**UNITED
      STATES SECURITIES AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**


**Form
      10-KSB/A**


(Amendment
      No. 1)





R
            **ANNUAL
                REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
                1934****For
                the year ended December 31, 2005****Or**£
            **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.**


*(Name
      of Small Business Issuer in Its Charter)*





**Oregon**
            **91-1758621***(State
                or Other Jurisdiction of Incorporation or
                Organization)*
            *(I.R.S.
                Employer Identification No.)***19500
                SW 90****th****Court, Tualatin, Oregon**
            **97062***(Address
                of Principal Executive Offices)*
            *(Zip
                Code)*





**(Issuer's
      Telephone Number, Including Area Code):**


**(503)
      692-5333**




**Securities
      registered under Section 12(g) of the Exchange Act:**





**Common
      Stock, no par value per share**


**Class
      B Warrants to purchase one share of Common Stock**





Check
      whether issuer is not required to file reports pursuant to Section 13 or 15(d)
      of the Exchange Act. £





Check
      whether the issuer (1) filed all reports required to be filed by Section 13
      or
      15(d) of the Exchange Act during the past 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 R No £





Check
      if
      no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is
      contained in this form, and no disclosure will be contained, to the best of
      registrant's knowledge, in definitive proxy or information statements
      incorporated by reference in Part III of this Form 10-KSB, or any amendments
      to
      this Form 10-KSB. £





Indicate
      by check mark whether the registrant is a shell company (as defined in Rule
      12b-2 of the Exchange Act). Yes £ No R





The
      issuer's revenues for its most recent fiscal year: $9,164,242.





The
      aggregate market value of the voting and non-voting common equity held by
      non-affiliates, as of March 31, 2006, was approximately $894,221 based upon
      the
      last sale price reported for such date on the NASDAQ OTC Market.





There
      were 2,129,097 shares of the issuer's common stock outstanding as of April
      17,
      2006.





**Documents
      Incorporated by Reference**





Parts
      of
      registrant's proxy statement dated on or about April 30, 2006 prepared in
      connection with the Annual Meeting of Shareholders to be held on June 08, 2006
      are incorporated by reference into Part III of this report.





**Transitional
      Small Business Disclosure Format: Yes** £ **No** R









**EXPLANATORY
      NOTE**





We
      are
      filing this Form 10-KSB/A to amend Part II, Item 7 of our Annual Report on
      Form
      10-KSB for the year ended December 31, 2005, which we filed with the Securities
      and Exchange Commission on April 17, 2006. This amendment is being filed to
      correct certain typographical errors.





This
      Form
      10-K/A does not reflect events occurring after the filing of our Annual Report
      on Form 10-K on April 17, 2006 or include, or otherwise modify or update, the
      disclosure contained therein in any way except as expressly indicated
      above.





**PART
      I**





*This
      Annual Report on Form 10-KSB 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 Annual Report on Form 10-KSB. 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.*





**Item
      1.** ***Description
      of Business***





***Overview***





microHelix
      is a manufacturer and distributor of complex cable assemblies for the medical
      and commercial markets. We serve a segment of the quick turn, high mix, and
      low
      volume cable assembly market generally referred to as the custom cable assembly
      market. Typical cable assemblies may include cable, connectors, flex reliefs,
      housings and printed circuit boards ("PCBs") and are critical sub-components
      of
      medical devices and commercial electronic systems. We operate our business
      in a
      single operating segment through two divisions: our Moore Electronics division
      and our MicroCoax Assembly Solutions division. We sold our wire and cable
      division in April 2004.





***Moore
      Electronics Division***





On
      April
      8, 2005, we acquired 100% of the outstanding stock of Moore Electronics, Inc.
      ("Moore"). Moore, headquartered in Tualatin, Oregon, was founded in 1978 and
      is
      a manufacturer of customized cable assemblies, sub-assemblies, wire harnesses
      and electro-mechanical assemblies. Moore serves the cable assembly requirements
      of major medical equipment manufacturers and commercial equipment manufacturers.
      Moore also does complex mechanical assemblies (“box builds”) for commercial and
      aerospace customers. Many major Original Equipment Manufacturers (“OEMs”)
      outsource their cable assembly work so they can focus on final assembly and
      sale
      of their products. Moore’s growth has been driven by its ability to partner with
      its customers, support complex projects with strong in-house engineering
      resources, provide low-cost assembly services and offer turn-key solutions
      for
      custom cable assembly projects. Custom cable assembly work is generally not
      well-suited for transfer to offshore operations for three principal reasons:
      (1)
      low unit volume; (2) rapid turn (i.e. accelerated delivery schedule) and (3)
      frequent engineering changes. We operate Moore as a wholly owned
      subsidiary.




Moore
      competes for business in the United States with companies of similar size and
      capabilities and with the cable assembly divisions of certain large connector
      and cable manufacturers like Molex, Lemo, Fischer, Tyco Electronics and W.L.
      Gore. Most high volume cable assembly is now done in lower labor cost countries.
      This leaves the high mix, quick turn, low volume custom cable assembly business
      in the United States. Most competitors purchase components vs. making them
      so
      OEM customers select vendors based on responsiveness, engineering and technical
      support, consistent quality and price. We believe the total value of the custom
      cable assembly business available to U.S - based companies exceeds $1.0 billion
      per year.




1





***MicroCoax
      Assembly Solutions Division***





Our
      MicroCoax Assembly Solutions division (“MicroCoax”) designs and manufactures
      custom cable assemblies for OEM customers that are used in applications such
      as
      medical ultrasound probes, patient monitoring devices, catheters and flaw
      detection ultrasound.





We
      believe the total worldwide market for medical ultrasound systems exceeded
      $3.5
      billion in 2005, with the U.S. market accounting for approximately 40% of this
      total. Over the past ten years, the ultrasound business has consolidated,
      leaving four principal global integrated manufacturers and several smaller
      specialty manufacturers. A number of smaller cable suppliers have left the
      business as part of this process, creating additional market opportunities
      for
      the remaining manufacturers of cable assemblies for sale to these OEM customers.
      Although we have a small share of the total market, we have the benefit of
      low
      cost manufacturing operations, a reputation for quality, on-time delivery,
      an
      experienced engineering team and proven responsiveness to customer needs. Sales
      to customers in the medical and commercial ultrasound markets represented over
      70% of total MicroCoax revenues in 2005. Demand has been growing in excess
      of 5%
      annually, and has been driven by a combination of replacement and upgrading
      needs, increased use of ultrasound systems for diagnosis, and various procedures
      and system enhancements such as real time 3-D "color" imaging.





***Former
      Wire and Cable Division***





On
      April
      21, 2004, we sold the assets associated with our wire and cable division,
      located in Portland, Oregon, to Advanced Neuromodulation Systems, Inc. ("ANS").
      Our wire and cable division manufactured and marketed coated wire, including
      ultra-thin wall pinhole free wire and custom cable for a number of applications.
      The wire and cable division also designed and manufactured specialty connectors
      and flex circuits, and offered a range of laser micro-machining
      services.





***Principal
      Products and Markets***





·  *Custom
      Cable Assemblies.* We
      design
      and manufacture custom cable assemblies, sub-assemblies, wire harnesses and
      electro-mechanical assemblies that serve major medical and commercial
      OEMs.




·  *Patient
      Monitoring and Defibrillation* .
      We
      design and manufacture cables and leads for a variety of applications including
      external defibrillation, EKG, EEG and oxygen sensors. For such critical
      applications, our customers depend on the quality and reliability of the
      assemblies we produce.


·  *Diagnostic
      Ultrasound* .
      We
      design and manufacture custom cable assemblies for medical ultrasound imaging
      systems for the OEM market. Our typical probe cable connects to a transducer
      and
      an ultrasound imaging system, and typically consists of between 64 and 256
      micro-coaxial wires.





·  *Catheters* .
      We
      manufacture certain sub-assemblies for balloon ablation cardiac catheters,
      used
      in the treatment of atrial fibrillation.





·  *Commercial
      Ultrasound.* We
      manufacture cable assemblies for a variety of ultrasound inspection and flaw
      detection applications





·  *Mechanical
      Assemblies.* We
      developed the capability to engineer and manufacture mechanical assemblies
      (“box
      builds”) in 2005. This involves the integration of cables, connectors, PCBs,
      flex circuits, modems, power supplies and other critical components into a
      housing, creating a complete device. These devices are typically integrated
      into
      a more complex system that represents the product that our customers sell to
      their customers. Box builds require the successful integration of our
      engineering, assembly and testing capabilities.





2




***Engineering***





We
      have
      experienced engineering personnel in Tualatin, Oregon, Tucson, Arizona, and
      Nogales, Mexico. The Tualatin engineering team is principally focused on the
      design, development, and manufacture and testing of custom cable assemblies.
      The
      Tucson engineering team is principally focused on the design, development,
      and
      manufacture and testing of ultrasound cable assemblies and supervises our
      Nogales-based manufacturing and testing engineering functions.





***Manufacturing***





Our
      principal custom cable assembly manufacturing operations are conducted in a
      33,000 square foot leased facility located in Tualatin, Oregon. This facility
      houses manufacturing, engineering, materials management, sales, purchasing,
      finance and other staff functions. We also have a skilled work force and
      experienced management in Tucson, Arizona and Nogales, Mexico that offers a
      lower-cost production alternative, particularly competitive when cable
      assemblies have high labor content. We have 4,500 square feet of office and
      warehouse space in Tucson. This facility provides space for administration,
      design and manufacturing engineering, customer service personnel, inventory
      storage, shipping and receiving. We have a 15,000 square foot facility in
      Nogales Mexico that provides manufacturing, warehouse and office space. We
      assemble and test all of our ultrasound and flaw detection ultrasound cable
      assemblies in the Nogales facility.





We
      purchase wire, cable, connectors, contacts and other components from many
      qualified vendors. Our customers sometimes provide us with certain components
      and lower level materials for their manufacturing builds. For ultrasound
      products, cable and components are shipped to our office in Tucson where they
      are staged and submitted on the proper permits for shipment to our Nogales
      facility where the cable assemblies are completed. After testing and quality
      inspection in Nogales, the completed assemblies are returned to our facility
      in
      Tucson for shipment to our customers.





***Government
      Regulation***





Our
      medical device customers are generally subject to regulation by the U.S. Food
      and Drug Administration (“FDA”) and therefore rely on us to maintain appropriate
      documentation and quality controls to meet product regulatory requirements.
      We
      rely on our Quality Managers in Tualatin and in Tucson under the guidance of
      our
      Director of Quality Assurance and Regulatory Affairs, to assist us in supporting
      our customers to meet all applicable regulatory requirements.





***Environmental
      Laws***





The
      costs
      and effects of complying with federal, state and local environmental laws do
      not
      significantly affect our operations.





***Principal
      Customers***





We
      have
      approximately 220 active customers. In 2005 sales to our three largest customers
      accounted for 31%, 18% and 12%, respectively, of our total revenues.





***Sales
      and Marketing***





Our
      sales
      and marketing efforts for the Moore division are managed by our Vice President
      and General Manager for the Moore division who is headquartered in Tualatin.
      Our
      sales and marketing efforts for the MicroCoax division are managed by our Vice
      President and General Manager for the MicroCoax division that is headquartered
      in Tucson. Applications, new product development and manufacturing engineers
      located in Tualatin, Tucson and Nogales support sales efforts, working closely
      with customers and their engineering teams.





Our
      OEM
      sales cycle, depending on the type of product, generally takes from one to
      twelve months from the initial contact to the first shipment. Our sales process
      may involve either taking over manufacturing of designed and approved cable
      assemblies or designing cable assemblies for new systems, so the sale of these
      assemblies in commercial quantities will either require us to produce first
      article production samples for customer approval (a relatively quick process)
      or
      can be preceded by a pre-production design phase in which we produce various
      prototype cable assemblies based on the input from our customers' engineers
      and
      our staff. After the prototypes are submitted to the customer it may take
      several months for the customer's quality assurance or product engineering
      department to complete their evaluation testing to determine if the prototypes
      meet their qualification test requirements.





3




Our
      commercial OEM customers are generally able to move forward rapidly to approve
      our parts and issue production quantity orders. However, our medical OEM
      customers may have to amend their FDA filings if they are changing suppliers
      or
      the design of an existing cable assembly. If developing a new medical device,
      our medical OEM customers must obtain the approval of the FDA and other
      regulatory agencies before commercial production can begin. If their device
      is
      approved, we can expect to begin manufacturing our custom cable assemblies
      and/or components in commercial quantities. Products going through this kind
      of
      development cycle can usually expect a three to five year product life before
      next generation technology or new models supplant the current version. Our
      objective is to be working on next generation prototypes while providing
      assemblies for the current device in commercial quantities.





***Competition***





Several
      companies, most of which are more established and larger than we are,
      manufacture the same products and provide the same services that we do, thus
      offering our customers and potential customers competitive alternatives for
      most
      applications. These companies include W.L. Gore, Precision Interconnect (Tyco)
      and Tensolite, all of which are larger and financially stronger than we are.





As
      a
      small cable assembly supplier, we believe we have certain cost advantages,
      including making effective use of lean manufacturing practices that materially
      improve workflow and of our lower-cost Nogales, Mexico assembly operation when
      appropriate, and a reputation for quality, on-time delivery, engineering
      expertise and responsiveness. Our cable assembly, component design, and
      manufacturing capabilities give us a broad platform of skills allowing us to
      compete successfully to serve customers in several other industries including
      test and measurement, flaw detection and inspection, robotics and aerospace.
      In
      almost all situations, we compete against larger and financially stronger
      companies.





The
      consolidation in the U.S.- based cable assembly business has also reduced the
      number of suppliers, providing the remaining suppliers with additional
      opportunities to compete for business. This has become more important as major
      OEM customers and prospects continue to outsource more sub-assemblies, allowing
      them to concentrate on the initial development and design of products and then
      on final assembly and test. We believe that our focus on serving the medical
      and
      commercial OEM markets will enable us to continue to build our cable assembly
      business. Our entry into the “box build” business has added another capability,
      permitting us to offer complete solutions to customers. We believe these
      competitive advantages may help us to offset the advantages enjoyed by our
      larger and better-capitalized competitors.





***Research
      and development***





Our
      research and development efforts are limited to leveraging certain competencies
      as a designer and manufacturer of miniaturized interconnect systems for Case
      Western Reserve University as part of a multi-year project. In the initial
      stages of our development, we received funding for a substantial portion of
      our
      research and development efforts from government grants. For the past two years
      we have received virtually no funding from governmental agencies. We spent
      immaterial amounts on research and development in 2005 and 2004.





***Patents
      and intellectual property***





We
      have
      no patents or patent applications pending as of the date of this report. We
      continue to have certain know-how and trade secrets that we use as part of
      our
      ongoing manufacturing processes and development contracts with customers.





We
      currently own the trademark "MICROHELIX" that is listed on the principal
      register of the United States Patent and Trademark Office. Our intellectual
      property also includes common law trademarks, service marks and trade
      names.




4




***Employees***




We
      had
      139 full-time employees and 1 part-time employee in the United States as of
      December 31, 2005. In our office in Tualatin, Oregon, we had 132 full-time
      employees and 1 part-time employee, and in our office in Tucson, we had 7
      full-time employees. Additionally, we contract with a company in Mexico that
      employs 24 people who work at our factory in Nogales. None of our employees
      are
      represented by a collective bargaining agreement, nor have we experienced any
      work stoppage. We consider our relationship with our employees to be good.





***Company
      history***





microHelix
      began in 1991 in Portland, Oregon as a grant and private equity funded research
      company, formed to develop leading edge manufacturing techniques for medical
      device interconnect systems. In the years that followed we established a
      foundation of proprietary processes and intellectual property in the areas
      of
      ultra-thin wall pinhole free wire, micro-interconnect technology, advanced
      laser
      micro-machining, specialty connectors and flex circuits. We began manufacturing
      operations in 1998, designing and building cable assemblies and micro-electric
      interconnects for use in the medical device and commercial industries.





In
      April
      1999, we acquired Key-Tech, a privately held Portland-based designer and
      manufacturer of interconnect systems for the medical and commercial markets.
      In
      addition to acquiring a customer base, we significantly enhanced our
      manufacturing and engineering capabilities.





In
      December 1999, we acquired the assets of the medical ultrasound division of
      Alcatel NA Cable Systems, Inc., the United States subsidiary of one of the
      largest wire and cable manufacturers in the world, which designs and
      manufactures cable assemblies for use in non-invasive ultrasound probes and
      systems. In connection with this acquisition, we acquired facilities and
      employees in Tucson, Arizona and Nogales, Mexico.





We
      completed our initial public offering in November 2001. Our Common Stock and
      Class B Warrants currently trade on the NASDAQ OTC Bulletin Board under the
      symbols MHLX.OB and MHLXZ.OB, respectively.





In
      April
      2004 we sold the assets of our wire and cable division to ANS. In April 2005
      we
      acquired all of the stock of Moore, a manufacturer of customized cable
      assemblies, sub-assemblies, wire harnesses and electro-mechanical assemblies.





***Where
      You Can Find More Information***





We
      are
      subject to the information requirements of the Securities Exchange Act of 1934,
      as amended. In accordance with the Securities Exchange Act, we file annual,
      quarterly and current reports, proxy statements and other information with
      the
      Securities and Exchange Commission. You may inspect and copy any document we
      file with the SEC at the SEC's public reference rooms in Washington, D.C. at
      450
      Fifth Street, N.W., Washington, D.C. 20549, at the SEC's Northeast Regional
      Office at 233 Broadway New York, NY 10279, and at the SEC's Midwest Regional
      Office at 500 West Madison Street, Chicago, Illinois 60611-2511. You may obtain
      information on the operation of the SEC's public reference rooms by calling
      (800) SEC-0330. You may also purchase copies of our SEC filings by writing
      to
      the SEC, Public Reference Section, 450 Fifth Street, N.W., Washington, D.C.
      20549. Our SEC filings are also available on the SEC's website at http://www.sec.gov .
      You may
      also find additional information about us at our website at http://www.microhelix.com .
      Information contained in our website or any other website does not constitute
      a
      part of this report.





**Item
      2.** ***Description
      of Property***





We
      lease
      a 33,000 square foot facility in Tualatin, Oregon under a lease that expires
      in
      August 2008, and contains renewal options. This facility provides space for
      our
      corporate headquarters, administration, complex cable design and manufacturing
      engineers, customer service personnel, inventory storage, and shipping and
      receiving.





5




We
      lease
      approximately 4,500 square feet of office and warehouse space in Tucson, Arizona
      under a lease that expires in August 2007. This facility provides space for
      administration, design and manufacturing engineers, customer service personnel,
      inventory storage, and shipping and receiving.





We
      lease
      approximately 15,000 square feet of manufacturing, warehouse and office space
      in
      Nogales, Mexico. The lease expires in November 2006 and contains renewal
      options.





We
      believe that our facilities are adequate for our current and near-term future
      needs. Our management believes that all of our facilities are adequately covered
      by insurance. As of the date of this report, we have no investments in publicly
      traded securities, real estate, mortgages or securities of or interests in
      persons engaged in real estate activities.





**Item
      3.** ***Legal
      Proceedings***





From
      time
      to time we may become involved in ordinary, routine, or regulatory legal
      proceedings incidental to our business. As of the date of this report, we are
      not engaged in any legal proceedings nor are we aware of any pending or
      threatened legal proceedings that, singly or in the aggregate, could have a
      material adverse effect on our business, financial condition or results of
      operations.





**Item
      4.** ***Submission of Matters to a Vote of Security Holders***





Our
      2005
      annual meeting of shareholders was held on November 16, 2005 for the purpose
      of
      electing directors.


The
      following votes were cast for or withheld as to each of the six nominees for
      the
      position of director:





**Director
                Nominee**
            **Votes
                For**
            **Votes
                Withheld**James
                M. Williams
            7,633,795
            7,499Tyram
                H. Pettit
            7,617,262
            24,032Terrence
                A. Rixford
            7,617,262
            24,032John
                L. Crary
            7,633,795
            7,499Marti
                D. Lundy
            7,536,282
            105,012James
                M. Thornton
            7,633,462
            7,832





All
      of
      the nominees for directors were elected by the shareholders. There were no
      abstentions or broker non-votes with regard to this matter.




6





**PART
      II**





**Item
      5.** ***Market for Common Equity and Related Shareholder
      Matters***





Our
      Common Stock and Class B Warrants began trading on the NASDAQ OTC Bulletin
      Board
      on February 19, 2004 under the symbols MHLX.OB and MHLXZ.OB respectively. Prior
      to that date, our Common Stock and Class B Warrants traded on the NASDAQ Capital
      Market. The table below sets forth for the periods indicated the high and low
      bid prices for the Common Stock and Class B Warrants, respectively, as reported
      by the NASDAQ OTC Bulletin Board from February 19, 2004 through December 31,
      2005 and as reported by the NASDAQ Capital Market from January 1, 2004 through
      February 18, 2004. The prices shown represent inter-dealer prices without
      adjustments for retail mark-ups, mark-downs or commissions and consequently
      do
      not necessarily reflect actual transactions.





**Common
      Stock "MHLX.OB"**





**2005
                Fiscal Quarters**
            
            **High**
            
            **Low**First
                Quarter
            
            $
            .18
            
            $
            .18Second
                Quarter
            
            $
            .43
            
            $
            .31Third
                Quarter
            
            $
            .38
            
            $
            .29Fourth
                Quarter
            
            $
            .58
            
            $
            .25




**2004
                Fiscal Quarters**
            
            **High**
            
            **Low**First
                Quarter
            
            $
            .75
            
            $
            .60Second
                Quarter
            
            $
            .75
            
            $
            .58Third
                Quarter
            
            $
            .58
            
            $
            .41Fourth
                Quarter
            
            $
            .41
            
            $
            .26








**Class
      B Warrant "MHLXZ.OB"**





**2005
                Fiscal Quarters**
            
            **High**
            
            **Low**First
                Quarter
            
            $
            .04
            
            $
            .01Second
                Quarter
            
            $
            .04
            
            $
            .005Third
                Quarter
            
            $
            .03
            
            $
            .015Fourth
                Quarter
            
            $
            .05
            
            $
            .015





**2004
                Fiscal Quarters**
            
            **High**
            
            **Low**First
                Quarter
            
            $
            .10
            
            $
            .06Second
                Quarter
            
            $
            .07
            
            $
            .05Third
                Quarter
            
            $
            .065
            
            $
            .05Fourth
                Quarter
            
            $
            .05
            
            $
            .05





Holders
      of shares of Common Stock are entitled to receive such dividends, if any, as
      may
      be declared by our Board of Directors out of funds legally available therefore
      and, upon our liquidation, dissolution or winding up are entitled to share
      ratably in all net assets available for distribution to such shareholders.
      We
      have not, to date, declared or paid any cash dividends. Our ability to declare
      dividends with respect to our Common Stock is subject to prior rights of the
      holders of our Series B Preferred Stock to dividends.





**Series
      B Preferred Stock**





During
      2005 we issued 2,750,000 shares of Series B Preferred Stock to accredited
      investors in private placements. On April 8, 2005 we sold 2,000,000 shares
      of
      Series B Preferred Stock at $1.00 per share for total gross cash proceeds of
      $2.0 million, which we used as partial consideration for the acquisition of
      Moore. On April 8, 2005 we also issued 250,000 shares of Series B Preferred
      Stock to a selling shareholder as partial consideration in the acquisition
      of
      Moore.





On
      October 28, 2005 we sold 310,000 shares of Series B Preferred Stock at $1.00
      per
      shares. We received total gross cash proceeds of $210,000. The remaining
      $100,000 of the purchase price for the shares was paid by conversion of the
      outstanding principal on a promissory note owed by microHelix to an affiliate
      of
      James M. Williams, one of our directors. On December 7, 2005 we sold 190,000
      shares of Series B Preferred Stock at $1.00 per share for total gross cash
      proceeds of $190,000. The proceeds of the October and December 2005 sales of
      Series B Preferred Stock were used for working capital.




7





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





Each
      share of Series B Preferred Stock is convertible into four shares of Common
      Stock (subject to adjustment for stock splits, stock dividends,
      reclassifications and the like). We can redeem the shares of Series B Preferred
      Stock at any time after April 8, 2006 for $1.50 per share (as adjusted for
      stock
      splits, stock dividends, reclassification and the like). We have granted demand
      and piggy-back registration rights to the holders of Series B Preferred Stock
      with respect to the underlying shares of Common Stock obtainable upon
      conversion.





**Shareholders
      of Record**





As
      of
      March 31, 2006, there were approximately 40 shareholders of record of our Common
      Stock, 15 holders of record of our Class B Warrant and 26 shareholders of record
      of our Series B Preferred Stock.





**Securities
      Authorized for Issuance Under Equity Compensation Plans**





As
      of
      December 31, 2005, we had terminated all of our equity compensation plans.
      In
      October 2005 we agreed to repurchase from our existing option holders options
      exercisable for up to a total of 14,262 shares of our Common Stock in exchange
      for our issuance of a total of 12,851 shares of Common Stock and payment of
      a
      total of $423 in cash. Such transactions were completed by February 28,
      2006.





Our
      Board
      of Directors determined in 2005 that the cost of maintaining our equity
      compensation plans outweighed the perceived benefits received from our employees
      under those plans. We expect that for the foreseeable future any equity
      compensation grants to our employees and directors will be in the form of grants
      of shares of Common Stock. Such grants may be restricted or
      unrestricted.





**Item
      6.** ***Management's
      Discussion and Analysis of Financial Condition and Results of
      Operations***





**Overview**





microHelix
      is a manufacturer and distributor of custom cable assemblies for the medical
      and
      commercial OEM markets. We serve a segment of the quick turn, high mix, low
      volume cable assembly market generally referred to as the custom cable assembly
      market. Typical cable assemblies include cable, connectors, contacts, flex
      reliefs, housings and printed circuit boards ("PCBs") and are critical
      sub-components of medical devices and commercial electronic systems. We operate
      our business in a single operating segment through two divisions: our Moore
      division and our MicroCoax division. We sold our wire and cable division in
      April 2004.





On
      April
      8, 2005, we acquired 100% of the outstanding stock of Moore. Moore,
      headquartered in Tualatin, Oregon, was founded in 1978 and is a manufacturer
      of
      customized cable assemblies, sub-assemblies, wire harnesses and
      electro-mechanical assemblies. Moore serves the cable assembly requirements
      of
      major medical equipment manufacturers and commercial equipment manufacturers.
      Moore also does complex mechanical assemblies (“box builds”) for commercial and
      aerospace customers. Many major OEMs outsource their cable assembly work so
      they
      can focus on final assembly and sale of their products. Moore’s growth has been
      driven by its ability to partner with its customers, support complex projects
      with strong in-house engineering resources, provide low-cost assembly services
      and offer turn-key solutions for custom cable assembly projects. Custom cable
      assembly work is generally not well-suited for transfer to offshore operations
      for three principal reasons: (1) low unit volume; (2) rapid turn (i.e.
      accelerated delivery schedule) and (3) frequent engineering changes. We operate
      Moore as a wholly owned subsidiary.





Our
      MicroCoax division designs and manufactures cable assemblies for OEM customers
      that are used in applications such as medical ultrasound probes, laparoscopes,
      catheters and flaw detection ultrasound.




8





microHelix
      began in 1991 in Portland, Oregon as a grant and private equity funded research
      company, formed to develop leading edge manufacturing techniques for medical
      device interconnect systems. In the years that followed we established a
      foundation of proprietary processes and intellectual property in the areas
      of
      ultra-thin wall pinhole free wire, micro-interconnect technology, advanced
      laser
      micro-machining, specialty connectors and flex circuits. We began manufacturing
      operations in 1998, designing and building cable assemblies and micro-electric
      interconnects for use in the medical device and commercial industries.





In
      April
      1999, we acquired Key-Tech, a privately held Portland-based designer and
      manufacturer of interconnect systems for the medical and commercial markets.
      In
      addition to acquiring a customer base, we significantly enhanced our
      manufacturing and engineering capabilities.





In
      December 1999, we acquired the assets of the medical ultrasound division of
      Alcatel NA Cable Systems, Inc., the United States subsidiary of one of the
      largest wire and cable manufacturers in the world, which designs and
      manufactures cable assemblies for use in non-invasive ultrasound probes and
      systems. In connection with this acquisition, we acquired facilities and
      employees in Tucson, Arizona and Nogales, Mexico.





We
      completed our initial public offering in November 2001. Our Common Stock and
      Class B Warrants currently trade on the NASDAQ OTC Bulletin Board under the
      symbols MHLX.OB and MHLXZ.OB, respectively.





In
      April
      2004 we sold the assets of our wire and cable division to ANS, and in April
      2005
      we acquired all of the stock of Moore, a manufacturer of customized cable
      assemblies, sub-assemblies, wire harnesses and electro-mechanical assemblies.
      Moore is operated as a wholly owned subsidiary.





We
      have
      incurred significant losses since inception and those losses have continued
      following our initial public offering. In our business we have had to rely
      on a
      relatively small number of OEMs for the majority of our sales. Short term
      changes in the OEM's demand schedule have made our expenses and cash
      requirements uncertain. We have not been successful in achieving profitability
      due to in part the unpredictability of the OEM requirements. During the past
      two
      years we have tried to broaden the OEM customer base, in part through our
      acquisition of Moore.





**Critical
      Accounting Policies and Estimates**





The
      discussion and analysis of our financial condition and results of operations
      is
      based upon our 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 us to make estimates
      and
      judgments that affect the reported amounts of assets, liabilities, revenues
      and
      expenses, and related disclosure of contingent assets and liabilities. We
      evaluate our estimates on an on-going basis, including those related to product
      returns, bad debts, inventories, prepaid expenses, income taxes, warranty
      obligations, and other contingencies. We base our estimates on historical
      experience and on various other assumptions we believe are reasonable under
      the
      circumstances, the results of which form 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 these estimates under different
      assumptions or conditions. We believe the following critical accounting policies
      and related judgments and estimates affect the preparation of our consolidated
      financial statements:





*Revenue
      Recognition* —We
      recognize revenue from commercial sales of cables, connectors, customized cable
      assemblies, wire harnesses, and mechanical assemblies when title passes, which
      is upon shipment. Commercial sales are made F.O.B. point of shipment. The
      products must be physically shipped from the factory. In some cases, tooling
      that has been paid for by a customer may remain at our facility or at a vendor's
      facility. Returns are limited to nonconforming products and the volume of
      returns has been insignificant. We do not establish reserves for returns because
      they have been minimal.





*Goodwill
      and Intangible Assets* —We
      follow the provisions of Statement of Financial Accounting Standards (“SFAS”)
      No. 142, Goodwill and Other Intangible Assets. SFAS No. 142 requires an annual
      impairment test for goodwill and intangible assets with indefinite lives. Under
      the provisions of SFAS No. 142, the first step of the impairment test requires
      that we determine the fair value of each reporting unit, and compare the fair
      value to the reporting unit’s carry amount. To the extent a reporting unit’s
      carrying amount exceeds its fair value, an indication exists that the reporting
      unit’s goodwill may be impaired and we must perform a second more detailed
      impairment assessment. The second impairment assessment involves allocating
      the
      reporting unit’s fair value to all of its recognized and unrecognized assets and
      liabilities in order to determine the implied fair value of the reporting unit’s
      goodwill as of the assessment date. The implied fair value of the reporting
      unit’s goodwill is then compared to the carrying amount of goodwill to quantify
      an impairment charge as of the assessment date. In the future, we will perform
      our annual impairment test during our fiscal first quarter unless events or
      circumstance indicate impairment may have occurred before that
      time.





9




Development
      contracts are structured on a cost reimbursement or cost plus basis. Revenue
      from development contracts for non-recurring engineering is recognized using
      the
      percentage of completion method as time and materials costs are incurred.
      Revenue from contracts for the production of prototypes is recognized when
      the
      title passes, which is upon shipment. In some cases, customers make pre-payments
      for product and services that are classified as deferred revenue until the
      services are performed, at which time they are recognized as revenue. We had
      deferred revenue of $163,456 at December 31, 2005 and no deferred revenue at
      December 31, 2004.





Government
      grant sales are recognized as time and materials costs are incurred using the
      percentage of completion method. The government generally provides grants to
      perform specific research and is not the ultimate customer. We had no revenue
      in
      either 2004 or 2005 from government grants.




**Results
      of operations**





The
      following table presents our historical operating results for the periods
      indicated as a percentage of sales:





**Year
                Ended****December
                31,****2004**
            
            **2005**Sales
            
            
            100
            %
            
            100
            %Cost
                of sales
            
            
            115
            
            
            92Gross
                profit (loss)
            
            
            (15
            )
            
            8Operating
                expenses:Research and development
            
            
            5
            
            
            0Sales and marketing
            
            
            2
            
            
            6General and administrative
            
            
            79
            
            
            20Total operating expenses
            
            
            86
            
            
            26Loss
                from operations
            
            
            (101
            )
            
            (18
            )Other
                income (expense)
            
            
            
            
            
            2Net loss from continuing operations
            
            
            (101
            )
            
            (16
            )Discontinued
                operations:Loss from operations of wire and cable division
            
            
            (10
            )
            
            0Loss on sale of wire and cable division
            
            
            (9
            )
            
            0Net
                loss
            
            
            (120
            )%
            
            (16
            )%





***Year
      ended December 31, 2005 compared with year ended December 31,
      2004***





Two
      principal events affected our financial results in 2005 and 2004. On April
      8,
      2005 we acquired 100% of the outstanding stock of Moore, a manufacturer of
      customized cable assemblies, sub-assemblies, wire harnesses and
      electro-mechanical assemblies. On April 21, 2004 we sold the assets of our
      Portland wire and cable division. As a result of this material transaction
      we
      are required under generally accepted accounting principles to prepare our
      financial statements in a format that accounts for the wire and cable division
      as a discontinued operation in the consolidated statements of operations for
      2004.





Total
      sales in 2005 were $9,164,242, compared to $1,299,630 in 2004, an increase
      of
      605%. This increase is primarily due to the acquisition of Moore in April 2005.
      Total sales for the MicroCoax division in 2005 were $1,863,566 compared to
      $1,299,630 in 2004, an increase of 43.4%. The increase in MicroCoax division
      sales resulted from an increase in demand from our medical and commercial
      ultrasound OEM customers.





10




Gross
      profit in 2005 was $703,037 compared to negative gross profit of $193,797 in
      2004. The improvement in gross profit resulted primarily from our acquisition
      of
      Moore. The MicroCoax division had negative gross profit of $113,363 in 2005
      and
      $193,797 in 2004.




Total
      operating expenses in 2005 were $2,360,444 compared to $1,113,922 in 2004,
      an
      increase of 111.9%. The increase is due to the acquisition of Moore, including
      $194,033 of additional amortization expense related to intangible assets
      acquired with Moore.





Sales
      and
      marketing expenses for 2005 were $497,001 compared to $26,040 in 2004. This
      increase was primarily a result of the Moore acquisition. The sales and
      marketing expense for 2005 for Moore was $428,821.





General
      and administrative expenses for 2005 were $1,863,440 compared to $1,024,253
      in
      2004, an increase of 81.9%. The increase resulted principally from the Moore
      acquisition, including additional legal and audit costs. The direct general
      administrative expense for 2005 for Moore was $593,726.





Net
      other
      expense for 2005 was $179,556 compared to net other income of $6,417 for 2004.
      The difference was the interest expense on the line of credit..





Net
      loss
      from continuing operations for 2005 was $1,836,960, compared to a loss from
      continuing operations of $1,301,302 for 2004.





Our
      former wire and cable division financial results were reported as discontinued
      operations. The loss from operations for this division was $252,693 in 2004.
      No
      loss from discontinued operations was recorded in 2005.





We
      recorded a net loss of $1,956,555 in 2005 compared to a net loss of $1,553,995
      in 2004. Dividends on our Series B Preferred Stock were $253,125 in 2005 and
      $0
      in 2004. Net loss available to common shareholders was $1,956,568 in 2005 and
      $1,553,995 in 2004. We have accrued $253,125 of dividends for the Series B
      Preferred Stock however no dividends have been declared or paid on our Series
      B
      Preferred Stock.





***Liquidity
      and Capital Resources***





As
      of
      December 31, 2005, we had $58,312 of cash and cash equivalents. Cash used in
      operating activities in 2005 was $1,274,811 compared to $1,490,200 used in
      2004.
      The net cash used in operations of $1,274,811 included an increase in accounts
      receivable of $725,480 and an increase in prepaid expenses and other current
      assets of $178,090 and was partially offset by $445,296 in depreciation and
      amortization and an increase of $779,880 in accounts payable. The increase
      of
      $27,870 in the cash balance during this reporting period represents the net
      cash
      used in operations of $1,274,811 plus $1,972,230 used in investing activities,
      offset by $3,274,881 of cash provided from financing activities.




As
      of
      December 31, 2005, we had a $1,500,000 line of credit for working capital,
      secured by accounts receivable and inventory. As of December 31, 2005, there
      was
      $1,325,684 outstanding on the line of credit and our availability on the line
      of
      credit was $174,316. Our line of credit expires on April 7, 2007.





As
      of
      December 31, 2005, we had no purchase orders outstanding for capital equipment.





We
      subleased our facility in Portland to ANS from April 21, 2005 through November
      30, 2005, the expiration date of the original lease. The table above reflects
      the assumption of this lease by ANS.





In
      March
      2003, we borrowed $200,000 from a shareholder on a short-term unsecured note
      at
      a 12 percent interest rate to finance short-term working capital requirements.
      During 2003, the Company repaid $100,000 on the short-term note. The remaining
      $100,000 of the note and $13,942 of accrued interest was settled, and considered
      to be paid in full with the issuance of 299,907 shares of Common Stock at a
      market rate of $.41 per share on September 28, 2004.





On
      April
      8, 2005, we borrowed $250,000 from CTK Capital Corporation at an annual interest
      rate of 15%. The loan proceeds were used to complete the Moore acquisition.
      Three $50,000 principal payments were made on April 18, April 25 and May 3,
      2005
      along with accrued interest. The balance of the note was converted into 100,000
      newly issued shares of Series B Preferred Stock at $1.00 per share on October
      28, 2005. Accrued interest totaling $8,500.68 was paid in cash to CTK Capital
      Corporation on October 28, 2005. CTK Capital Corporation is a Nevada corporation
      controlled by James M. Williams, one of our directors.





11




On
      April
      8, 2005, we issued a promissory note in the amount of $1,250,000 to Marti D.
      Lundy as part of the Moore acquisition. The note bears an annual interest rate
      of 10%. A monthly payment of principal plus accrued interest totaling $43,482.16
      is due until April 8, 2008 at which time all remaining principal outstanding
      plus accrued and unpaid interest are due and payable. The note is secured by
      a
      lien on substantially all of our assets.





During
      2005 we issued 2,750,000 shares of Series B Preferred Stock to accredited
      investors in private placements. On April 8, 2005 we sold 2,000,000 shares
      of
      Series B Preferred Stock at $1.00 per share for total gross cash proceeds of
      $2.0 million, which we used as partial consideration for the acquisition of
      Moore. On April 8, 2005 we also issued 250,000 shares of Series B Preferred
      Stock to a selling shareholder as partial consideration in the acquisition
      of
      Moore.





On
      October 28, 2005 we sold 310,000 shares of Series B Preferred Stock at $1.00
      per
      share. We received total gross cash proceeds of $210,000. The remaining $100,000
      of the purchase price for the shares was paid by conversion of the outstanding
      principal on a promissory note owed by microHelix to an affiliate of James
      M.
      Williams, one of our directors. On December 7, 2005 we sold 190,000 shares
      of
      Series B Preferred Stock at $1.00 per share for total gross cash proceeds of
      $190,000. The proceeds of the October and December 2005 sales of Series B
      Preferred Stock were used for working capital.





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





Each
      share of Series B Preferred Stock is convertible into four shares of Common
      Stock (subject to adjustment for stock splits, stock dividends,
      reclassifications and the like). We can redeem the shares of Series B Preferred
      Stock at any time after April 8, 2006 for $1.50 per share (as adjusted for
      stock
      splits, stock dividends, reclassification and the like). We have granted demand
      and piggy-back registration rights to the holders of Series B Preferred Stock
      with respect to the underlying shares of Common Stock obtainable upon
      conversion.





**Risk
      Factors**





Following
      are the key risk factors that have affected us in the past and could in the
      future materially impact our business, financial condition or results of
      operations. In addition, if any of these risks occur, the market price of our
      securities could decline and investors could lose all or part of their
      investment:





***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 our 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. This effort intends to capitalize on what we expect to
      be
      new growth in the medical and commercial equipment markets and our ability
      to
      expand our “box build” business. 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 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" diagnostic systems will continue
                to
                increase;





·
            our
                cable assembly capabilities that serve both medical and commercial
                OEMs
                will efficiently address market needs as they develop and we will
                remain a
                competitive and reliable supplier;





·
            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, whether inside North
                America or elsewhere.





12




***The
      development of products by our medical device OEM customers may be 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 medical device or other product in commercial
      quantities may be 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. Medical devices, in particular, are
      subject to regulation and licensing, usually by the 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 medical cable assemblies will take three to 12
      months to develop and validate for medical devices and one to three months
      for a
      commercial cable assembly. We are generally paid for prototypes during the
      design phase but do not expect such payments to contribute significantly to
      our
      revenues. If either our proposed cable assembly solution or the overall device
      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
      on
      these projects.





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





Sales
      to
      our largest customer, Medtronic ERS, accounted for 31% of our total sales in
      2005. Since these were sales to a Moore customer they were not included in
      2004.
      Although we provide cable assemblies and/or other services to industry-leading
      OEMs and to several specialized competitors, the loss of a significant customer
      would have a material adverse impact on us. 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 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
      cable assembly 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.




***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. We believe that our principal
      competitive advantages are: (1) established and efficient manufacturing
      operations in Tualatin, Oregon, (2) lower cost manufacturing in Nogales, Mexico;
      (3) exceptional quality record; (4) highly responsive to customers with quick
      turn capability; (5) competitive pricing, and (6) long term relationships with
      industry-leading customers. 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.





13




***Intellectual
      Property***




We
      do not
      currently have any patents granted or pending and have no plans to make patent
      applications in the future. If however we 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 processes
      and
      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.





We
      have
      recently commenced a conversion of substantially all of our operational and
      financial functions to a new enterprise resource planning (“ERP”) software
      system. The ERP system will impact every aspect of our operations, including
      production, engineering, finance, and sales. Although we have taken steps we
      believe are reasonable to ensure a successful conversion of our operations
      to
      the ERP system, we can provide no assurances that the conversion will be
      successful or that the ERP system will achieve its expected benefits. Failure
      to
      achieve a successful conversion or to obtain the expected benefits of the ERP
      system could have an adverse material effect on us.





***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.





***Vantage
      8 Implementation***





microHelix
      has committed to convert all operational and financial functions over to a
      new
      software package known as an Enterprise Resource Planning system (“ERP”) that
      will impact every part of the company. If this conversion and implementation
      is
      not successful, it could have a significant negative impact on our operations
      and may require additional time and unbudgeted expense to produce expected
      functionality.





An
      ERP
      system impacts every phase of the company including critical functions such
      as
      production, engineering, finance, and sales. The benefits for installing an
      enterprise wide system include: (1) reduced inventory, (2) improved production
      control, (3) improved customer service, and (4) improved financial reporting.
      However, these expected benefits cannot be guaranteed. To ensure a successful
      conversion, the company has purchased an ERP package (Vantage 8) that has been
      installed successfully in other companies and which was developed by a large
      vendor of such products (Epicor). Epicor has worked closely with the Company
      to
      ensure a smooth conversion. However, while every precaution has been taken
      to
      assure a successful conversion and that subsequent operations using the new
      ERP
      system will produce the expected benefits, neither can be
      guaranteed.


14


**Item
      7.** ***Consolidated
      Financial Statements***





**INDEX
      TO CONSOLIDATED FINANCIAL STATEMENTS**





**Page**microHelix,
                Inc.Report of Independent Registered Public Accounting Firm
            16Consolidated Balance Sheet as of December 31, 2005
            17Consolidated Statements of Operations for the Years Ended December
                31,
                2004 and 2005
            18Consolidated Statements of Shareholders' Equity for the Years Ended
                December 31, 2004 and 2005
            19Consolidated Statements of Cash Flows for the Years Ended December
                31,
                2004 and 2005
            20Notes to Consolidated Financial Statements
            22




15


**REPORT
      OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**








To
      the
      Board of Directors and Stockholders


of
      microHelix, Inc.








We
      have
      audited the accompanying consolidated balance sheet of microHelix, Inc. as
      of
      December 31, 2005, and the related consolidated statements of operations,
      stockholders’ equity, and cash flows for the two years then ended.  These
      consolidated financial statements are the responsibility of the Company's
      management.  Our responsibility is to express an opinion on these
      consolidated financial statements based on our audit.





We
      conducted our audit in accordance with generally accepted auditing standards
      as
      established by the Auditing Standards Board (United States) and in accordance
      with the auditing standards of the Public Company Accounting Oversight Board
      (United States). Those standards require that we plan and perform the audit
      to
      obtain reasonable assurance about whether the consolidated financial statements
      are free of material misstatement. The Company is not required to have, nor
      were
      we engaged to perform, an audit of its internal control over financial
      reporting. Our audits included consideration of internal control over financial
      reporting as a basis for designing audit procedures that are appropriate in
      the
      circumstances, but not for the purpose of expressing an opinion on the
      effectiveness of the Company’s internal control over financial reporting.
      Accordingly we express no such opinion. An audit also includes examining, on
      a
      test basis, evidence supporting the amounts and disclosures in the consolidated
      financial statements, assessing the accounting principles used and significant
      estimates made by management, as well as evaluating the overall consolidated
      financial statement presentation. We believe that our audit provides a
      reasonable basis for our opinion.





In
      our
      opinion, the consolidated financial statements referred to above present fairly,
      in all material respects, the financial position of microHelix, Inc. as of
      December 31, 2005, and the results of its operations and its cash flows for
      the
      two years then ended, in conformity with accounting principles generally
      accepted in the United States of America.





The
      accompanying consolidated financial statements have been prepared assuming
      that
      the Company will continue as a going concern. As discussed in Note 1 to the
      consolidated financial statements, the Company has incurred operating losses
      since inception, has an accumulated deficit of $22,593,545 and used cash for
      operating activities of $1,490,200 during the year ended December 31, 2005,
      and
      has a working capital deficiency. These conditions raise substantial doubt
      about
      its ability to continue as a going concern. Management’s plans regarding those
      matters also are described in Note 1. The consolidated financial statements
      do
      not include any adjustments that might result from the outcome of this
      uncertainty.





/s/
      Stonefield Josephson, Inc.





CERTIFIED
      PUBLIC ACCOUNTANTS





Los
      Angeles, California


April
      10,
      2006




16




**microHelix,
      Inc.**




**CONSOLIDATED
      BALANCE SHEET**


**December
      31, 2005**





**Assets**Current
                Assets:Cash
            
            $
            58,312Accounts receivable, net of allowance of $19,464
            
            
            1,586,025Inventories, net
            
            
            1,121,507Prepaid expenses and other current assets
            
            
            49,614Total current assets
            
            
            2,815,458Property
                and equipment, net
            
            
            1,071,149Intangible
                assets
            
            
            565,026Goodwill
            
            
            1,620,218Total assets
            
            $
            6,071,851**Liabilities
                and Shareholders' Equity**Current
                Liabilities:Accounts payable
            
            $
            1,417,048Accounts payable-related parties
            
            
            73,220Accrued liabilities
            
            
            471,396Accrued dividends
            
            
            253,125Line of credit
            
            
            1,325,684Current maturities of obligations under capital leases
            
            
            16,127Current maturities of notes payable to shareholders
            
            
            331,668Customer deposits
            
            
            163,456Total current liabilities
            
            
            4,051,724Long-term
                LiabilitiesObligations under capital leases, less current maturities
            
            
            20,756Deferred tax liability
            
            
            481,620Notes payable to shareholders
            
            
            892,092Total long-term liabilities
            
            
            1,394,468Total liabilities
            
            
            5,446,192Commitments
                and contingencies (Note 10)
            
            
            —Shareholders'
                Equity:Preferred
                stock, convertible, no par value, 3,500,000 shares authorized, 2,750,000
                Series B
              Preferred Stock issued and outstanding
            
            
            2,475,793Common
                stock, no par value, 25,000,000 shares authorized, 2,142,431shares
                issued
                and
              2,129,097 shares outstanding
            
            
            14,473,409Additional
                paid-in capital
            
            
            6,270,002Accumulated
                deficit
            
            
            (22,593,545
            )Total shareholders' equity
            
            
            625,659Total liabilities and shareholders' equity
            
            $
            6,071,851





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


17
 **microHelix,
        Inc.**





**CONSOLIDATED
      STATEMENTS OF OPERATIONS**





**Year
                Ended December 31,****2004**
            
            **2005**Sales,
                net
            
            $
            1,299,630
            
            $
            9,164,242Cost
                of Sales
            
            
            1,493,427
            
            
            8,461,205Gross profit/(loss)
            
            
            (193,797
            )
            
            703,037Operating
                Expenses:Research
                and development
            
            
            63,629
            
            
            —Sales
                and marketing
            
            
            26,040
            
            
            497,001General
                and administrative
            
            
            1,024,253
            
            
            1,863,440Total operating expenses
            
            
            1,113,922
            
            
            2,360,441Loss
                from operations
            
            
            (1,307,719
            )
            
            (1,657,404
            )Other
                income (expense):Other
                income
            
            
            36,585
            
            
            1,181Loss
                on sale of assets
            
            
            (1,493
            )
            
            —Interest
                (expense)
            
            
            (28,675
            )
            
            (180,737
            )Total
                other income (expense) — net
            
            
            6,417
            
            
            (179,556
            )Loss
                from continuing operations
            
            
            (1,301,302
            )
            
            (1,836,960
            )Discontinued
                operations: (net of $-0- tax effect) (Note 12)Loss
                from operations of wire and cable division
            
            
            (122.877
            )
            
            —Loss
                on sale of wire and cable division
            
            
            (129,816
            )
            
            —Provision
                (Benefit) for Income Taxes
            
            
            —
            
            
            (133,530
            )Net (loss)
            
            
            (1,553,995
            )
            
            (1,703,430
            )Preferred
                dividends
            
            
            —
            
            
            (253,125
            )Net
                loss available to common shareholders
            
            $
            (1,553,995
            )
            $
            (1,956,555
            )Loss
                per common share — basic and diluted:Loss from continuing operations
            
            $
            (.74
            )
            $
            (.89
            )Loss
                from discontinued operations
            
            
            (.14
            )
            
            —Net loss
            
            $
            (.88
            )
            $
            (.83
            )Weighted
                average number of shares outstanding — basic and diluted
            
            
            1,767,316
            
            
            2,061,742





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




18


**microHelix,
      Inc.**





**CONSOLIDATED
      STATEMENT OF SHAREHOLDERS' EQUITY**


**Year
      Ended December 31, 2005**





**Common
                Stock**
            
            **Preferred**
            
            **Additional**
              **Paid-in**
            
            **Deferred**
            
            **Accumulated****Shares**
            
            **Amount**
            
            **Stock**
            
            **Capital**
            
            **Compensation**
            
            **Deficit**
            
            **Total**Balance,
                January 01, 2005
            
            
            1,959,713
            
            $
            14,473,409
            
            $
            —
            
            $
            6,487,417
            
            $
            —
            
            $
            (20,890,115
            )
            $
            70,711Dividends
                on preferred stock
            
            
            
            
            
            
            
            
            
            
            
            (253,125
            )
            
            
            
            
            
            
            
            (253,125
            )Preferred
                stock issued for the
              purchase
                of Moore and
              working
                capital
            
            
            
            
            
            
            
            
            2,475,793
            
            
            
            
            
            
            
            
            
            
            
            2,475,793Common
                stock issued
            
            
            169,384
            
            
            
            
            
            
            
            
            35,710
            
            
            
            
            
            
            
            
            35,710Net
                loss for the year ended 12/31/05
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (1,703,430
            )
            
            (1,703,430
            )Balance,
                December 31, 2005
            
            
            2,129,097
            
            $
            14,473,409
            
            $
            2,475,793
            
            $
            6,270,002
            
            $
            —
            
            $
            (22,593,545
            )
            $
            625,659







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




19




**microHelix,
                INC.****CONSOLIDATED
                STATEMENTS OF CASH FLOWS****Year
                Ended December 31,****2004**
            
            **2005****Cash
                Flows Provided By (Used For) Operating
                Activities:**Net
                loss from continuing operations
            
            $
            (1,553,995
            )
            $
            (1,836,960
            )Adjustments
                to reconcile net loss to cash used in operating
                activities:Depreciation-capital
                assets
            
            
            41,747
            
            
            283,848Amortization-intangible
                assets
            
            
            —
            
            
            161,448Provision
                for doubtful accounts
            
            
            (10,589
            )
            
            (29,027
            )Provision
                inventory reserves
            
            
            185,621
            
            
            47,583Common
                stock issued for services
            
            
            27,185
            
            
            35,710Benefit
                from deferred income taxes
            
            
            —
            
            
            133,530Loss
                from sale of wire and cable division
            
            
            1,493
            
            
            —Change
                in assets and liabilities:(Increase)
                Decrease in assets:Accounts
                receivable
            
            
            222,638
            
            
            (725,480
            )Inventories
            
            
            (21,761
            )
            
            167,737Prepaid
                expenses and other current assets
            
            
            45,753
            
            
            (178,090
            )Intangibles,
                other assets, and deposits
            
            
            9,516
            
            
            (6,487
            )Increase
                (Decrease) in liabilities:Accounts
                payable
            
            
            (319,056
            )
            
            779,880Accrued
                dividends
            
            
            —
            
            
            253,125Accrued
                liabilities
            
            
            (118,752
            )
            
            (108,503
            )Net
                cash used in operating activities
            
            
            (1,490,200
            )
            
            (1,021,686)
            )**Cash
                Flows from Investing Activities:**Capital
                expenditures
            
            
            (36,011
            )
            
            (59,547
            )Cash
                for stock of Moore Electronics
            
            
            —
            
            
            (1,500,000
            )Cash
                used to pay-off loan of Moore Electronics
            
            
            —
            
            
            (412,683
            )Proceeds
                from the sale of equipment
            
            
            27,500
            
            
            —Net
                book value of wire and cable division sold
            
            
            1,591,785
            
            
            —Net
                cash provided by/(used in) investing activities
            
            
            1,583,274
            
            
            (1,972,230
            )**Cash
                Flows from Financing Activities:**Proceeds
                from line of credit
            
            
            1,620,954
            
            
            7,892,239Payments
                on line of credit
            
            
            (1,732,323
            )
            
            (6,696,187
            )Preferred
                stock dividends
            
            
            —
            
            
            (253,125
            )Proceeds
                from preferred stock offering, net of expenses
            
            
            —
            
            
            2,125,793Payment
                on notes payable to shareholders
            
            
            —
            
            
            (146,964
            )Proceeds
                from issuance of notes payable to shareholders
            
            
            —
            
            
            100,000Net
                cash provided by/(used in) financing activities
            
            
            (111,369
            )
            
            3,021,756Change
                in cash
            
            
            (18,295
            )
            
            27,840Cash,
                beginning of year
            
            
            48,767
            
            
            30,472Cash,
                end of year
            
            $
            30,472
            
            $
            58,312





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




20




**MICROHELIX,
      INC.**





**CONSOLIDATED
      STATEMENTS OF CASH FLOWS, (CONTINUED)**


**Years
      Ended December 31, 2004 and 2005**





Supplemental
                disclosure of cash flow information — Cash paid for interest
            
            $
            95,350
            
            $
            141,227Supplemental
                disclosure of cash flow information — Cash paid for taxes
            
            $
            —
            
            $
            —See
                notes to consolidated financial statements.





**Supplemental
                Disclosure of Non-cash Investing Activities:**Purchase
                price acquisition of Moore Electronic details:Fair
                value of assets acquired
            
            $
            —
            
            $
            4,558,702Liabilities
                assumed
            
            
            —
            
            
            (1,146,019
            )Note
                payable to former shareholders of Moore as part of the acquisition
                price
            
            
            —
            
            
            (1,250,000
            )Preferred
                stock issued to former shareholder of Moore as part of the acquisition
                price
            
            
            —
            
            
            (250,000
            )Cash
                paid
            
            
            —
            
            
            1,912,683Preferred
                Dividends
            
            
            —
            
            
            (253,125
            )**Supplemental
              disclosure of non-cash Financing Activities:**Common
                stock issued for services
            
            $
            16,162
            
            $
            35,710Conversion
                of shareholder note to preferred stock
            
            $
            —
            
            $
            100,000




In
      March
      2003, the company borrowed $200,000 from a shareholder on a short-term unsecured
      note at a 12 percent interest rate to finance short-term working capital
      requirements. During 2003, the company repaid $100,000 on the short-term note.
      The remaining $100,000 of the note and $13,942 of accrued interest was settled,
      and considered to be paid in full with the issuance of 299,907 shares of Common
      Stock at a market rate of $.41 per share on September 28, 2004.





On
      April
      8, 2005, the company borrowed $250,000 from CTK Capital Corporation at an annual
      interest rate of 15%. The loan proceeds were used to complete the Moore
      acquisition. Three $50,000 principal payments were made on April 18, April
      25
      and May 3, 2005 along with accrued interest. The balance of the note was
      converted into 100,000 newly issued shares of Series B Preferred Stock at $1.00
      per share on October 28, 2005. Accrued interest totaling $8,500.68 was paid
      in
      cash to CTK Capital Corporation on October 28, 2005. CTK Capital Corporation
      is
      a Nevada corporation controlled by James M. Williams, one of our directors.





On
      April
      8, 2005, the company issued a promissory note in the amount of $1,250,000 to
      Marti D. Lundy as part of the Moore acquisition. The note bears an annual
      interest rate of 10%. A monthly payment of principal plus accrued interest
      totaling $43,482 is due until April 8, 2008 at which time all remaining
      principal outstanding plus accrued and unpaid interest are due and payable.
      The
      note is secured by a lien on substantially all of our assets. Ms. Lundy is
      a
      former shareholder of Moore, and is an executive officer and a director of
      microHelix.








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




21




**MICROHELIX,
      INC.**





**NOTES
      TO CONSOLIDATED FINANCIAL STATEMENTS**


**Years
      Ended December 31, 2004 and 2005**





**1.
      Summary of Significant Accounting Policies**





*Nature
      of Operations* —
      microHelix, Inc. (the "Company" or "microHelix") is a manufacturer and
      distributor of custom cable assemblies and mechanical assemblies for the medical
      and commercial OEM markets.





*Basis
      of Presentation* —
The
      audited 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.





*Principles
      of Consolidation* —
These
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiaries: Moore Electronics, Inc. ("Moore") for 2005, and
      BioElectric Corporation ("BioElectric") for 2004. Moore was acquired in April
      2005. BioElectric was dissolved at the end of 2004. All
      material inter-company accounts have been eliminated in
      consolidation.





*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.





*Reclassifications* —
Certain
      amounts from the year ended December 31, 2004 have been reclassified to
      correspond to the year ended December 31, 2005.





*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 net losses
      and had negative cash flows from operations during each of the past two years
      and at December 31, 2005 had an accumulated deficit of $22,593,545. These
      conditions raise substantial doubt about its 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.





As
      a part
      of the Company’s plan to return to profitability, the Company initiated a
      strategy in mid 2004 that combined a focus on revenue growth from its existing
      business with the acquisition of a similar business with a history of revenue
      growth and profitability. On April 8, 2005, the Company completed the
      acquisition of 100% of the stock of privately-held Moore for $1,500,000 in
      cash,
      $1,250,000 in the form of a promissory note, and 250,000 shares of microHelix
      Series B Preferred Stock valued at $250,000. The Company also refinanced
      $400,000 of Moore bank debt. Moore is operated as a wholly-owned subsidiary
      of
      the Company and had 2005 revenues of $7,300,676. Moore manufactures cable
      assemblies for a broad mix of customers, serving major medical devise
      manufacturers with components for external defibrillators and serving commercial
      equipment manufacturers in diverse markets including test and measurement,
      instrumentation, semi-conductors and robotics. Combining the Company’s existing
      operations with Moore’s have had a material impact on combined revenues, crated
      new customer opportunities and expanded the capabilities that the Company can
      offer customers. Although the Company will need to continue to build its
      business to achieve consistently profitable operations, the combination of
      the
      Moore acquisition and growth in the Company’s existing business has already had
      a favorable and stabilizing impact on the business. (See Note 13)





*Cash
      Equivalents* —
For
      the
      purpose of the statement of cash flows, cash equivalents include all highly
      liquid debt instruments with original maturities of three months or less which
      are not securing any debt or obligations. The Company maintains its cash in
      bank
      accounts which, at times, may exceed federally insured limits. The Company
      has
      not experienced any losses in such accounts.




22




*Credit
      and Collection* —
The
      Company extends credit to its customers based on an assessment of a customer's
      financial circumstances, generally without requiring collateral. None of our
      significant customers have experienced financial difficulties in the past,
      although future financial difficulties of customers could have a material
      adverse effect on the Company's business. A reserve for bad debts has been
      provided and on a regular basis individual accounts that are past due are
      reviewed. If an account is determined to be uncollectible the amount is charged
      to the bad debt reserve. These write-offs have been insignificant and have
      been
      adequately covered by the bad debt reserve.





*Inventories* are
      stated at the lower of cost (first-in, first-out) or market. The inventory
      reserves for slow moving and obsolete parts are adjusted on the basis of
      reviewing quantities on hand, quantities on order, and sales projections by
      customers, and actual versus projected sales volume.





*Property
      and Equipment* are
      recorded at cost. Depreciation is provided using the straight-line method over
      the estimated useful lives of the assets (three to seven years) beginning on
      the
      date placed in service. Leasehold improvements are amortized over the lesser
      of
      the remaining lease term or the useful life. Costs of repairs and maintenance
      are expensed as incurred. Management periodically evaluates the recoverability
      of property and equipment by comparing the carrying amounts to future
      undiscounted cash flows expected to be generated by such assets. The Company
      has
      not identified any such impairment losses to date.





We
      evaluate long-lived assets whenever events or changes in business circumstances
      or our planned use of assets indicate that their carrying amounts may not be
      fully recoverable or that their useful lives are no longer appropriate. Reviews
      are performed to determine whether the carrying values of assts are impaired
      based on comparison to either discounted expected future cash flows (in the
      case
      of goodwill and intangible assets) or to the undiscounted expected future cash
      flows (for all other long-lived assets). If the comparison indicates that an
      impairment exists, the impaired asset is written down to its fair value.
      Significant management judgment is required in the forecast of future operating
      results that are used in the preparation of expected discounted and undiscounted
      cash flows.





*Revenue
      Recognition* —
The
      Company recognizes revenues from commercial sales of cable assemblies and
      related supplies when title passes, which is upon shipment. Commercial sales
      are
      made F.O.B. point of shipment. Returns are limited to nonconforming products.
      The Company expenses shipping and handling costs as incurred, which are included
      in operating expense. Shipping costs recovered from customers, if any, are
      included in net sales.





*Research
      and Development* —
      Internal research and development costs are expensed as incurred. Third-party
      research and development costs are expensed as the contracted work is performed.
      Research and development costs totaled $0 and $63,729 for the years ended
      December 31, 2005 and 2004, respectively.





*Income
      Taxes* —
The
      Company accounts for income taxes in accordance with Statement of Financial
      Accounting Standards, No. 109, Accounting for Income Taxes. Deferred income
      taxes result primarily from temporary differences between financial and tax
      reporting. Deferred tax assets and liabilities are determined based on the
      differences between the financial statement bases and tax bases of assets and
      liabilities using enacted tax rates. A valuation allowance is recorded to reduce
      a deferred tax asset to that portion that is expected to more likely than not
      be
      realized.




*Stock-Based
      Compensation* —
As
      of
      December 31, 2005, the Company terminated all of the equity compensation plans.
      In October 2005 the Company agreed to repurchase from the existing option
      holders options exercisable for up to a total of 14,262 shares of the Company’s
      Common Stock in exchange for the issuance of a total of 12,851 shares of Common
      Stock and payment of a total of $423 in cash. Such transactions were completed
      by February 28, 2006. No additional expense was recognized as the fair value
      at
      the date on cancellation and repurchase was not in excess of the original
      compensation recognized.





The
      Board
      of Directors determined in 2005 that the cost of maintaining the Company’s
      equity compensation plans outweighed the perceived benefits received from the
      employees under those plans. The Company expects that for the foreseeable future
      any equity compensation grants to the employees and directors will be in the
      form of grants of shares of Common Stock. Such grants may be restricted or
      unrestricted.





No
      options were granted in 2004 or 2005.




23





*Fair
      Value of Financial Instruments* —
The
      carrying value of the Company's accounts receivable, accounts payable, other
      accrued liabilities, and line of credit approximate their estimated fair values
      due to the relatively short maturities of those instruments.





*Comprehensive
      Loss* —
The
      Company has no components of Other Comprehensive Income (Loss) and, accordingly,
      no Statement of Comprehensive Income (Loss) has been included in the
      accompanying consolidated financial statements.





*Net
      Loss per Share* — The
      Company uses SFAS No. 128, "Earnings per Share" for calculating the basic and
      diluted loss per share. Basic loss per share is computed by dividing net loss
      attributable to common stockholders by the weighted average number of common
      shares outstanding. Diluted loss per share is computed similar to basic loss
      per
      share except that the denominator is increased to include the number of
      additional common shares that would have been outstanding if the potential
      common shares had been issued and if the additional common shares were dilutive.
      At December 31, 2005, the outstanding number of potentially dilutive common
      shares totaled 12,621,289 shares of Common Stock, consisting of Series B
      Preferred Stock convertible into 11,000,000 shares of Common Stock, Class B
      warrants to purchase 926,833 shares of Common Stock, and other warrants to
      purchase 694,456 shares of Common Stock. At December 31, 2004, the outstanding
      number of potentially dilutive common shares totaled 1,255,095 shares of Common
      Stock, consisting of options to purchase 117,867 shares of Common Stock, Class
      B
      warrants to purchase 926,833 shares of Common Stock, and other warrants to
      purchase 210,395 shares of Common Stock. In periods when the Company has net
      losses, their effect is anti-dilutive and have not been included in the diluted
      weighted average earnings per share as shown on the Consolidated Statements
      of
      Operations.





*Operating
      Segments and Reporting Units* **** — **** Based
      on
      the Company's integration and management strategies, it operates in a single
      business segment and reporting unit. For the years ended December 31, 2005
      and
      2004, substantially all revenues have been derived from domestic
      operations.





***Recent
      Accounting Pronouncements***





In
      November 2004, the FASB issued SFAS No. 151 "Inventory Costs, an amendment
      of
      ARB No. 43, Chapter 4. The amendments made by Statement 151 clarify that
      abnormal amounts of idle facility expense, freight, handling costs, and wasted
      materials (spoilage) should be recognized as current-period charges and require
      the allocation of fixed production overheads to inventory based on the normal
      capacity of the production facilities. The guidance is effective for inventory
      costs incurred during fiscal years beginning after June 15, 2005. Earlier
      application is permitted for inventory costs incurred during fiscal years
      beginning after November 23, 2004. The Company has evaluated the impact of
      the
      adoption of SFAS 151, and does not believe the impact will be significant to
      the
      Company's overall results of operations or financial position.





In
      December 2004, the FASB issued SFAS No.153, "Exchanges of Non-monetary Assets,
      an amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions."
      The amendments made by Statement 153 are based on the principle that exchanges
      of non-monetary assets should be measured based on the fair value of the assets
      exchanged. Further, the amendments eliminate the narrow exception for
      non-monetary exchanges of similar productive assets and replace it with a
      broader exception for exchanges of non-monetary assets that do not have
      commercial substance. Previously, Opinion 29 required that the accounting for
      an
      exchange of a productive asset for a similar productive asset or an equivalent
      interest in the same or similar productive asset should be based on the recorded
      amount of the asset relinquished. Opinion 29 provided an exception to its basic
      measurement principle (fair value) for exchanges of similar productive assets.
      The FASB believes that exception required that some non-monetary exchanges,
      although commercially substantive, be recorded on a carryover basis. By focusing
      the exception on exchanges that lack commercial substance, the FASB believes
      this Statement produces financial reporting that more faithfully represents
      the
      economics of the transactions. The Statement is effective for non-monetary
      asset
      exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier
      application is permitted for non-monetary asset exchanges occurring in fiscal
      periods beginning after the date of issuance. The provisions of this Statement
      will be applied prospectively. The Company has evaluated the impact of the
      adoption of SFAS 153, and does not believe the impact will be significant to
      the
      Company's overall results of operations or financial position.




24





In
      December 2004, the FASB issued SFAS No.123 (revised 2004), "Share-Based
      Payment". Statement 123(R) will provide investors and other users of financial
      statements with more complete and neutral financial information by requiring
      that the compensation cost relating to share-based payment transactions be
      recognized in financial statements. That cost will be measured based on the
      fair
      value of the equity or liability instruments issued. Statement 123(R) covers
      a
      wide range of share-based compensation arrangements including share options,
      restricted share plans, performance-based awards, share appreciation rights,
      and
      employee share purchase plans. Statement 123(R) replaces FASB Statement No.
      123,
      Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
      Accounting for Stock Issued to Employees. Statement 123, as originally issued
      in
      1995, established as preferable a fair-value-based method of accounting for
      share-based payment transactions with employees. However, that Statement
      permitted entities the option of continuing to apply the guidance in Opinion
      25,
      as long as the footnotes to financial statements disclosed what net income
      would
      have been had the preferable fair-value-based method been used. Public entities
      (other than those filing as small business issuers) will be required to apply
      Statement 123(R) as of the first interim or annual reporting period that begins
      after December 15, 2005. The Company has determined not to early adopt and
      will
      recognize the fair value of all newly issued share-based payments to employees
      in the prescribed period.





In
      March
      2005, the SEC released Staff Accounting Bulletin No. 107. “Share-Based
      Payment”(“SAB 107”), which provides interpretive guidance related to the
      interaction between SFAS 123(R) and certain SEC rules and regulations. It also
      provides the SEC staff’s views regarding valuation of share-based payment
      arrangements. In April 2005, the SEC amended the compliance dates for SFAS
      123(R), to allow companies to implement the standard at the beginning of their
      next fiscal year, instead of the next reporting period beginning after June
      15,
      2005.





In
      March
      2005, the FASB issued FASB Interpretation No. 47, “Accounting for Conditional
      Asset Retirement Obligations” (“FIN 47”). FIN 47 provides guidance relating to
      the identification of and financial reporting for legal obligations to perform
      an asset retirement activity. The Interpretation requires recognition of a
      liability for the fair value of a conditional asset retirement obligation when
      incurred if the liability’s fair value can be reasonably estimated. FIN 47 also
      defines when an entity would have sufficient information to reasonably estimate
      the fair value of an asset retirement obligation. The provision is effective
      no
      later than the end of fiscal years ending after December 15, 2005. We do not
      believe the adoption will have a material impact on our financial position
      or
      results of operations or cash flows.





In
      May
      2005, the Financial Accounting Standards Board (FASB) issued Statement of
      Financial Accounting Standard (SFAS) No. 154, Accounting Changes and Error
      Corrections-a replacement of APB Opinion No. 20 and FASB Statement No. 3. SFAS
      No. 154 requires retrospective application to prior periods’ financial
      statements of changes in accounting principle, unless it is impracticable to
      determine either the period-specific effects or the cumulative effect of the
      change. SFAS No. 154 also requires that retrospective application of a change
      in
      accounting principle be limited to the direct effects of the change. Indirect
      effects of a change in accounting principle, such as a change in
      nondiscretionary profit-sharing payments resulting from an accounting change,
      should be recognized in the period of the accounting change. SFAS No. 154 also
      requires that a change in depreciation, amortization or depletion method for
      long-lived, non-financial assets be accounted for as a change in accounting
      estimate effected by a change in accounting principle. SFAS No. 154 is effective
      for accounting changes and corrections of errors made in fiscal years beginning
      after the date this Statement is issued. We do not expect the implementation
      of
      this new standard will have a material impact on our financial position, results
      of operations and cash flows.





In
      June
      2005, the Emerging Issues Task Force, or EITF, reached a consensus on Issue
      05-6, Determining the Amortization Period for Leasehold Improvements, which
      requires that leasehold improvements acquired in a business combination or
      purchased subsequent to the inception of a lease be amortized over the lesser
      of
      the useful life of the asset or a term that includes renewals that are
      reasonably assured at the date of the business combination or purchase. EITF
      05-6 is effective for periods beginning after July 2, 2005. We do not expect
      the
      provisions of this consensus to have a material impact on our Company’s
      financial position, results of operations or cash flows.





In
      June
      2005, the FASB ratified EITF Issue No. 05-2, “The meaning of ‘Conventional
      Convertible Debt Instrument’ in EITF Issue No. 00-19, ‘Accounting for Derivative
      Financial Instruments Indexed to, and Potentially Settled in a Company’s Own
      Stock” (“EITF No. 05-2”), which addresses when a convertible debt instrument
      should be considered ‘conventional’ for purpose of applying the guidance in EITF
      No. 00-19. EITF No. 05-2 also retained the exemption under EITF No. 00-19 for
      conventional convertible debt instruments and indicated that convertible
      preferred stock having a mandatory redemption date may qualify for the exemption
      provided under EITF No. 00-19 for conventional convertible debt if the
      instrument’s economic characteristics are more similar to debt than equity. EITF
      No. 05-2 is effective for new instruments entered into and instruments modified
      in periods beginning after June 29, 2005. The Company has applied the
      requirements of EITF No. 05-2 to new instruments entered into and instruments
      modified in periods beginning after June 29, 2005. The Company does not expect
      its financial statements to be significantly impacted by this
      statement.




25





In
      September 2005 the FASB approved EITF Issue 05-7, “Accounting for Modifications
      to Conversion Options Embedded in Debt Securities and Related Issues”(“EITF
      05-7”). EITF 05-7 address that the changes in the fair value of an embedded
      conversion option upon modification should be included in the analysis under
      EITF issue 96-19, “Debtor’s Accounting for a Modification or Exchange of Debt
      Instruments,” to determine whether a modification or extinguishment has occurred
      and that changes to the fair value of a conversion option affects the interest
      expense on the associated debt instrument following a modification. Therefore,
      the change in fair value of the conversion option should be recognized upon
      the
      modification as a discount or premium associated with the debt, and increase
      ore
      decrease in additional paid-in capital. EITF 05-7 is effective for all debt
      modifications in annual or interim periods beginning after December 15, 2005.
      The adoption of EITF 05-7 is not expected to have a significant impact, if
      any,
      on the Company’s financial position and results of operations.





In
      February of 2006 the FASB issued SFAS No. 155 “Accounting for Certain Hybrid
      Financial Instruments”, which is intended to simplify the accounting and improve
      the financial reporting of certain hybrid financial instruments (i.e.,
      derivatives embedded in other financial instruments). The statement amends
      SFAS
      No. 133, “Accounting for Derivative Instruments and hedging Activities”, and
      SFAS No. 140, “Accounting for Transfers and Servicing of Financial assets and
      Extinguishments of Liabilities-a replacement for FASB Statement No. 125.” SFAS
      155 is effective for all financial instruments issued or acquired after the
      beginning of an entity’s first fiscal year that begins after September 15, 2006.
      Management is currently evaluating the impact SFAS No. 155 will have on our
      consolidated financial statements, if any.





**2.
      Inventories**




A
      summary
      is as follows:





Finished
                goods
            
            $
            168,235Raw
                materials
            
            
            1,211,903Total
                inventories
            
            
            1,380,138Less:
                Reserves
            
            
            (258,631
            )Inventories,
                net
            
            $
            1,121,507




The
      Company increased its inventory reserve by $47,583 due to analysis and review
      of
      the on-hand inventories of Moore Electronics at December 31, 2005





**3.
      Property and Equipment**





A
      summary
      is as follows:





Machinery
                and equipment
            
            $
            556,366Tangible
                Assets
            
            
            601,980Leasehold
                improvements
            
            
            84,028Office
                furniture and equipment
            
            
            244,653Automobiles
            
            
            27,228Software
            
            
            244,0731,758,328Accumulated
                depreciation and amortization
            
            
            (687,179
            )Property and equipment — net
            
            $
            1,071,149





Depreciation
      and amortization expense totaled $283,848 and $41,747 for the years ended
      December 31, 2005 and 2004, respectively.




26


**4.
      Goodwill and Other Intangible Assets**





Goodwill
      represents the excess of the purchase price over the estimated fair value of
      the
      net identified tangible and intangible assets of the acquired business. Goodwill
      must be tested for impairment at least on an annual basis, or if an event occurs
      or circumstances change prior to the annual test of impairment, then the
      carrying value of goodwill must be tested on an interim basis. The Company
      has
      determined that the required annual impairment analysis will be performed on
      the
      anniversary of the acquisition of Moore.





As
      a
      result of the Moore purchase, the Company acquired identifiable defined life
      intangible assets such as customer contacts and lists and manufacturing process
      technology. The customer lists and contacts are amortized on a straight-line
      basis over a 3 year period and the manufacturing process technology is amortized
      over a 5 year period on a straight-line basis. The Company will continue to
      amortize these identifiable intangible assets over these lives unless an event
      occurs or circumstances change that indicate that the carrying value of these
      assets may not be recoverable. The following table reflects the cost of other
      identifiable intangible assets and the accumulated amortization related to
      these
      respective assets as of December 31, 2005:





Gross
                Carrying Value
            
            Accumulated
                Amortization
            
            Net
                Carrying ValueCustomer
                lists and contacts
            
            $
            522,466
            
            $
            130,617
            
            $
            391,849Manufacturing
                process technology
            
            
            203,738
            
            
            30,561
            
            
            173,177Total
                other intangible assets
            
            $
            726,204
            
            $
            161,178
            
            $
            565,026





For
      the
      year ending December 31, 2005 and 2004, the Company recorded $161,178 and $0
      as
      amortization expense. The Company expects to record annual amortization expense
      of approximately $215,000 in 2006, $215,000 in 2007, $84,000 in 2008, $41,000
      in
      2009 and $10,000 in 2010 related to the other identifiable intangible assets
      purchased in the Moore acquisition.





**5.
      Line of Credit**





In
      April
      2005, the Company amended its revolving line of credit with an asset-based
      lender. The line of credit is fully secured by accounts receivable and
      inventory. The line of credit bears interest at the prime rate plus 5.00%
      (12.25% at December 31, 2005) per annum and allows the Company to borrow up
      to
      $1,500,000. At December 31, 2005, $1,325,684 was outstanding on the line of
      credit. As of December 31, 2005, the Company was in compliance with the terms
      of
      the line of credit. The line of credit expires on April 7, 2007. (See Note
      13)





**6.
      Notes Payable**





On
      April
      8, 2005, we borrowed $250,000 from CTK Capital Corporation at an annual interest
      rate of 15%. The loan proceeds were used to complete the Moore acquisition.
      Three $50,000 principal payments were made on April 18, April 25 and May 3,
      2005
      along with accrued interest. The balance of the note was converted into 100,000
      newly issued shares of Series B Preferred Stock at $1.00 per share on October
      28, 2005. Accrued interest totaling $8,500.68 was paid in cash to CTK Capital
      Corporation on October 28, 2005. CTK Capital Corporation is a Nevada corporation
      controlled by James M. Williams, one of our directors.





On
      April
      8, 2005, we issued a promissory note in the amount of $1,250,000 to Marti D.
      Lundy as part of the Moore acquisition. The note bears an annual interest rate
      of 10%. A monthly payment of principal plus accrued interest totaling $43,482.16
      is due until April 8, 2008 at which time all remaining principal outstanding
      plus accrued and unpaid interest are due and payable. The note is secured by
      a
      lien on substantially all of our assets. Ms. Lundy is a former shareholder
      of
      Moore and is an executive officer and director of microHelix.





**7.
      Income Taxes**




Deferred
      income taxes, reflecting the net tax effects of temporary differences between
      the carrying amount of assets and liabilities recognized for financial reporting
      purposes and the amounts recognized for income tax purposes, are based on tax
      laws currently enacted.




27




The
      components of deferred tax liability are as follows:




**F****or
                  the year ended December 31,******
              
              **2004**
              
              **2005**Federal
                  net operating loss carry forwards
              
              $
              5,362,000
              
              $
              5,711,000State
                  net operating loss carry forwards
              
              
              1,041,000
              
              
              1,110,000Deferred
                  compensation
              
              
              —
              
              
              —Basis
                    difference in property and equipment upon acquisition of Moore
                    Electronics
              
              
              (94,000
              )
              
              481,620Basis
                  difference in intangible assets
              
              
              —
              
              
              —Other
              
              
              18,000
              
              
              77,000Deferred taxliability
              
              
              6,327,000
              
              
              7,379,620Valuation
                  allowance
              
              
              (6,327,000
              )
              
              (6,898,000
              )Net deferred tax liability
              
              $
              —
              
              $
              481,620







As
      of
      December 31, 2005, the Company had federal and state net operating loss carry
      forwards of $16,797,858 and $16,665,744, respectively, expiring during the
      years
      2013 through 2025.





A
      benefit
      for income taxes of $133,558 has been recorded due to the Company’s amortization
      of its deferred tax liability related to the acquisition of Moore and in
      accordance with FASB 109. The differences between the provision for income
      taxes
      and income taxes computed using the U.S. federal income tax rate was as
      follows:


**For
                    the year ended December 31,****2004**
                
                **2005**Amount
                    computed using statutory rate (34%)
                
                $
                (528,400
                )
                $
                (349,700
                )Change
                    in Valuation Allowance
                
                
                763,853
                
                
                491,153Non-Deductible
                    Items
                
                
                (131,453
                )
                
                (72,453
                )Amortization
                    of Deferred Tax Liability
                
                
                —
                
                
                (133,558
                )State
                    Income Taxes
                
                
                (104,000
                )
                
                (69,000
                )Provision
                    for Income Taxes
                
                $
                —
                
                $
                (133,558
                )


SFAS
      No.
      109, *Accounting for Income Taxes,* requires
      that the tax benefit of net operating losses, temporary differences, and credit
      carry forwards be recorded as an asset to the extent that management assesses
      that realization is "more likely than not." Realization of the future tax
      benefits is dependent on the Company's ability to generate sufficient taxable
      income within the carry forward period. Because of the Company's current
      operating losses, management has provided a 100% valuation allowance for its
      net
      deferred tax assets.





**8.
      Shareholders' Equity**





*Preferred
      Stock —* The
      Company is authorized to issue 3,500,000 shares
      of preferred stock, 500,000 of which are designated Series A Preferred Stock,
      none of which are issued or outstanding, and 2,750,000 of which are designated
      Series B Preferred Stock, all of which are issued and outstanding. The Series
      B
      Preferred Stock has a dividend rate of 15%. As of December 31, 2005, the Company
      has accrued $253,125 of dividends for the Series B Preferred Stock however
      no
      dividends have been declared or paid.





During
      2005 the Company issued 2,750,000 shares of Series B Preferred Stock to
      accredited investors in private placements. On April 8, 2005 the Company sold
      2,000,000 shares of Series B Preferred Stock at $1.00 per share for total gross
      cash proceeds of $2.0 million, which the Company used as partial consideration
      for the acquisition of Moore. On April 8, 2005 the Company also issued 250,000
      shares of Series B Preferred Stock to a selling shareholder as partial
      consideration in the acquisition of Moore.




On
      October 28, 2005 the Company sold 310,000 shares of Series B Preferred Stock
      at
      $1.00 per shares. The Company received total gross cash proceeds of $210,000.
      The remaining $100,000 of the purchase price for the shares was paid by
      conversion of the outstanding principal on a promissory note owed by microHelix
      to an affiliate of James M. Williams, one of our directors. On December 7,
      2005
      the Company sold 190,000 shares of Series B Preferred Stock at $1.00 per share
      for total gross cash proceeds of $190,000. The proceeds of the October and
      December 2005 sales of Series B Preferred Stock were used for working
      capital.




28





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





Each
      share of Series B Preferred Stock is convertible into four shares of Common
      Stock (subject to adjustment for stock splits, stock dividends,
      reclassifications and the like). The Company can redeem the shares of Series
      B
      Preferred Stock at any time after April 8, 2006 for $1.50 per share (as adjusted
      for stock splits, stock dividends, reclassification and the like). The Company
      has granted demand and piggy-back registration rights to the holders of Series
      B
      Preferred Stock with respect to the underlying shares of Common Stock obtainable
      upon conversion.





*Stock
      Option Plan —* The
      Company's 2002 Non Qualified Stock Option Plan (the "2002 Plan") was adopted
      by
      the Board of Directors in October 2002. The 2002 Plan provides for the issuance
      of options to purchase up to 20,000 shares of common stock to its employees
      and
      consultants. Options are granted under various vesting arrangements, up to
      a
      maximum of four years and expire after a maximum of ten years, and are subject
      to a stock transfer restriction agreement to be entered into upon
      exercise.





*Stock
      Incentive Plans —* The
      Company's 2001 Stock Incentive Plan (the "2001 Plan") was adopted by the Board
      of Directors in July 2001 and approved by the shareholders in August 2001.
      The
      2001 Plan provides for the issuance of options to purchase up to 200,000 shares
      of common stock. Options are granted under various vesting arrangements, up
      to a
      maximum of five years and expire after a maximum of ten years and are subject
      to
      a stock transfer restriction agreement to be entered into upon exercise.





The
      Company has a 1998 Stock Incentive Plan (the "1998 Plan"), under which grants
      of
      options to purchase up to 21,392 shares of common stock to its employees and
      service providers are outstanding. Options were granted under various vesting
      arrangements, up to a maximum of five years and expire after a maximum of ten
      years and are subject to a stock transfer restriction agreement to be entered
      into upon exercise. In 2002, the Board of Directors voted to discontinue further
      grants of options under this plan.





As
      of
      December 31, 2005, the Company had terminated the 2002 Plan, the 2001 Plan
      and
      1998 Plan. In October 2005, the Company agreed to repurchase from our existing
      option holders options exercisable for up to a total of 14,262 shares of our
      Common Stock in exchange for the Company’s issuance of a total of 12,851 shares
      of Common Stock and payment of a total of $423 in cash. Such transactions were
      completed by February 28, 2006.





The
      following table summarizes current year activity under the 1998, 2001, and
      2002
      Plans:





**Outstanding
                Options****Number**
              **of
                Shares**
            
            **Weighted**
              **Average**
              **Exercise**
              **Price
                Per**
              **Share**Balance
                at December 31, 2002
            
            
            134,060
            
            
            2.60Options
                granted at market price
            
            
            101,646
            
            
            1.56Options
                cancelled
            
            
            (25,848
            )
            
            9.11Balance
                at December 31, 2003
            
            
            209,858
            
            
            4.65Options
                granted
            
            
            —
            
            
            —Options
                cancelled
            
            
            (91,991
            )
            
            5.45Balance
                at December 31, 2004
            
            
            117,867
            
            $
            4.03Options
                granted
            
            
            —
            
            
            —Options
                cancelled
            
            
            (117,867
            )
            
            —Balance
                at December 31, 2005
            
            
            —
            
            $
            —





*Stock
      Grants —* In
      connection with bridge loans issued in June 2001, the Company granted warrants
      to purchase 52,000 units, with each unit consisting of a share of common stock
      and a Class B warrant, at a price of $16.20 per unit. The warrants may be
      exercised at any time during a period of three years commencing on the first
      anniversary of the effective date of the offering, November 16,
      2002.




29





In
      connection with a credit facility agreement entered into in January 2001, the
      Company granted 1,472 common stock warrants at an exercise price of $27.18
      per
      share. The warrants expire in January 2008.


The
      Company has Class B warrants (OTCBB: MHLXZ) outstanding that may be exercised
      to
      purchase 926,833 shares of Common Stock at a price of $21.60 per share. The
      Class B warrants were issued as part of units in the Company's initial public
      offering on November 16, 2001 and expire on November 16, 2006.





The
      Company issued warrants on April 8, 2005 to its financial advisor and its
      affiliates to purchase a total of 478,000 shares of Common Stock for services
      rendered in connection with the Series B Preferred Stock offering. Such warrants
      can be exercised through April 7, 2015 for a price of $0.25 per
      share.





*Common
      Stock —* The
      Company issued on April 8, 2005 a total of 123,033 shares of Common Stock to
      six
      of its employees and directors. These shares were unrestricted and were made
      for
      services related to the successful completion of the merger. The Company issued
      on September 19, 2005 a total of 33,500 shares of Common Stock to employees
      and
      a director. These shares were unrestricted.




**9.
      Related-Party Transactions**





There
      are
      no transactions with the affiliates or related parties that impact sales or
      expenses. The significant transactions are summarized below:





**Year
                Ended December****31,****2004**
            
            **2005**Interest
                expense on note payable to shareholder
            
            $
            5,094
            
            $
            99,822








On
      April
      8, 2005, the Company borrowed $250,000 from CTK Capital Corporation at an annual
      interest rate of 15%. The loan proceeds were used to complete the Moore
      acquisition. Three $50,000 principal payments were made on April 18, April
      25
      and May 3, 2005 along with accrued interest. The balance of the note was
      converted into 100,000 newly issued shares of Series B Preferred Stock at $1.00
      per share on October 28, 2005. Accrued interest totaling $8,501 was paid in
      cash
      to CTK Capital Corporation on October 28, 2005. CTK Capital Corporation is
      a
      Nevada corporation controlled by James M. Williams, one of our directors.





On
      April
      8, 2005, the Company issued a promissory note in the amount of $1,250,000 to
      a
      shareholder as part of the Moore acquisition. The note bears an annual interest
      rate of 10%. A monthly payment of principal plus accrued interest totaling
      $43,482.16 is due until April 8, 2008 at which time all remaining principal
      outstanding plus accrued and unpaid interest are due and payable. The note
      is
      secured by a lien on substantially all of our assets. The shareholder is a
      former shareholder of Moore and is an executive officer and director of
      MicroHelix.





**10.
      Commitments and Contingencies**





*Operating
      Leases —* The
      Company leases certain office space and equipment. The operating leases expire
      at various dates through August 2007. The
      following is a schedule by years of future minimum rental payments required
      under operating leases that have non-cancelable lease terms in excess of one
      year without regards to renewal options as of December 31, 2005.





**Year
                Ending December 31,**2006
            
            $
            200,6222007
            
            
            214,6622008
            
            
            139,883Net operating lease commitments
            
            $
            555,167





*Capital
      Leases —* The
      Company leases certain equipment from unrelated parties under terms of a capital
      lease at an interest rate of 15.8%. These leases are secured by related
      equipment costing $52,114, and the related equipment has accumulated
      depreciation of $14,898 as of December 31, 2005. The following is a schedule
      by
      years of future minimum principle payments required under the capital leases.




30





**Year
                Ending December 31,**2006
            
            $
            20,2142007
            
            
            13,6372008
            
            
            9,3652009
            
            
            501Total
                minimum lease payments
            
            $
            43,717Less
                amount representing interest
            
            
            (6,834
            )Present
                value of minimum lease payments
            
            $
            36,883Less
                current maturities
            
            
            (16,127
            )Present
                value of net minimum lease payments
            
            $
            20,756





Interest
      expense on capital leases amounted to $2,216 for the year ended December 31,
      2005.





For
      the
      years ended December 31, 2004 and 2005, the Company incurred rent expense of
      $393,492 and $341,620, respectively. The Company sub-leased most of the Portland
      building to Advanced Neuromodulation Systems (ANS) during 2004 and received
      $124,300 of income that was used to offset the cost of leasing the facility.
      The
      company subleased all of the facility to ANS from April 21, 2005 through the
      termination of the lease on November 30, 2005. During 2005 the Company received
      $71,068 from ANS as payments under the sublease agreement.




*Litigation
      —* From
      time
      to time, the Company is involved as a defendant in litigation in the ordinary
      course of business, the outcome of which cannot be predicted with certainty.
      As
      of December 31, 2005, the Company is not aware of any legal proceedings or
      claims against the Company.





**11.
      Major Customers**





In
      2004,
      sales from two customers represented $754,698 or 58%, and $143,054 or 11%,
      respectively, of the Company's sales from continuing operations. In 2005, sales
      from three customers accounted for $2,851,008 or 31%, $1,632,281 or 18%, and
      $1,153,327 or 12%, respectively of the Company’s sales. No other customer in
      2004 or 2005 accounted for more than 10% of sales from continuing
      operations.





**12.
      Retirement Plan**





The
      Company offers a 401(k) employee savings plan with eligibility requirements
      of
      three months of service. There are no required employer contributions and no
      Company contributions were made to the plan during the years ended December
      31,
      2004 and 2005.





**13.**  **Discontinued
      Operations**





In
      view
      of the continued losses incurred by the Company, the Board of Director in
      December 2003 concluded that a sale of existing assets or a business combination
      with another company is necessary. As a result of this effort, on April 21,
      2004, the Company sold its Portland based wire and cable division to ANS of
      Dallas, Texas. The Company does not have any continuing obligations to ANS,
      and
      therefore, there are no risks of continuing ownership that apply to this
      transaction.





In
      accordance with SFAS 144 "Accounting for the Impairment or Disposal of
      Long-Lived Assets", the Company accounted for the pending sale of the wire
      and
      cable division as a discontinued operation for the year ended December 31,
      2003.
      Accordingly, the net operating results, assets held for sale and liabilities
      held for sale and net cash flows of the new wire and cable division were
      accounted for separately from those of continuing operations and reported as
      "Discontinued Operations".





The
      Company continued to operate the wire and cable division until the transaction
      closed on April 21, 2004. The results, including an allocation of interest
      expense, relating to the discontinued operations for the interim period between
      January 1, 2004 and April 20, 2004 are reflected in the following table.




31





Year
                  EndedDecember 31, 2004Sales
            
            $
            749,195Cost
                of Sales
            
            
            599,340Gross Profit (Loss)
            
            
            149,855Operating
                Expenses:Research and development
            
            
            133,614Sales and marketing
            
            
            59,188General and administrative
            
            
            55,325Impairment
                loss on intangibles
            
            
            —Total
                Operating Expenses
            
            
            248,127Total
                Operating Loss
            
            
            (98,272
            )Total Other Expense
            
            
            (24,605
            )Net
                Loss
            
            $
            (122,877
            )







The
      Company recognized a loss of $129,816 on the transaction after taking into
      account transaction expense totaling $125,598. The results of this transaction
      are reported separately in the consolidated Statement of Operations and the
      details associated with the transaction are outlined below:





Value
                Received:Cash
            
            $
            1,500,000Accounts
                payable transferred
            
            
            75,491Payoff
                of shareholder note
            
            
            227,000Gain
                on leased asset transfer
            
            
            99,742Total
            
            $
            1,902,233Value
                Transferred:Intellectual
                property
            
            $
            908,534Property,
                plant and equipment
            
            
            796,261Inventory,
                net
            
            
            201,656Total
            
            $
            1,906,451Net
                liabilities
            
            
            4,218Transaction
                expenses (banking fees, legal expense
              and
                other costs)
            
            
            125,598Loss
                on sale of wire and cable division
            
            
            ($129,816
            )





**14.
      Business Combination**





On
      April
      8, 2005, the Company entered into a merger agreement and acquired 100% of the
      outstanding stock of Moore from two shareholders. On April 4, 2005, the Company
      incorporated microHelix Acquisition Corp., an Oregon corporation, as a 100%
      owned subsidiary of the Company. microHelix Acquisition Corp. was merged with
      Moore with Moore being the surviving corporation and becoming a wholly-owned
      subsidiary of the Company.





Moore,
      headquartered in Tualatin, Oregon, was founded in 1978 and is an independent
      manufacturer of customized cable assemblies, sub-assemblies, wire harnesses
      and
      electro-mechanical assemblies. Moore serves major medical equipment
      manufacturers and commercial equipment manufacturers. Moore is operated as
      a
      wholly owned subsidiary of microHelix.




The
      Company paid $3,000,000 for the 2,000 shares of common stock of Moore, which
      consisted of $1,500,000 in cash, $1,250,000 in the form of a promissory note
      and
      250,000 shares of microHelix Series B Preferred Stock valued at $250,000. In
      addition, the Company refinanced $413,000 of bank debt owed by Moore. In order
      to finance the acquisition of Moore, the Company
      sold 2.0 million shares of Series B Preferred Stock at $1.00 per share in a
      private placement. Each share of Series B Preferred Stock is convertible into
      four shares of Common Stock. Each share of Series B Preferred Stock is eligible
      for a cumulative dividend of $0.15 per share per annum, payable quarterly in
      either cash or stock quarterly when, as and if declared
      by the Board of Directors of the Company. As of December 31, 2005, the
      Company has accrued $253,125 of dividends for the Series B Preferred Stock;
      however, no dividends have been declared or paid on the Series B Preferred
      Stock. The Company also borrowed $250,000 from CTK Capital Corporation at
      an annual interest rate of 15%. The loan proceeds were used to complete the
      Moore acquisition.




32




The
      fair
      value of assets acquired and liabilities assumed was recorded in the Company's
      balance sheet as of April 8, 2005, the effective date of the acquisition, and
      the results of operations of Moore have been included in the Company's
      consolidated results of operations for the period from April 8, 2005 through
      December 31, 2005.





As
      of
      December 31, 2005 the intangible assets were adjusted as per FASB 141 and all
      final adjustments to the value of the intangible assets were made.





The
      following table summarizes the total purchase price consideration as of the
      date
      of acquisition by major asset and liability classification:








Category
            
            ValueNet
                tangible assets
            
            $
            907,984Property
                and Equipment fair value adjustment
            
            
            773,427Customer
                lists and contacts
            
            
            522,466Manufacturing
                process technology
            
            
            203,738Goodwill
            
            
            1,620,218Deferred
                tax liability
            
            
            (615,150
            )Total
                purchase consideration
            
            $
            3,412,683








The
      following pro forma income statement indicates would the results would have
      been
      if Moore was a division of microHelix for all of 2005.





CategorySales
            
            $
            9,759,940Cost
                of sales
            
            
            8,924,384Gross
                profit
            
            
            835,556Operating
                expenses
            
            
            2,648,007Operating
                loss
            
            
            (1,812,451
            )Other
                expense
            
            
            (34,472
            )Net
                loss
            
            $
            (1,846,923
            )




33




**Item
      8.** ***Changes
      In and Disagreements with Accountants on Accounting and Financial
      Disclosure***




None.





**Item
      8A.** ***Controls
      and Procedures***





The
      Company's Chief Executive Officer/Chief Financial Officer evaluated the
      effectiveness of the design and operation of the Company's disclosure controls
      and procedures as of December 31, 2005. Based on that evaluation, the Company's
      Chief Executive Officer/Chief Financial Officer concluded that as of the
      evaluation date the Company's disclosure controls and procedures are designed
      to
      and are 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. The
      Company's Chief Executive Officer/Chief Financial Officer also concluded that,
      notwithstanding the material weaknesses discussed in the following paragraph,
      the Company's disclosure controls and procedures are effective to ensure that
      the information required to be disclosed in reports filed or submitted by the
      Company under the Securities Exchange Act of 1934, as amended, is accumulated
      and communicated to the Company's management, including its principal executive
      and principal financial officers, as appropriate to allow timely decisions
      regarding required disclosure. There were no changes in the Company's internal
      control over financial reporting during 2005 that materially affected, or were
      reasonably likely to materially affect, the Company's internal control over
      financial reporting.





As
      noted
      in the Company's 10-KSB filing for the year ended December 31, 2004, in January
      2005 our management and our newly appointed independent registered public
      accountants reviewed our 10-QSB filings for the periods ended March 31, 2004,
      June 30, 2004, and September 30, 2004. As a result of these reviews, the newly
      appointed independent registered accountants reported to our Audit Committee
      two
      adjustments with regard to the interim financial statements prepared for the
      periods ending March 31, 2004 and June 30, 2004 that needed to be made.
      Management acknowledged that these recommended adjustments to the interim
      financial statements reflected a material weakness under standards established
      by the Public Company Accounting Oversight Board. The Company restated its
      10-QSB reports for each quarter in 2004 due to a correction of an error for
      inventory reserves during the three months ended March 31, 2004, and a
      reclassification of a one-time entry that recorded a sale of assets that
      occurred during the three months ended June 30, 2004. Additional inventory
      reserves were provided for the three months ended December 31, 2004. These
      material weakness issues have been discussed in detail among management, our
      Audit Committee and our independent registered public accountants. The Company
      will continue to evaluate its internal controls and procedures to identify
      any
      required improvements. In reaching the conclusion that the Company's disclosure
      controls and procedures were effective as of December 31, 2005, notwithstanding
      such material weaknesses in 2004, the Company's Chief Executive Officer/Chief
      Financial officer relied on his review of the processes used by the Company
      in
      preparing its financial statements, which indicated that such weaknesses were
      confined to isolated instances and did not reflect systemic weaknesses in the
      Company's disclosure controls and procedures. The Company has changed its
      methodology for recording inventory reserves to better reflect actual and
      planned usages of inventory. The Company also recognized a weakness in its
      Management Operating System (“MOS”) which serves as Moore’s operational and
      financial reporting system. The MOS system was determined to be ineffective,
      creating more work while becoming progressively less reliable. After an
      extensive evaluation of Enterprise Resource Planning systems (“ERP”), the
      company began implementation of its new ERP system (Vantage 8) and the Company
      plans to complete the conversion in the second quarter of 2006. The Company
      also
      hired in the three months ended June 30, 2005 a Corporate Controller to
      strengthen its ability to record entries associated with dispositions of assets.
      The Corporate Controller is also expected to continue to improve the Company's
      internal controls, financial systems and reporting procedures. The Company's
      Chief Executive officer/Chief Financial Officer also consulted with the
      Company's independent registered public accountants, with the Company's Audit
      Committee and with Company personnel with financial reporting
      responsibilities.





**Item
      8B.** ***Other
      Information***




None.




34




**Part
      III**





The
      information required by Items 9, 10, 11 and 12 of Part III are incorporated
      by
      reference to the Registrant's Proxy Statement for its 2006 Annual Meeting of
      Shareholders to be filed with the SEC pursuant to Regulation 14A.





**Item
      13.** ***Exhibits***





**Exhibit**
              **Number**
            
            **Description**3.1(1)
            
            Amended
                and Restated Articles of Incorporation of microHelix, Inc., as amended
                November 16, 2001, December 5, 2003, April 8, 2005 and October 28,
                2005.3.2(2)
            
            Bylaws
                of microHelix, Inc.4.1(2)
            
            Form
                of Warrant Agreement among microHelix, Inc. and UMB Bank, N.A., as
                Warrant
                Agent, including the form of Class B Warrant.4.2(2)
            
            Form
                of Unit Certificate.4.3(2)
            
            Form
                of Warrant to Paulson Investment Company, Inc.10.1(2)
            
            Warrant
                dated March 27, 2000 to The Polymer Technology Group.10.2(2)
            
            Warrant
                Agreement dated January 5, 2001 with Imperial Bank, as
                predecessor-in-interest to Comerica Bank, as amended May 31,
                2001.10.3(2)
            
            Antidilution
                Agreement dated January 5, 2001 between microHelix, Inc. and Imperial
                Bank, as predecessor-in-interest to Comerica Bank.10.4(2)
            
            Stock
                Transfer Restriction Agreement dated January 5, 2001 between microHelix,
                Inc. and Imperial Bank, as predecessor-in-interest to Comerica
                Bank.10.5(2)
            
            Form
                of Warrant for Bridge Loan for Pre-IPO Financing.10.6(2)
            
            Standard
                Commercial-Industrial Lease Agreement dated August 1, 2004 between
                microHelix, Inc. and La Bajada Land Company LLC.10.7(3)
            
            Asset
                Purchase Agreement dated March 5, 2004 between Advanced Neuromodulation
                Systems, Inc. and microHelix, Inc.10.8(4)
            
            Contractual
                Guideline for Shelter Program Relationships dated December 28, 1999
                between Javid LLC and Grayscale, Inc. (which merged into microHelix,
                Inc.
                on December 31, 2000), and Lease Contract entered into through Javid
                LLC's
                subsidiary Camex de Nogales, S.A. de C.V. on behalf of microHelix,
                Inc.
                dated effective November 1, 2003.10.9(4)
            
            Lease
                Agreement between microHelix, Inc. as Landlord, ADM De Mexico, Inc.
                as
                Tenant.10.10(5)
            
            Form
                of Warrant dated April 8, 2005 issued by microHelix, Inc. to financial
                advisors.10.11(5)
            
            Merger
                Agreement dated April 8, 2005 among microHelix, Inc., microHelix
                Acquisition Corp., Moore Electronics, Inc., Lawrence T. Moore and
                Marti D.
                Lundy.10.12(6)
            
            Promissory
                Note dated April 8, 2005 made by microHelix, Inc. in favor of Marti
                D.
                Lundy, as amended August 5, 2005, November 18, 2005 and January 3,
                2006.10.13(5)
            
            Security
                Agreement dated April 8, 2005 among microHelix, Inc., Moore Electronics,
                Inc. and Marti D. Lundy.10.14(5)
            
            Form
                of Series B Preferred Stock Purchase Agreement dated April 8, 2005
                between
                microHelix, Inc. and purchasers of Series B Preferred Stock of microHelix,
                Inc.10.15(5)
            
            Form
                of Registration Rights Agreement dated April 8, 2005 between microHelix,
                Inc. and holders of Series B Preferred Stock of microHelix,
                Inc.10.16(7)
            
            Amended
                and Restated Loan and Security Agreement dated as of April 5, 2005
                among
                microHelix, Inc., Moore Electronics, Inc. and BFI Business Finance
                as
                modified on October 11, 2005, December 22, 2005 , and January 5,
                200610.17(5)
            
            Stock
                Pledge Agreement dated as of April 5, 2005 between microHelix, Inc.
                and
                BFI Business Finance.10.18(5)
            *
            Employment
                Agreement dated April 8, 2005 between Marti D. Lundy and Moore
                Electronics, Inc.10.19(5)
            
            Lease
                dated August 15, 1999 between Sylvia B. Giustina and Moore Electronics,
                Inc. ("Tenant"), as modified and amended by a Memorandum of Understanding
                effective January 1, 2001, a First Addendum to Lease effective August
                15,
                2002, a Second Addendum to Lease effective August 15, 2002 and a
                Third
                Addendum to Lease effective April 7, 2005.14.1(5)
            
            Policy
                on Business Ethics for Directors, Officers and
                Employees.21.1(4)
            
            Subsidiaries.31.1(8)
            
            Certification
                of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.31.2(8)
            
            Certification
                of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as
                adopted
                pursuant to Section 302 of the Sarbanes-Oxley Act of
                2002.32(8)
            
            Certification
                of Chief Executive Officer and Chief Financial Officer Pursuant to
                18
                U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002.




35







(1)
      Incorporated by reference to the Company's Annual Report on Form 10-KSB for
      the
      year ended December 31, 2004, and to the Company's Forms 8-K filed on April
      14,
      2005 and October 31, 2005.


(2)
      Incorporated by reference to the Company's Registration Statement on Form SB-2
      (Reg. No. 333-65872), declared effective on November 16, 2001.


(3)
      Incorporated by reference to the Company's Proxy Statement filed on March 23,
      2004.


(4)
      Incorporated by reference to the Company's Annual Report on Form 10-KSB for
      the
      year ended December 31, 2004.


(5)
      Incorporated by reference to the Company's Form 8-K filed on April 14,
      2005.


(6)
      Incorporated by reference to the Company's Form 8-K filed on April 14, 2005,
      to
      the Company's Form 10-QSB for the quarter ended September 30, 2005 and to the
      Company's Form 8-K filed on January 4, 2006.


(7)
      Incorporated by reference to the Company's Form 8-K filed on April 14, 2005,
      and
      to the Company's Forms 8-K filed on October 31, 2005, January 4, 2006 and
      January 26, 2006.


(8)
      Filed
      herewith.




*
      Management contract or compensatory plan or arrangement.





**Item
      14.** ***Principal
      Accountant Fees and Services*** **.**





The
      information required by Item 14 of Part III is incorporated by reference to
      the
      Registrant's Proxy Statement for its 2006 Annual Meeting of Shareholders to
      be
      filed with the Commission pursuant to Regulation 14A.




36





**SIGNATURES**


**SIGNATURES**





In
      accordance with the requirements of Section 13 or 15 (d) of the Securities
      Exchange Act of 1934, the registrant has duly caused this report to be signed
      on
      this behalf by the undersigned, thereunto duly authorized, on **** April
      19,
      2006.




MICROHELIX,
                INC.By:
            /s/ Tyram
              H.
              PettitTyram
              H. Pettit*President,
                Chief Executive Officer and*
              *Vice
                President
                - Finance*




In
      accordance with the requirements of the Securities Exchange Act of 1934, this
      report has been signed below by the following persons on behalf of the
      registrant and in the capacities and on the dates indicated.





**Signature**
            
            **Title**
            
            **Date**/s/
                Tyram Pettit
            
            President,
                Chief Executive Officer,
            
            April
                19, 2006Tyram
                H. Pettit
            
            Vice
                President - Financeand
                Director (Principal Executive, Financial and Accounting
                Officer)DirectorTerrence
                A. RixfordChairman
                and DirectorJames
                M. Williams/s/
                John L. Crary
            
            Director
            
            April
                19, 2006John
                L. Crary/s/
                Marti D. Lundy
            
            Director
            
            April
                19, 2006Marti
                D. Lundy/s/
                James M. Thornton
            
            Director
            
            April
                19, 2006James
                M. Thornton