Exhibit 10.1
 

MICROHELIX, INC.
SERIES B PREFERRED
STOCK PURCHASE AGREEMENT
(November 2005)

This SERIES B PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement") is made by
and between MICROHELIX, INC., an Oregon corporation (the "Company"), and the
purchaser of the Company's securities hereunder that has executed this Agreement
("Investor"). The date of this Agreement is set forth on the Investor's
signature page hereto.

The parties hereby agree as follows:

1. Authorization of Series B Preferred Stock; Purchase and Sale of Series B
Preferred Stock.
 
1.1 Authorization of Series B Preferred Stock. The Company has adopted and filed
with the Secretary of State of the State of Oregon the Certificate of
Designation, as amended, setting forth the rights, privileges and preferences of
the Series B Preferred Stock (the "Amendment"). The Company has authorized the
issuance and sale of up to 2,750,000 shares of Series B Preferred Stock, no par
value (the "Series B Preferred Stock"), of which up to 500,000 shares are being
offered in this offering (the "Offering").  A total of 2,250,000 shares of
Series B Preferred Stock were previously issued by the Company on April 8, 2005
and remain outstanding.
 
1.2 Purchase and Sale of the Series B Preferred Stock. 

(a) Subscription. Subject to the terms and conditions of this Agreement and on
the basis of the representations and warranties set forth herein, Investor
agrees to purchase from the Company that number of shares of Series B Preferred
Stock (collectively, the "Shares") set forth on Investor's signature page hereto
at a purchase price of $1.00 per Share. 

(b) Agreement Non-Binding on the Company Until Accepted. Investor understands
and agrees that the Company has the right to reject this Agreement, in whole or
in part, and for any reason whatsoever. To the extent this Agreement is rejected
by the Company, the consideration for the rejected Shares shall be refunded to
Investor without interest.

1.3 Minimum and Maximum Offering. There is no minimum number of shares of Series
B Preferred Stock the Company must sell in this Offering before it will accept
this Agreement. The Company does not intend to sell more than 500,000 shares of
Series B Preferred Stock during this Offering. As of November 1, 2005, the
Company has sold 310,000 shares of Series B Preferred Stock during this
Offering.
 
2. Closing; Delivery. 

2.1 The closing of the purchase and sale of the Shares (the "Closing") will
occur at 9:00 a.m., Pacific Time, on the day this Agreement is Accepted by the
Company, or such later time and date as the Company may advise Investor in
writing; provided, that in no event may the Closing be postponed later than
March 31, 2006 without the consent of Investor. The Closing will take place at
the offices of Tonkon Torp LLP, 1600 Pioneer Tower, 888 SW Fifth Avenue,
Portland, OR 97204.
 
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2.2 At or promptly following the Closing, the Company will deliver to Investor a
certificate, registered in Investor's name, representing the number of Shares
acquired by Investor pursuant to this Agreement, in each case against payment of
the purchase price of the Shares by wire transfer to the following Company
account, by certified or cashiers check, in immediately available funds, payable
to "microHelix, Inc.", or by conversion of outstanding debt owed to the Investor
by the Company.

West Coast Bank
Portland Branch
1000 SW Broadway, Suite 1100
Portland, OR 97205
ABA No.: 1232000088
Account No. 560001281
Account Name: microHelix, Inc.
 
3. Representations and Warranties. In order to induce Investor to enter into
this Agreement and to purchase the Shares hereunder, the Company hereby
represents and warrants to each Investor: 
 
3.1 Organization and Corporate Power. The Company is a corporation duly
organized and validly existing under the laws of the State of Oregon. The
Company has all required corporate power and authority to own its property, to
carry on its business as presently conducted or contemplated to be conducted and
to carry out the transactions contemplated hereby.
 
3.2 Authorization. This Agreement and the Registration Rights Agreement dated as
of April 8, 2005 in substantially the form accompanying this Agreement
(together, the "Transaction Documents") have been or will prior to Closing be
duly executed and delivered by the Company and will be the legal, valid and
binding obligations of the Company, enforceable in accordance with their
respective terms, subject to applicable bankruptcy, insolvency, reorganization
and moratorium laws and other laws of general application affecting enforcement
of creditors' rights generally. The execution, delivery and performance of each
of the Transaction Documents has been or prior to Closing will be duly
authorized by all necessary corporate action of the Company.
 
3.3 Capitalization. The entire authorized capital stock of the Company consists
of 20,000,000 shares of Common Stock, no par value, of which 2,116,246 shares
were issued and outstanding as of November 1, 2005, and 3,500,000 shares of
Preferred Stock, no par value, of which 500,000 shares have been designated
Series A Preferred Stock (no shares of which are issued and outstanding), and of
which 2,750,000 shares are designated Series B Preferred Stock, 2,560,000 shares
of which are issued and outstanding prior to Closing. In this Offering the
Company will issue up to 500,000 shares of Series B Preferred Stock. Following
this Offering, and assuming that all of the 500,000 shares of Series B Preferred
Stock offered in the Offering are issued, the Company will have substantially
the following capitalization:
 
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Existing 
         
Post
Offering 
                                   
Common Stock
   
2,116,246
 
16.9
%
   
2,116,246
   
14.6
%
 Series B Preferred Stock*
   
9,000,000
 
71.8
%
   
11,000,000
   
75.7
%
 Outstanding Public Warrants**
   
812,611
 
6.5
%
   
812,611
   
5.6
%
 Other Options & Warrants***
   
595,867
 
4.8
%
   
595,867
   
4.1
%
 
    12,524,724          
14,524,724
       

 

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* On an as converted basis (4-to-1).
** Exercise price is $21.60 per share.
*** Exercise prices range from $0.25 to $27.18 per share.
 
All outstanding capital stock is duly authorized, validly issued and fully paid
and non-assessable. When issued in accordance with the terms of this Agreement,
the Shares will be duly authorized, validly issued and outstanding, fully paid
and nonassessable.
 
3.4 Subsidiaries. Except for Moore Electronics, Inc., an Oregon corporation
wholly owned by the Company, the Company has no subsidiaries and does not own or
control any interest in any other corporation, association or business
organization.
 
3.5 Intellectual Property. To the Company's Knowledge, the Company owns a valid
right, title, interest or license in and to the intellectual property necessary
for the operation of its business, which includes, but is not limited to, all
copyrights, common law copyrights, trade names, trademarks, service marks, trade
secrets, technology, know-how, processes, or any other intangible property
rights ("Intellectual Property") of the Company. There are no claims pending or,
to the Company's Knowledge, threatened against the Company regarding any claim
or infringement of any Intellectual Property belonging to any other person, firm
or corporation and the Company has not received any written notice or other
indication of any claim of any such infringement. The "Company's Knowledge"
means the actual knowledge, after reasonable investigation, of Tyram H. Pettit.

3.6 Licenses and Permits. The Company possesses all material licenses and
permits necessary for the present conduct of its business. Each of such licenses
and permits is in full force and effect, and there are no pending or, to the
Company's Knowledge, threatened claims or proceedings challenging the validity
of, or seeking to revoke or discontinue, any license or permit of the Company.

3.7 Taxes. The Company has (a) timely filed all federal, state, local and
foreign franchise, income, sales, gross receipts and all other tax returns and
statements which are required to be filed by it and which were due prior to the
date hereof ("Tax Returns and Statements"), and (b) paid within the time and in
the manner prescribed by law or established reasonable reserves for the payment
of all taxes, levies, assessments, fees, penalties, interest and other
governmental charges accrued or payable for all periods ending on or prior to
the date hereof. The Tax Returns and Statements are complete and accurate in all
material respects, and no tax assessment or deficiency which has not been paid
or for which an adequate reserve has not been set aside, has been made or
proposed against the Company, nor are any of the Tax Returns and Statements now
being examined or audited nor, to the Company's Knowledge, is there a threat
that any of the Tax Returns and Statements will be examined or audited, and no
consents waiving or extending any applicable statues of limitations for the Tax
Returns and Statements, or any taxes required to be paid thereunder, have been
filed.
 
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3.8 Compliance with Laws. The business of the Company has been conducted in
material compliance with all applicable laws, statutes, ordinances, rules,
regulations, orders and other requirements of all national governmental
authorities, and of all territories, states, municipalities and other political
subdivisions and agencies thereof, having jurisdiction over it, except for
violations that individually, or in the aggregate, would have no material
adverse effect on the business, operations or financial condition of the
Company.

3.9 Reservation of Underlying Shares. The shares of Common Stock issuable on
conversion of the Shares have been, or will be prior to Closing, duly and
validly reserved for issuance and, upon conversion of the Shares into shares of
Common Stock, will be duly and validly issued, fully paid and nonassessable.

3.10 Litigation. There is no claim, action, lawsuit, proceeding, complaint,
charge or investigation pending or, to the Company's Knowledge, threatened
against the Company which questions the validity of any of the Transaction
Documents or the right of the Company to enter into them or to consummate the
transactions contemplated hereby or thereby, or which might result, either
individually or in the aggregate, in any material adverse change in the
business, assets, conditions, operations, affairs, or prospects of the Company,
financial or otherwise, or any change in the current equity ownership of the
Company, nor to the Company's Knowledge is there any basis for the foregoing.

3.11 1934 Act Reports. The Company's Common Stock is traded on the Nasdaq OTC
Bulletin Board under the symbol "MHLX.OB." The Company has filed all reports
required to be filed by it through the date hereof under the Securities Exchange
Act of 1934, as amended, (collectively, the "1934 Act Reports"). The Company's
1934 Act Reports are available at www.sec.gov.

3.12 Transaction Costs. The Company does not expect to pay more than eight
percent (8%) with respect to finders or brokers fees in connection with this
Offering.
 
4. Representations and Warranties and other Agreements of Investor.
 
4.1 Representations and Warranties. Investor hereby represents and warrants to
the Company that:
 
 
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(a) Accredited Investor. Investor is an "accredited investor" as defined in Rule
501(a) of Regulation D promulgated under the Securities Act of 1933, as amended
(the "Securities Act") as identified on Investor's attached signature page:
 
(i)  An individual whose individual net worth, or joint net worth with that
person's spouse, at the time of the purchase exceeds $1,000,000;

(ii)  An individual who had an individual income in excess of $200,000 in each
of the two most recent years or joint income with that person's spouse in excess
of $300,000 in each of those years and who reasonably expects to reach the same
income level in the current year;

(iii)  A corporation or partnership, not formed for the specific purpose of
acquiring the Shares, with total assets in excess of $5 million;

(iv)  A trust, with total assets in excess of $5 million, not formed for the
specific purpose of acquiring the Shares, whose purchase is directed by a
sophisticated person as described in Regulation D; or

(v)  An entity in which all of the equity owners are accredited investors as set
forth above.

As used in this paragraph, the term "net worth" means the excess of total assets
over total liabilities. For the purpose of determining a person's net worth, the
principal residence owned by an individual should be valued at fair market
value, including the cost of improvements,  ;net of current encumbrances. As
used in this paragraph, "income" means actual economic income, which may differ
from adjusted gross income for income tax purposes. Accordingly, Investor should
consider whether it should add any or all of the following items to its adjusted
gross income for income tax purposes in order to reflect more accurately its
actual economic income: any amounts attributable to tax-exempt income received,
losses claimed as a limited partner in any limited partnership, deductions
claimed for depletion, contributions to an IRA or Keogh retirement plan, and
alimony payments.

(b) Authorization; Residency. Investor has full power and authority to execute,
deliver and perform the Transaction Documents and to acquire the Shares. The
Transaction Documents constitute the valid and legally binding obligations of
Investor, enforceable against Investor in accordance with their respective
terms, subject to applicable bankruptcy, insolvency, reorganization and
moratorium laws and other laws of general application affecting enforcement of
creditors' rights generally. Investor is a resident of the jurisdiction set
forth under its name on Investor's signature page hereto.

(c) Purchase Entirely for Own Account. The Shares to be purchased by Investor
and the Common Stock issuable upon conversion of the Shares (collectively, the
"Securities") will be acquired for investment for Investor's own account, not as
a nominee or agent, and not with a view to the resale or distribution of any
part thereof, and Investor has no present intention of selling, granting any
participation in or otherwise distributing the same. Investor does not have any
contract, undertaking, agreement or arrangement with any person or entity to
sell, transfer or grant participation to such person or to any third party with
respect to any of the Securities.
 
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(d) Reliance Upon Investor's Representations. Investor understands that the
Securities have not been registered under the Securities Act on the ground that
the sale provided for in this Agreement and the issuance of securities hereunder
is exempt from registration, and that the Company's reliance on such exemption
is predicated on Investor's representations set forth herein. Investor realizes
that the basis for the exemption may not be present if, notwithstanding such
representations, Investor has in mind merely acquiring shares of the Securities
for a fixed or determinable period in the future, or for a market rise, or for
sale if the market does not rise. Investor has no such intention.

(e) Investment Experience. Investor is experienced in evaluating and investing
in private placement transactions of securities of companies in a similar stage
of development as the Company and acknowledges that Investor is able to fend for
itself, can bear the economic risk of Investor's investment and has such
knowledge and experience in financial and business matters that Investor is
capable of evaluating the merits and risks of the investment in the Securities.
If Investor is an entity not otherwise owned entirely by accredited investors,
Investor has not been organized for the purpose of acquiring the Securities.

(f) Restricted Securities. Investor understands that the Securities may not be
sold, transferred or otherwise disposed of without registration under the
Securities Act or an exemption therefrom, and that in the absence of an
effective registration statement covering the Securities or an available
exemption from registration under the Securities Act, the Securities must be
held indefinitely. In particular, Investor is aware that the Securities may not
be sold pursuant to Rule 144 promulgated under the Securities Act unless all of
the conditions of that Rule are met.

(g) Receipt of Information. Investor has received all the information Investor
considers necessary or appropriate for deciding whether to purchase the Shares,
including without limitation the Company's 1934 Act Reports. Investor has had an
opportunity to ask questions and receive answers from the Company regarding the
terms and conditions of this Offering and the business, properties, prospects
and financial condition of the Company and its subsidiary, and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to Investor or to which Investor had
access.
 
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(h) Acknowledgement of Investment Risk. Investor understands that much of the
customer, market and competition information contained in information supplied
by the Company is based upon the Company's knowledge and belief, and may be
based on limited independent investigation. Investor further understands that
the future operating financial information provided by the Company is for
illustrative purposes only, and based upon certain hypothetical assumptions and
events over which the Company has only partial or no control. In addition, the
assumptions made by the Company and used in its forecasts are inherently
arbitrary. The selection of assumptions requires the exercise of judgment and is
subject to uncertainty due to the effects that operational, economic,
legislative or other changes may have on future events. The Company considers it
highly unlikely that each of these events will occur in the manner and at the
time anticipated in its financial forecasts. To the extent that the occurrence
or timing of actual events do not match the Company's assumptions, the Company's
actual operating and financial results will likely vary substantially from its
current financial projections. INVESTOR UNDERSTANDS THE RISKS AND SPECIAL
CONSIDERATIONS RELATING TO AN INVESTMENT IN THE COMPANY, INCLUDING, WITHOUT
LIMITATION, THOSE IDENTIFIED ON ATTACHED EXHIBIT A.
 
(i) Finder's Fees. There are no claims for brokerage commissions or finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by or on behalf of
Investor, and Investor agrees to indemnify and hold the Company and the other
investors in this Offering harmless against any damages incurred as a result of
any such claims.
 
4.2 Legends. Investor understands that certificates evidencing the Shares may
bear substantially the following legends:

 
(a)
"The shares represented by this certificate have not been registered under the
Securities Act of 1933, as amended. The shares may not be sold or offered for
sale in the absence of (a) an effective registration statement for the shares
under such Act, or (b) satisfactory assurances to the Company that registration
under such Act is not required with respect to such sale or offer."

 
(b)
Any legend required by the laws of any other applicable jurisdiction.

5. Conditions to Investor's Obligations at Closing. The obligations of Investor
to purchase Shares at Closing are subject to the fulfillment on or before
Closing of each of the following conditions unless waived by such Investor:
 
5.1 Representations and Warranties. The representations and warranties of the
Company contained in Section 2 will be true and correct in all material respects
on and as of the date of Closing.
 
5.2 Performance. Company will have performed and complied in all material
respects with all agreements, obligations, and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.
 
5.3 Agreements. The Transaction Documents will have been accepted and executed
by the Company. 
 
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6. Use of Proceeds. Proceeds from the sale of the Shares to all Investors in
this Offering will be used by the Company for general working capital.

7. Miscellaneous.
 
7.1 Incorporation by Reference. All exhibits appended to this Agreement are
incorporated by reference and made a part of this Agreement.
 
7.2 Binding Effect. All covenants, agreements, representations, warranties and
undertakings in this Agreement made by and on behalf of any of the parties
hereto will bind and inure to the benefit of the respective successors and
assigns of the parties hereto and transferees of the Shares.
 
7.3 Amendments and Waivers. Except as set forth in this Agreement, changes in or
additions to this Agreement may be made, or compliance with any term, covenant,
agreement, condition or provision set forth herein may be omitted or waived
(either generally or in a particular instance and either retroactively or
prospectively), upon the written consent of the Company and the Investor.
 
7.4 Governing Law; Jurisdiction. This Agreement will be deemed a contract made
under the laws of the State of Oregon and, together with the rights and
obligations of the parties hereunder, will be construed under and governed by
the laws of such State, without giving effect to principles of conflicts of law.
The parties hereto irrevocably submit to the jurisdiction of any state or
federal court sitting in Multnomah County, Oregon, in any action or proceeding
brought to enforce, or otherwise arising out of or relating to, this Agreement,
and hereby waive any objection to venue in any such court and any claim that
such forum is an inconvenient forum.
 
7.5 Waiver of Jury Trial; Attorney Fees. Each party hereby irrevocably waives
any right it may have, and agrees not to request, a jury trial for the
adjudication of any dispute hereunder or in connection herewith or arising out
of this Agreement or any transaction contemplated hereby. In the event suit or
action is brought by any party under this Agreement to enforce any of its terms,
or in any appeal therefrom, it is agreed that the prevailing party or parties
will be entitled to reasonable attorneys fees to be fixed by the arbitrator,
trial court, and/or appellate court.

7.6 Injunctive Relief. The parties agree that a breach or violation of this
Agreement will result in immediate and irreparable harm to the non-breaching
party in an amount that will be impossible to ascertain at the time of the
breach or violation, and that the award of monetary damages will not be adequate
relief to the non-breaching party. The non-breaching party will be entitled to
seek equitable or injunctive relief, in addition to other remedies to which it
may be entitled at law or equity. In any action for equitable relief, the
parties agree to waive any requirement for the posting of a bond or security.

7.7 Notices. All notices, requests, consents and demands will be in writing and
may be personally delivered (effective upon receipt), mailed, postage prepaid
(effective three business days after dispatch), sent by facsimile (effective
upon receipt of the facsimile in complete, readable form), or sent via a
reputable overnight courier service (effective the following business day), to:

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(a)
The Company at:
         
microHelix, Inc.
19500 SW 90th Court
Tualatin, OR 97062
FAX (503) 692-0878
   
Attn: Tyram H. Pettit
President
               
with a copy to:
         
Tonkon Torp LLP
888 SW Fifth Avenue, Suite 1600
Portland, OR 97204
FAX (503) 972-3743
Attn: Kurt W. Ruttum
       
(b)
Investor at its address set out on its signature page hereto, or such other
address as may be furnished in writing to the Company.
       
(c)
Any other holder of Shares or the underlying Common Stock at such address or
facsimile number shown in the Company's records, or, until any such holder so
furnishes an address or facsimile number to the Company, then to and at the
address of the last holder of such Shares or underlying Common Stock for which
the Company has contact information in its records.

 
7.8 Entire Agreement. This Agreement and the exhibits hereto constitute the
entire agreement among the Company and Investor with respect to the subject
matter hereof. This Agreement supersedes all prior agreements between the
parties with respect to the Shares purchased hereunder and the subject matter
hereof.

7.9 Severability. Each provision of this Agreement will be treated as a separate
and independent clause, and the unenforceability of any one clause will in no
way impair the enforceability of any of the other clauses. Moreover, if one or
more of the provisions contained in this Agreement will, for any reason, be held
to be excessively broad as to scope, activity, or subject so as to be
unenforceable at law, such provision or provisions will be construed by the
appropriate judicial body by limiting and reducing it or them, so as to be
enforceable to the maximum extent compatible with the applicable law as it will
then appear.
 
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7.10 Counterparts. This Agreement may be executed in one or more counterparts,
each of which when executed will be deemed to be an original, but all of which
taken together will constitute one and the same agreement. A facsimile
transmission of this signed Agreement will be legal and binding on all parties
hereto. 

7.11 Further Cooperation and Assurances. Each of the parties hereto will execute
and deliver any and all additional papers, documents and other assurances, and
will do any and all acts and things reasonably necessary in connection with the
performance of their obligations hereunder and to carry out the intent of the
parties hereto.

[Signatures on Following Pages]
 
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Exhibit 10.1
 
IN WITNESS WHEREOF, the Company and the Investor have executed this Agreement.

        MICROHELIX, INC.  
   
   
    By:      

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Tyram H. Pettit, President    

 
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Exhibit 10.1
 
MICROHELIX, INC.

Series B Preferred Stock Investor Signature Page

This Series B Preferred Stock Investor Signature Page to the Series B Preferred
Stock Purchase Agreement with microHelix, Inc. (the "Agreement"), is executed
and delivered by the Investor.

The undersigned is hereby designated as an "Investor" under the Agreement, is
entitled to the rights of an Investor under the Agreement, makes the
representations and warranties set forth in Section 3 of the Agreement to the
Company, and agrees to be bound by each and all of the terms of the Agreement as
they apply to Investors.

Dated as of _____________________.

Number of Shares of Series B Preferred Stock: ____________
Price Per Share: $1.00
Total Purchase Price: $______________
Accredited Investor Pursuant to Sect. 4.1 (identify all subsections that
apply):_______________

        PURCHASER (Individual):      PURCHASER (Jointly Held/Spouse):           
     

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Signature    

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Signature                

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Print Name      

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Print Name           Address:       Address: 

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      PURCHASER (Entity):              Entity Name:       

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      By:      

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             Signature  
            Its:       

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      Address:       

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Exhibit 10.1
 
EXHIBIT A

Risk Factors and Special Considerations
 
An investment in the Company involves a high degree of risk. In addition to the
other information contained in this Agreement, you should carefully consider the
following risks before making an investment decision. You could lose all or part
of your investment due to our financial condition or any of these risks. The
risks and uncertainties described below are not the only ones we face.
Additional risks and uncertainties not presently known to us, or that we
currently think are immaterial, may also impair our business operations.
 
Our on-going business plan is based on assumptions that could prove to be
incorrect, which could mean that we may be unable to expand as planned and could
cause us to invest in areas that do not result in new sales.

The key element of the Company's on-going business plan involves the expansion
of our cable assembly capabilities and customer base, in part through our
acquisition in April 2005 of Moore Electronics, Inc.. This effort intends to
capitalize on what we expect to be new growth in the medical ultrasound
equipment market. The success of our plan depends on numerous assumptions that
we cannot be sure are justified. If any of our key assumptions are incorrect, we
could be unable to expand our business as we currently anticipate and we may
make substantial investments in product development and/or marketing efforts
that do not result in new product sales. Our assumptions include the following:
 

 
·
demand for sophisticated “next generation” ultrasound imaging and diagnostic
systems will continue to increase;
       
·
our cable assembly capabilities, including those that that serve ultrasound
system OEMs, and our replacement ultrasound probes will efficiently address
market needs as they develop;
       
·
OEMs with whom we have or may develop relationships will be successful in
developing their technologies and addressing their markets and will remain
agreeable to outsource some or all of these cable assemblies; and
       
·
other companies will not expand their cable assembly capabilities that offer
technological or economic advantages over ours.

 
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The development of products by our OEM customers is usually subject to review by
the U.S. Food and Drug Administration and other regulatory agencies, which means
that new cable assemblies provided by us that are designed as part of these
systems may not be sold in commercial quantities for a long time, if ever.

Our sales process involves designing our cable assemblies into both existing and
new OEM devices. The sale of any new system in commercial quantities is
generally preceded by a pre-production design phase in which we produce various
cable assembly prototypes based on a collaboration with the customer’s
engineering and product design staff. The OEM’s imaging systems are subject to
regulation and licensing, usually by the U.S. Food and Drug Administration
("FDA"), and sometimes by comparable foreign regulatory bodies, which increases
the cost and time required for the development, marketing and sale of these
systems. We expect that the sales cycle for most of our cable assemblies will
take 3-12 months to develop and validate. We are generally paid for prototypes
during the design phase but do not expect such payments to contribute
significantly to our profitability. If either our proposed cable assembly
solution or the overall imaging system is not approved or is not successfully
brought to market in a timely manner, the failure to do so will have a direct
and adverse impact on our future sales.

A large portion of our sales is concentrated with a few customers that could
make fluctuations in revenue and earnings more severe.

Sales to the Company's largest customer, GE Parallel Design, accounted for 69%
and 63% of our total ultrasound sales in 2003 and 2004, respectively. There are
a relatively limited number of OEMs that make ultrasound-imaging systems.
Although we provide cable assemblies and/or other services to industry-leading
OEMs and to several specialized competitors, the loss of a significant customer
could have a material adverse impact on us. While we expect the overall size of
the medical ultrasound market to expand, it remains possible that significant
penetration of these markets may depend on large volume sales to a limited
number of potential customers. Concentration in our customer base may make
fluctuations in revenue and earnings more severe and make business planning more
difficult.

Large OEM customers can change their demand on short notice, further adding to
the unpredictability of our quarterly sales and earnings.

Our quarterly results have in the past and may in the future vary significantly
due to the lack of dependable long-term demand forecasts from our larger OEM
customers. In addition to this risk, many of our OEM customers have the right to
change their demand schedule, either up or down, within a relatively short time
horizon. These changes may result in us incurring additional working capital
costs and causing increased manufacturing expenses due to these short-term
fluctuations. In particular, our quarterly operating results have in the past
fluctuated as a result of some of the larger OEM customers changing their orders
within a fiscal quarter. Our expense levels, to a large extent, are based on
shipment expectations in the quarter. If sales levels fall below these
expectations, operating results are likely to be adversely affected. Although we
have tried to lessen our dependency on a few large customers, this is the nature
of the OEM medical ultrasound industry that we serve and we can provide no
assurance that we will be able to materially alter this dependency in the
immediate future, if at all.
 
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In our highly competitive markets, many of our potential competitors have
resources that we lack, which could impair our relationships with actual or
potential customers.

Our markets are highly competitive. This is particularly true in the area of
cable assemblies sold to OEM customers. Competition is based on technology,
established relationships, quality of support, location of facilities and price.
Several of our competitors have a longer history of operations and more
established relationships with actual and potential customers than we have. In
addition, most of our OEM customers choose to concentrate their cable assembly
business with one or two suppliers and may have certain geographic preferences.
The combination of these factors may have a direct and adverse impact on our
ability to serve these customers in the future. The Company's principal
competitive advantages are: (a) low cost manufacturing in Nogales, Mexico; (2)
exceptional quality record; (3) highly responsive to customers with quick turn
capability; and (4) very competitive pricing. Despite these advantages, many of
our competitors and potential competitors have technological and financial
resources and established business relationships that may afford them a
competitive advantage.

Intellectual Property

Although we may apply for patents for some of our products, the patents may not
be granted or may not provide adequate protection of our intellectual property.
We intend to rely on copyrights, trademarks, trade secret laws and contractual
obligations with employees and third parties to protect our intellectual
property. Despite efforts to protect our intellectual property, unauthorized
parties may attempt to copy aspects of our products or obtain and use
information that we regard as proprietary. Our efforts to protect our
intellectual property from third-party discovery and infringement may be
insufficient and third parties may independently develop technologies similar to
ours, duplicate our products or design around any patents we may obtain. In
addition, third parties may assert that our products and technologies infringe
their intellectual property.

Growth Management

The rapid execution necessary for us to successfully implement our business plan
requires an effective planning and management process. We anticipate significant
growth and will be required to continually improve our financial and management
controls, reporting systems and procedures on a timely basis, and expand, train
and manage our personnel. There can be no assurance that our systems, procedures
or controls will be adequate to support our operations or that our management
will be able to achieve the rapid execution necessary to successfully implement
our business plan.

Dependence on Key Personnel

Our success depends on our ability to identify, attract and retain highly
qualified personnel and the failure to do so could have a material adverse
effect on us.

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Future Capital Needs and the Uncertainty of Additional Financing

In addition to the funding provided by the proceeds of the sale of Series B
Preferred Stock under this Offering, to complete and implement our business plan
we may need to raise significant additional funds. There can be no assurance
that additional financing, if needed, will be available on terms favorable to
us, or at all.

Offering Price and Conversion Ratio

The price per share and conversion ration of the Series B Preferred Stock was
set by us. Although set in good faith, the price and/or conversion ratio may not
bear any direct relationship to the assets, results of operations or other
objective criteria of value applicable to us.

Illiquid Investment

The Securities have not been registered under the Securities Act and are being
offered in reliance upon an exemption from registration under the Securities Act
and applicable state securities laws. The Securities can only be transferred or
resold in a transaction under or exempt from the Securities Act and applicable
state securities laws. There is no public market for the offered Series B
Preferred Stock, and there is no guarantee that any public market for these
securities will develop. For these reasons Investors may not be able to
liquidate their investment in the Company in the event of an emergency or for
any other reason. Consequently, the purchase of Series B Preferred Stock, and
the acquisition of Common Stock upon the conversion of Series B Preferred Stock,
should be considered only as a long-term investment.
 
 
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