CarePayment (CPYT) 10-Q 2009 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 for the quarterly period ended June 30, 2009
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)

(Registrant’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 check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o No o

Indicate by 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 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 August 14, 2009, there were 1,974,088 shares of the issuer’s common stock outstanding.

At a special meeting of the shareholders on March 19, 2008, the Company’s Amended and Restated Articles of Incorporation, as amended, were amended to affect a reverse split of the Company’s Common Stock in which every 15 shares of Common Stock held by a shareholder were reduced to one share of Common Stock.  The consolidated financial statements, notes, and other references to share and per share data contained in this Report have been retroactively restated to reflect such reverse stock split for all periods presented.

microHelix, Inc.

Quarterly Report on Form 10-Q

Quarter Ended June 30, 2009

TABLE OF CONTENTS

	Page
PART I — FINANCIAL INFORMATION		3
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED		3
Consolidated balance sheets as of June 30, 2009 and December 31, 2008		3
Consolidated statements of operations for the three and six months ended June 30, 2009 and 2008		4
Consolidated statements of cash flows for the six months ended June 30, 2009 and 2008		5
Notes to consolidated financial statements		6
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS		9
ITEM 4T. CONTROLS AND PROCEDURES		12
PART II — OTHER INFORMATION		13
ITEM 1A. RISK FACTOR		13
ITEM 6. EXHIBITS		15
SIGNATURE		15
CERTIFICATION
EXHIBIT 31.1
EXHIBIT 32

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PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS — UNAUDITED 

MICROHELIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(UNAUDITED)

June 30, 2009 and December 31, 2008

	2009			2008
Assets
Current Assets:
Cash	$	12,441		$	98,433
Prepaid expenses		10,417			—
Total assets	$	22,858		$	98,433
Liabilities and Shareholders' Deficit
Current Liabilities:
Accounts payable	$	744,542		$	744,542
Accrued liabilities		232,259			257,515
Current maturities of notes payable, net of debt discount		984,738			694,161
Total liabilities		1,961,539			1,696,218
Shareholders' Deficit:
Preferred stock, convertible, no par value, 10,000,000 shares authorized, 279,070 Series C Preferred Stock issued and outstanding, convertible, liquidation preference $600,000		533,000			533,000
Common stock, no par value 75,000,000 shares authorized, 1,974,088 and 1,973,421 issued and outstanding at June 30, 2009 and December 31, 2008, respectively		17,477,917			17,477,917
Additional paid-in capital		10,437,636			10,342,521
Accumulated deficit		(30,387,234	)		(29,951,223	)
Total shareholders' deficit		(1,938,681	)		(1,597,785	)
Total liabilities and shareholders' deficit	$	22,858		$	98,433

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

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MICROHELIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended June 30						Six Months Ended June 30
	2009			2008			2009			2008
Operating Expenses:
General and administrative		108,127			3,720,312			240,028			3,822,806
Loss from operations		(108,127	)		(3,720,312	)		(240,028	)		(3,822,806	)
Other income (expense):
Interest and other income		—			—			—			3,414
Warrant valuation gain		—			—			—			62,822
Debt forgiveness		—			132,157			—			335,881
Interest expense		(118,213	)		(23,604	)		(195,983	)		(44,079	)
Other income (expense) – net		(118,213	)		108,553			(195,983	)		358,038
Net loss	$	(226,340	)	$	(3,611,759	)	$	(436,011	)	$	(3,464,768	)
Net loss  per share Basic and diluted	$	(.11	)	$	(1.83	)	$	(.22	)	$	(2.07	)
Weighted average number of shares outstanding – Basic and diluted		1,974,088			1,972,568			1,973,791			1,676,506

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

4

MICROHELIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Six Months Ended June 30
	2009			2008
Cash Flows Used In Operating Activities:
Net loss	$	(436,011	)	$	(3,464,768	)
Adjustments to reconcile net loss to cash used in operating activities:
Common stock issued for services		—			—
Warrants issued for advisory services		1,001			3,598,971
Warrant valuation gain		—			(62,822	)
Debt forgiveness		—			(335,881	)
Amortization of debt discount		84,703			—
Change in assets and liabilities:
(Increase) Decrease in assets:
Prepaid expenses		(10,417	)		(25,881	)
Increase (Decrease) in liabilities:
Accounts payable		—			(50,501	)
Accrued liabilities		174,732			50,612
Net cash used in operating activities		(185,992	)		(290,270	)
Cash Flows Provided By Financing Activities:
Proceeds from exercise of warrants		—			15,094
Proceeds from issue of notes payable to shareholders		100,000			269,449
Net cash provided by financing activities		100,000			284,543
Change in cash		(85,992	)		(5,727	)
Cash, beginning of period		98,433			5,797
Cash, end of period	$	12,441		$	70
Supplemental Disclosure of Non-cash Financing Activities:
Warrants issued to lenders-recorded as debt discount	$	94,114		$	659,981
Refinance of accrued interest to note payable	$	—		$	283,224
Refinance of accrued liability to note payable	$	199,988		$	—
Reclassification of note payable to accounts payable	$	—		$	63,137

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

5

MICROHELIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three and Six Months Ended June 30, 2009 and 2008

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.  Management believes that presentation of discontinued operations would not be appropriate since substantially all of the Company’s operations have been discontinued.

On June 27, 2008 the Company entered into an advisory services agreement with Aequitas Capital Management, Inc. (“Aequitas”) under which Aequitas began to provide strategy development, strategic planning, marketing, corporate development and other services that the Company reasonably requests from time to time, under direction of the Company’s Board of Directors for a monthly fee of $10,000 and reimbursement of expenses.  In connection with the advisory services agreement the Company issued a warrant for 1,066,667 shares of common stock with an exercise price of $0.001 per share to Aequitas in 2008 (see Note 3).  Under a separate agreement the Company has an obligation to pay Aequitas $5,000 per month for certain services related to occupancy of Aequitas facilities and information technology support.  In addition to advising and servicing the Company, Aequitas is also manager of MH Financial Associates, LLC (“MH Financial”) and Aequitas Catalyst Fund, LLC which are two of the Company’s largest shareholders.

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 — 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 $30,387,234 at June 30, 2009, 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.

Financial Instruments — The fair value of the Company’s liabilities approximates cost due to the short-term nature of the obligations.

Subsequent Events — Subsequent events have been considered through August 14, 2009 for purposes of these accompanying financial statements.

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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, 2009 and 2008, 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 and six months ended June 30, 2009, the outstanding number of potentially dilutive common shares totaled 10,910,178 shares of Common Stock, consisting of Series C Preferred Stock convertible to 186,047 shares of Common Stock and warrants to purchase 10,724,131 shares of Common Stock.  For the three and six months ended June 30, 2008, the outstanding number of potentially dilutive common shares totaled 8,776,843 shares of Common Stock, consisting Series C Preferred Stock convertible to 186,047 shares of Common Stock and warrants to purchase 8,590,796 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 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.

On February 9, 2009 the Company issued 667 shares of Common Stock with a value of $1,001 to a former member of the Company’s Board of Directors.

2. 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 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 adoption of SFAS 160 did not have an effect on the Company’s consolidated financial statements.

In April 2009, the FASB issued three related Staff Positions which will be effective for interim and annual periods ending after June 15, 2009.  The Staff Positions are: (1) FSP FAS No. 157-4, “Determining Fair Value When the Volume and Level of Activity for the Asset or Liability have Significantly Decreased and Identifying Transactions That Are Not Orderly” (FSP FAS No. 157-4); (2) FSP FAS No. 115-2 and FSP FAS No. 124-2 “Recognition and Presentation of Other-Than Temporary Impairments” (FSP FAS 115-2 and FAS No. 124-2); and (3) FSP FAS No. 107-1 and APB No. 28-1, “Interim Disclosures about Fair Value of Financial Instruments” (FSP No. 107 and APB No. 28-1).  FSP FAS No. 157-4 provides guidance on how to determine fair value of assets and liabilities under SFAS No. 157 when there is no active market, and reaffirms the FSAS No. 157 objective to reflect an asset’s sale price in an orderly transaction at the date of the financial statements.  FSP FAS No. 115-2 and FAS No. 124-2 modify the requirements for recognizing other-than-temporarily impaired debt securities and revise the existing impairment model for such securities, by distinguishing between credit and noncredit components of impaired debt securities that are not expected to be sold.  FSP FAS No. 107-1 and APB No. 28-1 enhance disclosures about fair value for instruments under the scope of SFAS 157 for both interim and annual periods.  The impact that the adoption of these Staff Positions had on the Company’s financial position and results of operations was not material.

7

3. Notes Payable and Warrants

A summary of the Company’s notes payable outstanding as of June 30, 2009 and December 31, 2008 is as follows:

	2009			2008
MH Financial Associates, LLC	$	877,743		$	777,743
Aequitas Capital Management, Inc.		199,988			—
Other		10,532			10,532
Total notes payable	$	1,088,263		$	788,275
Note discount		(103,525	)		(94,114	)
Total notes payable-net of discount	$	984,738		$	694,161

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, $100,000 on February 25, 2009, 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.  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 Aequitas Capital Management 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	—

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 additional consideration for this $100,000 disbursement, the Company also issued warrants to purchase 1,066,667 shares of Common Stock at $0.001 per share.  The warrants expire December 31, 2013.  The warrants have a fair value relative to the fair value of the associated debt of $94,114 calculated using the Black-Scholes option pricing model with the following assumptions:

Expected life (in years)	1
Expected volatility	285.29	%
Risk-free interest rate	0.37	%
Expected dividend	—

8

On December 31, 2008 the Company issued a new note payable to Aequitas Capital Management in the amount of $101,834.  The loan has a due date of December 31, 2009 and interest will accrue on the outstanding principal balance of the loan at a rate of 20% per annum.  The loan amount included $90,000 owed to Aequitas Capital Management for rent and advisory services and $11,834 for travel and legal services paid for by Aequitas Capital Management on behalf of the Company.  The $90,000 had been accrued (in accrued liabilities) for during 2008 and the $11,834 was recorded as general and administrative expenses during the three month period ending March 31, 2009.  During the six months ended June 30, 2009 Aequitas Capital Management paid an additional $90,000 for rent and advisory services and $8,154 for travel and legal services on behalf of the Company.

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 additional consideration for this $100,000 disbursement, the Company also issued warrants to purchase 1,066,667 shares of Common Stock at $0.001 per share.  The warrants expire February 25, 2014.  The warrants have a fair value relative to the fair value of the associated debt of $94,114 calculated using the Black-Scholes option pricing model with the following assumptions:

Expected life (in years)	1
Expected volatility	278.42	%
Risk-free interest rate	0.75	%
Expected dividend	—

4. 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.  In this process the Company issued warrants to purchase 860,000 shares of Common Stock.  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.  As of December 31, 2007 the Company had recorded $1,755,378 in income related to the change in the fair value of its potential liability.  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.  As a result of this action the potentially dilutive securities no longer exceeded the authorized number of common shares.  As such the Company reversed the remaining $62,822 liability to income during the three month period ending March 31, 2008.

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.

9

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.  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.

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.

On May 31, 2007 the Company surrendered its assets to its secured creditors and concluded the disposition of all the Company’s assets on September 28, 2007 after which it became a shell company.

The Company’s current business objective is to locate appropriate opportunities for a business combination.  The Company does not currently engage in any activity that provides cash flow.  The Company anticipates incurring costs related to the filing of Exchange Act reports, officers’ and directors’ salaries and transaction costs related to a business combination.  There is no assurance that the Company will be able to raise sufficient capital to cover those expenses.  Until the Company consummates a business combination, it does not anticipate any future expenditures for research and development or the purchase or sale of any property, plant, or equipment.

Certain types of business combinations may be completed without having to first submit the transaction to our shareholders for approval.  If a business combination transaction is structured such that the approval by the Company’s shareholders is not required, our shareholders will not be provided with financial or other information relating to the other party to the business combination prior to the completion of the transaction.

Because of the disposition of substantially all of the Company’s assets and the subsequent winding up of the business, the Company has no ongoing operations.  The Company’s Board of Directors has determined to maintain the Company as a “shell” corporation, which will seek suitable business combination opportunities.  The Company’s Board of Directors believes that a business combination with an operating company has the potential to create value for the Company’s shareholders.

The Company completed its initial public offering in November 2001.  As of the date of this report the Company’s Common Stock trades on the Pink Sheets under the symbol MHLN.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 16, 2009, the Company voluntarily recommenced filing reports due under the Securities Exchange Act of 1934.

The following discussion should be read in the context of the above overview.

THREE AND SIX MONTHS ENDED JUNE 30, 2009 AND 2008

Total operating expenses in the second quarter of 2009 were $108,127, compared to $3,720,312 for the same period one year ago.  For the six month period ending June 30, 2009 the total operating expenses were $240,028 compared to $3,822,806 for the first six months of 2008.  The decrease 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 professional service expenses related to the preparation of the Company’s 2008 and 2009 quarterly and annual reports.

10

Net other expense for the second quarter of 2009 was ($118,213) compared to net other income of $108,553 for the second quarter of 2008.  For the six month period ending June 30, 2009 the net other income (expense) was ($195,983) as compared to $358,038 for the first six months of 2008.  The difference was primarily the income associated with the change in the warrant valuation in the first quarter of 2008 and debt forgiveness recorded in 2008.

The Company recorded a net loss of ($226,340) in the second quarter of 2009 compared to a net loss of ($3,611,759) in the second quarter of 2008.  On a year to date basis for the six months ended June 30, 2009 the Company recorded a net loss of ($436,011) compared to a net loss of ($3,464,768) recorded during the first six months of 2008.  The decrease 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 professional service expenses related to the preparation of the Company’s 2008 and 2009 quarterly and annual reports.

LIQUIDITY AND CAPITAL RESOURCES

Asof June 30, 2009 the Company had $12,441 of cash.  Cash used in operating activities during the six-month period ended June 30, 2009 was $185,992 compared to cash used in operating activities of $290,270 in the same period a year ago. The use of funds during the first six months of 2009 included a net loss of $436,011, a net increase in prepaid expenses of $10,417, offset by an increase in accrued liabilities of $174,732 and amortization of debt discount of $84,703.

For the six months ending June 30, 2009 financing activities provided the Company with $100,000 of cash as compared to $284,543 of cash used in financing activities during the first six months of 2008.  The primary source of the cash from financing activities for the three and six month periods ending June 30, 2009 and 2008 were advances on notes payable from the Company’s secured creditor.

The following description of the Company's principal debt at June 30, 2009 should be read in the context of the overview above and Note 3 of Notes to Consolidated Financial Statements.

On June 27, 2008 the Company obtained a loan (the “MH Financial Loan”) from MH Financial, Inc. (“MH Financial”) in the amount of $977,743.  The MH Financial Loan is 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 MH Financial Loan in the event of default.  In addition, all amounts outstanding under the MH Financial Loan are due and payable upon the sale of all or substantially all of the Company’s assets to anyone other than MH Financial, or upon the transfer of ownership of more than 50% of the Company’s Common Stock.  The MH Financial Loan replaces the prior notes payable to MH Financial, and 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, $100,000 on February 25, 2009 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.  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 additional consideration of the initial disbursement on June 30, 2008, the Company also issued warrants to purchase 7,466,666 shares of Common Stock at $0.001 per share to MH Financial.  MH Financial has assigned these warrants to certain of its investors as follows: (i) Aequitas Catalyst Fund LLC: warrants to purchase 1,166,601 shares; (ii) Thurman Holdings 1, Limited Partnership: warrants to purchase 2,822,867 shares; (iii) Fiserv Trust Company fbo Robert J. Jesenik: warrants to purchase 59,957 shares and (iv) CTK Capital Corporation, a corporation controlled by James M. Williams, former Chairman of the Company’s Board of Directors; warrants to purchase 332,384 shares.  The warrants expire on June 27, 2013.  The Company was in default under the MH Financial Loan and entered into a Forbearance Agreement with MH Financial on March 31, 2009.

As a condition of the December 31, 2008 advance under the MH Financial Loan, MH Financial required the Company to issue warrants to Aequitas Catalyst Fund, LLC to purchase 1,066,667 shares of Common Stock at $0.001 per share.  Aequitas Catalyst Fund, LLC participated as a lender in the MH Financial Loan pursuant to a participation agreement with MH Financial.

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As a condition of the February 25, 2009 advance under the MH Financial Loan, MH Financial required the Company to issue warrants to Aequitas Catalyst Fund, LLC to purchase 1,066,667 shares of Common Stock at $0.001 per share. Aequitas Catalyst Fund, LLC participated as a lender in the MH Financial loan pursuant to a participation agreement with MH Financial.

In addition the Company signed a financial advisory agreement with Aequitas Capital Management on June 27, 2008.  The Company issued warrants to purchase 1,066,667 shares of Common Stock at $0.001 per share to Aequitas Capital Management in connection with the financial advisory agreement.

On December 31, 2008 the Company issued a new note payable to Aequitas Capital Management in the amount of $101,834.  The loan amount included $90,000 owed to Aequitas Capital Management for rent and advisory services and $11,834 for travel and legal services paid for by Aequitas Capital Management on behalf of the Company.  The $90,000 had been accrued for during 2008 and the $11,834 was recorded as general and administrative expenses during the three month period ending March 31, 2009.  During the six months ended June 30, 2009 the Company was advanced $90,000 for rent and advisory services and $8,154 for travel and legal services paid by Aequitas Capital Management on behalf of the Company. The loan has a due date of December 31, 2009 and interest will accrue on the outstanding principal balance of the loan at a rate of 20% per annum.

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.

On February 9, 2009 the Company issued 667 shares of Common Stock with a value of $1,001 to a former member of the Company’s Board of Directors.

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

ITEM 4T.   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, 2009.  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.

There have been no changes in the Company’s internal controls over financial reporting that occurred during the Company’s most recent fiscal quarter that have material affected, or are reasonably likely to materially affect , the Company’s internal control over financial reporting.

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PART II.  OTHER INFORMATION

ITEM 1A. RISK FACTORS

Risk Factors

The Company is 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 the Company 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 the Company 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 the Company 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 the Company’s 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, the Company 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 the Company 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. The Company has not established a specified level of earnings, assets, net worth or other criteria that the Company will require a target company to have achieved, or that would prevent the Company 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.

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Continued management control, limited time availability

While seeking a business combination, the Company’s officers anticipate devoting only a limited amount of time per month to the Company’s business. The Company’s ability to attract and retain key personnel is critical to the Company’s future success.  There is no guarantee that the Company 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 if the reporting requirements of the Exchange Act are applicable the Company.

No public trading market

There is no public trading market for the Company’s securities and there can be no assurance that a trading market for the Company’s securities will develop if the Company completes a business combination.  Until such time as the Company’s securities are eligible for quotation on a public market, the Company will be at a competitive disadvantage with other companies, including shell companies, who have publicly traded securities, in attracting suitable candidates to participate in a business combination with the Company.

Lack of diversification

The Company’s activities will be limited to the operations engaged in by the business entity with which the Company merges or acquires. The Company’s inability to diversify the Company’s activities into a number of areas may subject the Company to economic fluctuations within a particular business or industry and therefore increase the risks associated with the Company’s 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 the Company 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, the Company would be required to register as an investment company and could be expected to incur significant registration and compliance costs. The Company has not obtained a formal determination from the Securities and Exchange Commission as to the Company’s 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 the Company’s 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.

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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 the Company 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 the Company’s 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 the Company 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. The Company intends 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 6.   EXHIBITS

(a) Exhibits:

3.1(1)	Amended and Restated Articles of Incorporation of microHelix, Inc., as amended November 16, 2001, December 5, 2003, April 8, 2008, October 28, 2008, October 17, 2006, January 16, 2008, and March 19, 2008.
3.2(2)	Bylaws of microHelix, Inc.
31.1(3)	Certification of Principal Executive Officer and 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(3)	Certification of Principal Executive Officer and 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 Annual Report on Form 10-KSB for the year ended December 31, 2004, filed on April 21, 2005 and to the Company’s Form 8-K/A filed on April 14, 2005, and the Company’s Forms 8-K filed on October 31, 2005, October 20, 2006 and the Company’s Annual Report on Form 10-K for the year ended on December 31, 2008 filed on April 16, 2009.
(2)	Incorporated by reference to the Company's Form SB-2 filed on July 26, 2001.
(3)	Filed herewith.

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	August 14, 2009
James E. Horswill

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