii) each of our executive
officers individually; and (iv) all of our directors and executive officers as a
group. Beneficial ownership of shares is determined under rules of the
Securities and Exchange Commission and generally includes any shares over which
a person exercises sole or shared voting or investment power. The table also
includes the number of shares underlying options that are exercisable within
sixty (60) days of December 31, 2008. Ordinary shares subject to these 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.




The
shareholders listed below do not have any different voting rights from our other
shareholders.




Table No.
10


Shareholdings
of Directors and Senior Management


December
31, 2008




Name
      of Beneficial Owner
                
                Number
      of shares Beneficially Owned
                
                
                Percent
                  of
      ClassSylwester
      and Dorota Cacek (1)
                
                
                9,710,000
                
                
                
                17.39
                %Herald
      Janssen (2)
                
                
                3,622,059
                
                
                
                6.81
                %Wojciech
      Hajduk (3)
                
                
                3,600,000
                
                
                
                6.77
                %Isabela
      Flejseirowicz (4)
                
                
                3,600,000
                
                
                
                6.77
                %Donald
      H. Segal (5)
                
                
                1,774,500
                
                
                
                3.31
                %Jack
      M. Kay (6)
                
                
                516,700
                
                
                
                0.97
                %John
      M. Docherty (7)
                
                
                262,600
                
                
                
                0.49
                %Heman
      Chao (8)
                
                
                262,500
                
                
                
                0.49
                %Kenneth
      A. Cawkell (9)
                
                
                222,100
                
                
                
                0.42
                %Photios
      (Frank) Michalargias (10)
                
                
                212,500
                
                
                
                0.40
                %Gordon
      M. Lickrish (11)
                
                
                45,000
                
                
                
                0.08
                %Slawomir
      Majewski (12)
                
                
                25,000
                
                
                
                0.05
                %W.
      Thomas Hodgson (13)
                
                
                25,000
                
                
                
                0.05
                %Directors
      and Senior Management Subtotal
                
                
                3,345,900
                
                
                
                6.13
                %








76





(1)
            Sylwester
      and Dorota Cacek are private high-net-worth individuals domiciled at
      Oberaegeri, Switzerland. On October 2, 2008, Mr. and Mrs. Cacek acquired
      5,300,000 units in Helix pursuant to a private placement. Each unit
      consists of one common share and one-half share purchase warrant, which
      entitles Mr. and Mrs. Cacek to purchase 2,650,000 common shares of Helix
      at a price of $2.36 per share, subject to adjustment, at any prior to
      October 1, 2011. Prior to the private placement, Mr. and Mrs. Cacek held
      1,760,000 shares of Helix bringing their current total holdings after the
      private placement of Helix shares to 7,060,000. Excluding the share
      purchase warrants, Mr. and Mrs. Cacek hold approximately 13.28% of Helix’s
      current outstanding common shares. If Mr. and Mrs. Cacek exercise their
      warrants, they will hold a total of 9,710,000 common shares or
      approximately 17.39% of the total and outstanding common shares of Helix.
      The figure representing the number of shares beneficially owned by Mr. and
      Mrs. Cacek in Table No. 10 includes 7,060,000 common shares in addition to
      the 2,650,000 share purchase
warrants.


(2)
            Herald
      Janssen is a private high-net-worth individual domiciled at Matschils
      Triesen, Liechtenstein. Based on information reported on SEDI
      (www.sedi.ca) as of July 31, 2008, 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.


(3)
            Wojciech
      Hajduk is a private high-net-worth individual domiciled at UL. Hozjusza,
      Warszawa, Poland.


(4)
            Isabela
      Flejseirowicz is a private high-net-worth individual domiciled at UL.
      Pszczolkowo, Wschowa, Poland.


(5)
            Consists
      of 1,387,000 common shares and options to purchase 387,500 common shares.
      See Table No. 11 for exercise prices of
options.


(6)
            Consists
      of (a) 371,700 common shares held directly by Jack M. Kay, (b) 20,000
      common shares held by the children of Jack M. Kay and accordingly, such
      shares are deemed to be beneficially held by Mr. Kay, and (c) options to
      purchase 125,000 common shares. See Table No. 11 for exercise prices of
      options.


(7)
            Consists
      of 100 common shares and options to purchase 262,500 common shares. See
      Table No. 11 for exercise prices of
options.


(8)
            Consists
      of options to purchase 262,500 common shares. See Table No. 11 for
      exercise prices of options.


(9)
            Consists
      of (a) 32,743 common shares held directly by Kenneth A. Cawkell, (b)
      62,357 shares held by the wife of Mr. Cawkell, and accordingly, such
      shares are deemed to be beneficially held by Mr. Cawkell, (c) 2,000 shares
      held by a child of Mr. Cawkell, and accordingly, such shares are deemed to
      be beneficially held by Mr. Cawkell, and (d) options to purchase 125,000
      common shares. See Table No. 11 for exercise prices of
      options.


(10)
            Consists
      of options to purchase 212,500 common shares. See Table No. 11 for
      exercise prices of options.


(11)
            Consists
      of options to purchase 45,000 common shares. See Table No. 11 for exercise
      prices of options.


(12)
            Consists
      of options to purchase 25,000 common shares. See Table No. 11 for exercise
      prices of options.


(13)
            Consists
      of options to purchase 25,000 common shares. See Table No. 11 for exercise
      prices of options.





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 stock 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.






77






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 stock
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:  Under the 2008 Plan, 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 5,317,533 common shares may be granted under the 2008 Plan. There are
currently options to purchase a total of 3,775,500 shares outstanding under the
2008 Plan, leaving (based on the Company’s current issued and outstanding
shares) a total of 1,542,033 common shares remaining 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.




Additional Option
Grants:  Under the 2008 Plan, 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:  Under the 2008 Plan, 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, or currently 2,658,766
common shares.




Exercise
Price:  Under the 2008 Plan, 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:  Under the
2008 Plan, 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:  Under the 2008 Plan, 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. Under the
2008 Plan, 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:






78






·
            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:  Under
the 2008 Plan, options are non-transferable and non-assignable.




Amendment:  Under
the 2008 Plan, 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:  Under the
2008 Plan, 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.




The names
and titles of the directors/senior management of the Company to whom outstanding
stock options have been granted and the number of common shares subject to such
options are set forth in following table, as well as the number of options
granted to directors/senior management and all employees/consultants as a
group.








79






Table No.
11


Stock Options Outstanding


December
31, 2008




Name
                                    Number
      of
                                      Options
                                      Granted
      or
                                      Remaining
                                    Exercise
                                      Price
      per
                                      Share
                                    Grant
      Date
                                    Expiration
      DateSenior
      ManagementDonald
      H. Segal
                                    125,000
                                    $2.00
                                    June
      30, 2005
                                    June
      30, 2010200,000
                                    $3.00
                                    July
      31, 2006
                                    July
      31, 2011250,000
                                    $1.68
                                    December
      17, 2008
                                    December
      17, 2016Photios
      (Frank) Michalargias
                                    100,000
                                    $2.00
                                    June
      30, 2005
                                    June
      30, 201050,000
                                    $3.00
                                    July
      31, 2006
                                    July
      31, 2011250,000
                                    $1.68
                                    December
      17, 2008
                                    December
      17, 2016John
      M. Docherty
                                    100,000
                                    $2.00
                                    June
      30, 2005
                                    June
      30, 2010100,000
                                    $3.00
                                    July
      31, 2006
                                    July
      31, 2011250,000
                                    $1.68
                                    December
      17, 2008
                                    December
      17, 2016Heman
      Chao
                                    100,000
                                    $2.00
                                    June
      30, 2005
                                    June
      30, 2010100,000
                                    $3.00
                                    July
      31, 2006
                                    July
      31, 2011250,000
                                    $1.68
                                    December
      17, 2008
                                    December
      17, 2016Kenneth
      A. Cawkell
                                    75,000
                                    $2.00
                                    June
      30, 2005
                                    June
      30, 201025,000
                                    $3.00
                                    July
      31, 2006
                                    July
      31, 2011100,000
                                    $1.68
                                    December
      17, 2008
                                    December
      17, 2016Jack
      M. Kay
                                    75,000
                                    $2.00
                                    June
      30, 2005
                                    June
      30, 201025,000
                                    $3.00
                                    July
      31, 2006
                                    July
      31, 2011100,000
                                    $1.68
                                    December
      17, 2008
                                    December
      17, 2016Gordon
      M. Lickrish
                                    20,000
                                    $2.00
                                    June
      30, 2005
                                    June
      30, 2010100,000
                                    $1.68
                                    December
      17, 2008
                                    December
      17, 2016Slawomir
      Majewski
                                    100,000
                                    $1.68
                                    December
      17, 2008
                                    December
      17, 2016W.
      Thomas Hodgson
                                    100,000
                                    $1.68
                                    December
      17, 2008
                                    December
      17, 2016Total
      Senior Management
                                    2,595,000Management
      Officers /Employees/Consultants/etc.
                                    402,000
                                    $2.00
                                    June
      30, 2005
                                    June
      30, 2010208,500
                                    $3.00
                                    July
      31, 2006
                                    July
      31, 2011570,000
                                    $1.68
                                    December
      17, 2008
                                    December
      17, 2016Total
      Management Officers /Employees/Consultants
                                    1,180,500TOTAL
                                    3,775,500





All
options granted prior to December 17, 2008 have fully vested. Options granted on
December 17, 2008 generally vest over three (3) years as follows:




·
            25%
      immediately on day of grant;


·
            25%
      on the first anniversary of the day of grant;·
            25%
      on the second anniversary of the day of grant; and·
            25%
      on the third anniversary of the day of
grant.










80


ITEM
7.  MAJOR
SHAREHOLDERS AND RELATED PARTY TRANSACTIONS




7.A.  Major
Shareholders.




7.A.1.a.  Holdings
By Major Shareholders.




See ITEM 6.E – Share Ownership
and Table No. 10 for details regarding securities held by 5% shareholders,
senior management, directors, and others.




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




With the
exception of the participation in private placements of equity in the Company by
Mr. and Mrs. Cacek, Wojciech Hajduk and Isabela Flejseirowicz, and the 3,622,059
shares held by Herald Janssen which were amassed over time, there has not been a
significant change in the percentage ownership held by any major shareholders
during the past three years.




As a
result of the Company’s completion on October 2, 2008 of a private placement of
6,800,000 units for gross proceeds of $11,424,000 (See ITEM 10.A. Share Capital –
Authorized/Issued Capital”), Sylwester and Dorota Cacek became “insiders”
of the Company, holding approximately 13.28% of the Company’s outstanding
shares, and they will hold approximately 17.39% after exercise of the warrants
acquired by them in the private placement.




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 December 31, 2008, there were a total of 176 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 December 31, 2008
United States holders of record held approximately 3.7% 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 2008, 2007 and 2006 fiscal years, the Company paid $267,000, $255,000 and
$193,000, 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.




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.




In
February 2005, the Company entered into 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






81






Apotex.
During the 2008, 2007 and 2006 fiscal years, the Company received $0, $148,000
and $180,000, respectively, for contracted research and development services
provided to Apotex.




During
the fiscal year ended July 31, 2006, the Company paid $672,094 to MJM Management
Company Establishment (“MJM”), for finder’s fees with respect to private
placements of the Company’s securities to investors introduced by MJM and
located outside of Canada and the United States. Herald Janseen was a related
party to MJM. As of December 31, 2008, Herald Janssen beneficially owned,
controlled or directed 7.73% of the outstanding common shares of the Company
(approximately 11.5% as December 2006).




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.




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




Kenneth
A. Cawkell, Corporate Secretary and a director of the Company, is a partner of
Cawkell Brodie Glaister LLP, legal counsel to the Company. During the 2008, 2007
and 2006 fiscal years, the Company paid $267,000, $255,000 and $193,000,
respectively, to Cawkell Brodie Glaister LLP for legal services
rendered.




ITEM
8.  FINANCIAL
INFORMATION




8.A.  Statements
and Other Financial Information




The
Company’s 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 16 to the financial statements.




The
financial statements as required under ITEM 17. – Financial
Statements are attached hereto and found immediately following the text
of this Registration Statement. The audit report of KPMG LLP, independent
registered public accounting firm, is included herein immediately preceding the
financial statements.




Audited Financial
Statements




Audited
Financial Statements are included for the fiscal years ended July 31, 2008, 2007
and 2006.




Unaudited Interim Financial
Statements




Unaudited
Interim Financial Statements are included for the three months ended October 31,
2008 and October 31, 2007.




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.










82






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 and/or since the date of the most recent interim financial
statements.




ITEM
9.  THE
OFFER AND LISTING




9.A.  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
CUSIP/ISIN numbers are 422910109 / CA4229101098.




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.











83


Table No.
12


Toronto
Stock Exchange


Common
Shares Trading Activity


Canadian
Dollars





Period
      Ended
                    High
                    LowMonthlyJanuary
      31, 2009
                    $1.92
                    $1.18December
      31, 2008
                    $1.90
                    $1.23November
      30, 2008
                    $1.48
                    $1.15October
      31, 2008
                    $1.49
                    $1.27September
      30, 2008
                    $1.63
                    $1.28August
      31, 2008
                    $1.52
                    $1.26July
      31, 2008
                    $1.60
                    $1.21QuarterlyJanuary
      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
                    $1.25July
      31, 2007
                    $1.75
                    $1.09April
      30, 2007
                    $1.97
                    $1.01January
      31, 2007
                    $2.75
                    $1.70YearlyJuly
      31, 2008
                    $2.21
                    $1.20July
      31, 2007
                    $2.75
                    $1.01July
      31, 2006
                    $4.70
                    $1.65July
      31, 2005
                    $4.30
                    $1.79July
      31, 2004
                    $7.40
                    $2.00





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”.




9.A.5.  Common
Share Description




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






84






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 of
the Company, the holders of the common shares are entitled to receive the
remaining property of the Company upon dissolution.




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.




Common
shares are transferable at the principal office in Toronto, Ontario of the
Company’s transfer agent and registrar, Computershare Investor Services Inc.
There are no restrictions in the Company’s constating documents on the free
transferability of the common shares.




Stock
Options




See ITEM 6.E – Share Ownershipand Tables No. 8/9/10/11 for additional information.




Warrants




As of
December 31, 2008, the Company has 3,400,000 share purchase warrants
outstanding. Each share purchase warrant entitles the holder to purchase,
subject to adjustment, one common share of Helix at a price of $2.36 per share,
until 5pm (Toronto time) on October 1, 2011. If all share purchase warrants are
exercised, an additional 3,400,000 common shares would be issued and
outstanding.




The
Company has no convertible securities other than stock options and warrants as
described above.




9.B.  Plan
of Distribution




Not
Applicable.




9.C.  Stock
Exchanges Identified




The
Company’s common shares trade on the Toronto Stock Exchange in Canada. 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.




ITEM
10.  ADDITIONAL
INFORMATION




10.A.  Share
Capital




Authorized/Issued
Capital




As of
July 31, 2008, July 31, 2007 and July 31, 2006, the authorized capital of the
Company consisted of an unlimited number of common shares and 10,000,000
preferred shares. At these dates, there were 46,375,335, 36,335,335 and
32,685,335 common shares issued and outstanding, respectively. At these dates,
all shares issued were fully paid. There were 36,335,335 shares outstanding at
the beginning of fiscal 2008 and 46,375,335 shares outstanding at the end of
July 31, 2008. There were 32,685,335 shares outstanding at the beginning and
36,335,335 shares outstanding at the end of fiscal 2007. There were 27,183,726
shares outstanding at the beginning of 2006 and 32,685,335 shares outstanding at
the end of 2006.




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






85






share
purchase warrant entitling the holder to purchase, subject to adjustment, one
common share at a price of $2.36. The share purchase warrants expire on October
1, 2011. As a result of this private placement, the Company had 53,175,335
common shares issued and outstanding on December 31, 2008.




On
October 15, 2008, a total of 325,000 stock options expired
unexercised.




On
December 17, 2008, a total of 2,070,000 stock options were granted.




As of
December 31, 2008, the Company had the following outstanding: 53,175,355 common
shares; 3,400,000 share purchase warrants to purchase common shares; and stock
options to purchase up to 3,775,500 common shares.




No
preferred shares have been issued, nor has any series of preferred shares been
designated.




Shares
Not Representing Capital




Not
Applicable.




Shares
Held By Company




Not
Applicable.




Stock
Options/Share Purchase Warrants




Please
Refer to Table Nos. 8, 9, 10 and 11.




History
of Share Capital




The
Company has financed its operations through funds raised in public/private
placements of common shares and proceeds received from shares issued upon
exercise of stock options and share purchase warrants.




The
following table shows our history of share capital in the 2006, 2007 and 2008
fiscal year:







Effective
                  Date
      of
                  Issuance
                Security
                  Issued
                Number
      of
                  Securities
                Price
                Gross
                  Proceeds
                  of
      Fair
                  Value
                  of
      Share
                  Transaction
                Process/
                  ConsiderationOctober
      4, 2005
                Units
                2,339,181
                $1.71
                $4,000,000
                Private
      PlacementNovember
      7, 2005
                Units
                3,156,428
                $1.75
                $5,523,000
                Private
      PlacementFiscal
      2006
                Common
      Shares
                6,000
                $2.00
                $12,000
                Option
      ExerciseOctober
      11, 2006
                Units
                3,650,000
                $1.93
                $7,044,500
                Private
      PlacementDecember
      17, 2007
                Common
      Shares
                10,040,000
                $1.68
                $16,867,200
                Private
      PlacementOctober
      2, 2008
                Units
                6,800,000
                $1.68
                $11,424,000
                Private
      Placement





Resolutions/Authorizations/Approvals




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








86






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 dated April 30, 2008.




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.




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.






87






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 of
the Company, the holders of the common shares are entitled to receive the
remaining property of the Company upon dissolution.




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.




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.







88






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 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.




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 (expected to be $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:






89






·
            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.




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.




8.
Stockholder 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.




9.
Significant Differences with Applicable U.S. Law




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




·
            none
      of the CBCA, applicable Canadian securities law, our Articles or By-Laws,
      or the rules, regulations or policies of the TSX (collectively, “Canadian
      rules”), require a majority of the Company’s directors to be independent.
      However, National Policy 58-201 of the Canadian Securities Administrators
      recommends that a majority of the Company’s directors should be
      independent. The Canadian rules also require the Company to disclose, in
      any management information circular for the election of directors, whether
      a majority of the Company’s directors are independent. A majority of the
      Company’s directors are in fact independent within the meaning of NASDAQ
      marketplace Rule 4200(a)(15) and Rule 10A-3(b)(1) under the Exchange
      Act;




·
            the
      CBCA provides that generally, a resolution in writing signed by all the
      shareholders entitled to vote on that resolution at a meeting of
      shareholders is as valid as if it had been passed at a meeting of the
      shareholders and a resolution in writing dealing with all matters required
      by the CBCA to be dealt with at a meeting of shareholders, and signed by
      all the shareholders entitled to vote at that meeting, satisfies all the
      requirements of the CBCA relating to meetings of
    shareholders;




·
            the
      Company’s Articles do not permit cumulative
  voting;




·
            the
      TSX, on which the Company’s shares are listed, requires that “shareholder
      rights plans”, (commonly referred to as "poison pills") be ratified by
      shareholders within 6 months of their adoption by a listed company’s board
      of directors. Pursuant to National Policy 62-202 of the Canadian
      Securities Administrators, the Canadian securities regulatory authorities
      have advised participants in the capital markets that they are prepared to
      examine target company defensive tactics with respect to take-over bids in
      specific cases to determine whether they are abusive of shareholder
      rights;




·
            the
      CBCA provides that, shareholders of a corporationor
      their personal representatives may examine the records of a corporation
      containing:






90






o
            the
      articles and the by-laws, and all amendments thereto, and a copy of any
      unanimous shareholder agreement;




o
            minutes
      of meetings and resolutions of
shareholders;




o
            copies
      of all notices of directors and notices of change of directors and
      director’s address filed with Industry Canada;
  and




o
            a
      securities register showing, with respect to each class or series of
      securities, the names and the latest known address of each person who is
      or has been a security holder; the number or securities held by each
      security holder; and the date and particulars of the issue and transfer of
      each security; provided however, that any shareholder or their personal
      representative that wishes to examine the securities register of a
      distributing corporation must first make a request to the corporation or
      its agent, accompanied by an affidavit, prepared in accordance with the
      provisions of the CBCA. On payment of a reasonable fee, the shareholder is
      entitled to an extract from the securities
  register.




The CBCA
further provides that a shareholder of a corporation is entitled, on request and
without charge, to one copy of the articles and by-laws and of any unanimous
shareholder agreement. Furthermore, shareholders or their personal
representatives, upon payment of a reasonable fee and on sending to the
corporation, the affidavit referred to above, may on application require the
corporation to furnish within ten days after receipt of the affidavit, a list
(“basic list”) setting out the names of the shareholders of the corporation, the
number of shares owned by each shareholder and the address of each shareholder,
and may also require any supplemental list setting out any changes to the basic
list and any list setting out the name and address of any known holder of an
option or right to acquire shares of the corporation. The basic list and any
supplemental lists or the information contained in the securities register
obtained by a shareholder or their personal representative may not be used by
any person except in connection with (i) an effort to influence the voting of
shareholders of the corporation; (ii) an offer to acquire securities of the
corporation; or (iii) any other matter relating to the affairs of the
corporation.




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.




A copy of
the Company’s Certificate of Amalgamation, current Articles of Amalgamation and
By-Laws have been filed as an exhibit to this Registration
Statement.




10.C.  Material
Contracts




Copies of
the material contracts have been filed as exhibits to this Registration
Statement with portions of such contracts omitted and filed separately with the
secretary of the Securities and Exchange Commission pursuant to a confidential
treatment request.




See ITEM 4.B – Important Business
Developments – Corporate Overview, with respect to 1, 2, 3 and 4
below.




1.
            L-DOS47
      cGMP Process Development, Scale Up and Clinical Supplies Manufacturing
      Agreement, dated May 4, 2008, between the Company and
      BioVectra.




2.
            Topical
      Interferon Alpha-2b GMP Process Development, Scale Up and Clinical
      Supplies Manufacturing Agreement, dated April 3, 2008, between the Company
      and CPL.




3.
            Technology
      License Agreement between the Company and NRC, dated April 27,
      2005.






91






4.
            Material
      Transfer and License Option Agreement, dated December 18, 2000, between
      the Company and Schering
Corporation.




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.




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






92






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 prescribed
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




Subject
to the limitations described herein, 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.




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;”








93






·
            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.




In
addition, this discussion does not address any aspect of state, local or
non-U.S. 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 purchasing, holding 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 basis in our common shares and, to the extent in excess of such
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 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






94






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) 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 shareholder. 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 the 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 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 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.










95




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 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 also 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 decedent’s basis, if
lower.




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 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








96






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, 2008 and do not expect
to be classified as a PFIC for the year ending July 31, 2009. 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, 2009 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




The
Company has not declared any dividends on its common shares for the last five
years and does not anticipate that it will do so in the foreseeable future. The
present policy of the Company is to retain future earnings for use in its
operations and the expansion of its business.




Notwithstanding
the aforementioned: the Company is unaware of any dividend restrictions; has no
specific procedure for the setting of the date of dividend entitlement, but
might expect to set a record date for stock ownership to determine entitlement;
has no specific procedures for non-resident holders to claim dividends, but
might expect to mail their dividends in the same manner as resident holders. The
Company has not nominated any financial institutions to be the potential paying
agents for dividends in the United States.










97




10.G.  Statement
by Experts




The
consolidated financial statements of the Company as of July 31, 2008, 2007 and
2006 and for the fiscal periods ended July 31, 2008, 2007 and 2006, included
herein, have been audited by KPMG LLP, independent registered public accounting
firm, 4100 Yonge Street, Suite 200, Toronto, Ontario, Canada  M2P 2H3,
as stated in their report appearing herein, and is included in reliance upon the
report of such firm given upon their authority as experts in accounting and
auditing and their consent and authorization.




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. Upon
the effectiveness of this registration statement, the Company will be subject to
the informational requirements of the Securities Exchange Act of 1934, as
amended, and will file reports, registration statements and other information
with the SEC. 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.




ITEM
11.  QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK




The
Company is a small business issuer, as defined in Section 240.12b-2; and thus,
ITEM 11 is not applicable.




ITEM
12.  DESCRIPTION
OF SECURITIES OTHER THAN EQUITY SECURITIES




Debt
Securities




Not
Applicable.




Warrants
and Rights




See ITEM 9. – The Offer and
Listing




Other
Securities




Not
Applicable.




American
Depository Shares




Not
Applicable.




PART
II




ITEM
13.  DEFAULTS,
DIVIDEND ARREARAGES AND DELINQUENCIES




Not
Applicable.




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




Not
Applicable.




ITEM
15.  CONTROLS
AND PROCEDURES




Not
Applicable.




ITEM
16.  RESERVED








98






The
registration statement does not include a report of management’s assessment
regarding internal control over financial reporting or an attestation report of
the Company’s registered accounting firm due to a transition period established
by rules of the Securities and Exchange Commission for newly public
companies.




ITEM
16A.  AUDIT COMMITTEE FINANCIAL EXPERT




See ITEM 6.C. Board Practices –
“Board Meetings and
Committees; Annual Meeting Attendance.




ITEM
16B.  CODE OF ETHICS




Not
Applicable.




ITEM
16C.  PRINCIPAL ACCOUNTIING FEES AND SERVICES




Not
Applicable.




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




Not
Applicable.




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




Not
Applicable.




PART
III




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 17 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 Registration Statement 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 10,
2008.




Consolidated Balance Sheets at July 31, 2008 and 2007.




Consolidated
Statements of Operations and Comprehensive Loss for the years ended July
31, 2008, 2007 and 2006.




Consolidated
Statements of Cash Flows for the years ended July 31, 2008, 2007 and
2006.




Notes to
Consolidated Financial Statements.




b.           Unaudited Interim Financial
Statements




Consolidated
Balance Sheets at October 31, 2008 and October 31, 2007.




Consolidated
Statements of Operations and Comprehensive Loss for the Three Months
Ended October 31, 2008 and October 31, 2007.








99






Consolidated
Statements of Cash Flows for the Three Months Ended October 31, 2008 and October
31, 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 Amalgamation1.2
                              Amended
      and Restated Bylaws4.1
                              L-DOS47
      cGMP Process Development, Scale Up and Clinical Supplies Manufacturing
      Agreement, between the Company and BioVectra, dated May 4,
      2008*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*4.3
                              Technology
      License Agreement between the Company and NRC, dated April 28,
      2005*4.4
                              Material
      Transfer and License Option Agreement, between the Company and Schering
      Corporation, dated December 18, 2000*4.5
                              Employment
      Agreement with Heman Chao, dated August 6, 20084.6
                              Employment
      Agreement with Photios (Frank) Michalargias, dated August 6,
      20084.7
                              Employment
      Agreement with John M. Docherty, dated August 6, 20084.8
                              Employment
      Agreement with Donald H. Segal, dated August 6, 20084.9
                              Form
      of Indemnity Agreement4.10
                              Form
      of Stock Option Agreement for December
      17, 2008 Plan (Standard)4.11
                              Form
      of Stock Option Agreement for December17,
      2008 Plan (Directors Only)4.12
                              Stock
      Option Plan,implementedDecember
      17, 20088.1
                              List
      of Subsidiaries: See ITEM
  4.C15.1
                              Consent
      of KPMG LLP


*
            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.




WHERE
TO FIND ADDITIONAL INFORMATION




Upon
effectiveness, we will file reports and other information with the Securities
and Exchange Commission 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.








100





MANAGEMENT’S
RESPONSIBILITY FOR FINANCIAL INFORMATION
  The
accompanying consolidated financial statements of Helix BioPharma Corp. and
other financial information contained in this registration statement 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 registration statement 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 control 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 for the years ended July 31, 2008, 2002 and
2006 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)
Michalargias
 Donald H.
Segal Photios
(Frank) Michalargias
 Chief
Executive Officer Chief
Financial Officer
  
 
 F-1
 
  REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
   To the
Board of Directors of
 Helix
BioPharma Corp.
 
  We have
audited the accompanying consolidate balance sheets of Helix BioPharma Corp.
(the “Company”) as of July 31, 2008 and 2007 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, 2008.  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 respects, the financial position of the Company as of July 31,
2008 and 2007 and the results of its operations and its cash flows for each of
the years in the three-year period ended July 31, 2008 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 17 to the consolidated financial statements.
  On August
1, 2007, the Company adopted retrospectively without restatement the new
recommendations of CICA Handbook Section 1530 Comprehensive Income, Section 3855
Financial Instruments – Recognition and Measurement , Section 3861, Financial
Instruments – Disclosure and Presentation, Section 3251 Equity and Section 3865
Hedges. The effect of these changes is described in note 4 to the consolidated
financial statements.
  /s/
KPMG LLP
  Chartered
Accountants, Licensed Public Accountants
 Toronto,
Canada
 October
10, 2008
 F-2
  
 HELIX
      BIOPHARMA CORP.
 Consolidated
      Balance Sheets
 As
      at July 31, 2008 and 2007 (In thousands of Canadian
    dollars)
  2008
                      
                      
                      2007AssetsCurrent
      assets:Cash
      and cash equivalents
                      
                      $
                      19,057
                      
                      
                      $
                      11,379Accounts
      receivable
                      
                      
                      349
                      
                      
                      
                      902Inventory
                      
                      
                      458
                      
                      
                      
                      539Prepaid
      and other expenses
                      
                      
                      446
                      
                      
                      
                      18720,310
                      
                      
                      
                      13,007Investment
      (notes 4 and
      5)
                      
                      
                      95
                      
                      
                      
                      1Capital
      assets (note
      6)
                      
                      
                      1,151
                      
                      
                      
                      1,139Intangible
      assets (note
      7)
                      
                      
                      110
                      
                      
                      
                      126$
                      21,666
                      
                      
                      $
                      14,273Liabilities
      and Shareholders’ EquityCurrent
      liabilities:Accounts
      payable
                      
                      $
                      598
                      
                      
                      $
                      565Accrued
      liabilities
                      
                      
                      546
                      
                      
                      
                      9741,144
                      
                      
                      
                      1,539Shareholders’
      equity (note
      8):
                      
                      
                      20,522
                      
                      
                      
                      12,734Future
      operations (note
      1)Commitments
      and contingencies (note 9)Subsequent
      events (note
      16)$
                      21,666
                      
                      
                      $
                      14,273See
      accompanying notes to consolidated financial statements.
 
 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, 2008, 2007 and 2006 (In thousands of Canadian
dollars, except per share amounts)
  2008
                      
                      
                      2007
                      
                      
                      2006Revenue:Product
      revenue
                      
                      $
                      2,952
                      
                      
                      $
                      2,764
                      
                      
                      $
                      3,012License
      fees and royalties
                      
                      
                      639
                      
                      
                      
                      512
                      
                      
                      
                      773Research
      and development contract
                      
                      
                      -
                      
                      
                      
                      148
                      
                      
                      
                      1803,591
                      
                      
                      
                      3,424
                      
                      
                      
                      3,965Expenses:Cost
      of sales
                      
                      
                      1,239
                      
                      
                      
                      1,139
                      
                      
                      
                      1,341Research
      and development
                      
                      
                      5,064
                      
                      
                      
                      4,116
                      
                      
                      
                      3,368Operating,
      general and administration
                      
                      
                      4,757
                      
                      
                      
                      4,418
                      
                      
                      
                      3,722Amortization
      of intangible assets
                      
                      
                      16
                      
                      
                      
                      159
                      
                      
                      
                      594Amortization
      of capital assets
                      
                      
                      254
                      
                      
                      
                      287
                      
                      
                      
                      315Stock-based
      compensation
                      
                      
                      44
                      
                      
                      
                      47
                      
                      
                      
                      1,710Interest
      income
                      
                      
                      (645
                      )
                      
                      
                      (496
                      )
                      
                      
                      (270
                      )Foreign
      exchange loss (gain)
                      
                      
                      (327
                      )
                      
                      
                      (9
                      )
                      
                      
                      16Impairment
      of intangible assets
                      
                      
                      -
                      
                      
                      
                      1,332
                      
                      
                      
                      -10,402
                      
                      
                      
                      10,993
                      
                      
                      
                      10,796Loss
      before income taxes
                      
                      
                      (6,811
                      )
                      
                      
                      (7,569
                      )
                      
                      
                      (6,831
                      )Income
      taxes (note
      10)
                      
                      
                      153
                      
                      
                      
                      105
                      
                      
                      
                      108Net
      loss for the year
                      
                      
                      (6,964
                      )
                      
                      
                      (7,674
                      )
                      
                      
                      (6,939
                      )Other
      comprehensive loss, net of tax:Decrease
      in fair value of available-for-sale investments (net of tax of
      $nil)
                      
                      
                      (54
                      )
                      
                      
                      –
                      
                      
                      
                      –Total
      comprehensive loss
                      
                      $
                      (7,018
                      )
                      
                      $
                      (7,674
                      )
                      
                      $
                      (6,939
                      )Loss
      per share (note
      11):Basic
                      
                      $
                      (0.16
                      )
                      
                      $
                      (0.22
                      )
                      
                      $
                      (0.22
                      )Diluted
                      
                      
                      (0.16
                      )
                      
                      
                      (0.22
                      )
                      
                      
                      (0.22
                      )Weighted
      average number of common shares used in the calculation of basic and
      diluted loss per share
                      
                      
                      42,469,362
                      
                      
                      
                      35,615,335
                      
                      
                      
                      31,409,495Consolidated
      Statements of DeficitYears
      ended July 31, 2008, 2007 and 2006 (In thousands of Canadian
      dollars)2008
                      
                      
                      2007
                      
                      
                      2006Net
      loss for the year
                      
                      $
                      (6,964
                      )
                      
                      $
                      (7,674
                      )
                      
                      $
                      (6,939
                      )Deficit,
      beginning of year
                      
                      
                      (51,728
                      )
                      
                      
                      (44,054
                      )
                      
                      
                      (37,115
                      )Deficit,
      end of year
                      
                      $
                      (58,692
                      )
                      
                      $
                      (51,728
                      )
                      
                      $
                      (44,054
                      )See
      accompanying notes to consolidated financial statements.
  
 F-4
 
  HELIX
BIOPHARMA CORP.
 Consolidated
Statements of Cash Flows
 Years
ended July 31, 2008, 2007 and 2006 (In thousands of Canadian
dollars)
  2008
                        
                        
                        2007
                        
                        
                        2006Cash
      provided by (used in):Operating
      activities:Loss
      for the year
                        
                        $
                        (6,964
                        )
                        
                        $
                        (7,674
                        )
                        
                        $
                        (6,939
                        )Items
      not involving cash:Amortization
      of capital assets
                        
                        
                        254
                        
                        
                        
                        287
                        
                        
                        
                        315Amortization
      of intangible assets
                        
                        
                        16
                        
                        
                        
                        159
                        
                        
                        
                        594Stock-based
      compensation
                        
                        
                        44
                        
                        
                        
                        47
                        
                        
                        
                        1,710Write-down
      of intangible assets
                        
                        
                        –
                        
                        
                        
                        1,332
                        
                        
                        
                        –Foreign
      exchange loss (gain)
                        
                        
                        (327
                        )
                        
                        
                        (9
                        )
                        
                        
                        16Change
      in non-cash working capital:Accounts
      receivable
                        
                        
                        553
                        
                        
                        
                        (24
                        )
                        
                        
                        (417
                        )Inventory
                        
                        
                        81
                        
                        
                        
                        (121
                        )
                        
                        
                        56Prepaid
      and other expenses
                        
                        
                        (259
                        )
                        
                        
                        (27
                        )
                        
                        
                        123Accounts
      payable and accrued liabilities
                        
                        
                        (395
                        )
                        
                        
                        (49
                        )
                        
                        
                        490Deferred
      revenue
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        (50
                        )(6,997
                        )
                        
                        
                        (6,079
                        )
                        
                        
                        (4,102
                        )Financing
      activities:Proceeds
      from the exercise of options
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        12Proceeds
      from the issue of warrants and common shares, net of issue
      costs
                        
                        
                        14,614
                        
                        
                        
                        6,480
                        
                        
                        
                        8,79614,614
                        
                        
                        
                        6,480
                        
                        
                        
                        8,808Investing
      activities:Redemption
      (purchase) of short-term investments, net
                        
                        
                        –
                        
                        
                        
                        6,640
                        
                        
                        
                        (4,170
                        )Purchase
      of capital assets
                        
                        
                        (266
                        )
                        
                        
                        (63
                        )
                        
                        
                        (258
                        )(266
                        )
                        
                        
                        6,577
                        
                        
                        
                        (4,428
                        )Effect
      of exchange rate changes on cash and cash equivalents
                        
                        
                        327
                        
                        
                        
                        9
                        
                        
                        
                        (16
                        )Increase
      in cash and cash equivalents
                        
                        
                        7,678
                        
                        
                        
                        6,987
                        
                        
                        
                        262Cash
      and cash equivalents, beginning of year
                        
                        
                        11,379
                        
                        
                        
                        4,392
                        
                        
                        
                        4,130Cash
      and cash equivalents, end of year
                        
                        $
                        19,057
                        
                        
                        $
                        11,379
                        
                        
                        $
                        4,392Supplemental
      cash flow information:Interest
      received
                        
                        $
                        652
                        
                        
                        $
                        496
                        
                        
                        $
                        198Interest
      paid
                        
                        
                        1
                        
                        
                        
                        2
                        
                        
                        
                        10Income
      taxes paid
                        
                        
                        4
                        
                        
                        
                        –
                        
                        
                        
                        224See
      accompanying notes to consolidated financial statements.
  
 
 F-5
  
 HELIX
BIOPHARMA CORP.
 Notes
to Consolidated Financial Statements
 Years ended July 31 2008, 2007 and 2006
 (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 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.
  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 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
  Cash and
cash equivalents include unrestricted cash and treasury bills having maturities
not exceeding 90 days from their respective acquisition dates.
  (d)
              Inventory
  Inventory
is valued at the lower of cost, determined on a first-in, first-out basis, and
net realizable value.
  (e)
              Capital
      assets
  Capital
assets are recorded at cost less accumulated
amortization.  Amortization is provided using the following methods
and annual rates:
    F-6
   Asset
                  Basis
                  RateResearch
      equipment
                  Declining
      balance
                  20%
      - 30%Computer
      equipment
                  Declining
      balance
                  20%
      - 30%Furniture
      and fixtures
                  Declining
      balance
                  20%
      - 30%
 
 (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.
  (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:
  Acquired
      technology under development
                  3
      yearsPatents
                  15
      - 20 years
 
 The
amortization method and estimate of the useful life of intangible assets are
reviewed annually.
    F-7
   Acquired
technology under development and 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.  Intangible asset write-downs in fiscal 2008 total $nil
(2007 – $1,332,000; 2006 – $nil).
  (n)
              Recent
      Canadian accounting pronouncements not yet
  adopted
  (i)
              Financial
      Instruments – Disclosure
  CICA
Handbook Section 3862, Financial Instruments – Disclosure, increases the
disclosure currently required that will enable users to evaluate the
significance of financial instruments on an entity’s financial position and
performance, including disclosures about fair value.  In addition,
disclosure is required of qualitative and quantitative information about
exposure to risk arising from financial instruments, including specified minimum
disclosures about liquidity risk and market risk.  The quantitative
disclosures must also include a sensitivity analysis for each type of market
risk to which an entity is exposed, showing how net income and other
comprehensive income would have been affected by reasonably possible changes in
the relevant risk variable.  This standard is effective for interim
and annual financial statements relating to fiscal years beginning on or after
October 1, 2007, specifically August 1, 2008 for the Company.  The
Company has not yet determined the impact of the adoption of this change on the
disclosures in its consolidated financial statements.
  (ii)
              Financial
      Instruments – Presentation
  CICA
Handbook Section 3863, Financial Instruments – Presentation, replaces the
existing requirements on presentation of financial instruments which have been
carried forward unchanged to this section.  This standard is effective
for interim and annual financial statements relating to fiscal years beginning
on or after October 1, 2007, specifically August 1, 2008 for the
Company.  The Company does not expect the adoption of this standard to
have any impact on the consolidated financial statements.
  (iii)
              Capital
      Disclosures
  CICA
Handbook Section 1535, Capital Disclosures, requires disclosure of an entity’s
objectives, policies and processes for managing capital, quantitative data about
what the entity regards as capital and whether the entity has complied with any
capital requirements and, if it has not complied, the consequences of such
non-compliance.  This standard is effective for interim and annual
financial statements relating to fiscal years beginning on or after October 1,
2007, specifically August 1, 2008 for the Company.  The Company has
not yet determined the impact of the adoption of this change on the disclosure
in its consolidated financial statements.
  (iv)
              Inventories
  CICA
Handbook Section 3031, Inventories, replaces Section 3030 and establishes new
standards for the measurement and disclosure of inventories.  This
standard is effective for interim and annual financial statements relating to
fiscal years beginning on or after January 1, 2008, specifically August 1, 2008
for the Company.  The Company does not expect the adoption of these
changes to have an impact on its consolidated financial statements.
    F-8
   (v)
              General
      Standards on Financial Statement
Presentation
  CICA
Handbook Section 1400, General Standards on Financial Statement Presentation,
has been amended to include requirements to assess and disclose an entity’s
ability to continue as a going concern.  This standard is effective
for interim and annual financial statements relating to fiscal years beginning
on or after January 1, 2008, specifically August 1, 2008 for the
Company.  The Company does not expect the adoption of these changes to
have an impact on its consolidated financial statements.
  (vi)
              International
      Financial Reporting Standards
  The CICA
plans to converge Canadian GAAP with International Financial Reporting Standards
(“IFRS”) over a transition period expected to end in 2011.  The impact
of the transition to IFRS on the Company’s consolidated financial statements is
not yet determinable.
  4.
              Change
      in accounting policies
  Effective
August 1, 2007, the Company adopted the new accounting standards that were
issued by The Canadian Institute of Chartered Accountants (CICA): Handbook
Section 1530 “Comprehensive Income”, Handbook Section 3251 “Equity”, Handbook
Section 3855 “Financial Instruments – Recognition and Measurement”, Handbook
Section 3861 “Financial Instruments – Disclosure and Presentation” and Handbook
Section 3865, “Hedges”. The Company adopted these standards retroactively
without restatement of prior periods.
  (a)
              Comprehensive
      Income
  Section
1530 introduces comprehensive income, which consists of net income and other
comprehensive income (‘OCI”). 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. The Company
has included in its consolidated financial statements a consolidated statement
of operations and comprehensive loss for the fiscal year ended July 31,
2008.  The cumulative changes in OCI are included in accumulated other
comprehensive income (AOCI), which is presented as a new category of
shareholders’ equity in Note 8.
  (b)
              Equity
  Section
3251 establishes standards for the presentation of equity and changes in equity
during the reporting period and requires the Company to present separately
equity components and changes in equity arising from i) net earnings, ii) other
comprehensive income, iii) other changes in retained earnings; iv) changes in
contributed surplus; v) changes in share capital, and vi) changes in
reserves.  Consolidated statements of changes in shareholders’ equity
are included in the consolidated financial statements for the
period.
  (c)
              Financial
      Instruments – Recognition and
Measurement
  Section
3855 establishes standards for recognizing and measuring financial assets,
financial liabilities and non-financial derivatives. It requires that financial
assets and financial liabilities, including derivatives, be recognized on the
consolidated balance sheet when the Company becomes a party to the contractual
provisions of the financial instrument or non-financial derivative contract.
Under this standard, all financial instruments are required to be measured at
fair value on initial recognition except for certain related party transactions.
Measurement in subsequent periods depends on whether the financial instrument
has been classified as held-for-trading, available-for-sale, held-to-maturity,
loans and receivables, or other financial liabilities. Transaction costs are
expensed as incurred for financial instruments classified or designated as
held-for-trading. For other financial instruments, transaction costs are
capitalized on initial recognition. Financial assets and financial liabilities
held-for-trading are measured at fair value with changes in those fair values
recognized in other income. Financial assets held-to-maturity, loans and
receivables, and other financial liabilities are measured at amortized cost
using the effective interest method of amortization. Available-for-sale
financial assets are measured at fair value with unrealized gains and losses,
including changes in foreign exchange rates, being recognized in
OCI.
  Derivative
instruments are recorded on the consolidated balance sheet at fair value,
including those derivatives that are embedded in financial or non-financial
contracts that are not closely related to the host contracts. Changes in the
fair values of derivative instruments are recognized in net income with the
exception of derivatives designated in effective cash flow hedges or hedges of
foreign currency exposure of a net investment in a self-sustaining foreign
operation. Section 3855 also provides an entity the option to designate a
financial instrument as held-for-trading (the fair value option) on its initial
recognition or upon adoption of the standard, even if the financial instrument,
other than loans and receivables, was not acquired or incurred principally for
the purpose of selling or repurchasing it in the near term. An instrument that
is classified as held-for-trading by way of this fair value option must have
reliable fair values.
  (d)
              Financial
      Instruments – Disclosure and
Presentation
  Section
3861replaces
Section 3860, of the same title and establishes standards for presentation of
financial instruments and non-financial derivatives, and identifies the
information that should be disclosed about them.
   F-9
   (e)
              Hedges
  Section
3865 specifies the criteria that must be satisfied in order for hedge accounting
to be applied and the accounting for each of the permitted hedging strategies:
fair value hedges, cash flow hedges and hedges of foreign currency exposures of
net investments in self-sustaining foreign operations. Hedge accounting is
discontinued prospectively when the derivative no longer qualifies as an
effective hedge, or the derivative is terminated or sold, or upon the sale or
early termination of the hedged item. In a fair value hedging relationship, the
carrying value of the hedged item is adjusted for unrealized gains or losses
attributable to the hedged risk and recognized in net earnings. Changes in the
fair value of the hedged item, to the extent that the hedging relationship is
effective, are offset by changes in the fair value of the hedging derivative,
which is also recorded in net earnings. When hedge accounting is discontinued,
the carrying value of the hedged item is no longer adjusted and the cumulative
fair value adjustments to the carrying value of the hedged item are amortized to
net earnings over the remaining term of the original hedging relationship. In a
cash flow hedging relationship, the effective portion of the change in the fair
value of the hedging derivative is recognized in OCI while the ineffective
portion is recognized in net earnings. When hedge accounting is discontinued,
the amounts previously recognized in AOCI are reclassified to net earnings
during the periods when the variability in the cash flows of the hedged item
affects net earnings. Gains and losses on derivatives are reclassified
immediately to net earnings when the hedged item is sold or early terminated. In
hedging a foreign currency exposure of a net investment in a self-sustaining
foreign operation, the effective portion of foreign exchange gains and losses on
the hedging instruments is recognized in OCI and the ineffective portion is
recognized in net earnings. The amounts previously recognized in AOCI are
recognized in net earnings when there is a reduction in the hedged net
investment as a result of a dilution or sale of the net investment; or reduction
in equity of the foreign operation as a result of dividend distributions. The
Company did not have hedges at July 31, 2007 or in the year ended July 31,
2008.
  (f)
              Impact
      of Adoption of Handbook Sections 1530, 3251, 3855,
  3865
  (i)
              Upon
      adoption of these new standards, the Company designated its cash as
      held-for-trading, which is measured at fair value. The Company’s cash
      equivalents consist of interest bearing deposits that were designated as
      held-to-maturity, and continue to be valued at amortized cost subsequent
      to August 1, 2007.  Accounts receivable are classified as loans
      and receivables, which are measured at amortized cost.  Accounts
      payable and accrued liabilities are classified as other financial
      liabilities, which are measured at amortized
  cost.
  (ii)
              The
      investment in shares of Orchid Cellmark Inc. (“Orchid”) was categorized as
      available-for-sale and recorded at fair value, with the resulting fair
      value transitional adjustment of $148,000 recorded in AOCI, net of tax of
      $nil at August 1, 2007.  Previously, the investment was recorded
      at cost.
  (iii)
              All
      derivative instruments, including embedded derivatives, are recorded in
      the statement of operations at fair value unless exempted from derivative
      treatment as a normal purchase and sale.  All changes in their
      fair value are recorded in net earnings unless cash flow hedge accounting
      is used, in which case changes in fair value are recorded in
      OCI.  The Company has elected to apply this accounting treatment
      for all embedded derivatives in host contracts entered into on or after
      August 1, 2003.  The Company did not have any material embedded
      derivatives in its host contracts the impact of which was
      material.
  5.
              Investment
  The
investment in shares of Orchid is categorized as
available-for-sale.  At July 31, 2008, the Company owns 29,678 common
shares in Orchid (2007 – 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$3.19 per share at July 31, 2008
(2007 – US$5.00 per share).
  6.
              Capital
      assets
 
 2008
                    
                    
                    
                    
                    
                    
                    
                    
                    2007Cost
                    
                    
                    Accumulated
                      amortization
                    
                    
                    Net
      book
                      value
                    
                    
                    Cost
                    
                    
                    Accumulated
                      amortization
                    
                    
                    Net
      book
                      valueResearch
      equipment
                    
                    $
                    2,798
                    
                    
                    $
                    1,914
                    
                    
                    $
                    884
                    
                    
                    $
                    2,635
                    
                    
                    $
                    1,729
                    
                    
                    $
                    906Computer
      equipment
                    
                    
                    721
                    
                    
                    
                    504
                    
                    
                    
                    217
                    
                    
                    
                    628
                    
                    
                    
                    445
                    
                    
                    
                    183Furniture
      and fixtures
                    
                    
                    144
                    
                    
                    
                    94
                    
                    
                    
                    50
                    
                    
                    
                    134
                    
                    
                    
                    84
                    
                    
                    
                    50$
                    3,663
                    
                    
                    $
                    2,512
                    
                    
                    $
                    1,151
                    
                    
                    $
                    3,397
                    
                    
                    $
                    2,258
                    
                    
                    $
                    1,139
     F-10
 
 7.
              Intangible
      assets
 
 2008
                    
                    
                    
                    
                    
                    
                    
                    
                    2007Cost
                    
                    
                    Accumulated
                      amortization
                    
                    
                    Net
      book
                      value
                    
                    
                    Cost
                    
                    
                    Accumulated
                      amortization
                    
                    
                    Net
      book
                      valueAcquired
      technology
                      under
      development
                    
                    $
                    3,141
                    
                    
                    $
                    3,141
                    
                    
                    $
                    -
                    
                    
                    $
                    3,141
                    
                    
                    $
                    3,141
                    
                    
                    $
                    -Patents
                    
                    
                    911
                    
                    
                    
                    801
                    
                    
                    
                    110
                    
                    
                    
                    911
                    
                    
                    
                    785
                    
                    
                    
                    126$
                    4,052
                    
                    
                    $
                    3,942
                    
                    
                    $
                    110
                    
                    
                    $
                    4,052
                    
                    
                    $
                    3,926
                    
                    
                    $
                    126
 
 8.
              Shareholders’
      equity:
  Share
      purchase
                
                
                
                
                
                
                
                
                AccumulatedCommon
      shares
                
                
                warrants
                
                
                
                
                
                
                
                
                othercomprehensive
                
                
                TotalContributed
                
                
                income
                
                
                shareholdersAmount
                
                
                Number
                
                
                Amount
                
                
                Number
                
                
                Options
                
                
                surplus
                
                
                Deficit
                
                
                (loss)
                
                
                equityBalances,
      July 31, 2005
                
                $
                43,570
                
                
                
                27,183,726
                
                
                $
                193
                
                
                
                2,415,000
                
                
                $
                3,100
                
                
                $
                554
                
                
                $
                (37,115
                )
                
                $
                –
                
                
                $
                10,302Net
      loss for the year
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                (6,939
                )
                
                
                –
                
                
                
                (6,939
                )Other
      comprehensive income (loss)
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –Common
      stock, issued
                
                
                8,353
                
                
                
                5,495,609
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                8,353Warrants,
      issued
                
                
                –
                
                
                
                –
                
                
                
                443
                
                
                
                5,495,609
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                443Warrants
      expired, unexercised
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –Stock-based
      compensation
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                1,710
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                1,710Stock
      options, exercised
                
                
                21
                
                
                
                6,000
                
                
                
                –
                
                
                
                –
                
                
                
                (9
                )
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                12Stock
      options expired, unexercised
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                (1,199
                )
                
                
                1,199
                
                
                
                –
                
                
                
                –
                
                
                
                –Balances,
      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
      expired, unexercised
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                –
                
                
                
                (448
                )
                
                
                448
                
                
                
                –
                
                
                
                –
                
                
                
                –Balances,
      July 31, 2008
                
                $
                71,964
                
                
                
                46,375,335
                
                
                $
                –
                
                
                
                –
                
                
                $
                3,231
                
                
                $
                3,925
                
                
                $
                (58,692
                )
                
                $
                94
                
                
                $
                20,522
    F-11
 
 (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 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.  The total number of share purchase warrants available for
exercise as at July 31, 2007 totalled 9,145,609, with exercise prices ranging
from $2.39 to $2.70 per share purchase warrant.
  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.
  Share
purchase warrants totalling 9,145,609 expired unexercised on March 31, 2008
leaving no share purchase warrants available for exercise as at July 31,
2008.
  (c)
              Stock
      options
  (i)
              The
      Company maintains a stock option plan reserving up to 3,500,000 common
      shares for granting to directors, officers and employees of the Company or
      any person or company engaged to provide ongoing management or consulting
      services.  Options are granted at the fair market value of the
      Company’s stock at the grant date, vesting at the discretion of the Board,
      and may have terms of up to 10
years.
  (ii)
              Issued
      and outstanding
  Number
                          
                          
                          
                          Weighted average
      exercise price per
      share
                          
                          
                          
                          Number
                          
                          
                          
                          Weighted average exercise price per shareOutstanding,
      beginning of year
                          
                          
                          3,272,500
                          
                          
                          $
                          3.41
                          
                          
                          
                          3,282,500
                          
                          
                          $
                          3.40Granted
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –Exercised
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –
                          
                          
                          
                          –Forfeited/expired
                          
                          
                          (1,242,000
                          )
                          
                          
                          5.01
                          
                          
                          
                          (10,000
                          )
                          
                          
                          2.00Outstanding,
      end of year
                          
                          
                          2,030,500
                          
                          
                          $
                          2.45
                          
                          
                          
                          3,272,500
                          
                          
                          $
                          3.41Exercisable,
      end of year
                          
                          
                          2,030,500
                          
                          
                          $
                          2.45
                          
                          
                          
                          3,241,945
                          
                          
                          $
                          3.42
 
 Exercise
      Price$
                              2.00
                              
                              
                              $
                              3.00Weighted
      average remaining contractual life (years)
                              
                              
                              1.9
                              
                              
                              
                              3.0Number
      of options:-
      outstanding
                              
                              
                              1,122,000
                              
                              
                              
                              908,500-
      exercisable
                              
                              
                              1,122,000
                              
                              
                              
                              908,500
 
 (iii)
              Stock-based
      compensation
  For the
year ended July 31, 2008, the Company granted nil stock options (2007 – nil;
2006 – 931,500), with a fair value of $nil (2007 – $nil; 2006 – $1,658,000) and
30,556 (2007 – 33,333; 2006 – 36,111) stock options vested with a fair value of
$44,000 (2007 – $47,000; $2006 – $52,000).  The result is a net
stock-based compensation expense of $44,000 (2007 – $47,000; 2006 –
$1,710,000).  Stock options totalling 1,242,000 expired unexercised in
fiscal 2008 leaving 2,030,500 stock options issued and outstanding at July 31,
2008.
   F-12
   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
      Yield2008
                            
                            
                            –%
                            
                            
                            
                            –%
                            
                            –
      years
                            
                            
                            –%2007
                            
                            
                            –%
                            
                            
                            
                            –%
                            
                            –
      years
                            
                            
                            –%2006
                            
                            
                            92.0%
                            
                            
                            
                            4.16%
                            
                            5
      years
                            
                            
                            –%
 
 9.
              Commitments
      and contingencies
  (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.
  (iii)
              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.
  (iv)
              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 plans to review the status of this
      agreement.
  (v)
              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,
      subsequent to year-end, the sub-licensee gave notice of termination of the
      sub-license.  Due to the Company’s current focus on its L-DOS47
      and Topical Interferon Alpha-2b programs, the Company has determined not
      to further develop the Molecular Sensing Technology at this time and plans
      to review the status of this
agreement.
  (vi)
              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.  Subsequent to the year-end, the Company has requested that
      this agreement be terminated.
  (vii)
              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.
  As at
July 31, 2008, the Company has $36,000 (2007 – $nil) in financial obligations
outstanding related to royalty and in-licensing commitments.  To date,
the Company has paid $141,000 under these agreements.
  (b)
              Research
      commitments
  (i)
              The
      Company has two agreements with two Contract Research Organizations
      (“CRO”),  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.
   F-13
   (ii)
              The
      Company has a research agreement with another research organization to
      develop a process for preparing L-DOS47 in a lyophilized vial
      format.
  As at
July 31, 2008, the Company accrued $22,000 (2007 – $256,000) for research
services it had received and is committed to pay $1.275,000 for additional
research services to be received.
  (c)
              Manufacturing
      commitments
  The
Company currently has two agreements with two separate Contract Manufacturing
Organizations (“CMO”), whereby the CMO’s will provide scale-up manufacturing
related to the Company’s L-DOS47 and Topical Interferon Alpha-2b
program.
  As at
July 31, 2008, the Company accrued $79,000 (2007 – $60,000) for Contract
Manufacturing services it had received and is committed to pay $1,648,000 for
additional research services to be received.
  (d)
              Purchase
      commitments
  The
Company has purchase commitments of $556,000 with one supplier through to April
2009.
  (e)
              Operating
      lease commitments
  The
Company owes $213,000 under various operating lease agreements with remaining
terms of up to February 2010 for office and warehouse and research
premises.
  (f)
              Consulting
      services commitments
  The
Company has entered into a consulting services arrangement for both research and
development consulting services of $74,000 through fiscal 2009.
  The
Company’s commitments are summarized as follows:
  2009
                        
                        
                        
                        2010
                        
                        
                        
                        2011
                        
                        
                        
                        2012
                        
                        
                        
                        2013
                        
                        
                        
                        2014
      and beyond
                        
                        
                        
                        TotalPurchases
                        
                        $
                        556
                        
                        
                        $
                        –
                        
                        
                        $
                        –
                        
                        
                        $
                        –
                        
                        
                        $
                        –
                        
                        
                        $
                        –
                        
                        
                        $
                        556Operating
      leases
                        
                        
                        177
                        
                        
                        
                        36
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        213Consulting
      services
                        
                        
                        74
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        74Research
      and manufacturing services
                        
                        
                        2,503
                        
                        
                        
                        10
                        
                        
                        
                        10
                        
                        
                        
                        10
                        
                        
                        
                        10
                        
                        
                        
                        110
                        
                        
                        
                        2,653$
                        3,310
                        
                        
                        $
                        46
                        
                        
                        $
                        10
                        
                        
                        $
                        10
                        
                        
                        $
                        10
                        
                        
                        $
                        110
                        
                        
                        $
                        3,496
 
 (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.
              Income
      taxes
  Current
income tax expense of $153,000 (2007 – $105,000; 2006 – $108,000) 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, 2008 is approximately $22,619,000 (2007 –
$17,666,000; 2006 – $10,790,000).
  The
Company has also earned investment tax credits on SR & ED expenditures at
July 31, 2008 of approximately $4,358,000 (2007 – $3,854,000; 2006 –
$2,609,000), which can offset Canadian income taxes otherwise payable in future
years up to 2028.
   F-14
   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:
  2008
                    
                    
                    2007Future
      tax assets:Non-capital
      losses carried forward
                    
                    $
                    3,872
                    
                    
                    $
                    5,826Capital
      losses carried forward
                    
                    
                    21
                    
                    
                    
                    24Scientific
      Research & Experimental Development expenditure pool
                    
                    
                    6,188
                    
                    
                    
                    5,316Excess
      of tax basis over book basis of Orchid investment
                    
                    
                    147
                    
                    
                    
                    181Excess
      of tax basis over book basis of capital assets
                    
                    
                    664
                    
                    
                    
                    551Deductible
      share issue costs
                    
                    
                    708
                    
                    
                    
                    295Other
                    
                    
                    5
                    
                    
                    
                    211,605
                    
                    
                    
                    12,195Valuation
      allowance
                    
                    
                    (11,573
                    )
                    
                    
                    (12,154
                    )Total
      future tax assets
                    
                    
                    32
                    
                    
                    
                    41Future
      tax liabilities:Excess
      of book basis over tax basis of intangible assets
                    
                    
                    (32
                    )
                    
                    
                    (41
                    )Total
      future tax liabilities
                    
                    
                    (32
                    )
                    
                    
                    (41
                    )Net
      future tax liabilities
                    
                    $
                    –
                    
                    
                    $
                    –
 
 As at
July 31, 2008, the Company has Canadian tax losses carried forward which
approximate $13,584,000 (2007 - $18,489,000; 2006 - $20,241,000) and are
available until 2028 as follows:
  2009
                                    
                                    $
                                    1,9852013
                                    
                                    
                                    3,2722014
                                    
                                    
                                    2,4402025
                                    
                                    
                                    3542026
                                    
                                    
                                    2,5212027
                                    
                                    
                                    2,4652028
                                    
                                    
                                    547$
                                    13,584
 
 11.
              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.
    F-15
  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, 2008, 2007 and 2006:
  2008
                        
                        
                        
                        2007
                        
                        
                        
                        2006Topical
      Interferon Alpha-2b
                        
                        $
                        2,188
                        
                        
                        $
                        1,814
                        
                        
                        $
                        1,881DOS47
                        
                        
                        2,876
                        
                        
                        
                        2,302
                        
                        
                        
                        1,328Other
                        
                        
                        –
                        
                        
                        
                        –
                        
                        
                        
                        159$
                        5,064
                        
                        
                        $
                        4,116
                        
                        
                        $
                        3,368
 
 12.
              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.
  13.
              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, 2008, the Company paid $267,000 (2007 – $255,000;
2006 – $193,000) 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, 2008, the Company received $nil (2007 – $148,000;
2006 – $180,000) for contracted research and development services provided to
Apotex Inc.  Apotex Inc. is considered a related party, as a director
of the Company is also the President and Chief Operating Officer of Apotex
Inc.
  The
Company had the following related party transactions for the fiscal years ended
July31:
  2008
                      
                      
                      
                      2007
                      
                      
                      
                      2006Research
      and development expense paid to a director of a subsidiary
                      
                      $
                      –
                      
                      
                      $
                      3
                      
                      
                      $
                      30Professional,
      legal and consulting fees to directors, partnerships
                        and/or
      companies in which directors have a substantial interest
                      
                      
                      267
                      
                      
                      
                      255
                      
                      
                      
                      193Contracted
      research and development revenue with Apotex Inc.
                      
                      
                      –
                      
                      
                      
                      148
                      
                      
                      
                      180
 
 These
transactions are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
  14.
              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 and investments are invested in certain 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 in fiscal 2008 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. 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.
    F-16
   15.
              Segmented
      information
  Management
has determined that the Company has one operating segment, which is
biopharmaceuticals.
  2008
                        
                        
                        
                        2007
                        
                        
                        
                        2006Revenues
      originating outside of Canada
                        
                        $
                        538
                        
                        
                        $
                        512
                        
                        
                        $
                        571Percent
      of total revenue represented by one customer
                        
                        
                        15
                        %
                        
                        
                        15
                        %
                        
                        
                        15
                        %Percent
      of total accounts receivable represented by one customer
                        
                        
                        28
                        %
                        
                        
                        24
                        %
                        
                        
                        23
                        %
 
 Revenue
originating outside of Canada represents royalty revenues earned by the
Company’s Irish subsidiary.  All of the Company’s capital assets are
located in Canada.
  16.
              Subsequent
      events
  On
September 19, 2008, Helix received three months notice from Lumera Corporation
to terminate a sub-license arrangement, effective December 19,
2008.  A termination payment of US$75,000 was received and will be
accounted for in the first quarter of fiscal 2009.
  On
October 2, 2008, the Company announced the completion of 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 common
share purchase warrant.  Each common share purchase warrant entitles
the holder to purchase, subject to adjustment, one common share at a price
of $2.36 until October 1, 2011. 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 2009.
  17.
              Differences
      between generally accepted accounting principles in Canada and the United
      States:
  The
consolidated financial statements as at July 31, 2008 and 2007 and for each of
the years in the three-year period ended July 31, 2008 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:
  2008
                    
                    
                    
                    2007
                    
                    
                    
                    2006Loss
      per Canadian GAAP
                    
                    $
                    (6,964
                    )
                    
                    $
                    (7,674
                    )
                    
                    $
                    (6,939
                    )Amortization
      of intangible assets (b)(ii)
                    
                    
                    –
                    
                    
                    
                    147
                    
                    
                    
                    582Impairment
      of intangible assets (b)(ii)
                    
                    
                    –
                    
                    
                    
                    1,332
                    
                    
                    
                    –Research
      and development expense (b)(iii)
                    
                    
                    –
                    
                    
                    
                    (244
                    )
                    
                    
                    (198
                    )Income
      tax expense (b)(iii)
                    
                    
                    –
                    
                    
                    
                    244
                    
                    
                    
                    198Loss
      per U.S. GAAP
                    
                    $
                    (6,964
                    )
                    
                    $
                    (6,195
                    )
                    
                    $
                    (6,357
                    )Other
      comprehensive income (loss):Fair
      value adjustment of available-for-sale investments (b)(i)
                    
                    
                    (54
                    )
                    
                    
                    87
                    
                    
                    
                    (192
                    )Total
      comprehensive loss per U.S. GAAP
                    
                    $
                    (7,018
                    )
                    
                    $
                    (6,108
                    )
                    
                    $
                    (6,549
                    )Basic
      and diluted loss per common share under U.S. GAAP
                    
                    $
                    (0.16
                    )
                    
                    $
                    (0.17
                    )
                    
                    $
                    (0.20
                    )Weighted
      average number of common shares under U.S. GAAP
                    
                    
                    42,469,362
                    
                    
                    
                    35,615,335
                    
                    
                    
                    31,409,495
 
 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.
    F-17
   (b)
              Consolidated
      balance sheets:
  2008
                        
                        
                        
                        2007Canada
                        
                        
                        United
      States
                        
                        
                        Canada
                        
                        
                        United
      StatesAssets:Investment
      (i)
                        
                        
                        95
                        
                        
                        
                        95
                        
                        
                        
                        1
                        
                        
                        
                        149Intangible
      assets (ii)
                        
                        
                        110
                        
                        
                        
                        110
                        
                        
                        
                        126
                        
                        
                        
                        126Shareholders’
      equity:Stock
      options (iv), (v)
                        
                        
                        3,231
                        
                        
                        
                        1,761
                        
                        
                        
                        3,635
                        
                        
                        
                        2,165Deficit,
      end of period (i), (ii), (iii), (iv), (v)
                        
                        
                        58,692
                        
                        
                        
                        57,222
                        
                        
                        
                        51,728
                        
                        
                        
                        50,258Accumulated
      other comprehensive income (i)
                        
                        
                        94
                        
                        
                        
                        94
                        
                        
                        
                        –
                        
                        
                        
                        148
 
 (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 and subsequent impairments
recorded under Canadian GAAP would be reversed.
  (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, 2008 (2007 - $244,000; 2006 - $198,000) 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
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.
  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.
    F-18
   The
compensation cost for each award is recognized on a straight-line basis over the
service period of the entire award.  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.
  2008
                      
                      
                      
                      2007
                      
                      
                      
                      2006Research
      and Development
                      
                      $
                      –
                      
                      
                      $
                      –
                      
                      
                      $
                      626Operating,
      general and administration
                      
                      
                      44
                      
                      
                      
                      47
                      
                      
                      
                      1,084$
                      44
                      
                      
                      $
                      47
                      
                      
                      $
                      1,710
 
 (c)
              Consolidated
      statements of cash flows:
  Cash from
operations under United States GAAP includes the adjustments to loss for the
year outlined in note 17(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 2008, 2007 and 2006 are the same for United States GAAP to that
reported under Canadian GAAP.
  (d)
              Changes
      in accounting policy:
  In May
2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections
(“SFAS No. 154”), which replaces Accounting Principles Board Opinion No. 20,
Accounting Changes, and SFAS No. 3, Reporting Accounting Changes in Interim
Financial Statements. SFAS No. 154 provides guidance on the accounting for, and
reporting of, changes in accounting principles and error corrections. SFAS No.
154 requires retrospective application to prior period’s financial statements of
voluntary changes in accounting principles and changes required by new
accounting standards when the standard does not include specific transition
provisions, unless it is impracticable to do so. Certain disclosures are also
required for restatements due to correction of an error.  SFAS No. 154
is effective for accounting changes and corrections of errors made in fiscal
years beginning after December 15, 2005.
  (e)
              Accounting
      for uncertainty in 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 is effective
for the first interim or annual reporting period beginning after December 15,
2006, specifically August 1, 2007 for the Company. The implementation of FIN 48
had no impact on the Company’s opening deficit.
  The
Company has approximately $200,000 of total gross unrecognized benefits as of
the adoption of FIN 48 on August 1, 2007 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, 2008 as
the tax benefit relates entirely to refundable tax credits. The Company does not
expect that any of the unrecognized tax benefit will decrease in the next twelve
months. 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.
  (f)
              Recent
      accounting pronouncements issued and not yet
  adopted:
  (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 Company is currently evaluating the
potential impact, if any, of the adoption of SFAS 157 on the consolidated
financial position, results of operations and cash flows.
  (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.  Early adoption is permitted subject to certain
conditions; however
an early adopter must also adopt SFAS 157 at the same time.  The
Company does not expect the adoption of SFAS 159 to have an impact on its
consolidated financial position, results of operations or cash
flows.
   F-19
    (iii)
              Accounting
      for advanced payments and development
  activities:
  In June
2007, the 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 will be effective for fiscal
years beginning after December 15, 2007, specifically August 1, 2008 for the
Company.  The Company is currently assessing the impact of EITF 07-3
on its results of operations and financial condition.
  (iv)
              Collaborative
      arrangements:
  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
assessing the impact of EITF 07-1 on its results of operations and financial
condition.
  (g)
              Consolidated
      statement of shareholders’ equity in accordance with U.S.
      GAAP:
  Share
      purchase
                    
                    
                    
                    
                    
                    
                    
                    
                    AccumulatedCommon
      shares
                    
                    
                    warrants
                    
                    
                    
                    
                    
                    
                    
                    
                    othercomprehensive
                    
                    
                    TotalContributed
                    
                    
                    income
                    
                    
                    shareholdersAmount
                    
                    
                    Number
                    
                    
                    Amount
                    
                    
                    Number
                    
                    
                    Options
                    
                    
                    surplus
                    
                    
                    Deficit
                    
                    
                    (loss)
                    
                    
                    equityBalances,
      July 31, 2005
                    
                    $
                    43,570
                    
                    
                    
                    27,183,726
                    
                    
                    $
                    193
                    
                    
                    
                    2,415,000
                    
                    
                    $
                    1,630
                    
                    
                    $
                    554
                    
                    
                    $
                    (37,706
                    )
                    
                    $
                    253
                    
                    
                    $
                    8,494Net
      loss for the year
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (6,357
                    )
                    
                    
                    –
                    
                    
                    
                    (6,357
                    )Other
      comprehensive income (loss)
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (192
                    )
                    
                    
                    (192
                    )Common
      stock, issued
                    
                    
                    8,353
                    
                    
                    
                    5,495,609
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    8,353Warrants,
      issued
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    443
                    
                    
                    
                    5,495,609
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    443Warrants
      expired, unexercised
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Stock-based
      compensation
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    1,710
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    1,710Stock
      options, exercised
                    
                    
                    21
                    
                    
                    
                    6,000
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (9
                    )
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    12Stock
      options expired, unexercised
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (1,199
                    )
                    
                    
                    1,199
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Balances,
      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:
                    
                    $
                    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
      expired, unexercised
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    (448
                    )
                    
                    
                    448
                    
                    
                    
                    –
                    
                    
                    
                    –
                    
                    
                    
                    –Balances,
      July 31, 2008
                    
                    $
                    71,964
                    
                    
                    
                    46,375,335
                    
                    
                    $
                    –
                    
                    
                    
                    –
                    
                    
                    $
                    1,761
                    
                    
                    $
                    3,925
                    
                    
                    $
                    (57,222
                    )
                    
                    $
                    94
                    
                    
                    $
                    20,522
 
     F-20
  Helix
      BioPharma Corp.
                                                                                    Interim
      Consolidated Balance Sheets
                                                                                    (In
      thousands of Canadian dollars)October
      31, 2008
                                                                                  
                                                                                  
                                                                                  July
      31, 2008(unaudited)AssetsCurrent
      assetsCash
      and cash equivalents
                                                                                  
                                                                                  $
                                                                                  26,911
                                                                                  
                                                                                  
                                                                                  $
                                                                                  19,057Accounts
      receivable
                                                                                  
                                                                                  
                                                                                  500
                                                                                  
                                                                                  
                                                                                  
                                                                                  349Inventory
                                                                                  
                                                                                  
                                                                                  521
                                                                                  
                                                                                  
                                                                                  
                                                                                  458Prepaid
      and other expenses
                                                                                  
                                                                                  
                                                                                  222
                                                                                  
                                                                                  
                                                                                  
                                                                                  44628,154
                                                                                  
                                                                                  
                                                                                  
                                                                                  20,310Investments
                                                                                  
                                                                                  
                                                                                  35
                                                                                  
                                                                                  
                                                                                  
                                                                                  95Capital
      assets
                                                                                  
                                                                                  
                                                                                  1,124
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,151Intangible
      assets
                                                                                  
                                                                                  
                                                                                  107
                                                                                  
                                                                                  
                                                                                  
                                                                                  110$
                                                                                  29,420
                                                                                  
                                                                                  
                                                                                  $
                                                                                  21,666Liabilities
      and Shareholders’ EquityCurrent
      liabilitiesAccounts
      payable
                                                                                  
                                                                                  $
                                                                                  972
                                                                                  
                                                                                  
                                                                                  $
                                                                                  598Accrued
      liabilities
                                                                                  
                                                                                  
                                                                                  648
                                                                                  
                                                                                  
                                                                                  
                                                                                  5461,620
                                                                                  
                                                                                  
                                                                                  
                                                                                  1,144Shareholders’
      equity (note 4)
                                                                                  
                                                                                  
                                                                                  27,800
                                                                                  
                                                                                  
                                                                                  
                                                                                  20,522Contingent
      liability (note 8)$
                                                                                  29,420
                                                                                  
                                                                                  
                                                                                  $
                                                                                  21,666See
      accompanying notes to unaudited interim consolidated financial
      statements.
    F-21
   
  
 Helix
      BioPharma Corp.
                          Unaudited
      Interim Consolidated Statements of Operations
                          (In
      thousands of Canadian dollars, except per share
amounts)For
      the three months ended
                          October
      312008
                        
                        
                        2007RevenueProduct
      revenue
                        
                        $
                        921
                        
                        
                        $
                        754License
      fees and royalties
                        
                        
                        198
                        
                        
                        
                        131Research
      and development contracts
                        
                        
                        –
                        
                        
                        
                        –1,119
                        
                        
                        
                        885ExpensesCost
      of sales
                        
                        
                        447
                        
                        
                        
                        313Research
      and development
                        
                        
                        1,641
                        
                        
                        
                        782Operating,
      general and administration
                        
                        
                        1,310
                        
                        
                        
                        1,313Amortization
      of capital assets
                        
                        
                        64
                        
                        
                        
                        66Amortization
      of intangible assets
                        
                        
                        3
                        
                        
                        
                        7Stock-based
      compensation
                        
                        
                        –
                        
                        
                        
                        12Interest
      income, net
                        
                        
                        (205
                        )
                        
                        
                        (104
                        )Foreign
      exchange (gain) / loss
                        
                        
                        150
                        
                        
                        
                        1083,410
                        
                        
                        
                        2,497Loss
      before income taxes
                        
                        
                        (2,291
                        )
                        
                        
                        (1,612
                        )Income
      taxes
                        
                        
                        30
                        
                        
                        
                        32Net
      loss for the period
                        
                        $
                        (2,321
                        )
                        
                        $
                        (1,644
                        )Loss
      per shareBasic
      and diluted
                        
                        $
                        (0.05
                        )
                        
                        $
                        (0.05
                        )Weighted
      average number of
                          common
      shares used in the calculation
                          of
      basic and diluted loss per share
                        
                        
                        48,518,813
                        
                        
                        
                        36,335,335See
      accompanying notes to unaudited interim consolidated financial
      statements.
    F-22
 
 
  
 Helix
      BioPharma Corp.
                                              Unaudited
      Interim Consolidated Statement of Comprehensive Income /
      (Loss)
                                              (In
      thousands of Canadian dollars)For
      the three months ended
                                              October
      312008
                                            
                                            
                                            2007Comprehensive
      income / (loss):Net
      loss for the period
                                            
                                            $
                                            (2,321
                                            )
                                            
                                            $
                                            (1,644
                                            )Other
      comprehensive income / (loss), net of income taxes:Increase
      / (decrease) in fair value of
                                              available-for-sale
      investments
                                            
                                            
                                            (60
                                            )
                                            
                                            
                                            16Total
      comprehensive income / (loss)
                                            
                                            $
                                            (2,381
                                            )
                                            
                                            $
                                            (1,628
                                            )See
      accompanying notes to an audited interim consolidated financial
      statements.
 
    F-23
   
 
 
 Helix
      BioPharma Corp.
                            Unaudited
      Interim Consolidated Statements of Deficit
                            (In
      thousands of Canadian dollars)For
      the three months ended
                            October
      312008
                          
                          
                          2007Deficit,
      beginning of period
                          
                          $
                          (58,692
                          )
                          
                          $
                          (51,728
                          )Net
      loss for the period
                          
                          
                          (2,321
                          )
                          
                          
                          (1,644
                          )Deficit,
      end of period
                          
                          $
                          (61,013
                          )
                          
                          $
                          (53,372
                          )See
      accompanying notes to an audited interim consolidated financial
      statements.
     F-24
   
 
 Helix
      BioPharma Corp.
                                    Unaudited
      Interim Consolidated Statements of Cash Flows
                                    (In
      thousands of Canadian dollars)For
      the three months ended
                                    October
      312008
                                  
                                  
                                  2007Cash
      provided by (used in)Operating
      activitiesNet
      loss for the period
                                  
                                  $
                                  (2,321
                                  )
                                  
                                  $
                                  (1,644
                                  )Items
      not involving cashAmortization
      of capital assets
                                  
                                  
                                  64
                                  
                                  
                                  
                                  66Amortization
      of intangible assets
                                  
                                  
                                  3
                                  
                                  
                                  
                                  7Stock-based
      compensation
                                  
                                  
                                  –
                                  
                                  
                                  
                                  12Foreign
      exchange loss / (gain)
                                  
                                  
                                  150
                                  
                                  
                                  
                                  108Change
      in non-cash working capitalAccounts
      receivable
                                  
                                  
                                  (151
                                  )
                                  
                                  
                                  123Inventory
                                  
                                  
                                  (63
                                  )
                                  
                                  
                                  (53
                                  )Prepaid
      and other expenses
                                  
                                  
                                  224
                                  
                                  
                                  
                                  57Accounts
      payable
                                  
                                  
                                  374
                                  
                                  
                                  
                                  170Accrued
      liabilities
                                  
                                  
                                  102
                                  
                                  
                                  
                                  (489
                                  )(1,618
                                  )
                                  
                                  
                                  (1,643
                                  )Financing
      activitiesProceeds
      from issue of common sharesand
      warrants, net of issue costs (note 5(b))
                                  
                                  
                                  9,659
                                  
                                  
                                  
                                  –Investing
      activities
                                  
                                  
                                  9,659
                                  
                                  
                                  
                                  –Purchase
      of capital assets
                                  
                                  
                                  (37
                                  )
                                  
                                  
                                  (50
                                  )(37
                                  )
                                  
                                  
                                  (50
                                  )Effect
      of exchange rate changes on cash and cash equivalents
                                  
                                  
                                  (150
                                  )
                                  
                                  
                                  (108
                                  )Increase
      (decrease) in cash and cash equivalents
                                  
                                  
                                  7,854
                                  
                                  
                                  
                                  (1,801
                                  )Cash
      and cash equivalents, beginning of period
                                  
                                  
                                  19,057
                                  
                                  
                                  
                                  11,379Cash
      and cash equivalents, end of period
                                  
                                  $
                                  26,911
                                  
                                  
                                  $
                                  9,578Supplemental
      cash flow informationInterest
      received
                                  
                                  $
                                  207
                                  
                                  
                                  $
                                  105Interest
      paid
                                  
                                  
                                  –
                                  
                                  
                                  
                                  –Income
      taxes paid
                                  
                                  
                                  14
                                  
                                  
                                  
                                  2Financing
      costs not paid in cash
                                  
                                  
                                  –
                                  
                                  
                                  
                                  124See
      accompanying notes to unaudited interim consolidated financial
      statements.
 
    F-25
   
   Helix
BioPharma Corp.
 Notes to
Unaudited Interim Consolidated Financial Statements
 For the
three month periods ended October 31, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
  
  1.         Operations
  Helix
BioPharma Corp.’s (the Company”) 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
  These
unaudited interim consolidated financial statements of the Company have been
prepared by management in accordance with Canadian generally accepted accounting
principles (“Canadian GAAP”) for interim financial statements with a
reconciliation to accounting principles generally accepted in the United States
disclosed in note 17 to the annual audited consolidated financial statements for
the year ended July 31, 2008, and do not include all the information required
for complete financial statements.  They are consistent with the
accounting policies outlined inthe Company’s audited
consolidated financial statements for the year ended July 31, 2008, with the
exception of the changes outlined in note 3.  These unaudited interim
consolidated financial statements and related notes should be read in
conjunction with the Company’s audited consolidated financial statements for the
year ended July 31, 2008.  When necessary, these unaudited interim
consolidated financial statements include amounts based on informed estimates
and the best judgements of management.  The results of operations for
the interim periods reported are not necessarily indicative of results to be
expected for the year.
  These
unaudited interim consolidated financial statements include the assets,
liabilities and operating results of the Company and its wholly-owned
subsidiaries and all inter-company transactions are eliminated upon
consolidation.
  These
unaudited interim consolidated financial statements 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 assets and
discharge its liabilities in the normal course of operations.  Taking
into consideration the cash and cash equivalents balance as at October 31, 2008
of these unaudited interim consolidated financial statements, management
believes that the Company has sufficient cash resources to fund its future
operations beyond the next 12 months.
  3.
                  Changes
      in accounting policies
  These
interim consolidated financial statements have been prepared using the same
accounting policies and methods as were used for the audited annual consolidated
financial statements for the year ended July31, 2008, except for the following
new accounting pronouncements, which have been adopted effective August 1,
2008.
    F-26
   
 Helix
BioPharma Corp.
 Notes to
Unaudited Interim Consolidated Financial Statements
 For the
three month periods ended October 31, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
  General
standards on financial statement presentation:
  On August
1, 2008, the Company adopted the amendments of the Canadian Institute of
Chartered Accountant’s Handbook Section 1400, which includes requirements to
assess and disclose an entity’s ability to continue as going
concern.  The adoption of this change did not have an impact on the
Company’s interim consolidated financial statements.
  Capital
Disclosure:
  On August
1, 2008, the Company adopted the new recommendations of the Canadian Institute
of Chartered Accountant’s Handbook Section 1535, 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; complied with any capital
requirements; and if it has not complied, the consequences of such
non-compliance.  This section did not have a material effect on the
Company’s unaudited interim consolidated financial statements.  The
Company has included disclosures recommended by Section 1535 in note 9 of these
unaudited consolidated financial statements.
  Inventories:
  On August
1, 2008, the Company adopted the Canadian Institute of Chartered Accountant’s
Handbook Section 3031, Inventories.  This standard 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 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.  This section did not have
a material impact on the Company’s unaudited interim consolidated financial
statements.
  Financial
Instruments:
  On August
1, 2008, the Company adopted two new Canadian Institute of Chartered
Accountant’s Handbook standards; Section 3863 on Financial Instruments –
Disclosures; and Section 3863, Financial Instruments –
Presentation.  Section 3863 replaces Section 3861, Financial
Instruments – Disclosure and Presentation.  The new Disclosure
standards increase the emphasis on risk associated with both recognized and
unrecognized financial instruments and how these risks are
managed.  The adoption of these Sections did not have a material
effect on the Company’s unaudited interim consolidated financial
statements.  The new disclosure requirements pertaining to these
Sections are contained in note 10 of these unaudited consolidated financial
statements.
    F-27
   
  Helix
BioPharma Corp.
 Notes to
Unaudited Interim Consolidated Financial Statements
 For the
three month periods ended October 31, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
  4.
                  Shareholders'
      equity
  Common
      shares
                  Share
      purchase warrants
                  
                  
                  
                  Accumulated
                    other
                    comprehensive
                    income
                  Total
                    shareholders’
                    equityAmount
                  Number
                    of
      shares
                  Amount
                  Number
      of warrants
                  Stock
                    options
                  Contributed
                    surplus
                  DeficitBalances,
      July 31, 2008
                  $  71,964
                  46,375,335
                  $        –
                  –
                  $  3,231
                  $    3,925
                  $  (58,692)
                  $        94
                  $  20,522Net
      loss for the period
                  –
                  –
                  –
                  –
                  –
                  –
                  (2,321)
                  –
                  (2,321)Other
      comprehensive income (loss)
                  –
                  –
                  –
                  –
                  –
                  –
                  –
                  (60)
                  (60)Common
      Stock, issued
                  9,612
                  6,800,000
                  –
                  –
                  –
                  –
                  –
                  –
                  9,612Warrants,
      issued
                  –
                  –
                  47
                  3,400,000
                  –
                  –
                  –
                  –
                  47Stock
      options expired, unexercised
                  –
                  –
                  –
                  –
                  (537)
                  537
                  –
                  –
                  –Balances,
      October 31, 2008
                  $  81,576
                  53,175,335
                  $       47
                  3,400,000
                  $  2,694
                  $    4,462
                  $  (61,013)
                  $        34
                  27,800Balances,
      July 31, 2007:As
      previously reported
                  $  57,350
                  36,335,335
                  $  1,517
                  9,145,609
                  $  3,635
                  $    1,960
                  $  (51,728)
                  $          –
                  $  12,734Change
      in accounting policy related
                    to
      financial instruments
                  –
                  –
                  –
                  –
                  –
                  –
                  –
                  148
                  148As
      revised
                  57,350
                  36,335,335
                  1,517
                  9,145,609
                  3,635
                  1,960
                  (51,728)
                  148
                  12,882Net
      loss for the period
                  –
                  –
                  –
                  –
                  –
                  –
                  (1,644)
                  –
                  (1,644)Other
      comprehensive income (loss)
                  –
                  –
                  –
                  –
                  –
                  –
                  –
                  16
                  16Common
      Stock, issued
                  –
                  –
                  –
                  –
                  –
                  –
                  –
                  –
                  –Warrants,
      issued
                  –
                  –
                  –
                  –
                  –
                  –
                  –
                  –
                  –Stock-based
      compensation
                  –
                  –
                  –
                  –
                  12
                  –
                  –
                  –
                  12Stock
      options
                    expired,
      unexpired
                  –
                  –
                  –
                  –
                  –
                  –
                  –
                  –
                  –Balances,
      October 31, 2007
                  $  57,350
                  36,335,335
                  $  1,517
                  9,145,609
                  $  3,647
                  $    1,960
                  $  (53,372)
                  $     164
                  $  11,266
    F-28
   
  Helix
BioPharma Corp.
 Notes to
Unaudited Interim Consolidated Financial Statements
 For the
three month periods ended October 31, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
  5.         Share
capital
 (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 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.
  (c)
                  Stock
      options:
  (i)
                  The
      Company maintains a stock option plan reserving up to 3,500,000 common
      shares for granting to directors, officers and employees of the Company or
      any person or company engaged to provide ongoing management or consulting
      services.  Options are granted at the fair market value of the
      Company’s stock at the grant date, vesting at the discretion of the Board,
      and may have terms of up to 10
years.
  (ii)
                  Issued
      and outstanding:
  For
      the three months ended October 31, 2008
                    For
      the fiscal year ended July 31, 2008Number
                    Weighted
      average
                      exercise
      price
                      per
      share
                    Number
                    Weighted
      average exercise price
                      per
      shareOutstanding,
      beginning of period
                    2,030,500
                    $           2.45
                    3,272,500
                    $           3.41Outstanding,
      end of period
                    1,705,500
                    2.42
                    2,030,500
                    2.45Exercisable,
      end of period
                    1,705,500
                    $           2.42
                    2,030,500
                    $           2.45
 
 (iii)
                  Stock-based
      compensation:
 No
options were issued during the three month periods ended October 31, 2008 and
2007.  Stock based compensation expense for the three month periods
ended October 31, 2008 and 2007 totalled $nil and $12,000, respectively. The
stock based compensation expense for the three month period ended October 31,
2007 relates to stock options granted on June 30, 2005 which were being expensed
over their vesting period.
    F-29
  
  Helix
BioPharma Corp.
 Notes to
Unaudited Interim Consolidated Financial Statements
 For the
three month periods ended October 31, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 6.         Related
party transactions
 Related
party transactions are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
  For the
three month periods ended October 31, 2008 and 2007, the Company paid $100,000
and $61,000, respectively, to Cawkell Brodie Glaister LLP, legal counsel to the
Company.  A director of the Company is a partner of Cawkell Brodie
Glaister LLP.
  On
October 8, 2008, the Company signed a manufacturing service agreement, to fill
finish L-DOS47, with Chesapeake Biological Laboratories Inc.
(“CBL”).  CBL is a wholly owned subsidiary of Cangene
Corporation.  Cangene Corporate 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 COO of Apotex
Inc.
  The
Company had the following related party transactions:
 For
      the three months ended October 312008
                  2007Professional,
      legal and consulting fees to directors, partnerships and/or companies in
      which directors have a substantial interest
                  $       100
                  $        61Contracted
      fill finish services with Chesapeake Biological Laboratories Inc., a
      wholly owned subsidiary of Cangene Corporation
                  $         36
                  $         –
 
 7.         Segmented
information
 Management
has determined that the Company has one operating segment, which is
biopharmaceuticals.  Revenue originating outside of Canada represents
royalty revenues earned by the Company’s Irish subsidiary.  All of the
Company’s capital assets are located in Canada.
  The table
below summarizes the Company’s segmented information:
 For the three months ended
      October 312008
                          2007Revenues
      originating outside of Canada
                          $       109
                          $        131Percentage
      of total revenue represented by one customer
                          10%
                          15%Percentage
      of total accounts receivable represented by one customer
                          10%
                          6%
 
 8.         Contingent
liability
 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.
    F-30
   
  Helix
BioPharma Corp.
 Notes to
Unaudited Interim Consolidated Financial Statements
 For the
three month periods ended October 31, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 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 financial statements relating to this indemnification.
  9.         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 it
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,
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.
  Based on
the Company’s currently planned expenditures and assuming no unanticipated
expenses, cash reserves and expected cash from operations will be sufficient to
meet anticipated cash needs for working capital and capital expenditures for the
next twelve months.
  10.         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.
    F-31
  
  Helix
BioPharma Corp.
 Notes to
Unaudited Interim Consolidated Financial Statements
 For the
three month periods ended October 31, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 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 revenues 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 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.  The Company is currently assessing its objectives, as it
relates to U.S. denominated foreign exchange transactions, in light of the
recent and rapid appreciation of the U.S. dollar against the Canadian dollar and
other world currencies.
  Balances
in foreign currencies at October 31, 2008 are as follows:
  Euro
                        Dollars
                      U.S.
                        Dollars
                      Pound
                        Sterling
                      Swedish
                        KronerCash
      and cash equivalents
                      2,066
                      88
                      –
                      –Accounts
      receivable
                      103
                      –
                      –
                      –Accounts
      payable and accrued liabilities
                      192
                      301
                      18
                      14
 
 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 it’s 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.
    F-32
  
  Helix
BioPharma Corp.
 Notes to
Unaudited Interim Consolidated Financial Statements
 For the
three month periods ended October 31, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 (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 unaudited interim 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 $20,000 at October 31, 2008 (July 31, 2008 – $18,000).
  (c)
                  Liquidity
      risk:
 Liquidity
risk is the 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 operation 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 October 31, 2008:Carrying
                        Amount
                      Less
      than
                        one
      year
                      Greater
      than
                        one
      yearAccounts
      payable and accrued liabilities
                      $  1,620
                      $  1,596
                      $  24
 
 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 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.
  11.         Differences
between generally accepted accounting principles in Canada and the
USA:
  The
unaudited interim consolidated financial statements as at and the three months
ended October 31, 2008 and 2007 are prepared in accordance with Canadian GAAP
for interim financial reporting, 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 deficit and consolidated balance
sheets.
  (a)
                  Consolidated
      statements of operations, deficit and comprehensive income
      (loss):
  For
      the three months ended October 312008
                        2007Loss
      per Canadian GAAP
                        $           (2,321)
                        $           (1,644)Loss
      per United States GAAP
                        $           (2,321)
                        $           (1,644)Comprehensive
      income (loss) in accordance with US GAAP
                        $           (2,381)
                        $           (1,628)Basic
      and diluted loss per common share under United States GAAP
                        (0.05)
                        (0.05)Weighted
      average number of common shares under United States GAAP
                        48,518,813
                        36,335,335
   F-33
  
  Helix
BioPharma Corp.
 Notes to
Unaudited Interim Consolidated Financial Statements
 For the
three month periods ended October 31, 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.  There
were no reconciling differences between Canadian GAAP and U.S. GAAP for the
three month periods ended October 31, 2008 and 2007.
  (b)
                  Consolidated
      balance sheets:
  As
      at October 31, 2008
                  As
      at July 31, 2008Canada
                  United
      States
                  Canada
                  United
      StatesShareholders’
      equity:
                    Stock
      options (ii), (iii)
                  2,954
                  1,484
                  3,231
                  1,761Deficit,
      end of period (i), (ii), (iii)
                  61,013
                  59,543
                  58,692
                  57,222
 
 (i)
                  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, 2008 the acquired technology was
fully written down and therefore no differences exist between in Canadian and
U.S. GAAP for the three month period ended October 31, 2008.
  (ii)
                  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
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.
   F-34
    
  Helix
BioPharma Corp.
 Notes to
Unaudited Interim Consolidated Financial Statements
 For the
three month periods ended October 31, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
  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.
  (iii)
                  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.
  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:
  For the three months ended
      October 312008
                            2007Research
      and Development
                            $            –
                            $            –Operating,
      general and administration
                            –
                            12$            –
                            $          12
  (c)
                  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.  There were no differences between
Canadian and U.S. GAAP, related to investment tax credits and other research and
development credits, for the three month periods ended October 31, 2008 and 2007
and no investment tax credits were recorded.
   F-35
  
  Helix
BioPharma Corp.
 Notes to
Unaudited Interim Consolidated Financial Statements
 For the
three month periods ended October 31, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
  (d)
                      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 interim 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 interim consolidated financial statements.
  (iii)
                  Accounting
      for advanced payments and development
  activities:
 In June
2007, the 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 will be 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 interim consolidated financial statements.
  (e)
                  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)  FASB
statement No. 141, Business Combinations (revised 2007) (“SFAS 141”), requires
the use of fair value accounting for business combinations.  Equity
securities issued as consideration in a business combination will re recorded at
fair value as of the acquisition date as opposed to the date when the terms of
the business combination has been agrees to an announces.  In
addition, transaction costs must be expensed under the new
standard.  The new statement is effective of financial statements
issued for fiscal years beginning on or after December 15, 2008, and for interim
periods within those fiscal years.  Specifically August 1, 2009 for
the Company.  The Company is currently evaluating the potential
impact, if any, of the adoption of SFAS 141, on the Company’s consolidated
financial position, results of operations and cash flows.
 (iii)  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, and for interim periods within those fiscal years. Specifically August 1,
2009 for the Company.  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.
    F-36
   
  Helix
BioPharma Corp.
 Notes to
Unaudited Interim Consolidated Financial Statements
 For the
three month periods ended October 31, 2008 and 2007
 (Tabular
dollar amounts in thousands of Canadian dollars, except per share
amounts)
 (iv)  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, 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.
      F-37
  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 registration statementon its
behalf.
  HELIX BIOPHARMA
CORP.
  /s/ Donald H.
Segal
 Donald H.
Segal
 Chairman and Chief
Executive Officer
  Date:
February 2, 2009