CarePayment 10Q 2008 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934 for the quarterly period ended June 30, 2008

OR

o	TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
	ACT OF 1934 for the Transition Period from to

Commission file number: 001-16781

MICROHELIX, INC.

(Exact Name of Registrant as Specified in its Charter)

Oregon		91-1758621
(State or Other Jurisdiction of		(I.R.S. Employer Identification No.)
Incorporation or Organization)

5300 Meadows Rd, Suite 400, Lake Oswego, Oregon		97035
(Address of Principal Executive		(Zip Code)
Offices)

(Issuer's Telephone Number, Including Area Code): 503-419-3564

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports and (2) has been subject to such filing requirements for the past 90 days.

Yes o No x

Indicate by a check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a non-accelerated filer, or a smaller reporting company.

Large accelerated filer o Accelerated filer o

Non-accelerated filer o Smaller reporting company x

Indicate by a check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes x No o

As of March 16, 2009, there were 1,972,568 shares of the issuer's common stock outstanding.

Transitional Small Business Disclosure Format (Check One): Yes o No x

microHelix, Inc.

Quarterly Report on Form 10-Q

Quarter Ended June 30, 2008

TABLE OF CONTENTS

	Page

PART I — FINANCIAL INFORMATION	3

ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED	3
Consolidated balance sheets as of June 30, 2008 and December 31, 2007	3
Consolidated statements of operations for the three and six months ended June 30, 2008 and 2007	4
Consolidated statements of cash flows for the three and six months ended June 30, 2008 and 2007	5
Notes to consolidated financial statements	6

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION	10

ITEM 3. MANAGEMENT'S DISCUSSION CONCERNING MARKET RISK	15

ITEM 4. CONTROLS AND PROCEDURES	17

PART II — OTHER INFORMATION	17

ITEM 1. LEGAL PROCEEDINGS	17

ITEM 6. EXHIBITS	17

SIGNATURE

CERTIFICATION

EXHIBIT 31

EXHIBIT 32

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS — UNAUDITED

MICROHELIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

June 30, 2008 and December 31, 2007

	2008			2007
Assets
Current Assets:
Cash	$	70		$	5,797
Prepaid expenses and other current assets		48,798			22,917
Total assets	$	48,868		$	28,714

Liabilities and Shareholders' Deficit
Current Liabilities:
Accounts payable	$	745,688		$	1,068,933
Accrued liabilities		18,274			250,886
Current maturities of notes payable, net of discount at June 30, 2008		28,294			198,739
Common stock warrant liability		—			62,822
Total liabilities		792,256			1,581,380

Shareholders' Deficit:
Preferred stock, convertible, no par value, 10,000,000 shares authorized,
279,070 Series C Preferred Stock issued and outstanding, liquidation preference $600,000		533,000			533,000
Common stock, no par value 75,000,000 shares authorized, 1,972,568 and 966,339 issued and outstanding at June 30, 2008 and December 31, 2007, respectively		17,477,917			17,462,823
Additional paid-in capital		10,248,407			5,989,455
Accumulated deficit		(29,002,712	)		(25,537,944	)
Total shareholders' deficit		(743,388	)		(1,552,666	)
Total liabilities and shareholders' deficit	$	48,868		$	28,714

The accompanying notes are an integral part of these condensed consolidated financial statements.

MICROHELIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30						Six Months Ended June 30
	2008			2007			2008			2007

Sales	$	—		$	2,501,021		$	—		$	5,306,164
Cost of sales		—			2,819,625			—			5,632,557
Gross profit/(loss)		—			(318,604	)		—			(326,393	)


Operating Expenses:
Sales and marketing		—			82,016			—			209,976
General and administrative		3,720,312			421,916			3,822,806			885,639
Total operating expenses		3,720,312			503,932			3,822,806			1,095,615
Loss from operations		(3,720,312	)		(822,536	)		(3,822,806	)		(1,422,008	)

Other income (expense):
Interest and other income		—			—			3,414			—
Impairment expense-intangible assets		—			(242,658	)		—			(242,658	)
Impairment expense-goodwill		—			(732,365	)		—			(732,365	)
Loan restructuring expense		—			3,191			—			(989,079	)
Warrant valuation gain		—			2,174,383			62,822			1,478,580
Debt forgiveness		132,157			—			335,881			—
Interest expense		(23,604	)		(255,905	)		(44,079	)		(507,330	)
Other income (expense) – net		108,553			946,646			358,038			(992,852	)

Net income (loss) before benefit from income taxes		(3,611,759	)		124,110			(3,464,768	)		(2,414,860	)

Benefit from income taxes		—			(45,868	)		—			(91,737	)
Net income (loss)	$	(3,611,759	)	$	169,978		$	(3,464,768	)	$	(2,323,123	)

Net income (loss) per share Basic	$	(1.83	)	$	.18		$	(2.07	)	$	(2.40	)
Diluted	$	(1.83	)	$	.08		$	(2.07	)		(2.40	)

Weighted average number of shares outstanding – Basic		1,972,568			966,339			1,676,506			966,309
Diluted		1,972,568			2,171,948			1,676,506			966,309

The accompanying notes are an integral part of these condensed consolidated financial statements.

MICROHELIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30
	2008			2007
Cash Flows Provided By (Used In) Operating Activities:
Net loss	$	(3,464,768	)	$	(2,323,123	)
Adjustments to reconcile net loss to cash provided by
(used in) operating activities:
Depreciation –capital assets		—			189,359
Goodwill impairment		—			732,365
Amortization – intangible assets		—			107,454
Intangible assets impairment		—			242,658
Provision for doubtful accounts		—			80,881
Provision for inventory reserves		—			338,424

Common stock issued for services		—			2,500
Loan restructuring costs		—			992,270
Warrants issued for advisory services		3,598,971			—
Warrant valuation gain		(62,822	)		(1,478,580	)
Interest expense-amortization		—			176,124
Debt forgiveness		(335,881	)		—
Benefit for deferred income taxes		—			(91,737	)
Change in assets and liabilities:
(Increase) Decrease in assets:
Accounts receivable		—			1,149,236
Inventories		—			817,833
Prepaid expenses and other current assets		(25,881	)		22,591
Increase (Decrease) in liabilities:
Accounts payable		(50,501	)		292,307
Accrued liabilities		50,612			(292,906	)
Net cash provided by (used in) operating activities		(290,270	)		957,656

Cash Flows Provided By (Used In) Financing Activities:

Payments on line of credit		—			(9,277,197	)
Proceeds from line of credit		—			7,759,042
Payments on notes payable		—			(57,004	)
Proceeds from exercise of warrants		15,094			—
Payments on notes payable to shareholders		—			(150,000	)
Proceeds from issue of notes payable to shareholders		269,449			750,000
Net cash provided by (used in) financing activities		284,543			(975,159	)

Change in cash		(5,727	)		(17,503	)
Cash, beginning of period		5,797			40,680
Cash, end of period	$	70		$	23,177

Supplemental Disclosure of Non-cash Financing Activities:
Warrants issued to lenders-recorded as debt discount	$	659,981		$	551,970
Common stock warrant liability	$	—		$	1,818,200
Refinance of accrued interest to note payable	$	283,224		$	—
Reclassification of note payable to accounts payable	$	63,137		$	—

The accompanying notes are an integral part of these condensed consolidated financial statements.

MICROHELIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three and Six Months Ended June 30, 2008 and 2007

1. Summary of Significant Accounting Policies and Basis of Presentation

Nature of Operations— Until September 28, 2007, when microHelix, Inc. (“we,” “us,” “ the Company,” or “microHelix”) suspended manufacturing operations and concluded the disposition of its assets to its secured creditors, the Company was a manufacturer of custom cable assemblies and mechanical assemblies for the medical and commercial original equipment manufacturer (OEM) markets. On May 31, 2007, the Company surrendered substantially all its assets to its secured creditors and concluded the disposition of all the Company's assets September 28, 2007, after which microHelix became a shell company (see "Going Concern") that will seek out suitable business combinations.

Basis of Presentation— The unaudited consolidated financial statements have been prepared by the Company, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments), which are, in the opinion of management, necessary to fairly represent the operating results for the respective periods.

Use of Estimates — The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America 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 consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Principles of Consolidation — These consolidated financial statements include the accounts of the Company and its wholly owned subsidiary, Moore Electronics, Inc. ("Moore). All material inter-company accounts have been eliminated in consolidation.

Going Concern— Despite the Company's efforts to restructure its debts, continuing deterioration of the Company's financial condition during April and May 2007 caused the Board of Directors to conclude that the Company's creditors and shareholders would be best served by allowing the secured creditors to foreclose on the Company's assets. The Company agreed to voluntarily surrender its assets on May 31, 2007 and began winding up its affairs. In connection with the windup, the Company stopped paying its unsecured creditors for goods and services provided prior to May 21, 2007. To ensure an orderly transition, the Company's customers agreed to substantial price increases, provided raw materials and subsidized certain expenses which allowed Moore to fill its backlog, collect its receivables and cure outstanding deficiencies in rent payments and benefits plans. The Company applied the proceeds from filling these orders to the outstanding balances due to its secured creditors.

These consolidated financial statements reflect the shutdown (discontinuance) of the MicroCoax Assembly Solutions division which occurred May 23, 2007. The division's assets were sold to an unrelated third party for $17,000 during July 2007. The Company's Moore subsidiary continued to operate for the benefit of the secured creditors through September 28, 2007 after which its assets were sold to an unrelated third party for $75,000. These sales resulted in a $545,721 loss on disposal of equipment.

These consolidated financial statements have been prepared on a going concern basis which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred recurring losses from operations, had an accumulated deficit of $25,537,944 at December 31, 2007, and has no current business operations. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that may be necessary should the Company be unable to continue as a going concern.

Net Income/(Loss) per Share — The Company uses SFAS No. 128, "Earnings per Share" for calculating the basic and diluted income/(loss) per share. Basic income/(loss) per share is computed by dividing net income/(loss) attributable to common stockholders by the weighted average number of common shares outstanding. Since there was a loss for the three and six months ended June 30, 2008 and the six months ended June 30, 2007, the issuance of shares from the conversion of preferred stock or warrants would be anti-dilutive. The Company computes dilutive shares using the treasury method.

For the three months ended June 30, 2008, the following reconciles the denominator of the basic and diluted earnings per share computation:

Weighted average basic shares outstanding			966,339
Warrants			1,019,562
Convertible preferred stock			186,047
Weighted average diluted shares outstanding			2,171,948

For the three months ended June 30, 2008, warrants to purchase 45,376 shares of Common Stock were not included in the dilutive earnings per share computation as the effects would have been anti-dilutive. For the three and six months ended June 30, 2008, the outstanding number of potentially dilutive common shares totaled 758,767 shares of common stock, consisting of Series C Preferred Stock convertible to 186,047 shares of Common Stock and warrants to purchase 572,720 shares of Common Stock. For the six months ended June 30, 2007, the outstanding number of potentially dilutive common shares totaled 1,250,985 shares of Common Stock, consisting of Series C Preferred Stock convertible into 186,047 shares of Common Stock and warrants to purchase 1,064,938 shares of Common Stock.

On January 2, 2008 MH Financial exercised warrants to purchase 133,333 shares of Common Stock for $2,000.

On February 17, 2008 a related party to MH Financial exercised warrants to purchase 73,915 shares of Common Stock for $1,109.

On March 3, 2008 MH Financial exercised warrants to purchase 798,981 shares of Common Stock for $11,985.

On March 19, 2008 at a special meeting of the shareholders the Company’s Articles of Incorporation were amended to effect a 15-for-1 reverse split of the Company’s Common Stock. The accompanying condensed consolidated financial statements, notes, and other references to share and per share data have been retroactively restated to reflect the reverse stock split for all periods presented.

2. Terms of Troubled Debt Modification

At December 31, 2006, the Company had outstanding a promissory note payable to MH Financial Associates, LLC, an Oregon limited liability company ("MH Financial"), with an outstanding principal balance of $1,006,086 (the "Original Note"). The Original Note was due in July 2007. Effective March 12, 2007 the Company and MH Financial modified the terms of the Original Note as follows:

(a)

MH Financial loaned the Company an additional $750,000;

(b)

The due date of the Original Note was extended to June 30, 2008;

(c)

MH Financial's right to convert the Original Note into shares of Company Common Stock was deleted;

(d)

The Company issued MH Financial and a related party a warrant to purchase 666,667 shares of the Common Stock with an exercise price of $0.015 per share;

(e)

The exercise price on warrants to purchase 153,102 shares of Common Stock previously issued to MH Financial was reduced from $4.50 to $0.015 per share; and

(f)

The Company issued MH Financial a warrant to purchase 193,333 shares of the Company’s Common Stock with an exercise price of $0.015 per share, as consideration for MH Financial's forbearance of certain defaults under the Original Note.

The foregoing modifications to the Original Note resulted in an effective interest rate of 54.7% to be applied prospectively to the carrying amount of the debt. Interest expense through the revised maturity date of June 30, 2008 will be increased accordingly. For accounting and financial reporting purposes, this modification is characterized as troubled debt restructuring. Accordingly, the costs associated with this modification have been expensed in the period of the restructuring. There was no gain implicit in this restructuring because total principal and interest payments under the modified debt terms exceed the net carrying value of the original debt.

As additional consideration to, and as a requirement of, MH Financial extending additional credit to microHelix and modifying the Original Note, our Board of Directors approved the sale (the "Sale") to MH Financial or its assigns of all of microHelix's MicroCoax Assembly Solutions division's assets, which comprised substantially all of the Company's operating assets, and all issued and outstanding shares of Moore. The closing date for the sale was to be not later than September 30, 2007, and would be subject to certain terms and conditions, including approval by microHelix's shareholders. Shareholder approval for the Sale was not requested and the Sale did not occur.

James M. Williams, Chairman of the Board and a director of microHelix during the period covered by this report, is an investor in MH Financial. MH Financial is an affiliate of Aequitas Capital Management, Inc., which served as microHelix's exclusive financial advisor during the period covered by this Report.

3. Summary of Recent Accounting Pronouncements

In December 2007, the FASB issued SFAS no. 141(R), “Business Combinations” (“SFAS 141(R)”), which replaces SFAS No. 141. SFAS No. 141(R) establishes principles and requirements for how an acquirer recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, any non-controlling interest in the acquiree and the goodwill acquired. The Statement also establishes disclosure requirements which will enable users to evaluate the nature and financial effects of the business combination. SFAS 141 (R) is effective for fiscal years beginning after December 15, 2008. The adoption of SFAS 141(R) will have an impact on accounting for business combinations once adopted, but the effect is dependent upon the acquisitions at that time.

In December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in Consolidated Financial Statements-an amendment of Accounting Research Bulletin No. 51” (“SFAS 160”), which establishes accounting and reporting standards for ownership interests in subsidiaries held by parties other than the parent, the amount of consolidated net income attributable to the parent and to the non-controlling interest, changes in a parent’s ownership interest and the valuation of retained non-controlling equity investments when a subsidiary is deconsolidated. The Statement also establishes reporting requirements that provide sufficient disclosures that clearly identify and distinguish between the interest of the parent and the interests of the non-controlling owners. SFAS 160 is effective for fiscal years beginning after December 15, 2008. The Company has not determined the effect that the application of SFAS 160 will have on its consolidated financial statements.

4. Customer Concentration

The Company did not have revenues from customers during the three or six months ended June 30, 2008. During the three months ended June 30, 2007 approximately $1,185,827 in sales were made to four customers. For the six months ended June 30, 2007, $2,137,853 of the Company’s sales were made to these same four customers and the accounts receivable balance for these four customers as of June 30, 2007 totaled $353,983.

5. Goodwill and Other Intangible Assets

Goodwill represents the excess of the purchase price over the estimated fair value of the net identified tangible and intangible assets of the acquired business. The Company evaluates the recorded value of Goodwill on at least an annual basis, or more frequently when a significant event occurs or circumstances change.

During April and May 2007, the Company’s financial condition deteriorated significantly from the loss of a major customer (due to regulatory actions taken against that customer), loss of personnel, and continuing operating deficits. On May 31, 2007 the Company surrendered its assets to its creditors and began winding up its affairs. In connection with the windup, the Company determined that its Goodwill was impaired and recorded a charge of $732,365 as of June 30, 2007, writing down the value of its Goodwill to $0.

As a result of the Company's purchase of Moore in April 2005, the Company acquired identifiable defined life intangible assets such as customer contacts and lists and manufacturing process technology. The customer lists and contacts were amortized on a straight-line basis over a 3-year period and the manufacturing process technology was amortized over a 5-year period on a straight-line basis. The Company continued to amortize these identifiable intangible assets over these lives until the quarter ending June 30, 2007 when the Company, for the reasons listed in the previous paragraph, recorded a charge of $242,658 reducing the value of its intangible assets to $0. The impairment was calculated using the discounted cash flows expected to be derived from the remaining use of the assets in 2007.

For the six months ending June 30, 2007, the Company recorded $107,454 as amortization expense.

6. Notes Payable and Warrants

A summary of the Company’s notes payable outstanding as of June 30, 2008 is as follows:

MH Financial Associates, LLC	$	677,743
Other		10,532
Total notes payable	$	688,275
Note Discount-MH Financial		(659,981)
Total notes payable-net of discount	$	28,294

The Company was in default on a promissory note to EPICOR Software Corporation. The remaining balance of $63,137 was settled during the first quarter of 2008 and reclassified to accounts payable. EPICOR forgave a portion of the promissory note. The Company in is default under the terms of its settlement with EPICOR Software Corporation.

On March 12, 2007 the Company modified the Original Note owed to MH Financial by executing the Amended Note. See Note 2 - Terms of Troubled Debt Modification.

On June 27, 2008 the Company obtained a loan from MH Financial in the amount of $977,743. The loan amount includes $477,743 that was owed to MH Financial as of June 27, 2008 and an additional loan of up to $500,000. The Company was advanced $200,000 on June 27, 2008, $100,000 on December 31, 2008 and has received no additional advances against the $500,000 loan amount. Effective as of the date of this loan, interest will accrue on the outstanding principal balance of the loan at a rate of 20% per annum on the outstanding principal balance. The original due date of the loan was December 27, 2008 and, as a condition of the December 31, 2008 advance, the due date was extended to December 27, 2009. As a condition of the initial disbursement on June 27, 2008, the Company also issued warrants to purchase 7,466,666 shares of Common Stock at $0.001 per share. The warrants expire June 27, 2013. The warrants have a fair value relative to the fair value of the associated debt of $659,981 calculated using the Black-Scholes option pricing model with the following assumptions:

Expected life (in years)	1
Expected volatility	202.46	%
Risk-free interest rate	1.15	%
Expected dividend	—

The Company also issued warrants on June 27, 2008 that grant MH Financial the right to purchase 1,066,667 shares of Common Stock with an exercise price of $0.001 per share as consideration for financial advisory services. The warrants expire on June 27, 2013. The warrants have a fair value of $3,598,971 (recorded as general and administrative expense) calculated using the Black-Scholes option pricing model with the following assumptions:

Expected life (in years)	1
Expected volatility	202.46	%
Risk-free interest rate	1.15	%
Expected dividend	—

7. Liability for Potentially Dilutive Securities in Excess of Authorized Number of Common Shares

In accordance with EITF 00-19, the Company accounts for potential shares that can be converted to Common Stock that are in excess of authorized shares, as a liability that is recorded at fair value. Total potential outstanding Common Stock exceeded the Company’s authorized shares on March 12, 2007 when the Company restructured its debt with MH Financial. At that time outstanding warrants allowed the holders the right to purchase approximately 579,867 shares over the current authorized amount. The fair value of the warrants in excess of the authorized shares at March 12, 2007 was $1,818,200 and was recognized as a liability on March 12, 2007. This liability was required to be evaluated at each reporting date with any change in value included in other income/ (expense) until such time as enough shares were authorized to cover all potentially convertible instruments. For the three and six months ended June 30, 2008 and June 30, 2007 the Company recorded $2,174,383 and $1,478,580, respectively, in gain related to the change in fair value of its potential liability. During the first quarter of 2008 the remaining fair value of $62,822 was reported as a gain since the Company increased its authorized shares (see below).

In January 2008 the Company’s shareholders voted to amend the Company’s Amended and Restated Articles of Incorporation, as amended, to increase the number of authorized shares of Preferred Stock to 10 million and Common Stock to 75 million.

8. Subsequent Events

On December 31, 2008 the Company received a $100,000 advance against the loan the Company obtained from MH Financial on June 27, 2008. As a condition of this $100,000 disbursement, the Company also issued warrants to purchase 1,066,667 shares of Common Stock at $0.001 per share.

On February 25, 2009 the Company received a $100,000 advance against the loan the Company obtained from MH Financial on June 27, 2008. As a condition of this $100,000 disbursement, the Company also issued warrants to purchase 1,066,667 shares of Common Stock at $0.001 per share.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion provides information that management believes is relevant to an assessment and understanding of the Company's operations and financial condition. This discussion should be read in conjunction with the unaudited consolidated financial statements and accompanying notes.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements reflect management's current view and estimates of future economic and market circumstances, industry conditions, company performance and financial results. Words such as "expects," "anticipates," "intends," "plans," "believes," "seeks," "estimates" and variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are subject to risks and uncertainties that could cause our future results to differ materially from the results discussed herein. Factors that might cause such a difference include, but are not limited to, those discussed elsewhere in this Quarterly Report on Form 10-Q. We do not intend, and undertake no obligation, to update any such forward-looking statements to reflect events or circumstances that occur after the date of this filing.

Critical Accounting Policies and Estimates

The discussion and analysis of the Company’s financial condition and results of operations is based upon the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Because the Moore Electronics subsidiary continue to operate during the windup period; management continued to evaluate its estimates for the Moore Electronics subsidiary on a going concern basis that assumed continued operations, including those related to product returns, bad debts, inventories, prepaid expenses, intangible assets, income taxes, warranty obligations, and other contingencies. The Company based the estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which formed the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimated. The Company believes the following critical accounting policies and related judgments and estimates affect the preparation of our consolidated financial statements.

Revenue Recognition — the Company recognized revenues from commercial sales of cable assemblies and related supplies when title passed (which was upon shipment); persuasive evidence of an agreement existed, the price was fixed or determinable, and collectability was probable. Commercial sales were made F.O.B. point of shipment. Returns were limited to nonconforming products. The Company expensed shipping and handling costs as incurred, which were included in operating expense. Shipping costs recovered from customers, if any, were included in net sales.

Goodwill and Intangible Assets—the Company follows the provisions of Statement of Financial Accounting Standards ("SFAS") No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires an annual impairment test for goodwill and intangible assets with indefinite lives, unless circumstances indicate a need for more frequent review. Under the provisions of SFAS No. 142, the first step of the impairment test requires that we determine the fair value of each reporting unit, and compare the fair value to the reporting unit's carry amount. To the extent a reporting unit's carrying amount exceeds its fair value, an indication exists that the reporting unit's goodwill may be impaired and the Company must perform a second more detailed impairment assessment. The second impairment assessment involves allocating the reporting unit's fair value to all of its recognized and unrecognized assets and liabilities in order to determine the implied fair value of the reporting unit's goodwill as of the assessment date. The implied fair value of the reporting unit's goodwill is then compared to the carrying amount of goodwill to quantify an impairment charge as of the assessment date.

RESULTS OF OPERATIONS

Overview

Until September 2007, microHelix manufactured custom cable assemblies for the medical and commercial Original Equipment Manufacturer ("OEM") markets. Typical cable assemblies included cable, connectors, contacts, flex reliefs and housings; sub-components of medical devices and commercial electronic systems. The Company operated the business in a single operating segment through two units: the Moore subsidiary and the MicroCoax Assembly Solutions division.

The Company has incurred significant losses since inception and those losses have continued. In the normal course of its business the Company has had to rely on a relatively small number of OEMs for the majority of its sales. Short term changes in the OEM's demand schedule have made expenses and cash requirements uncertain. The Company has not been successful in achieving profitability. During April and May 2007, the Company’s financial condition deteriorated significantly. On May 31, 2007 the Company surrendered its assets to its secured creditors and began winding up its affairs. The Company operated for the benefit of its secured creditors until September 2007, at which time it ceased manufacturing operations.

microHelix was formed in 1991 to develop manufacturing techniques for medical device interconnect systems. The Company began manufacturing operations in 1998, designing and building cable assemblies and micro-electric interconnects and subsequently sold this operation to an unrelated third party in 2004.

The MicroCoax division designed and manufactured cable assemblies for OEM customers for use in medical ultrasound probes, laparoscopes, catheters and flaw detection ultrasound. The division was built around assets acquired in 1999. The Company sold this operation to an unrelated third party during July 2007 and used the proceeds of this sale to partially repay debt.

In April 2005, the Company acquired 100% of the outstanding stock of Moore Electronics (“Moore”). Moore manufactured custom cable assemblies, wire harnesses and electro-mechanical assemblies for medical and commercial equipment manufacturers. The Company sold this operation to an unrelated third party during September 2007 and used the proceeds of this sale to partially repay debt.

The Company completed the initial public offering in November 2001. The Common Stock currently trades on the Pink Sheets under the symbol MHLX.PK. On June 11, 2007 the Company filed a Form 15 with the Securities and Exchange Commission terminating its registration under Section 12(g) of the Securities Exchange Act of 1934 and the suspension of its duty to file reports under Sections 13 and 15(d) of the Securities Exchange Act of 1934. On March 24, 2009 the Company recommended filing reports due under the Securities and Exchange Act of 1934.

THREE AND SIX MONTHS ENDED JUNE 30, 2008 AND 2007

Total sales in the second quarter of 2008 were $0, compared to $2,501,021 in the second quarter of 2007. For the six months ended June 30, 2008 total sales were $0 compared to $5,306,164. The decrease in sales is due to the sale of the MicroCoax division and the assets of the Moore Electronics, Inc. subsidiary.

Gross profit in the second quarter of 2008 was $0 compared to a gross loss of $(318,604) in the second quarter of 2007. For the six months ended June 30, 2008 the total gross loss was $0 compared to a gross profit of $(326,393) recorded in the first six months of 2007. The decrease in the gross profit is due to the sale of the icroCoax division and the assets of the Moore Electronics, Inc. subsidiary.

Total operating expenses in the second quarter of 2008 were $3,720,312, compared to $503,932 for the same period one year ago. For the six month period ending June 30, 2008 the total operating expenses were $3,822,806 compared to $1,095,615 for the first six months of 2007. The increase is due to the $3,598,971 of professional services expense in the second quarter of 2008 related to the warrants issued in conjunction with the advisory services agreement and was partially offset by the wind down and sale of the MicroCoax division and the assets of the Moore Electronics, Inc. subsidiary.

Sales and marketing expenses for the second quarter of 2008 were $0, compared to $82,016 in the second quarter of 2007. For the six month period ending June 30, 2008 the sales and marketing expenses were $0 compared to $209,976 for the first six months of 2007. The decrease is due to the wind down and sale of the MicroCoax division and the assets of the Moore Electronics, Inc. subsidiary.

General and administrative expenses for the second quarter of 2008 were $3,720,312 compared to $421,916 in the second quarter of 2007. For the six month period ending June 30, 2008 the general and administrative expenses were $3,822,806 compared to $885,639 for the first six months of 2007. The increase is due to the $3,598,971 of professional services expense in the second quarter of 2008 related to the warrants issued in conjunction with the advisory services agreement and was partially offset by the wind down and sale of the MicroCoax division and the assets of the Moore Electronics, Inc. subsidiary.

Net other income for the second quarter of 2008 was $108,553 compared to net other income of $946,646 for the second quarter of 2007. For the six month period ending June 30, 2008 the net other income (expense) was $358,038 as compared to ($992,852) for the first six months of 2007. The difference was the income associated with the change in the warrant valuation in 2007 offset by the amortization of note discount, loan restructuring expenses, higher interest rates, and the impairment of the intangible assets and goodwill.

The Company recorded a net (loss) of ($3,611,759) in the second quarter of 2008 compared to a net income of $169,978 in the second quarter of 2007. On a year to date basis for the six months ended June 30, 2008 the company recorded a net (loss) of ($3,464,768) compared to a (loss) of ($2,323,123) recorded during the first six months of 2007.

LIQUIDITY AND CAPITAL RESOURCES

As of June 30, 2008 the Company had $70 of cash. Cash used in operating activities during the six-month period ended June 30, 2008 was $290,270 compared to cash provided by operating activities of $957,656 in the same period a year ago, a degradation of $1,247,926. The use of funds included a net loss of $3,464,768, a net decrease in accounts payable of $50,501, debt forgiveness of $335,881, offset by an increase in accrued liabilities of $50,612 and warrants issued for advisory services of $3,598,971.

For the six months ending June 30, 2008 financing activities provided the company with $284,543 of cash as compared to $975,159 of cash used in financing activities during the first six months of 2007. The source of the cash during 2008 was primarily advances on notes payable from the Company’s secured creditor.

During April and May 2007, the Company’s financial condition deteriorated significantly from the loss of a major customer (due to regulatory actions taken against that customer by the United States FDA that were unrelated to the Company), loss of key personnel, and continuing and accelerating operating deficits. On May 31, 2007 the Company surrendered its assets to its secured creditors and began winding up its affairs. The Company’s lenders sold the assets of the MicroCoax Assembly division during July 2007 and the assets of Moore to an unrelated third party in September 2007. Proceeds from these sales and the liquidation of accounts receivable and other assets were used to partially repay the amounts due under various secured lending agreements. At the conclusion of business operations in September 2007, the Company still owed its secured lenders approximately $365,536. In connection with the asset surrender, the Company stopped paying its unsecured creditors for goods and services provided prior to May 21, 2007. To ensure an orderly transition, the Company’s customers agreed to a substantial price increase, provided raw materials and subsidized certain expenses which allowed Moore to fill its backlog, collect its accounts receivable and cure certain outstanding deficiencies in rent payments and benefits plans. On September 28, 2007, Moore and the Company discontinued all manufacturing operations and sold their remaining assets to an unrelated third party.

The following description of the Company's principal debt at June 30, 2008 should be read in the context of the foregoing paragraph. See also Note 6 of Notes to Consolidated Financial Statements.

On March 12, 2007, the Company obtained an additional loan from MH Financial of $750,000. The original note (the "Original Note") evidencing then-existing debt owed to MH Financial was amended (the "Amended Note") to reflect a revised principal amount of $1,778,964, which bears interest at a rate of 12% per annum ("Current Interest"). Additional interest accrues on the Amended Note at a rate of 8% per annum, which is compounded quarterly and is payable at maturity ("Deferred Interest"). The Company will make separate payments with respect to $1,006,086 of the principal under the Original Note ("Loan 1") and with respect to $750,000 of the principal added in the Amended Note ("Loan 2"). Beginning April 19, 2007 and on the same day of each subsequent month, microHelix will pay $20,000 per month to be applied to Current Interest and principal on Loan 1 and will pay $7,500 per month of Current Interest on Loan 2. On September 30, 2007, the Company was to make an additional payment of accrued Current Interest through that date with regard to Loan 2. Beginning on October 31, 2007, and on the last day of each subsequent month through and including May 31, 2008, the Company was to pay $87,555 per month to be applied against the Current Interest and principal balance of Loan 2. All amounts outstanding under the Amended Note, including the Deferred Interest, were due and payable on June 30, 2008.

The Amended Note continues to be secured by a lien against substantially all of the assets of microHelix and Moore, including all of the outstanding Common Stock of Moore. MH Financial may accelerate all amounts due under the Amended Note in the event of default. In addition, all amounts outstanding under the Note are due and payable upon the sale of all or substantially all of our assets to anyone other than MH Financial, or upon the transfer of ownership of more than 50% of the stock.

The Company used $153,698 of the proceeds from Loan 2 of the Amended Note to pay in full a promissory note previously issued to James M. Williams, one of the Company's former directors. The remaining proceeds were used to make payments to certain vendors and to fund operating costs. The Amended Note replaces and supersedes the Original Note. In connection with Loan 2, microHelix issued a warrant (the "Note Warrant") to MH Financial to purchase 666,667 shares of Common Stock at an initial exercise price of $0.015 per share. The Note Warrant expires on March 11, 2010. In connection with the Amended Note, the right to convert the Original Note into shares of our Common Stock was cancelled.

As additional consideration to MH Financial for extending additional credit to the Company in connection with the Amended Note, the Board of Directors approved (subject to approval by the shareholders) the sale (the "Sale") to MH Financial or its assigns of all of the MicroCoax division's assets, which comprise substantially all of the operating assets, and all issued and outstanding shares of Moore. The closing date for the sale was to be not later than September 30, 2007, and would be subject to certain terms and conditions, including approval by microHelix's shareholders. Shareholder approval for the Sale was not requested and the Sale did not occur.

The Company also agreed to use commercially reasonable efforts to obtain shareholder approval at the 2007 annual meeting for the Sale and for an increase of the authorized capital stock to 75,000,000 shares of Common Stock and 10,000,000 shares of Preferred Stock. Such approval was obtained at a special meeting of shareholders on January 15, 2008.

On March 12, 2007 the Company was in default under the Original Note. On that date, the Company and MH Financial entered into a Forbearance and Waiver Agreement (the "Forbearance Agreement") under which MH Financial agreed to forbear with respect to such defaults and agreed to waive certain of the obligations to register shares of Common Stock owned by MH Financial pursuant to the Registration Rights Agreement dated October 19, 2006 between us and MH Financial. As consideration for the Forbearance Agreement, we issued a warrant to MH Financial (the "Forbearance Warrant") to purchase 193,333 shares of Common Stock at an exercise price of $0.015 per share. The Forbearance Warrant expires on March 11, 2010. As additional consideration for the Forbearance Agreement, the Company also agreed to reduce the exercise price to $0.015 per share for warrants issued to MH Financial pursuant to the Original Note for a total of 153,102 shares of the Common Stock. After giving effect to the additional warrants issued in connection with the Amended Note and the Forbearance Agreement, MH Financial is the beneficial holder of approximately 55% of the voting capital stock.

On January 2, 2008 MH Financial exercised warrants to purchase 133,333 shares of Common Stock for $2,000.

On February 17, 2008 a related party to MH Financial exercised warrants to purchase 73,915 shares of Common Stock for $1,109.

On March 3, 2008 MH Financial exercised warrants to purchase 798,981 shares of Common Stock for $11,985.

On March 19, 2008 at a special meeting of the shareholders the Company’s Amended and Restated Articles of Incorporation, as amended, were amended to effect a 15-for-1 reverse split of the Company’s Common Stock. The accompanying condensed consolidated financial statements, notes, and other references to share and per share data have been retroactively restated to reflect the reverse stock split for all periods presented.

In all of the above cases, shares of Series B Preferred Stock and Series C Preferred Stock and warrants to purchase Common Stock were issued in reliance on Regulation D promulgated under the Securities Act of 1933, as amended (the "Securities Act"), and we obtained representations from the investors as to their status as "accredited investors" as that term is defined in Regulation D.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Risk Factors

We are subject to various risks that could have a negative effect on the Company and its financial condition, including the following.

Minimal assets

The Company has no significant assets or financial resources. It is likely the Company will sustain operating expenses without corresponding revenues until it consummates a business combination with a target company. There is no assurance that we can identify such a target company and consummate such a business combination.

Adequate financing may not be available when needed

Additional sources of funding would be required for us to continue operations. There is no assurance that the Company can raise working capital or if any capital would be available at all. Failure to obtain financing when needed could result in curtailing operations, acquisitions or mergers and investors could lose some or all of their investment.

Speculative nature of the Company's proposed operations

The success of the Company's proposed plan of operation will depend to a great extent on the operations, financial condition and management of the identified target company. While management will prefer business combinations with entities having established operating histories, there can be no assurance that we will be successful in locating candidates meeting such criteria. In the event the Company completes a business combination, of which there can be no assurance, the success of the Company's operations will be dependent upon management of the target company and numerous other factors beyond our control.

Scarcity of and competition for business opportunities and combinations

The Company is and will continue to be an insignificant participant in the business of seeking mergers with and acquisitions of business entities. A large number of established and well-financed entities, including venture capital firms, are active in mergers and acquisitions of companies which may be merger or acquisition target candidates for the Company. Nearly all such entities have significantly greater financial resources, technical expertise and managerial capabilities than we do. The Company will therefore be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. Moreover, we will also compete with numerous other small public companies in seeking merger or acquisition candidates.

No agreement for business combination or other transaction – No standards for business combination

As of this filing, the Company has not reached any definitive understanding with any person or entity concerning a merger or acquisition. There can be no assurance that we will be successful in identifying and evaluating suitable business opportunities or in concluding a business combination. Management has not identified any particular industry or specific business within an industry for evaluation by the Company. There is no assurance that the Company will be able to negotiate a business combination on terms favorable to the Company. We have not established a specified level of earnings, assets, net worth or other criteria that we will require a target company to have achieved, or that would prevent us from considering a business combination with such business entity. Accordingly, the Company may enter into a business combination with a business entity having no significant operating history, losses, limited or no potential for immediate earnings, limited assets, negative net worth or other negative characteristics.

Continued management control, limited time availability

While seeking a business combination, our officers anticipate devoting only a limited amount of time per month to our business. Our ability to attract and retain key personnel is critical to our future success. There is no guarantee that we will be able to hire and retain qualified officers.

Conflicts of interest

The Company's officers and directors participate in other business ventures which may compete directly with the Company.

Reporting requirements may delay or preclude acquisitions

Section 13 of the Securities Exchange Act of 1934 (the "Exchange Act") requires companies subject thereto to provide certain information about significant acquisitions including certified financial statements for the company acquired covering one or two years, depending on the relative size of the acquisition. The time and additional costs that may be incurred by some target companies to prepare such financial statements may significantly delay or essentially preclude consummation of an otherwise desirable acquisition by the Company. Acquisition prospects that do not have or are unable to obtain the required audited statements may not be appropriate for acquisition so long as the reporting requirements of the Exchange Act are applicable.

Lack of diversification

Our activities will be limited to the operations engaged in by the business entity with which we merge or acquire. Our inability to diversify our activities into a number of areas may subject us to economic fluctuations within a particular business or industry and therefore increase the risks associated with our operations.

Regulation under Investment Company Act

Although the Company will be subject to regulation under the Exchange Act, management believes the Company will not be subject to regulation under the Investment Company Act of 1940 because it will not be engaged in the business of investing or trading in securities. In the event the Company engages in business combinations which result in the Company holding passive investment interests in a number of entities, the Company could be subject to regulation under the Investment Company Act of 1940. In such event, we would be required to register as an investment company and could be expected to incur significant registration and compliance costs. We have not obtained a formal determination from the Securities and Exchange Commission as to our status under the Investment Company Act of 1940. Consequently, any violation of such Act could subject the Company to material adverse consequences.

Possible change in control and management

A business combination involving the issuance of the Company's equity securities could result in shareholders of a target company obtaining a controlling interest in the Company. Any such business combination may require our shareholders to sell or transfer all or a portion of the Company's equity securities held by them. The resulting change in control will likely result in removal of the present officers and directors of the Company and a corresponding reduction in or elimination of their participation in the future affairs of the Company.

Reduction of percentage share ownership following business combination

The Company's primary plan of operation is based upon a business combination with a business entity which, in all likelihood, will result in our issuing securities to shareholders of such business entity. The issuance of previously authorized and unissued equity securities of the Company would result in reduction in percentage of shares owned by our present shareholders and would most likely result in a change in control or management of the Company.

Taxation

Federal and state tax consequences will, in all likelihood, be major considerations in any business combination we may undertake. Currently, such transactions may be structured so as to result in tax-free treatment to both companies, pursuant to various federal and state tax provisions. We intend to structure any business combination so as to minimize the federal and state tax consequences to both the Company and the target company; however, there can be no assurance that such business combination will meet the statutory requirements of a tax-free reorganization or that the parties will obtain the intended tax-free treatment upon a transfer of stock or assets. A non-qualifying reorganization could result in the imposition of both federal and state taxes which may have an adverse effect on both parties to the transaction.

ITEM 4. CONTROLS AND PROCEDURES

The Company’s President and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15 under the Securities Exchange Act of 1934 as of June 30, 2008. Based on that evaluation, our President and Chief Financial Officer concluded that the Company’s disclosure controls and procedures are not designed at a reasonable assurance level nor are they effective to give reasonable assurance that the information the Company must disclose in reports filed with the Securities and Exchange Commission are properly recorded, processed, summarized, and reported as required, and that such information is not accumulated and communicated to our management, including the Company’s President and Chief Financial Officer, to allow timely decisions regarding required disclosure.

The Company’s disclosure controls and procedures are subject to material weaknesses resulting from the Company’s loss of key personnel and the Company’s surrender of all of its assets to its creditors. Because of the limited number of personnel available for accounting duties, there is an inadequate segregation of duties related to accounting controls. The accounting department consists only of the Company’s Chief Financial Officer. Due to the Company’s current lack of financial resources it has not been reasonable or cost beneficial for the Company to hire extra accounting personnel who would have no other purpose, duties, or workload than to provide formal segregation of duties under internal control principles.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company had no legal proceedings pending at June 30, 2008.

ITEM 6. EXHIBITS

(a) Exhibits:

10.1(1)		Promissory Note dated December 28, 2006 issued by microHelix, Inc. to James M. Williams
10.2(1)		Subordination Agreement dated December 28, 2006 among microHelix, Inc., James M. Williams and BFI Business Finance
10.3(2)		Second Agreement Regarding Amendment of Promissory Note dated March 12, 2007 between microHelix, Inc. and MH Financial Associates, LLC

10.4(2)		Second Amended and Restated Promissory Note dated March 12, 2007 issued by microHelix, Inc. to MH Financial Associates, LLC
10.5(2)		Form of Warrant dated March 12, 2007 issued by microHelix, Inc. to MH Financial Associates, LLC and to be issued to Dr. Steven G. Ashton
10.6(2)		Form of Amendment to Warrant dated March 12, 2007 between microHelix, Inc. and MH Financial Associates, LLC
10.7(2)		Forbearance and Waiver Agreement dated March 12, 2007 between microHelix, Inc. and MH Financial Associates, LLC
10.8(2)		Amendment to Registration Rights Agreement dated March 12, 2007 between microHelix, Inc. and MH Financial Associates, LLC
10.9(3)*		Independent Contractor Agreement effective February 12, 2007 between Moore Electronics, Inc. and Dr. Steven G. Ashton, as amended
31.1(4)		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2(4)		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1(4)		Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2(4)		Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

(1)	Incorporated by reference to the Company's Form 8-K filed on January 3, 2007.
(2)	Incorporated by referenced to the Company's Form 8-K filed on March 16, 2007.
(3)	Incorporated by reference to the Company's Forms 8-K filed on March 16, 2007 and April 5, 2007.
(4)	Filed herewith.
*	Management contract or compensatory plan or arrangement.

SIGNATURE

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Signature	Title	Date

/s/ James E. Horswill	President and Chief Financial Officer	March 24, 2009
James E. Horswill

Positive
Negative
Uncertain
Constraining
Legalese
Litigous
Readability	H.S. freshman Avg

CarePayment (CPYT) Inactive 10-Q2008 Q2 Quarterly report

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