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EX-31 - CarePayment Technologies, Inc.v166222_ex31.htm
EX-32 - CarePayment Technologies, Inc.v166222_ex32.htm
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 September 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 x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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 November 16, 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 effect 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 September 30, 2009

TABLE OF CONTENTS

 
Page
   
PART I — FINANCIAL INFORMATION
3
   
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
3
Consolidated balance sheets as of September 30, 2009 and December 31, 2008
3
Consolidated statements of operations for the three and nine months ended September 30, 2009 and 2008
4
Consolidated statements of cash flows for the nine months ended September 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
10
   
ITEM 4T. CONTROLS AND PROCEDURES
12
   
PART II — OTHER INFORMATION
13
   
ITEM 6. EXHIBITS
13
   
SIGNATURE
14

 
 

 

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS — UNAUDITED 
 
MICROHELIX, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
September 30, 2009 and December 31, 2008

   
2009
   
2008
 
             
Assets
           
    Current Assets:
           
    Cash
  $ 971     $ 98,433  
    Prepaid expenses
    4,166        
Total assets
  $ 5,137     $ 98,433  
                 
Liabilities and Shareholders' Deficit
               
Current Liabilities:
               
    Accounts payable
  $ 744,542     $ 744,542  
    Accrued liabilities
    295,155       257,515  
    Current maturities of notes payable, net of debt discount
    1,081,501       694,161  
Total liabilities
    2,121,198       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 September 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
    (30,564,614 )     (29,951,223 )
Total shareholders' deficit
    (2,116,061 )     (1,597,785 )
Total liabilities and shareholders' deficit
  $ 5,137     $ 98,433  

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

Page 3

 
MICROHELIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)

   
Three Months Ended
September 30
   
Nine Months Ended
September 30
 
   
2009
   
2008
   
2009
   
2008
 
                         
Operating Expenses:
                       
General and administrative
    64,224       94,326       304,252       3,917,132  
Loss from operations
    (64,224 )     (94,326 )     (304,252 )     (3,917,132 )
                                 
                                 
Other income (expense):
                               
 Interest and other income
          27,557             30,971  
    Warrant valuation gain
                      62,822  
    Debt forgiveness
          5,185             341,066  
    Interest expense
    (113,156 )     (365,100 )     (309,139 )     (409,179 )
Other income (expense) – net
    (113,156 )     (332,358 )     (309,139 )     25,680  
                                 
Net loss
  $ (177,380 )   $ (426,684 )   $ (613,391 )   $ (3,891,452 )
                                 
Net loss  per share                                
Basic and diluted
  $ (.09 )   $ (.22 )   $ (.31 )   $ (1.97 )
                                 
Weighted average number of shares outstanding –
Basic and diluted
    1,974,088       1,972,568       1,973,791       1,775,913  
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page 4

 
MICROHELIX, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)


   
Nine Months Ended
September 30
 
Cash Flows Used In Operating Activities:
 
2009
   
2008
 
             
Net loss
  $ (613,391 )   $ (3,891,452 )
Adjustments to reconcile net loss to cash used in operating activities:
               
   Interest expense - amortization
          329,991  
   Warrants issued for advisory services
    1,001       3,598,971  
   Warrant valuation gain
          (62,822 )
   Debt forgiveness
          (341,066 )
   Amortization of debt discount
    136,465        
Change in assets and liabilities:
               
(Increase) Decrease in assets:
               
    Prepaid expenses
    (4,166 )     (7,630 )
Increase (Decrease) in liabilities:
               
   Accounts payable
          (57,788 )
   Accrued liabilities
    282,629       142,591  
Net cash used in operating activities
    (197,462 )     (289,205 )
                 
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
    (97,462 )     (4,662 )
Cash, beginning of period
    98,433       5,797  
Cash, end of period
  $ 971     $ 1,135  
                 
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
  $ 244,989     $  
Reclassification of note payable to accounts payable
  $     $ 63,137  

The accompanying notes are an integral part of these condensed consolidated financial statements.
 
Page 5

 
MICROHELIX, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three and Nine Months Ended September 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 on 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 $30,564,614 at September 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 November 16, 2009, the date these financial statements were issued.
 
Page 6

 
Net Income/(Loss) per Share — The Company uses Accounting Standards Codification (“ASC) Topic 260, "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 nine months ended September 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 nine months ended September 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 nine months ended September 30, 2008, the outstanding number of potentially dilutive common shares totaled 8,776,843 shares of Common Stock, consisting of 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 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.

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 guidance on accounting for business combinations and related disclosures.  This guidance is now part of  ASC Topic 805, “Business Combinations” which 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.  ASC Topic 805 is effective for fiscal years beginning after December 15, 2008.  The adoption of ASC Topic 805 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 guidance which is now part of the ASC Topic 810-10-65-1, (“Noncontrolling Interests in Consolidated Financial Statements”),  an amendment to ARB No. 51, 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.  ASC Topic 810 is effective for fiscal years beginning after December 15, 2008.  The adoption of ASC Topic 810 did not have an effect on the Company’s consolidated financial statements.

In April 2009, the FASB issued new guidance, which is now part of the ASC, which  was effective for interim and annual periods ending after September 15, 2009.

After considering the current non-operating nature of the company and the nature of its assets and liabilities, the Company expects no material impact on the adoption of these standards on its financial position and results of operations.

Page 7

 
3. Notes Payable and Warrants

A summary of the Company’s notes payable outstanding as of September 30, 2009 and December 31, 2008 is as follows:
 
   
2009
   
2008
 
MH Financial Associates, LLC
  $ 877,743     $ 777,743  
Aequitas Capital Management, Inc.
    244,989        
Other
    10,532       10,532  
   Total notes payable
  $ 1,133,264     $ 788,275  
Note discount
    (51,763 )     (94,114 )
   Total notes payable-net of discount
  $ 1,081,501     $ 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 on November 6, 2009 received an additional advance of $100,000 against the $500,000 loan amount.  As a result of the November 6, 2009 advance, microHelix has borrowed the full $977,743 principal amount available under the loan.  All amounts outstanding under the loan are due on the earliest of:  (a) December 27, 2009, (b) the closing of a loan or other financing by microHelix in an amount sufficient to pay off the loan, or (c) the closing of a private investment in public equity and/or any other financing event with gross proceeds to microHelix in excess of $1,000,000.  The loan is secured by a lien against substantially all of the assets of microHelix and its wholly-owned subsidiary, Moore Electronics, Inc., including all of the outstanding common stock of Moore Electronics, Inc.  In the event of default by microHelix, MH Financial may accelerate the entire amount owed under the loan.
 
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 to Aequitas Catalyst Fund, LLC.  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


Page 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 nine months ended September 30, 2009 Aequitas Capital Management paid an additional $135,000 for rent and advisory services and $8,155 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 to Aequitas Catalyst Fund, LLC.  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
 
In connection with and as a condition of the  November 6, 2009 advance under the Note described above, on November 6, 2009, the Company issued a warrant to purchase up to 1,066,667 shares of microHelix Common Stock  at an exercise price of $0.001 per share to Aequitas Catalyst Fund, LLC.  The warrant expires on November 6, 2014.
 
4. Liability for Potentially Dilutive Securities in Excess of Authorized Number of Common Shares

In accordance with ASC, 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 860,000 warrants.  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.


Page 9

 
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, as amended. 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.  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 public “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.
 
Page 10

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

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2009 AND 2008

Total operating expenses in the third quarter of 2009 were $64,224, compared to $94,306 for the same period one year ago.  For the nine month period ending September 30, 2009 the total operating expenses were $304,252 compared to $3,917,132 for the first nine 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 Forms 10-Q and 10-K for 2008 and 2009.

Net other income (expense) for the third quarter of 2009 was ($113,156) compared to net other income (expense) of ($332,358) for the third quarter of 2008.  For the nine month period ending September 30, 2009, the net other income (expense) was ($309,139) as compared to $25,680 for the first nine months of 2008.  The difference was primarily related to 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 ($177,380) in the third quarter of 2009 compared to a net loss of ($426,684) in the third quarter of 2008.  On a year to date basis for the nine months ended September 30, 2009, the Company recorded a net loss of ($613,391) compared to a net loss of ($3,891,452) recorded during the first nine 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 Forms 10-Q and 10-K for 2008 and 2009.
 
LIQUIDITY AND CAPITAL RESOURCES

As of September 30, 2009, the Company had $971 of cash.  Cash used in operating activities during the nine-month period ended September 30, 2009 was $197,462 compared to cash used in operating activities of $289,205 in the same period a year ago. The use of funds during the first nine months of 2009 included a net loss of $613,391, and a net decrease in prepaid expenses of $4,166, offset by an increase in accrued liabilities of $282,629 and amortization of debt discount of $136,465.

For the nine months ending September 30, 2009, financing activities provided the Company with $100,000 of cash as compared to $284,543 of cash provided by financing activities during the first nine months of 2008.  The primary source of the cash from financing activities for the three and nine month period ending September 30, 2009 and 2008 was advances on notes payable from the Company’s secured creditor.

The following description of the Company's principal debt at September 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 earliest of:  (a) December 27, 2009, (b) the closing of a loan or other financing by the Company in an amount sufficient to pay off the loan, or (c) the closing of a private investment in public equity and/or any other financing event with gross proceeds to the Company in excess of $1,000,000. 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 $100,000 on November 6, 2009.  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 27, 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.
 
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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.

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.

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 nine months ended September 30, 2009 the Company was advanced $135,000 for rent and advisory services and $8,155 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 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.

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.
 
On November 6, 2009, as a condition of the  advance under the MH Financial Loan, the Company  issued a warrant to Aequitas Catalyst Fund, LLC to purchase 1,066,667 shares of Common Stock at $0.001 per share.  The warrant expires November 6, 2014.

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.
 
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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 September 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 limited contracted resources.  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 materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II.  OTHER INFORMATION

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(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(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.


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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
 
November 16, 2009
James E. Horswill
       

 
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