UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


Washington,
D.C. 20549


Form
10-K





R
              ANNUAL
      REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the fiscal year ended December 31, 2007£
              TRANSITION
      REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the transition period
      from               to





Commission
file number: 001-16781


microHelix,
Inc.


(Exact
Name of Registrant as Specified in Its Charter)





Oregon
            91-1758621(State
      or Other Jurisdiction of Incorporation or
              Organization)
            (I.R.S.
      Employer Identification No.)5300
      SW Meadows Rd, Suite 400, Lake Oswego,
              Oregon
            97035(Address
      of Principal Executive Offices)
            (Zip
      Code)





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


(503)
419-3564




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





Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.


Yes £                 No
R





Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or 15(d) of the Act.


Yes þ                 No
o


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


Yes £                 No
R





Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained in this form, and
will not 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-K, or any amendments to this Form 10-K.


£





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


Large accelerated filer £
            
            Accelerated filer £Non-accelerated filer  ̈
            
            Smaller reporting company R





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


Yes R                 No
£





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates, as of December 31, 2008, was approximately $96,634 based
upon the last sale price reported for such date on the NASDAQ OTC
Market.





There
were 966,339 shares of the issuer's common stock outstanding as of December 31,
2008.





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





Transitional Small Business
Disclosure Format: Yes£NoR








PART
I





This
Annual Report on Form 10-K 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-K.  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, Inc. ("we," "us," "our,"
"microHelix" or the "Company") began in 1991 in Portland, Oregon as a grant and
private equity funded research company, formed to develop 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.  The Company was a manufacturer of complex cable assemblies
for the medical and commercial original equipment manufacturer ("OEM")
markets.  The Company served 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 included cable, connectors,
flex reliefs, housings and printed circuit boards ("PCBs") and are critical
sub-components of medical devices and commercial electronic
systems.


2





Continuing
deterioration of the Company's financial condition during April and May 2007
caused the Company to voluntarily surrender its assets to its secured creditors
on May 31, 2007 and began winding up its affairs.  In connection
with the windup, the Company stopped paying its unsecured creditors for goods
and services provided prior to May 21, 2007.  The Company and its
wholly owned subsidiary, Moore Electronics, Inc. ("Moore"), operated for the
benefit of the secured creditors until September 2007, at which time it ceased
manufacturing operations and became a shell company.  See Note 1 to
the Consolidated Financial Statements – "Going Concern."





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





"Shell"
Company Status





Due to
our shell company status, holders of restricted securities issued while we are a
shell company may not re-sell them pursuant to SEC Rule 144 for a period of one
year after we cease to be a shell and have filed the necessary report with the
Securities Exchange Commission to that effect.





Patents
and Intellectual Property





The
Company had no patents or patent applications pending as of the date of this
report.





The
Company currently owns the trademark "MICROHELIX" that is listed on the
principal register of the United States Patent and Trademark
Office.  The Company's intellectual property also includes common law
trademarks, service marks and trade names.





Employees





The
Company had no full-time employees and one part-time employee in the United
States as of December 31, 2007.





Where
You Can Find More Information





On June
11, 2007, the Company filed a Form 15 with the Securities and Exchange
Commission terminating is registration under Section 12(g) of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the suspension of its
duty to file reports under Sections 13 and 15(d) of the Exchange
Act.  On March 24, 2009, the Company recommenced filing reports due
under the Securities Exchange Act of 1934.





The
Company is 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 100 F Street, N.W., Washington, D.C. 20549, on
official business days from 10:00 a.m. to 3:00 p.m.  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, 100 F Street,
N.W., Washington, D.C. 20549.  Our SEC filings are also available on
the SEC's website at http://www.sec.gov.





3





Item
1A.  Risk
Factors





Risk
Factors





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





Minimal
assets





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





Adequate
financing may not be available when needed





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





Speculative
nature of the Company's proposed operations





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





Scarcity
of and competition for business opportunities and combinations





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





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





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


4





Continued
management control, limited time availability





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





Conflicts
of interest





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





Reporting
requirements may delay or preclude acquisitions





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





Lack
of diversification





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





Regulation
under Investment Company Act





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





Possible
change in control and management





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


5





Reduction
of percentage share ownership following business combination





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





Taxation





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





Item
1B.  Unresolved
Staff Comments.





Not
applicable.





Item
2.  Properties





After the
Company surrendered its assets to its secured creditors and wound up its
affairs, it terminated the lease for the space previously
occupied.  The Company does not currently maintain an executive
office.





Item
3.  Legal
Proceedings





From time
to time the Company may become involved in ordinary, routine, or regulatory
legal proceedings incidental to the Company's business.  As of the
date of this report, one unsecured creditor had initiated legal action to
collect the outstanding balance of $63,137 owed to it pursuant to an unsecured
note.  The Company is not engaged in any other legal proceedings nor
is the Company aware of any pending or threatened legal proceedings that, singly
or in the aggregate, could have a material adverse effect on the Company's
business, financial condition or results of operations.





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





The
Company's 2007 annual meeting of shareholders was held on December 11, 2007 for
the purpose of electing directors.  The following votes were cast for
or withheld as to the nominee for the position of director:





Director Nominee
                      
                      Votes For
                      
                      
                      Votes WithheldJames
      E. Horswill
                      
                      
                      663,460
                      
                      
                      
                      0





The
nominee for director was 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 Stockholder Matters and Small Business Issuer Purchases of Equity
Securities





There is
no established public trading market for the Company's securities.  As
of the date of this report the Company's Common Stock trades on
the Pink Sheets under the symbol MHLX.OB.  The Company's
Class B Warrants traded on the NASDAQ OTC Bulletin Board before expiring on
November 16, 2006.  The table below sets forth for the periods
indicated the high and low bid prices for the Common Stock as reported by the
NASDAQ OTC Bulletin Board from January 1, 2006 through December 31,
2007.  The high and low bid prices for the Class B Warrants, as
reported by the NASDAQ OTC Bulletin Board from January 1, 2006 through
November 16, 2006 are also set forth below.  The prices shown
represent interdealer prices without adjustments for retail mark-ups, mark-downs
or commissions and consequently may not represent actual
transactions.





Common
Stock "MHLX.OB"





2007
      Fiscal Quarters
                  
                  High
                  
                  
                  LowFirst
      Quarter
                  
                  $
                  0.29
                  
                  
                  $
                  0.20Second
      Quarter
                  
                  $
                  0.29
                  
                  
                  $
                  0.035Third
      Quarter
                  
                  $
                  0.05
                  
                  
                  $
                  0.025Fourth
      Quarter
                  
                  $
                  0.05
                  
                  
                  $
                  0.007




2006
      Fiscal Quarters
                  
                  High
                  
                  
                  LowFirst
      Quarter
                  
                  $
                  0.58
                  
                  
                  $
                  0.40Second
      Quarter
                  
                  $
                  0.48
                  
                  
                  $
                  0.35Third
      Quarter
                  
                  $
                  0.45
                  
                  
                  $
                  0.35Fourth
      Quarter
                  
                  $
                  0.37
                  
                  
                  $
                  0.25





Class
B Warrant "MHLXZ.OB"





2007
      Fiscal Quarters
                  
                  High
                  
                  
                  LowFirst
      Quarter
                  
                  $
                  .000
                  
                  
                  $
                  .000Second
      Quarter
                  
                  $
                  .000
                  
                  
                  $
                  .000Third
      Quarter
                  
                  $
                  .000
                  
                  
                  $
                  .000Fourth
      Quarter
                  
                  $
                  .000
                  
                  
                  $
                  .000





2006
      Fiscal Quarters
                  
                  High
                  
                  
                  LowFirst
      Quarter
                  
                  $
                  0.055
                  
                  
                  $
                  0.010Second
      Quarter
                  
                  $
                  0.050
                  
                  
                  $
                  0.005Third
      Quarter
                  
                  $
                  0.140
                  
                  
                  $
                  0.005Fourth
      Quarter
                  
                  $
                  0.070
                  
                  
                  $
                  0.001





Holders
of shares of Common Stock are entitled to receive such dividends, if any, as may
be declared by the Company's Board of Directors out of funds legally available
therefor and, upon the Company's liquidation, dissolution or winding up, are
entitled to share ratably in all net assets available for distribution to such
shareholders.  The Company has not, to date, declared or paid any cash
dividends to its Common Stock holders.


7





Recent
Sales of Unregistered Securities





Other
than as reported in our quarterly reports on Form 10-Q and current reports on
Form 8-K, we have not sold any equity securities that were not registered under
the Securities Act of 1933 during the year ended December 31, 2007.





Shareholders
of Record





As of
December 31, 2008, there were approximately 60 shareholders of record of the
Company's Common Stock.  There is one shareholder of record of the
Company's Series C Preferred Stock.





Securities
Authorized for Issuance Under Equity Compensation Plans





The
Company's Board of Directors determined in 2005 that the cost of maintaining the
equity compensation plans outweighed the perceived benefits received from the
Company's employees under those plans.  Therefore, these equity
compensation plans were terminated.  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.





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




All of the references to share and per
share data below have been retroactively restated to reflect the reverse stock
split for all periods presented due to the 1 for 15 reverse stock split approved
by the Company's shareholders on March 19, 2008.




Overview





microHelix, Inc. ("we," "us," "our,"
"microHelix" or the "Company") began in 1991 in Portland, Oregon as a grant and
private equity funded research company, formed to develop 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.  The Company was a manufacturer of complex cable assemblies
for the medical and commercial original equipment manufacturer ("OEM")
markets.  The Company served 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 included cable, connectors,
flex reliefs, housings and printed circuit boards ("PCBs") and are critical
sub-components of medical devices and commercial electronic
systems.





Continuing
deterioration of the Company's financial condition during April and May 2007
caused the Company to voluntarily surrender its assets to its secured creditors
on May 31, 2007 and began winding up its affairs.  In connection
with the windup, the Company stopped paying its unsecured creditors for goods
and services provided prior to May 21, 2007.  The Company and its
wholly owned subsidiary, Moore Electronics, Inc. ("Moore"), operated for the
benefit of the secured creditors until September 2007, at which time it ceased
manufacturing operations and became a shell company.  See Note 1 to
the Consolidated Financial Statements – "Going Concern."





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





The
Company's current business objective is to locate appropriate opportunities for
a business combination.  The Company does not currently engage in any
activity that provides cash flow.  The Company may require additional
funds to cover the costs of investigating and analyzing a business combination
or to fund general and administrative expenses.


8





The
Company anticipates incurring costs related to the filing of Exchange Act
reports, officer's and director's salaries and transaction costs related to a
business combination in the next 12 months.  There is no assurance
that the Company will be able to raise sufficient capital to cover those
expenses.  Until the Company consummates a business combination, it
does not anticipate any future expenditures for research and development or the
purchase or sale of any property, plant or equipment.





Critical
Accounting Policies and Estimates





The
discussion and analysis of the Company’s financial condition and results of
operations is based upon the Company's consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States.  The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities.  Because Moore continued to operate
during the windup period, management continued to evaluate its estimates for
Moore on a going concern basis that assumed continued operations, including
those related to product returns, bad debts, inventories, prepaid expenses,
intangible assets, income taxes, warranty obligations and other
contingencies.  The Company's MicroCoax Assembly Division was
evaluated as a discontinued operation and the value of its remaining assets was
adjusted to $17,000, which is the value the Company received from the sale of
the MicroCoax assets to an unrelated third party on July 12,
2007.  The Company based the estimates on historical experience and on
various other assumptions that are believed to be reasonable under the
circumstances, the results of which formed the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources.  The Company believes the following critical accounting
policies and related judgments and estimates affect the preparation of the
Company's consolidated financial statements.  See also Note 1 to the
Consolidated Financial Statements.





Revenue Recognition—The
Company recognizes 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 and the products must be physically shipped from the
factory.  Returns are limited to nonconforming products and the volume
of returns has been insignificant.  The Company does not establish
reserves for returns because returns have been minimal.





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





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


9





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





Results
of Operations





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





Year Ended
                                        December 31,2006
                                      
                                      2007Sales
                                      
                                      
                                      100
                                      %
                                      100
                                      %Cost
      of sales
                                      
                                      
                                      91
                                      
                                      89Gross
      profit (loss)
                                      
                                      
                                      9
                                      
                                      11Operating
      expenses:Sales and marketing
                                      
                                      
                                      4
                                      
                                      3General and administrative
                                      
                                      
                                      12
                                      
                                      14Total operating expenses
                                      
                                      
                                      16
                                      
                                      17Loss
      from operations
                                      
                                      
                                      (7)
                                      
                                      (6
                                      )Other
      income (expense)
                                      
                                      
                                      (8)
                                      
                                      (10)Net loss before benefit for income taxes
                                      
                                      
                                      (15
                                      )
                                      (16
                                      )Income
      tax benefit
                                      
                                      
                                      2
                                      
                                      4Net
      loss
                                      
                                      
                                      (13
                                      )%
                                      (12
                                      )%





Year
ended December 31, 2007 compared with year ended December 31, 2006





One principal event affected the
Company's financial results in 2007 and 2006.   Despite the
Company's efforts to restructure its debts, continuing deterioration of the
Company's financial condition during April and May 2007 caused the Board of
Directors to approve a voluntary surrender of the Company's assets to its
secured creditors and begin winding up its affairs.  See Item 1 –
Overview.





Total
sales in 2007 were $8,014,892, compared to $15,281,564 in 2006, a decrease of
48%.  Gross profit in 2007 was $850,842 compared to gross profit of
$1,391,418 in 2006.  The decreases in sales and gross profit were due
to the loss of the Redmond, Washington facility of Physio-Control, Inc., a
subsidiary of Medtronic, Inc. and a key customer of the Company, due to
regulatory actions taken by the United States FDA against Physio-Control, Inc.
that were unrelated to the Company; the closure and sale of the MicroCoax
Assembly Solutions division and the wind down of microHelix,
Inc., and the wind down and sale of the assets of the Moore Electronics wholly
owned subsidiary.


10





Total
operating expenses in 2007 were $1,319,039 compared to $2,370,388 in
2006.  This decrease is due to head count reductions that reduced
salary and related benefits expenses, reduced consultant expenses, the closure
and sale of the MicroCoax Assembly Solutions division and the wind down of
microHelix Inc., and
the wind down and sale of the assets of the Moore Electronics wholly owned
subsidiary.





Sales and
marketing expenses for 2007 were $217,379 compared to $551,016 in 2006, a
decrease of 61%.  This decrease is due to head count reductions that
reduced salary and related benefits expenses, reduced consultant expenses, the
closure and sale of the MicroCoax Assembly Solutions division and the wind down
of microHelix Inc., and
the wind down and sale of the assets of the Moore Electronics wholly owned
subsidiary.





General
and administrative expenses for 2007 were $1,101,660 compared to $1,819,372 in
2006.  The decrease resulted principally from head count reductions
that reduced salary and related benefit expenses the closure and sale of the
MicroCoax Assembly Solutions division, and the wind down of microHelix Inc., and
the wind down and sale of the assets of the Moore Electronics wholly owned
subsidiary.





Net other
expense for 2007 was $781,169 compared to net other expense of $1,197,783 for
2006.  The difference was the income associated with debt forgiveness
and the change in the warrant valuation offset by the amortization of note
discount, loan restructuring expenses, higher interest rates, impairment of
intangible assets (including goodwill), and the loss on disposal of
equipment.





Net loss
for 2007 was $951,121 compared to a net loss of $1,993,278 in 2006.





Dividends
on the Series B Preferred Stock were $0 in 2007 and $260,496 in
2006.  The dividend paid in 2006 was paid in shares of our Common
Stock.  Net loss attributable to holders of our Common Stock was
$851,632 in 2007 and $2,786,744 in 2006. The Series C Preferred Stock paid a
dividend in 2007 in the amount of $533,000 for the value of the warrants and the
beneficial conversion feature.





Liquidity
and Capital Resources





As of December 31, 2007, the
Company had $5,797 of cash. The decrease of $34,883 in the cash balance during
2007 represents the net cash provided by operations of $3,117,188 plus $92,000
provided by investing activities, offset by $3,244,071 of cash used in financing
activities. Cash
provided by operating activities in 2007 was $3,117,188 compared to $1,181,124
used in 2006.  The net cash provided by operations of $3,117,188
included a decrease in accounts receivable of $1,908,866 and a decrease in
inventories of $2,004,879 that was partially offset by $1,755,378 of warrant
valuation gain and $1,107,854 of gain on debt settlement.





At our
Annual Meeting of Shareholders on August 17, 2006, the holders of Series B
Preferred Stock voted to convert each share of Series B Preferred Stock into
four shares of Common Stock, which was the conversion rate as of that
date.





On
October 19, 2006 and November 2, 2006, the Company issued a total of 279,070
shares of Series C Preferred Stock to MH Financial Associates, LLC ("MH
Financial") at $2.15 per share for total gross cash proceeds of
$600,000.  The proceeds from the sale of Series C Preferred Stock were
used for working capital.  See also Note 6 to the Company's
Consolidated Financial Statements.





On April
8, 2005, the Company issued a promissory note (the "2005 Note") in the amount of
$1,250,000 to Marti D. Lundy as part of the Moore
acquisition.  The 2005 Note was purchased from Ms. Lundy by MH
Financial on October 19, 2006 in connection with the purchase by MH
Financial of shares of our Series C Preferred Stock.  MH Financial is
an affiliate of Aequitas Capital Management, Inc., which served as our exclusive
financial advisor at that time.


11





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





The
following description of the Company's principal debt at March 31, 2007
should be read in the context of the foregoing paragraph.  See also
Notes 2, 9 and 15 to the Company's Consolidated Financial
Statements.





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





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





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





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


12





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





On
March 12, 2007 the Company was in default under the Original
Note.  On that date, the Company and MH Financial entered into a
Forbearance and Waiver Agreement (the "Forbearance Agreement") under which MH
Financial agreed to forbear with respect to such defaults and agreed to waive
certain of the obligations to register shares of Common Stock owned by MH
Financial pursuant to the Registration Rights Agreement dated October 19,
2006 between us and MH Financial.   As consideration for the
Forbearance Agreement, we issued a warrant to MH Financial (the "Forbearance
Warrant") to purchase 193,333 shares of Common Stock at an exercise price of
$0.015 per share.  The Forbearance Warrant expires on March 11,
2010.  As additional consideration for the Forbearance Agreement, the
Company also agreed to reduce the exercise price to $0.015 per share for
warrants issued to MH Financial pursuant to the Original Note for a total of
188,741 shares of the Common Stock.  After giving effect to the
additional warrants issued in connection with the Amended Note and the
Forbearance Agreement, MH Financial is the beneficial holder of approximately
55% of the Company's voting capital stock.





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





Off
Balance Sheet Arrangements





The Company does not have any off
balance sheet arrangements.





Item
8.  Financial
Statements and Supplementary Data





INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS





PageReport
      of Peterson Sullivan LLP  - Independent Registered Public
      Accounting Firm
              14Consolidated
      Balance Sheets as of December 31, 2007 and 2006
              16Consolidated
      Statements of Operations for the Years Ended December 31, 2006 and
      2007
              17Consolidated
      Statements of Shareholders' Deficit for the Years Ended December 31, 2006
      and 2007
              18Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2006 and
      2007
              19Notes
      to Consolidated Financial Statements
              21


13





REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM





To the
Board of Directors


microHelix,
Inc.


Lake
Oswego, Oregon





We have
audited the accompanying consolidated balance sheets of microHelix, Inc. and
Subsidiary, ("the Company") as of December 31, 2007 and 2006, and the
related consolidated statements of operations, stockholders' equity (deficit),
and cash flows for the 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 audits.





We
conducted our audits in accordance with the 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 financial statements are free of material misstatement.  The
Company has determined that it is not required to have, nor were we engaged to
perform, an audit of its internal control over financial
reporting.  Our audit 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 includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements.  An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement
presentation.  We believe that our audits provide 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. and
Subsidiary, as of December 31, 2007 and 2006, and the results of their
operations and their cash flows for the years then ended in conformity with
accounting principles generally accepted in the United States.





The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern.  As discussed in Note 1
to the consolidated financial statements, the Company has experienced recurring
losses and at present has no current business operations.  This raises
substantial doubt about the Company's ability to continue as a going
concern.  Management's plans regarding this matter are also described
in Note 1.  The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.


14





/S/
PETERSON SULLIVAN LLP





Seattle,
Washington


March 11,
2009


15


microHelix,
Inc.


CONSOLIDATED
BALANCE SHEETS


December
31, 2007 and 2006





2006
                  
                  
                  2007AssetsCurrent
      Assets:Cash
                  
                  $
                  40,680
                  
                  
                  $
                  5,797Accounts
      receivable, net of allowance of $3,206 and $0 at December 31, 2007 and
      2006, respectively
                  
                  
                  1,905,660
                  
                  
                  
                  —Inventories,
      net
                  
                  
                  1,600,403
                  
                  
                  
                  —Prepaid
      expenses
                  
                  
                  43,692
                  
                  
                  
                  22,917Total
      current assets
                  
                  $
                  3,590,435
                  
                  
                  
                  28,714Property
      and equipment, net
                  
                  
                  904,231
                  
                  
                  
                  —Intangible
      assets
                  
                  
                  350,112
                  
                  
                  
                  —Goodwill
                  
                  
                  732,365
                  
                  
                  
                  —Total
      assets
                  
                  $
                  5,577,143
                  
                  
                  $
                  28,714Liabilities
      and Shareholders' DeficitCurrent
      Liabilities:Checks
      issued in excess of bank balances
                  
                  $
                  129,397
                  
                  
                  $
                  —Accounts
      payable
                  
                  
                  1,633,288
                  
                  
                  
                  1,068,933Accounts
      payable-related parties
                  
                  
                  8,232
                  
                  
                  
                  —Accrued
      liabilities
                  
                  
                  609,599
                  
                  
                  
                  250,886Line
      of credit
                  
                  
                  1,897,432
                  
                  
                  
                  —Current
      maturities of notes payable
                  
                  
                  347,938
                  
                  
                  
                  198,739Note
      payable to shareholder
                  
                  
                  150,000
                  
                  
                  
                  —Common
      stock warrant liability
                  
                  
                  —
                  
                  
                  
                  62,822Total
      current liabilities
                  
                  
                  4,775,886
                  
                  
                  
                  1,581,380Long-term
      liabilitiesNotes
      payable, less current maturities, net of debt discounts
                  
                  
                  801,262
                  
                  
                  
                  —Deferred
      tax liability
                  
                  
                  298,145
                  
                  
                  
                  —Total
      long-term liabilities
                  
                  
                  1,099,407
                  
                  
                  
                  —Total
      liabilities
                  
                  
                  5,875,293
                  
                  
                  
                  1,581,380Shareholders'
      Deficit:Preferred
      stock, convertible, no par value, 750,000 shares authorized, 279,070
      Series C Preferred stock issued and outstanding, liquidation preference of
      $600,000
                  
                  
                  533,000
                  
                  
                  
                  533,000Common stock, no par
      value, 25,000,000 shares authorized, 966,339 and 965,672 shares issued and
       outstanding at December 31, 2007 and 2006
    respectively
                  
                  
                  17,462,823
                  
                  
                  
                  17,462,823Additional paid-in capital
                  
                  
                  6,292,850
                  
                  
                  
                  5,989,455Accumulated
      deficit
                  
                  
                  (24,586,823
                  )
                  
                  
                  (25,537,944
                  )Total
      shareholders' deficit
                  
                  
                  (298,150
                  )
                  
                  
                  (1,552,666
                  )Total
      liabilities and shareholders' deficit
                  
                  $
                  5,577,143
                  
                  
                  $
                  28,714





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


16





microHelix,
Inc.





CONSOLIDATED
STATEMENTS OF OPERATIONS





Year Ended December
                        31,2006
                      
                      
                      2007Sales,
      net
                      
                      $
                      15,281,564
                      
                      
                      $
                      8,014,892Cost
      of Sales
                      
                      
                      13,890,146
                      
                      
                      
                      7,163,950Gross profit
                      
                      
                      1,391,418
                      
                      
                      
                      850,942Operating
      Expenses:Sales
      and marketing
                      
                      
                      551,016
                      
                      
                      
                      217,379General
      and administrative
                      
                      
                      1,819,372
                      
                      
                      
                      1,101,660Total operating expenses
                      
                      
                      2,370,388
                      
                      
                      
                      1,319,039Loss
      from operations
                      
                      
                      (978,970
                      )
                      
                      
                      (468,097
                      )Other
      income (expense):Other
      income
                      
                      
                      8,883
                      
                      
                      
                      —Impairment
      expense-intangible assets
                      
                      
                      —
                      
                      
                      
                      (242,658
                      )Loan
      restructuring expense
                      
                      
                      —
                      
                      
                      
                      (989,079
                      )Warrant
      valuation gain
                      
                      
                      —
                      
                      
                      
                      1,755,378Debt
      forgiveness
                      
                      
                      90,373
                      
                      
                      
                      1,107,854Impairment
      expense-goodwill
                      
                      
                      (887,853
                      )
                      
                      
                      (732,365
                      )Loss on disposal of
      equipment
                      
                      
                      —
                      
                      
                      
                      (545,721
                      )Interest
      expense
                      
                      
                      (409,186
                      )
                      
                      
                      (1,134,578
                      )Total
      other income (expense)
                      
                      
                      (1,197,783
                      )
                      
                      
                      (781,169
                      )Loss
      before benefit for income taxes
                      
                      
                      (2,176,753
                      )
                      
                      
                      (1,249,266
                      )Benefit
      for Income Taxes
                      
                      
                      183,475
                      
                      
                      
                      298,145Net loss
                      
                      
                      (1,993,278
                      )
                      
                      
                      (951,121
                      )Preferred
      stock dividends
                      
                      
                      (793,496
                      )
                      
                      
                      —Net
      loss available to common shareholders
                      
                      $
                      (2,786,774
                      )
                      
                      $
                      (951,121
                      )Loss
      per common share — basic and diluted
                      
                      $
                      (6.15
                      )
                      
                      $
                      (.98
                      )Weighted
      average number of shares outstanding — basic and diluted
                      
                      
                      453,294
                      
                      
                      
                      966,275





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




17




microHelix,
Inc.





CONSOLIDATED
STATEMENTS OF SHAREHOLDERS' DEFICIT


Years
Ended December 31, 2006 and 2007





Common Stock
                                  
                                  
                                  Preferred
                                  
                                  
                                  Preferred
                                  
                                  
                                  AdditionalShares
                                  
                                  
                                  Amount
                                  
                                  
                                  Stock
      Series
                                    B
                                  
                                  
                                  Stock
      Series
                                    C
                                  
                                  
                                  Paid-in
                                    Capital
                                  
                                  
                                  Accumulated
                                    Deficit
                                  
                                  
                                  TotalBalance,
      December 31, 2005
                                  
                                  
                                  141,939
                                  
                                  
                                  $
                                  14,473,409
                                  
                                  
                                  $
                                  2,475,793
                                  
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  6,270,002
                                  
                                  
                                  $
                                  (22,593,545
                                  )
                                  
                                  $
                                  625,659Dividends
      on preferred stock-series B
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (260,496
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  (260,496
                                  )Conversion
      of preferred stock and accrued dividends to common stock
                                  
                                  
                                  812,540
                                  
                                  
                                  
                                  2,989,414
                                  
                                  
                                  
                                  (2,475,793
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  513,621Preferred
      stock issued for
                                    Cash-net
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  533,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  533,000Common
      stock issued for services
                                  
                                  
                                  11,193
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  73,750
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  73,750Warrants
      issued in conjunction with debt
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  171,865
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  171,865Beneficial
      conversion feature associated with debt
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  37,729
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  37,729Warrants
      issued in conjunction and beneficial conversion feature associated with
      preferred stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (533,000
                                  )
                                  
                                  
                                  533,000
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  —Dividend
      value of warrants and beneficial conversion feature on immediately
      convertible preferred stock
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  533,000
                                  
                                  
                                  
                                  (533,000
                                  )Net
      loss for the year
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (1,993,278
                                  )
                                  
                                  
                                  (1,993,278
                                  )Balance,
      December 31, 2006
                                  
                                  
                                  965,672
                                  
                                  
                                  $
                                  17,462,823
                                  
                                  
                                  $
                                  —
                                  
                                  
                                  $
                                  533,000
                                  
                                  
                                  $
                                  6,292,850
                                  
                                  
                                  $
                                  (24,586,823
                                  )
                                  
                                  $
                                  (298,150
                                  )Common
      stock issued for services
                                  
                                  
                                  667
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,500
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  2,500Warrants
      issued with troubled debt restructuring
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  606,239
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  606,239Change
      in strike price for warrants
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  354,096
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  354,096Warrants
      issued in conjunction with debt
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  551,970
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  551,970Common
      stock warrant liability
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (1,818,200
                                  )
                                  
                                  
                                  
                                  
                                  
                                  
                                  (1,818,200
                                  )Net
      loss for the year
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  
                                  (951,121
                                  )
                                  
                                  
                                  (951,121
                                  )Balance,
      December 31, 2007
                                  
                                  
                                  966,339
                                  
                                  
                                  $
                                  17,462,823
                                  
                                  
                                  
                                  —
                                  
                                  
                                  $
                                  533,000
                                  
                                  
                                  $
                                  5,989,455
                                  
                                  
                                  $
                                  (25,537,944
                                  )
                                  
                                  $
                                  (1,552,666
                                  )





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


18




microHelix,
Inc.


CONSOLIDATED
STATEMENTS OF CASH FLOWS





Year Ended December 31,2006
                    
                    
                    2007Cash
      Flows Provided By (Used In) Operating Activities:Net
      loss
                    
                    $
                    (1,993,278
                    )
                    
                    $
                    (951,121
                    )Adjustments
      to reconcile net loss to cash provided by (used in) operating
      activities:Depreciation-property
      and equipment
                    
                    
                    446,317
                    
                    
                    
                    266,510Goodwill
      impairment
                    
                    
                    887,853
                    
                    
                    
                    732,365Amortization-intangible
      assets
                    
                    
                    214,914
                    
                    
                    
                    107,454Intangible
      assets impairment
                    
                    
                    —
                    
                    
                    
                    242,658Change
      in provision for doubtful accounts
                    
                    
                    (16,258
                    )
                    
                    
                    (3,206
                    )Change
      in provision inventory reserves
                    
                    
                    145,845
                    
                    
                    
                    (404,476
                    )Common
      stock issued for services
                    
                    
                    73,750
                    
                    
                    
                    2,500Benefit
      from deferred income taxes
                    
                    
                    (183,475
                    )
                    
                    
                    (298,145
                    )Debt
      forgiveness
                    
                    
                    (90,373
                    )
                    
                    
                    (1,107,854
                    )Loan
      restructuring costs
                    
                    
                    —
                    
                    
                    
                    992,270Warrant
      valuation gain
                    
                    
                    —
                    
                    
                    
                    (1,755,378
                    )Loss
      on disposal of equipment
                    
                    
                    —
                    
                    
                    
                    545,721Interest
      expense-amortization
                    
                    
                    23,307
                    
                    
                    
                    706,322Change
      in assets and liabilities:(Increase)
      Decrease in assets:Accounts
      receivable
                    
                    
                    (303,377
                    )
                    
                    
                    1,908,866Inventories
                    
                    
                    (624,741
                    )
                    
                    
                    2,004,879Prepaid
      expenses and other current assets
                    
                    
                    5,922
                    
                    
                    
                    20,775Customer
      Deposits
                    
                    
                    (163,456
                    )
                    
                    
                    —Increase
      (Decrease) in liabilities:Accounts
      payable
                    
                    
                    322,711
                    
                    
                    
                    473,993Accounts
      payable-related parties
                    
                    
                    (64,988
                    )
                    
                    
                    (8,232
                    )Accrued
      liabilities
                    
                    
                    138,203
                    
                    
                    
                    (358,713
                    )Net
      cash provided by (used in) operating activities
                    
                    
                    (1,181,124
                    )
                    
                    
                    3,117,188Cash
      Flows Provided by (Used in) Investing Activities:Capital
      expenditures
                    
                    
                    (279,399
                    )
                    
                    
                    —Proceeds
      from sale of equipment
                    
                    
                    —
                    
                    
                    
                    92,000Net
      cash provided by (used in) investing activities
                    
                    
                    (279,399
                    )
                    
                    
                    92,000Cash
      Flows Provided by (Used in) Financing Activities:Proceeds
      from (repayments of) line of credit , net
                    
                    
                    571,748
                    
                    
                    
                    (1,897,432
                    )Payments
      on notes payable
                    
                    
                    (186,849
                    )
                    
                    
                    (1,817,242
                    )Proceeds
      from issuance of notes payable
                    
                    
                    350,000
                    
                    
                    
                    —Proceeds
      from preferred stock offering, net of expenses
                    
                    
                    533,000
                    
                    
                    
                    —Payment
      on notes payable to shareholders
                    
                    
                    (104,405
                    )
                    
                    
                    (150,000
                    )Checks
      issued in excess of bank balances
                    
                    
                    129,397
                    
                    
                    
                    (129,397
                    )Proceeds
      from issuance of notes payable to shareholders
                    
                    
                    150,000
                    
                    
                    
                    750,000Net
      cash provided by (used in) financing activities
                    
                    
                    1,442,891
                    
                    
                    
                    (3,244,071
                    )Change
      in cash
                    
                    
                    (17,632
                    )
                    
                    
                    (34,883
                    )Cash,
      beginning of year
                    
                    
                    58,312
                    
                    
                    
                    40,680Cash,
      end of year
                    
                    $
                    40,680
                    
                    
                    $
                    5,797





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


19


MICROHELIX,
INC.





CONSOLIDATED
STATEMENTS OF CASH FLOWS, (CONTINUED)


Years
Ended December 31, 2006 and 2007





Year Ended December 31,2006
                  
                  
                  2007Supplemental
      disclosure of cash flow information — Cash paid for
    interest
                  
                  $
                  333,224
                  
                  
                  $
                  205,089Supplemental
      disclosure of cash flow information — Cash paid for income
      taxes
                  
                  $
                  —
                  
                  
                  $
                  —Supplemental
      disclosure of non-cash Financing Activities:Common
      stock warrant liability
                  
                  $
                  —
                  
                  
                  $
                  1,818,200Warrants
      and beneficial conversion feature issued to lender
                  
                  $
                  209,594
                  
                  
                  $
                  —Warrants
      issued to lenders-recorded as debt discount
                  
                  $
                  —
                  
                  
                  $
                  551,970Issuance
      of note payable to settle accounts payable
                  
                  $
                  106,471
                  
                  
                  $
                  —Dividend
      declared-preferred stock
                  
                  $
                  260,496
                  
                  
                  $
                  —Preferred
      dividends paid via common stock
                  
                  $
                  513,621
                  
                  
                  $
                  —Refinance
      shareholder note payable
                  
                  $
                  1,028,982
                  
                  
                  $
                  —Conversion
      of preferred stock to common stock
                  
                  $
                  2,475,793
                  
                  
                  $
                  —Warrants
      and beneficial conversion feature issued with preferred
    stock
                  
                  $
                  533,000
                  
                  
                  $
                  —





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


20


MICROHELIX,
INC.





NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS





1.  Summary
of Significant Accounting Policies





Nature of Operations— Until
September 28, 2007, when the Company suspended manufacturing operations and
concluded the disposition of its assets to its secured creditors, the Company
was a manufacturer of custom cable assemblies and mechanical assemblies for the
medical and commercial original equipment manufacturer (OEM)
markets.  On May 31, 2007, the Company surrendered substantially
all its assets to its secured creditors and concluded the disposition of all the
Company's assets September 28, 2007, after which microHelix became a shell
company (see "Going Concern" and Note 15 –Subsequent Events) that will seek out
suitable business combinations.  Management believes that presentation
of discontinued operations would not be appropriate since substantially all of
the Company’s operations have been discontinued.





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.





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





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





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





Cash Equivalents— For the
purpose of the statements 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.


21





Accounts Receivable— The
Company extended credit to its customers based on an assessment of a customer's
financial circumstances, generally without requiring collateral.  A
reserve for bad debts had been provided at December 31, 2006, and on a regular
basis individual accounts that were past due were reviewed.  If an
account was determined to be uncollectible the amount was charged to the bad
debt reserve.  These write-offs had been insignificant and had been
adequately covered by the bad debt reserve.  Four of the Company’s
customers accounted for 74% of the Company’s total accounts receivable at
December 31, 2006.





Inventories were stated at
the lower of cost (first-in, first-out) or market.  The manufactured
inventory was valued using the standard cost method.  The inventory
reserves for slow moving and obsolete parts were adjusted on the basis of
reviewing quantities on hand, quantities on order, and sales projections by
customers, and actual versus projected sales volume.  All inventories
were sold in 2007 as part of the shutdown of operations.





Property and Equipmentwere
recorded at cost.  Depreciation was 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 were
amortized over the lesser of the remaining lease term or the useful
life.  Costs of repairs and maintenance were expensed as
incurred.  Management periodically evaluated the recoverability of
property and equipment by comparing the carrying amounts to future undiscounted
cash flows expected to be generated by such assets.  All property and
equipment were sold in 2007 at a loss of $545,721 as a part of the shutdown of
operations.





The
Company evaluated long-lived assets whenever events or changes in business
circumstances or planned use of assets indicated that their carrying amounts may
not be fully recoverable or that their useful lives were no longer
appropriate.  Reviews were performed to determine whether the carrying
values of assets 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 indicated that impairment existed, the
impaired asset was written down to its fair value.  Significant
management judgment was required in the forecast of future operating results
that were used in the preparation of expected discounted and undiscounted cash
flows.





Goodwill and Other Intangible Assets— Goodwill represented 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 more frequently when a significant event occurs or
circumstances change.





Based on
the decision to dispose of substantially all of the assets of Moore, the
goodwill was tested for impairment at December 31, 2006.  As a result
of this impairment analysis, an impairment of $887,853 was recorded at December
31, 2006.  The impairment was determined by comparing the estimated
fair value of the Company’s assets (excluding goodwill-$4,844,781) to the
estimated fair value of the Company’s liabilities (excluding the deferred tax
liability-$5,577,146) to calculate the excess of the fair value of the
liabilities over the value of the assets sold-$732,365.  The $732,365
was then compared to the carrying value of the goodwill ($1,620,218) and the
difference ($887,853) was the calculated goodwill impairment.





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





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


22





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





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 of the deferred tax
asset that is expected to more likely than not be realized.





Fair Value of Financial Instruments— The carrying value of the Company's accounts payable, other accrued
liabilities, and notes payable 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.   Because the Company recorded a loss
for the year ending December 31, 2007 and the year ending December 31,
2006, the issuance of shares from the conversion of preferred stock or warrants
would be anti-dilutive.  Basic and diluted losses per common share
were identical for these periods.  The Company computed dilutive
shares using the treasury method.





For the
year ended December 31, 2007, the outstanding number of potentially
dilutive common shares totaled 1,250,985 shares of Common Stock, consisting of
Series C Preferred Stock convertible into 186,047 shares of Common Stock, and
warrants to purchase 1,064,938 shares of Common Stock.  At December
31, 2006, the outstanding number of potentially dilutive common shares totaled
661,276 shares of Common Stock, consisting of Series C Preferred Stock
convertible into 186,047 shares of Common Stock, notes payable to MH Financial
convertible into 228,663 shares of Common Stock, and warrants to purchase
246,566 shares of Common Stock.





Operating Segments and Reporting
Units— The Company operated as a single business segment and reporting
unit.  For the years ended December 31, 2007 and 2006,
substantially all revenues had been derived from domestic
operations.





2.  Terms
of Troubled Debt Modification





At
December 31, 2006, the Company's Original Note payable to MH Financial, with an
outstanding principal balance of $1,006,086 was outstanding.  The
Original Note was due in July 2007.  Effective March 12, 2007 the
Company and MH Financial modified the terms of the Original Note as
follows:





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


23





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





(c)
            MH
      Financial's right to convert the Original Note into shares of Company
      Common Stock was cancelled;





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





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





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





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





As
additional consideration to, and as a requirement of, MH Financial extending
additional credit to microHelix and modifying the Original Note, the Company’s
Board of Directors approved the Sale (“the Sale”) to MH Financial or its assigns
of all of microHelix’s MicroCoax Assembly Solutions division’s assets, which
comprised substantially all of the Company’s operating assets, and all issued
and outstanding shares of Moore.  The closing date for the Sale was to
be no later than September 30, 2007, and would be subject to certain terms and
conditions, including approval by microHelix's
shareholders.  Shareholder approval for the Sale was not requested and
the Sale did not occur.





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





3.  Summary
of Recent Accounting Pronouncements





In
February 2007, the FASB issued SFAS No. 159, “Fair Value Option for Financial Assets and Financial
Liabilities.”  SFAS
No. 159 permits entities to choose to measure many financial instruments and
certain other items at fair value.  SFAS 159 is expected to expand the
use of fair value measurement and to improve financial reporting by providing
entities with the opportunity to mitigate volatility in reported earnings caused
by measuring related assets and liabilities differently without having to apply
complex hedge accounting provisions.  The Company is required to adopt
SFAS No. 159 effective at the beginning of fiscal year 2008.  The
Company is currently evaluating the impact that SFAS No. 159 will have on its
consolidated financial statements, if any.





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


24





In
December 2007, the FASB issued SFAS No. 160, "Non-controlling Interests in
Consolidated Financial Statements-an amendment of Accounting Research Bulletin
No. 51", which establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent, the
amount of consolidated net income attributable to the parent and to the
non-controlling interest, changes in a parent's ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated.  The Statement also establishes reporting requirements
that provide sufficient disclosures that clearly identify and distinguish
between the interest of the parent and the interests of the non-controlling
owners.  SFAS No. 160 is effective for fiscal years beginning after
December 15, 2008.  The Company is evaluating the potential
impact of SFAS No. 160 will have on its consolidated financial
statements.





4.
Major Customers





The
Company had approximately 420 active customers.  In 2006, sales to
four customers represented 72% of the Company’s sales.  In 2007, sales
to four customers represented 49% of the Company’s sales from continuing
operations.  No other customer in 2006 or 2007 accounted for more than
10% of sales from continuing operations.





On
January 16, 2007, one of the Company’s major customers informed the Company that
one of its divisions had temporarily suspended shipments of products
manufactured at its production facility to customers in the United
States.  According to the customer, the decision to suspend U.S.
product shipments was made to address quality system issues in its production
facility that had been identified by the customer and the U.S. Food and Drug
Administration and were unrelated to the Company, the closure and sale of the
MicroCoax Assembly Solutions division, and the wind down of the Moore
Electronics wholly owned subsidiary.





5.  Inventories





A summary
as of December 31, 2006 is as follows:





Finished
      goods
                  
                  $
                  401,564Work
      in Process
                  
                  
                  208,633Raw
      materials
                  
                  
                  1,394,682Total
      inventories
                  
                  
                  2,004,879Less:
      Reserves
                  
                  
                  (404,476
                  )Inventories,
      net
                  
                  $
                  1,600,403





6.  Property
and Equipment





A summary
as of December 31, 2006 is as follows:





Machinery
      and equipment
                  
                  $
                  1,385,461Leasehold
      improvements
                  
                  
                  84,028Office
      furniture and equipment
                  
                  
                  101,687Automobiles
                  
                  
                  27,228Software
                  
                  
                  610,7662,209,170Accumulated
      depreciation and amortization
                  
                  
                  (1,304,939
                  )Property and equipment — net
                  
                  $
                  904,231





25




7.  Other
Intangible Assets





A summary
as of December 31, 2007 is as follows:





Gross
                        Carrying
                        Value
                      
                      
                      Accumulated
                        Amortization
                      
                      
                      Net
                        Carrying
                        ValueCustomer
      lists and contacts
                      
                      $
                      522,466
                      
                      
                      $
                      304,779
                      
                      
                      $
                      217,687Manufacturing
      process technology
                      
                      
                      203,738
                      
                      
                      
                      71,313
                      
                      
                      
                      132,425Total
      other intangible assets
                      
                      $
                      726,204
                      
                      
                      $
                      376,092
                      
                      
                      $
                      350,112





8.
Line of Credit





The
Company had a revolving line of credit with an asset-based
lender.  The line of credit was fully secured by accounts receivable
and inventory.  The line of credit bore interest at the prime rate
plus 5.00% (13.25% at December 31, 2006) per annum and allowed the Company to
borrow up to $2,000,000.  All amounts owing under the line of credit
were paid in 2007.





9.  Notes
Payable





A summary
of the Company's notes payable outstanding as of December 31, 2007 and 2006 is
as follows:





2007
                      
                      
                      2006MH
      Financial Associates, LLC
                      
                      $
                      125,070
                      
                      
                      $
                      1,006,086VenCore
      Solutions, LLC
                      
                      
                      —
                      
                      
                      
                      245,451EPICOR
      Software Corporation
                      
                      
                      63,137
                      
                      
                      
                      63,137Other
                      
                      
                      10,532
                      
                      
                      
                      20,813Total
      Notes Payable
                      
                      $
                      198,739
                      
                      
                      $
                      1,335,487Debt
      discountsWarrants
      issued with VenCore note
                      
                      
                      —
                      
                      
                      
                      (25,538
                      )Warrants
      issued with MH Financial note
                      
                      
                      —
                      
                      
                      
                      ( 126,614
                      )Beneficial
      conversion feature on MH Financial note
                      
                      
                      —
                      
                      
                      
                      (34,135
                      )( 186,287
                      )Notes
      Payable, net
                      
                      $
                      198,739
                      
                      
                      $
                      1,149,200Current
      maturities
                      
                      
                      (198,739
                      )
                      
                      
                      (347,938
                      )$
                      —
                      
                      
                      $
                      801,262





On
April 8, 2005, the Company issued a note payable (“the 2005 Note”) in the
amount of $1,250,000 to Marti D. Lundy as part of the Moore
acquisition.  MH Financial assumed the Note from Ms. Lundy on
October 19, 2006.  On that date, the principal amount outstanding
was $1,119,355.  The face amount of the Original Note to MH Financial
amounted to $1,028,982, resulting in a gain on debt settlement of
$90,373.


26





On
June 22, 2006, the Company issued a promissory note to VenCore Solutions,
LLC ("VenCore") in the principal amount of $350,000.  VenCore agreed
to forgive $69,506 of the note in 2007 and the remaining balance of $66,225 has
been classified as accounts payable at December 31, 2007.





On August
16, 2006, the Company issued a promissory note to EPICOR Software Corporation in
the amount of $106,471 for goods and services purchased by the
Company.  The Company agreed to make monthly payments of principal and
interest (at 8%) in the amount of $9,262 through the maturity date of
June 15, 2007.  The Company is in default under the EPICOR
note.





MH
Financial's assumption of the 2005 Note occurred on October 19,
2006.  The Original Note required the Company to make monthly payments
of $20,000 (including interest at 10% until July 19, 2007 and 14%
thereafter).  All principal and unpaid interest was due at maturity on
July 19, 2008.  The Original Note is secured by substantially all
of the Company's assets.  As of December 31, 2006, the Original
Note was convertible into 228,663 shares of Common Stock based on a stated
conversion rate of $4.50.  After giving value to warrants issued in
conjunction with the Original Note (see Note 12), the effective conversion rate
was less than the market price of the common stock at the commitment
date.  The resulting beneficial conversion feature was valued at
$37,729.  The conversion feature of the Original Note was cancelled in
March 2007 (see Note 2).





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





As of
December 31, 2007, the Company was in default on the note payable to EPICOR
Software Corporation, an unsecured creditor, and in default on the notes
payable to VenCore and MH Financial, both secured creditors.





10.
Liability for Potentially Dilutive Securities in Excess of Authorized Number of
Common Shares





In
accordance with EITF 00-19, the Company accounts for potential shares that can
be converted to common stock, that are in excess of authorized shares, as a
liability that is recorded at fair value.  Total potential outstanding
common stock exceeded the Company’s authorized shares on March 12, 2007 when the
Company restructured its debt with MH Financial.  In this process the
Company issued 860,000 warrants.  At that time total warrants and
convertible preferred stock allowed the holder to purchase approximately 579,867
shares over the current authorized amount.  The fair value of the
warrants in excess of the authorized shares at March 12, 2007 was $1,818,200 and
was recognized as a liability on March 12, 2007.  This liability is
required to be evaluated at each reporting date with any change in value
included in the other income/(expense) until such time as enough shares are
authorized to cover all potentially convertible instruments.  As of
December 31, 2007 the Company has recorded $1,755,378 in income related to the
change in the fair value of its potential liability.





11.  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.





The
components of deferred tax liability are as follows:


For the year ended
                      December 31,2006
                    
                    
                    2007Federal
      net operating loss carry forwards
                    
                    $
                    5,940,000
                    
                    
                    $
                    6,674,000State
      net operating loss carry forwards
                    
                    
                    1,155,000
                    
                    
                    
                    1,298,000Basis
      difference in property and equipment upon acquisition of Moore
      Electronics
                    
                    
                    (298,145
                    )
                    
                    
                    —Inventory
      Reserves
                    
                    
                    164,000
                    
                    
                    
                    —Other
                    
                    
                    81,000
                    
                    
                    
                    —Deferred tax asset
                    
                    
                    7,041,855
                    
                    
                    
                    7,972,000Valuation
      allowance
                    
                    
                    (7,340,000
                    )
                    
                    
                    (7,972,000
                    )Net deferred tax liability
                    
                    $
                    (298,145
                    )
                    
                    $
                    —





27




As of
December 31, 2007 the Company had federal and state net operating loss
carry forwards of approximately $19.6 million and $1.3 million respectively,
expiring during the years 2013 through 2027.





A benefit
for income taxes of $298,145 and $183,475 has been recorded for the years ended
December 31, 2007 and 2006, 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 benefit for income taxes and income
taxes computed using the U.S. federal income tax rate was as
follows:





For the year ended
                      December 31,2006
                    
                    
                    2007Benefit
      computed using statutory rate (34%)
                    
                    $
                    (740,000
                    )
                    
                    $
                    (425,000
                    )Change
      in Valuation Allowance
                    
                    
                    442,000
                    
                    
                    
                    632,000Goodwill
      and Other Intangibles Impairment (permanent difference)
                    
                    
                    302,000
                    
                    
                    
                    417,000Common
      Stock Warrant Valuation Gain (permanent difference)
                    
                    
                    —
                    
                    
                    
                    (597,000
                    )Other
      Permanent Differences
                    
                    
                    141,000
                    
                    
                    
                    76,000Amortization
      of Deferred Tax Liability
                    
                    
                    (183,475
                    )
                    
                    
                    (298,145
                    )State
      Income Taxes
                    
                    
                    (145,000
                    )
                    
                    
                    (103,000
                    )Benefit
      for Income Taxes
                    
                    $
                    (183,475
                    )
                    
                    $
                    (298,145
                    )




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.





12.  Shareholders'
Deficit





Preferred Stock —As of
December 31, 2007  and 2006 the Company was authorized to issue
750,000 shares of preferred stock, 279,070 of which are designated Series C
Preferred Stock, no par value ("Series C Preferred Stock"), all of which are
issued and outstanding.


28


On
August 17, 2006, the holders of the Series B Preferred Stock, voting as a
separate class at the 2006 Annual Meeting of shareholders, voted to authorize
conversion of their shares of Series B Preferred Stock, as well as accrued
dividends on Series B Preferred Stock, into shares of Common
Stock.  The Company's Amended and Restated Articles of Incorporation
("Articles") provided that holders of two-thirds of the outstanding shares of
Series B Preferred Stock could authorize the conversion of all the outstanding
shares of Series B Preferred Stock into Common Stock at any time after the
issuance of the Series B Preferred Stock.  Upon approval, the
Articles further provided that each share of Series B Preferred Stock would
be automatically converted into shares of Common Stock at the conversion rate in
effect on the date approved by the Series B Preferred Stock
holders.  The conversion rate in effect on August 17, 2006
provided that each share of Series B Preferred Stock would be converted
into four shares of Common Stock, resulting in 11,000,000 (733,333) shares of
Common Stock issued on conversion.  No shares of Series B
Preferred Stock are outstanding or authorized to be issued as of the date of
this report.





Effective
October 19, 2006, microHelix entered into several agreements under which it
issued shares of its newly authorized Series C Preferred Stock, and issued
warrants to purchase shares of its Common Stock.  The agreements
entered into were:





·
            Series
      C Preferred Stock Purchase Agreement under which MH Financial purchased
      139,535 shares of Series C Preferred Stock for $2.15 per share, for a
      total of $300,000.  Transactions fees of $33,500 have been
      allocated to this issuance of preferred stock, resulting in net proceeds
      recorded of $266,500.  Each share of Series C Preferred
      Stock is initially convertible into 0.66667 shares of Common
      Stock.  If the Series C Preferred Stock were convertedusing the initial
      conversion ratio, microHelix would issue 93,023 shares of Common
      Stock.  James M. Williams, who was Chairman of the Board
      and a director of microHelix at the time of this transaction, is an
      investor in MH Financial.  MH Financial is an affiliate of
      Aequitas Capital Management, Inc., which serves as microHelix's financial
      advisor.





·
            Warrant
      issued to MH Financial to purchase 69,768 shares of Common Stock at an
      initial exercise price of $4.50 per share.  The warrant expires
      on October18,
      2011.





·
            Registration
      Rights Agreement under which microHelix granted MH Financial certain
      registration rights with respect to the shares of Common Stock issuable
      upon conversion of the Series C Preferred Stock, upon conversion of the
      Restated Note (defined below) and upon exercise of the warrants issued and
      issuable to MH Financial in connection with the transactions described
      herein.





Effective
November 2, 2006, microHelix entered into two agreements under which it issued
shares of its newly authorized Series C Preferred Stock and issued warrants to
purchase shares of its Common Stock.  The agreements entered into
were:





·
            Series
      C Preferred Stock Purchase Agreement under which MH Financial purchased
      139,535 shares of Series C Preferred Stock for $2.15 per share, or a total
      of $300,000.  Transactions fees of $33,500 have been allocated
      to this issuance of preferred stock, resulting in net proceeds recorded of
      $266,500.  Each share of Series C Preferred Stock is initially
      convertible into 0.66667 shares of Common Stock.  If the Series
      C Preferred Stock were converted at the initial conversion ratio,
      microHelix would issue 93,024 shares of Common Stock.  James M.
      Williams, who was Chairman of the Board and a director of microHelix at
      the time of this transaction, is an investor in MH
      Financial.  MH Financial is an affiliate of Aequitas Capital
      Management, Inc., which serves as microHelix's financial
      advisor.





·
            Warrant
      (the "Series C Warrant") issued to MH Financial to purchase 69,767 shares
      of Common Stock at an initial exercise price of $4.50 per
      share.  The Series C Warrant expires on November 1,
      2011.





The
139,535 of warrants noted above were valued using the Black-Scholes valuation
model.  Based on the relative fair values of the preferred stock and
the warrants, the value assigned to the warrants was $226,101.  After
giving value to these warrants, the effective conversion rate of the preferred
stock was less than the market price of the Common Stock at the commitment
date.  The resulting beneficial conversion feature was valued at
$446,590.  Since the combined value assigned to the warrants and
beneficial conversion feature exceeded the net proceeds on the preferred stock
($533,000), the amount recorded as a discount to the preferred stock was limited
to the net proceeds.  Since the preferred stock was immediately
convertible, the recorded discount was then written off against preferred
dividends.  The warrant value was calculated using the Black-Scholes
option pricing model with the following assumptions:


29





Expected
      life (in years)
                    
                    
                    10Expected
      volatility
                    
                    
                    117
                    %Risk-free
      interest rate
                    
                    
                    4.65
                    %Expected
      dividend
                    
                    
                    —





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





Other Stock Warrants —Prior
to 2006, the Company issued 33,848 warrants, of which 1,245 were exercisable at
$32.10 until January 2008, 736 are exercisable at $407.70 until March 2012, and
31,867 are exercisable at $3.75 until April 2015.





On
June 22, 2006, the Company issued warrants to VenCore Solutions, LLC to
purchase 4,861 shares of Common Stock with an exercise price of $7.20 per
share.  The warrants were issued in connection with a Loan and
Security Agreement and a corresponding promissory note issued to VenCore in the
amount of $350,000 (See Note 9).  The warrants expire on June 22,
2016.  Based on the Black-Scholes valuation model, the warrants were
valued at $31,923 with the following assumptions:





Expected
      life (in years)
                  
                  
                  10Expected
      volatility
                  
                  
                  100
                  %Risk-free
      interest rate
                  
                  
                  5.00
                  %Expected
      dividend
                  
                  
                  —





In
conjunction with the Original Note payable issued to MH Financial in October
2006, warrants to purchase a total of 49,206 shares of our Common Stock are
issuable over the term of the loan, based on the outstanding principal balance
each quarter.  At the commitment date, management determined to record
the value of the warrants immediately because the note likely would be carried
to its term.  Accordingly, management determined that all of the
warrants would likely be earned.  Based on the relative fair values of
the notes payable and the warrants, the value assigned to the warrants was
$139,942.  As of December 31, 2007 the Company had only issued
warrants to purchase 20,027 shares of our Common Stock because MH Financial
agreed to waive future payment of these warrants after March
2007.  The warrant value was calculated using the Black Scholes option
pricing model with the following assumptions:





Expected
      life (in years)
                  
                  
                  10Expected
      volatility
                  
                  
                  117
                  %Risk-free
      interest rate
                  
                  
                  4.65
                  %Expected
      dividend
                  
                  
                  —





On
August 17, 2006, the Company issued a warrant to purchase 6,667 shares of
Common Stock to Aequitas Capital Management, Inc. for their engagement in
services rendered in obtaining additional financing.  Under a
Black-Scholes valuation, the value of these warrants was not
material.





On
March 12, 2007 the Company modified its note payable owed to MH
Financial.  See Note 2 - Terms of Troubled Debt
Modification.  In connection with such modification, the Company
issued warrants that grant MH Financial the right to purchase 666,667 shares of
Common Stock of the Company at an exercise price of $0.015 per
share.  The warrants expire on March 11, 2010.  The
warrants have a fair value relative to the fair value of the associated debt of
$551,970 calculated using the Black-Scholes option pricing model with the
following assumptions:




30




Expected
      life (in years)
                  
                  
                  1Expected
      volatility
                  
                  
                  75.94
                  %Risk-free
      interest rate
                  
                  
                  4.96
                  %Expected
      dividend
                  
                  
                  —





The
Company also issued warrants that grant MH Financial the right to purchase
193,333 shares of Common Stock with an exercise price of $0.015 per share as
consideration under a forbearance agreement.  The warrants expire on
March 11, 2010.  The warrants have a fair value of $606,239
(recorded as loan restructure expense) calculated using the Black-Scholes option
pricing model with the following assumptions:





Expected
      life (in years)
                  
                  
                  1Expected
      volatility
                  
                  
                  75.94
                  %Risk-free
      interest rate
                  
                  
                  4.96
                  %Expected
      dividend
                  
                  
                  —





The
Company also agreed to reduce the exercise price from $4.50 to $0.015 on
warrants to purchase 153,102 shares of Common Stock previously granted to MH
Financial.  The change in the fair value of the warrants of $354,096
(recorded as loan restructure expense) has been calculated using the
Black-Scholes option pricing model with the following assumptions:





Expected
      life (in years)
                  
                  
                  1Expected
      volatility
                  
                  
                  75.94
                  %Risk-free
      interest rate
                  
                  
                  4.96
                  %Expected
      dividend
                  
                  
                  —





Common Stock —On
August 17, 2006, the Board of Directors declared and paid, in shares of the
Company's Common Stock, the dividends accrued on the shares of Series B
Preferred Stock.  The holders of the Series B Preferred Stock were
entitled to an annual dividend of $0.15 per share, payable in arrears either in
cash or Common Stock when and as if declared by the Board of
Directors.  The dividend had been accrued and was paid in shares of
Common Stock depending on the number of days each share of Series B Preferred
Stock had been outstanding.  For purposes of determining the amount of
the dividend in shares of the Common Stock the Articles provided that the value
of a share of Common Stock would be equal to the average closing price of the
Company's Common Stock as reported by Nasdaq for the ten trading days
immediately prior to August 17, 2006.  That value was $6.525 per
share. A total of 79,206 shares of Common Stock were issued in the
dividend.





During
2006 the Company issued 11,193 shares of Common Stock to various members of the
Board of Directors and to employees for services rendered valued at
$73,750.





During
2007 the Company issued 667 shares of Common Stock to various members of the
Board of Directors for services rendered valued at $2,500.





13.  Related-Party
Transactions





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





On
December 28, 2006, microHelix issued a note to James M. Williams in the
principal amount of $150,000, together with interest on the unpaid principal at
the rate of 15% per annum. microHelix used the proceeds from the Note for
working capital.  All amounts owing under the note held by Mr.
Williams were paid on March 12, 2007 in connection with MH Financial's
additional loan to the Company.





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


31





14.  Commitments
and Contingencies





Operating Leases —As of
December 31, 2007 the Company had no leases for office space and/or
equipment.





For the
years ended December 31, 2007 and 2006, the Company incurred rent expense
of $193,962 and $348,717, respectively.





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, 2007, the Company is not aware of
any legal proceedings or claims against the Company.





15.  Subsequent
Events.





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





On
January 15, 2008 at a special meeting of the shareholders the Company's
Articles were amended to increase the number of shares of Common Stock the
Company is authorized to issue to 75,000,000 and the number of shares of
Preferred Stock the Company is authorized to issue to 10,000,000.





On
February 27, 2008, a related party to MH Financial exercised warrants to
purchase 73,915 shares of Common Stock for $1,109.





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





On
March 19, 2008 at a special meeting of the shareholders the Company's
Articles were amended to effect a reverse split of the Company's Common Stock in
which every 15 shares of Common Stock held by a shareholder was reduced to one
share of Common Stock.  The consolidated financial statements, notes,
and other references to share and per share data in this Report have been
retroactively restated to reflect the reverse stock split for all periods
presented.





On June
27, 2008 the Company obtained a loan from MH Financial in the amount of
$977,743.  The loan amount includes $477,743 that was owed to MH
Financial as of June 27, 2008 and an additional loan of up to
$500,000.  The Company was advanced $200,000 on June 27, 2008,
$100,000 on December 31, 2008, $100,000 on February 25, 2009, and has received
no additional advances against the $500,000 loan amount.  Effective as
of the date of this loan, interest will accrue on the outstanding principal
balance of the loan at a rate of 20% per annum.  As a condition of the
initial disbursement of June 27, 2008, the Company also issued warrants to
purchase 7,466,666 shares of Common Stock at $0.001 per share. As a condition of
the December 31, 2008 advance the Company also issued warrants to purchase
1,066,667 shares of Common Stock at $0.001 per share.  As a condition
of the February 25, 2009 advance the Company also issued warrants to purchase
1,066,667 shares of Common Stock at $0.001 per share.  In addition the
Company signed a financial advisory agreement with MH Financial which included
the provision that the Company would issue warrants to purchase 1,066,667 of
Common Stock at $0.001 per share to MH Financial.  The original due
date of the loan was December 27, 2008 and, as a condition of the December 31,
2008 advance, the due date was extended to December 27, 2009.





32





Item
9.  Changes in and
Disagreements with Accountants on Accounting and Financial
Disclosure


On
September 21, 2006, the Company dismissed Stonefield Josephson, Inc.
("Stonefield") as its independent registered accounting firm. The decision to
change accountants was approved by the Company's Audit Committee. The decision
to change accountants was not the result of any disagreements between Stonefield
and us on matters of accounting principles or practices, financial statement
disclosure or audit scope or procedures. On September 25, 2006, the Company
approved the engagement of Peterson Sullivan LLP to serve as the Company's
independent registered accountants for the year ended December 31,
2006.  Petersen Sullivan LLP continues to serve as the Company's
independent registered accountants.





Item
9T.  Controls and
Procedures





Attached as exhibits to
this Annual Report on Form 10-K are certifications (the "Certifications")
of the Company's principal executive officer and principal financial officer,
which are required pursuant to Rule 13a-14 of the Exchange
Act.  This Item 9(T) of this Annual Report on Form 10-K includes
information concerning the controls and controls evaluation referenced in the
Certifications.  This Item 9(T) of this Annual Report on
Form 10-K should be read in conjunction with the Certifications for a more
complete understanding of the matters presented.





Evaluation of
disclosure controls and procedures


The
Company's President and Chief Financial Officer evaluated the effectiveness of
its disclosure controls and procedures pursuant to Rule 13a-15 under the
Securities Exchange Act of 1934 as of December 31, 2007.  Based
on that evaluation, the Company’s President and Chief Financial Officer
concluded that its disclosure controls and procedures are not designed at a
reasonable assurance level nor are they effective to give reasonable assurance
that the information the Company must disclose in reports filed with the
Securities and Exchange Commission are properly recorded, processed, summarized,
and reported as required, and that such information is not accumulated and
communicated to its management, including its President and Chief Financial
Officer, to allow timely decisions regarding required disclosure.





Based on
the evaluation, the Company’s President and Chief Financial Officer, after
evaluating the effectiveness of its “disclosure controls and procedures” (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), have concluded
that, subject to the inherent limitations noted below, as of December 31,
2007, the Company’s disclosure controls and procedures were not effective due to
the existence of several material weaknesses in its internal control over
financial reporting, as discussed below.   The Company's
disclosure controls and procedures are subject to material weaknesses resulting
from the Company's loss of key personnel.  Because of the limited
number of personnel available for accounting duties, there is an inadequate
segregation of duties related to accounting controls.  The accounting
department consists only of the Company’s Chief Financial
Officer.  Due to the Company's current lack of financial resources it
has not been reasonable or cost beneficial for the Company to hire extra
accounting personnel who would have no other purpose, duties, or workload than
to provide formal segregation of duties under internal control
principles.




Management’s
annual report on internal control over financial
reporting




Management
is responsible for establishing and maintaining internal control over financial
reporting, as such term is defined in Exchange Act Rule 13a-15(f). The
Company’s management evaluated, under the supervision and with the participation
of our President and Chief Financial Officer, the effectiveness of the Company’s
internal control over financial reporting as of December 31,
2007.




Based on
its evaluation under the framework in Internal Control — Integrated
Framework, issued by the Committee of Sponsoring Organizations of the
Treadway Commission, the Company’s management concluded that its internal
control over financial reporting was not effective as of December 31, 2007,
due to the existence of significant deficiencies constituting material
weaknesses, as described in greater detail below. A material weakness is a
control deficiency, or combination of control deficiencies, such that there is a
reasonable possibility that a material misstatement of the annual or interim
financial statements will not be prevented or detected on a timely
basis.




This
annual report does not include an attestation report of the Company’s
independent registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the
Company’s independent registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only management’s report in
this annual report.


33




Limitations on
Effectiveness of Controls




The
Company’s management, including our President and Chief Financial Officer, does
not expect that the Company's disclosure controls or its internal control over
financial reporting will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within the Company have been detected. These inherent
limitations include the realities that judgments in decision-making can be
faulty, and that breakdowns can occur because of a simple error or mistake.
Additional controls can be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management override of the controls.
The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, controls may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.





Material
Weaknesses Identified




In
connection with the preparation of the Company’s financial statements for the
year ended December 31, 2007, certain significant deficiencies in internal
control became evident to management that, in the aggregate, represent material
weaknesses, including,




1.
                Insufficient
      segregation of duties in the Company’s finance and accounting functions
      due to limited personnel. During the year ended December 31, 2007,
      the Company had one person on staff that performed nearly all aspects of
      its financial reporting process, including, but not limited to, access to
      the underlying accounting records and systems, the ability to post and
      record journal entries and responsibility for the preparation of the
      financial statements. This creates certain incompatible duties and a lack
      of review over the financial reporting process that would likely result in
      a failure to detect errors in spreadsheets, calculations, or assumptions
      used to compile the financial statements and related disclosures as filed
      with the SEC. These control deficiencies could result in a material
      misstatement to our interim or annual consolidated financial statements
      that would not be prevented or detected.


2.
              Lack
      of financial expertise.  The Company does not have an employee
      with adequate financial expertise properly account for and disclose the
      kinds of complex transactions that occur within the Company such as
      financial instrument issuances and income tax provisions.  This
      lack of financial expertise resulted in material auditor adjustments
      during the quarterly reviews and annual
audit.





3.
              Insufficient
      corporate governance policies. Although the Company does have a code of
      ethics which provides broad guidelines for corporate governance, its
      corporate governance activities and processes are not always formally
      documented.





4.
              Inadequate
      approval and control over transactions and commitments made on the
      Company’s behalf by related parties. Specifically, during the year certain
      related party transactions were not effectively communicated to all
      internal personnel who needed to be involved to account for and report the
      transaction in a timely manner. This resulted in material adjustments
      during the quarterly reviews and annual audit, respectively, that
      otherwise would have been avoided if effective communication and approval
      processes had been
maintained.




As part
of the communications by Peterson Sullivan, LLP, (“Peterson Sullivan”), with the
Company’s Audit Committee with respect to Peterson Sullivan’s audit procedures
for fiscal 2007, Peterson Sullivan informed the audit committee that these
deficiencies constituted material weaknesses, as defined by Auditing Standard
No. 5, “An Audit of Internal Control Over Financial Reporting that is
Integrated with an Audit of Financial Statements and Related Independence Rule
and Conforming Amendments,” established by the Public Company Accounting
Oversight Board (“PCAOB”).


34




Plan for
Remediation of Material Weaknesses




The
Company intends to take appropriate and reasonable steps to make the necessary
improvements to remediate these deficiencies. The Company intends to consider
the results of its remediation efforts and related testing as part of its
year-end 2008 assessment of the effectiveness of its internal control over
financial reporting.







Changes in
Internal Controls over Financial Reporting




There
were no significant changes in internal control over financial reporting during
the fourth quarter of 2007 that materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financing
reporting.





Item
9B.  Other
Information





None.





Part
III





Item
10.  Directors,
Executive Officers, Promoters and Control Persons; Compliance with Section 16(a)
of the Act.





The
following table sets forth the names of the directors and key employees of the
Company.  Also set forth is certain information with respect to each
such person's age at December 31, 2007, principal occupation or employment
during at least the past five years, the periods during which he or she has
served as a director of microHelix and positions currently held with
microHelix.





Name
              
              Age
              
              PositionJames
      E. Horswill
              
              59
              
              President
      and Chief Financial Officer  of microHelix and of Moore,
      Director





James E. Horswillwas
appointed Corporate Controller in July 2005, Chief Financial Officer in February
2007, Secretary in April 2007, and President and Chief Executive Officer in June
2007.  From 1998 through 2003, Mr. Horswill was the Accounting Manager
of Komatsu Silicon America, Inc, where he also served as Controller from 2003
through July 2005.  Mr. Horswill received his Bachelor of Science in
Business Administration from Linfield College and his M.B.A. from George Fox
University.





Officers
serve at the discretion of the Board of Directors.  There are no
family relationships among any of our directors and executive
officers.





Audit
Committee




The
members of the Audit Committee during 2007 were James Williams, William
McCormick, Terrance Rixford, and James Thornton.




35





Section
16(a) Beneficial Ownership Reporting Compliance





Section
16(a) of the Exchange Act requires the Company's executive officers, directors,
and persons who beneficially own more than 10% of the Common Stock to file
reports of ownership and changes in ownership with the SEC.  Executive
officers, directors and beneficial owners of more than 10% of the Common Stock
are required by the SEC's regulations to furnish the Company with copies of all
Section 16(a) reports they file.  Based solely on a review of such
reports received by the Company and on written representations from certain
reporting persons that they have complied with the relevant filing requirements,
the Company believes that all Section 16(a) filing requirements applicable to
its executive officers, directors and 10% beneficial owners have been filed in a
timely manner, except that James E. Horswill has not filed a Form 3 upon his
appointment as an executive officer of microHelix.





Code
of Ethics





microHelix
adopted a code of ethics on April 6, 2005 that applies to its directors,
officers and employees.  A copy of the code of ethics is attached as
an exhibit to this Annual Report on Form 10-K.





Item
10.  Executive
Compensation.





Summary
Compensation Table





The
following table sets forth certain information regarding compensation paid
during the last three fiscal years to our former President and Chief Executive
Officer and our other executive officer who received compensation in excess of
$100,000 in any year.





Name and Principal Position
                    Year
                    
                    Salary
                      ($)
                    
                    Bonus ($)
                    Stock
                      Awards
                      ($)
                    
                    All Other
                      Compensation
                      ($)
                    
                    
                    Total ($)James
      E. Horswill
                      President
      and Chief Financial Officer
                    2007
                    
                    $
                    81,439
                    
                    
                    
                    
                    $
                    28,300
                    (4)
                    
                    $
                    109,739Steven
      G.Ashton
                      President and Chief
      Executive Officer, Director(5)
                    2007
                    
                    $
                    0
                    
                    
                    
                    
                    $
                    32,500
                    (5)
                    
                    $
                    32,500Tyram
      H. Pettit
                      President and Chief
      Executive Officer, Director(1)
                    2007
                    
                    $
                    35,096
                    
                    
                    
                    
                    
                    6,000
                    (4)
                    
                    $
                    41,0962006
                    
                    $
                    96,930
                    
                    
                    
                    
                    
                    
                    
                    
                    $
                    96,930Marti D. Lundy, Vice
      President – Moore Electronics, Director(2)
                    2007
                    
                    
                    
                    
                    
                    
                    
                    $
                    11,075
                    (3)
                    
                    $
                    11,0752006
                    
                    $
                    138,765
                    
                    
                    
                    
                    $
                    14,400
                    (3)
                    
                    $
                    153,165





(1)
            Mr.
      Pettit did not receive any compensation for services rendered as a
      director. Mr. Pettit resigned as a director and officer of the Company and
      of Moore in March 2007.


(2)
            Ms.
      Lundy did not receive any compensation for services rendered as a
      director. Ms. Lundy resigned as a director and officer of the Company and
      of Moore in October 2006.


(3)
            Consists
      of automobile allowance.


(4)
              Consulting
      fees(5)
              Mr.
      Ashton did not receive any compensation for services rendered as a
      director.
                Mr.
      Ashton resigned as a director and officer of the Company and of Moore in
      June 2007.





Option
Grants in Last Fiscal Year




No
options were granted in 2007 to our named executive officers.


36





Option
Exercises in Last Fiscal Year and Fiscal Year End Option Values




None of
our named executive officers held any outstanding stock options at
December 31, 2007. No stock options were exercised by our named executive
officers during 2007.




Director
Compensation





Outside
directors are eligible to be paid a $2,000 annual retainer, $350 for each Board
of Directors meeting attended and $200 for each committee meeting attended. The
Chairman of the Board, the Compensation Committee Chair and the Audit Committee
Chair each are eligible to be paid an additional $1,000 retainer. Each of the
outside directors received in 2007 a grant of 667 shares of the Company's Common
Stock. Outside directors are reimbursed for their out-of-pocket expenses
incurred on behalf of the Company. Employee directors do not receive any
compensation for serving on the Board of Directors.




Due to
the financial condition of the Company, no payments were made to the members of
the Board of Directors during 2007.





Item
12. Security Ownership of
Certain Beneficial Owners and Management and Related Stockholder
Matters.





The
following table sets forth information, as of December 31, 2007, with respect to
the beneficial ownership of the Common Stock and Series C Preferred Stock
of the Company by: (i) each shareholder known by us to be the beneficial
owner of more than 5% of the Common Stock and of our Series C Preferred Stock;
(ii) each of our directors; (iii) our Chief Executive Officer and our
other executive officers; and (iv) all executive officers and directors as
a group. Unless otherwise indicated, the address of each person listed below is:
c/o microHelix, Inc.,P.O.
Box 1030, Tualatin, OR 97071. Beneficial ownership is determined in accordance
with the rules of the SEC and generally includes voting or investment power with
respect to securities. Shares of Common Stock issuable on exercise of currently
exercisable or convertible securities or securities exercisable or convertible
within 60 days of December 31, 2007 are deemed beneficially owned and
outstanding for purposes of computing the percentage owned by the person holding
such securities, but are not considered outstanding for purposes of computing
the percentage of any other person, except with respect to Series C
Preferred. Since each share of Series C Preferred is immediately
convertible into ten shares of Common Stock, and thus has ten votes, it has been
assumed for purposes of calculating a person's total beneficial ownership that
all shares of Series C Preferred have been converted into shares of Common
Stock. Unless otherwise noted, each shareholder named in the table has sole
voting and investment power with respect to the shares set forth opposite that
shareholder's name. The shares held have been converted to account for the 1 for
15 reverse stock split approved by the Company's shareholders on March 19,
2008.





Shares Beneficially OwnedName of Beneficial Owner
                            
                            Common
                              Stock
                            
                            
                            Series C
                              Preferred
                            
                            
                            Total
                            
                            
                            PercentMH
      Financial Associates, LLC
                            
                            1,939,355
                            (1)
                            
                            
                            186,047
                            
                            
                            2,125,402
                            
                            
                            68.45
                            %Steven
      G. Ashton
                            
                            
                            66,667
                            (3)
                            
                            
                            0
                            
                            
                            
                            66,667
                            (5)Tyram
      H. Pettit
                            
                            
                            8,238
                            
                            
                            
                            0
                            
                            
                            
                            
                            
                            
                            
                            *James
      M. Williams
                            
                            
                            101,733
                            (2)
                            
                            
                            0
                            
                            
                            
                            101,733
                            
                            
                            
                            3.28
                            %James
      E. Horswill
                            
                            
                            959
                            
                            
                            
                            0
                            
                            
                            
                            959
                            
                            
                            
                            *Directors
      and Officers as a Group (4 persons)
                            
                            
                            105,401
                            
                            
                            
                            0
                            
                            
                            
                            105,401
                            
                            
                            
                            3.39
                            %





*Less
than 1%





(1)
Includes warrants to purchase 1,866,022 shares of Common Stock.


37





(2)
Includes 101,733 shares of Common Stock held by a corporation controlled by Mr.
Williams. Mr. Williams' retirement plan and a corporation controlled by Mr.
Williams is also a member of MH Financial Associates, LLC, but he has no control
over the voting or disposition of any securities held by MH Financial
Associates, LLC.






Item 13.Certain
Relationships and Related Transactions.





On
April 8, 2005, we issued the 2005 Note in the amount of $1,250,000 to Marti
D. Lundy as part of the Moore acquisition. MH Financial assumed the Original
Note from Ms. Lundy on October 19, 2006. On that date, the principal amount
outstanding was $1,028,982. Subsequently, on March 12, 2007, MH Financial
loaned an additional $750,000 to the Company by adding that amount to the
Original Note, which was amended to become the Amended Note, for a total
principal amount of $1,778,964. The Amended Note bears current interest at a
rate of 12% per annum ("Current Interest"). Additional interest accrues on the
Amended Note at a rate of 8% per annum, which is compounded quarterly and is
payable at maturity ("Deferred Interest"). microHelix was to make separate
payments with respect to $1,006,086 of the principal under the Loan 1 and with
respect to $750,000 of the principal added in Loan 2. Beginning April 19,
2007 and on the same day of each subsequent month, microHelix was to pay $20,000
per month to be applied to Current Interest and principal on Loan 1 and $7,500
per month of Current Interest on Loan 2. On September 30, 2007, microHelix
was to make an additional payment of accrued Current Interest through that date
with regard to Loan 2. Beginning on October 31, 2007, and on the last day
of each subsequent month through and including May 31, 2008, microHelix was
to pay $87,555 per month to be applied against the Current Interest and
principal balance of Loan 2. All amounts outstanding under the Amended
Note, including the Deferred Interest, were due and payable on June 30,
2008. James M. Williams, who was a director during these transactions, is
an indirect investor in MH Financial through a retirement plan and a corporation
controlled by Mr. Williams.




On
December 28, 2006, microHelix issued a note to James M. Williams in
the principal amount of $150,000, together with interest on the unpaid principal
at the rate of 15% per annum. microHelix used the proceeds from the note for
working capital. On March 12, 2007, microHelix repaid the entire principal
balance and accrued but unpaid interest.





The terms
of the above transactions were as favorable to us as those generally available
from unaffiliated third parties. Each transaction was ratified by a majority of
our directors who did not have an interest in the transactions and who had
access, at our expense, to our legal counsel or independent legal
counsel.





Item
14. Principal Accountant Fees
and Services.





On
September 25, 2006, the Company approved the engagement of Peterson
Sullivan LLP to serve as the Company's independent registered public accountants
for the fiscal year ending December 31, 2006. During the fiscal years ended
December 31, 2006 and 2007 and through the date hereof, the Company did not
consult Peterson Sullivan LLP with respect to the application of accounting
principles to a specified transaction, either completed or proposed, the type of
audit opinion that might be rendered on the Company's consolidated financial
statements, or any other matters or events.





Peterson
Sullivan LLP has been selected as the Company's independent public accountants
for the current year.




The
following table shows the fees paid or accrued by the Company for the audit and
other services provided by Peterson Sullivan LLP for 2006 and
2007.


38




2006
                              
                              
                              2007Audit
      Fees
                              
                              $
                              94,153
                              
                              
                              $
                              50,000Audit-Related
      Fees
                              
                              
                              -Tax
      Fees
                              
                              
                              -All
      Other Fees
                              
                              
                              -Totals
                              
                              $
                              94,153
                              
                              
                              $
                              50,000





Audit Fees. Audit services of
Peterson Sullivan LLP for 2007 and 2006 consisted of examination of the
consolidated financial statements of the Company, quarterly reviews of the
financial statements and services related to the filings made with the
SEC.





Tax Fees. Tax preparation
services were provided in 2007 by Geffen Mesher & Company, P.C. Tax fees
included in 2006 relate to filing the required tax reports for the fiscal year
ended December 31, 2005 and an accrual for tax preparation fees for the 2006
returns.





All Other Fees. There were no
fees billed by Peterson Sullivan LLP for services other than as described under
"Audit Fees" for the years ended December 31, 2006 or December 31,
2007.





All of
the services described above were approved by the Audit Committee. The Audit
Committee has not adopted formal pre-approval policies, but has the sole
authority to engage the Company's outside auditing and tax preparation firms and
must approve all tax consulting and auditing arrangements with the independent
accounting firms prior to the performance of any services. Approval for such
services is evaluated during Audit Committee meetings and must be documented by
signature of an Audit Committee member on the engagement letter of the
independent accounting firm.





Item
15. Exhibits, Financial
Statement Schedules




Exhibit
                    Number
                  
                  Description3.1(1)
                  
                  Amended
      and Restated Articles of Incorporation of microHelix, Inc., as amended
      November 16, 2001, December 5, 2003, April 8, 2005, October 28, 2005,
      October 17, 2006, January 16, 2008 and March 19, 2008..3.2(2)
                  
                  Bylaws
      of microHelix, 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)
                  
                  Standard
      Commercial-Industrial Lease Agreement dated August 1, 2004 between
      microHelix, Inc. and La Bajada Land Company LLC.10.6(3)
                  
                  Lease
      Agreement between microHelix, Inc. as Landlord, ADM De Mexico, Inc. as
      Tenant.10.7(4)
                  
                  Form
      of Warrant dated April 8, 2005 issued by microHelix, Inc. to financial
      advisors.10.8(4)
                  
                  Merger
      Agreement dated April 8, 2005 among microHelix, Inc., microHelix
      Acquisition Corp., Moore Electronics, Inc., Lawrence T. Moore and Marti D.
      Lundy.10.9(5)
                  
                  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,
      2006.10.10(4)
                  
                  Security
      Agreement dated April 8, 2005 among microHelix, Inc., Moore Electronics,
      Inc. and Marti D.
Lundy.


39





10.11(6)
            
            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,
      2006.10.12(8)
            
            Secured
      Promissory Note dated April 17, 2006 between microHelix, Inc. and Moore
      Electronics, Inc., and BFI Business Finance.10.13(4)
            
            Stock
      Pledge Agreement dated as of April 5, 2005 between microHelix, Inc. and
      BFI Business Finance.10.14(4)
            *
            Employment
      Agreement dated April 8, 2005 between Marti D. Lundy and Moore
      Electronics, Inc. as amended on October 19, 2006.10.15(4)
            
            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, 2005.10.16(9)
            
            Loan
      and Security Agreement Number 1202, dated June 22, 2006 between VenCore
      Solutions LLC and microHelix, Inc. and Moore Electronics,
    Inc.10.17(9)
            
            Promissory
      Note, dated June 22, 2006, executed in favor of VenCore Solutions LLC by
      microHelix, Inc. and Moore Electronics, Inc.10.18(10)
            
            Series
      C Preferred Stock Purchase Agreement dated October 19, 2006 between
      microHelix, Inc. and MH Financial Associates, LLC.10.19(11)
            
            Form
      of Warrant dated October 19, 2006 issued by microHelix, Inc. to MH
      Financial Associates, LLC, as amended on March 12,
2007.10.20(10)
            
            Agreement
      Regarding Amendment to Promissory Note dated October 19, 2006 between
      microHelix, Inc. and MH Financial Associates, LLC.10.21(10)
            
            Amended
      and Restated Promissory Note dated October 19, 2006 executed by
      microHelix, Inc. in favor of MH Financial Associates,
  Inc.10.22(11)
            
            Registration
      Rights Agreement dated October 19, 2006 between microHelix, Inc. and MH
      Financial Associates, LLC, as amended on March 12,
2007.10.23(12)
            
            Series
      C Preferred Stock Purchase Agreement dated November 2, 2006 between
      microHelix, Inc. and MH Financial Associates, LLC.10.24(13)
            
            Form
      of Warrant dated November 2, 2006 issued by microHelix, Inc. to MH
      Financial Associates, LLC, as amended on March 12,
2007.10.25(14)
            
            Promissory
      Note dated December 28, 2006 issued by microHelix, Inc. to James M.
      Williams.10.26(14)
            
            Subordination
      Agreement dated December 28, 2006 among microHelix, Inc., James M.
      Williams and BFI Business Finance.10.27(15)
            
            Second
      Agreement Regarding Amendment of Promissory Note dated March 12, 2007
      between microHelix, Inc. and MH Financial Associates,
  LLC.10.28(15)
            
            Second
      Amended and Restated Promissory Note dated March 12, 2007 issued by
      microHelix, Inc. to MH Financial Associates, LLC.10.29(15)
            
            Form
      of Warrant dated March 12, 2007 issued by microHelix, Inc. to MH Financial
      Associates, LLC.10.30(15)
            
            Forbearance
      and Waiver Agreement dated March 12, 2007 between microHelix, Inc. and MH
      Financial Associates, LLC.10.31(15)
            *
            Independent
      Contractor Agreement effective February 12, 2007 between Moore
      Electronics, Inc. and Steve Ashton.14.1(4)
            
            Policy
      on Business Ethics for Directors, Officers and
  Employees.21.1(3)
            
            Subsidiaries.31.1(7)
            
            Certification
      of Principal Executive Officer and Chief Financial Officer pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 302 of the
      Sarbanes-Oxley Act of 2002.32.1(7)
            
            Certification
      of Principal 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.





(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, October 31, 2005 and October 19,
2006.


40





(2)
              Incorporated
      by reference to the Company's Proxy Statement filed on March 23,
      2004.


(3)
              Incorporated
      by reference to the Company's Annual Report on Form 10-KSB for the year
      ended December 31, 2004.


(4)
              Incorporated
      by reference to the Company's Forms 8-K filed on April 14, 2005 and
      October 20, 2006.


(5)
              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 Forms 8-K filed on January 4, 2006, May 23, 2006 and August 11,
      2006.


(6)
              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.


(7)
              Filed
      herewith.


(8)
              Incorporated
      by reference to the Company's Form 8-K filed on April 21,
      2006.


(9)
              Incorporated
      by reference to the Company's Form 8-K filed on June 28,
    2006.


(10)
              Incorporated
      by reference to the Company's Form 8-K filed on October 20,
      2006.


(11)
              Incorporated
      by reference to the Company's Forms 8-K filed on October 20, 2006 and
      March 16, 2007.


(12)
              Incorporated
      by reference to the Company's Form 8-K filed on November 8,
      2006.


(13)
              Incorporated
      by reference to the Company's Forms 8-K filed on November 8, 2006 and
      March 16, 2007.


(14)
              Incorporated
      by reference to the Company's Form 8-K filed on January 3,
      2007.


(15)
              Incorporated
      by reference to the Company's Form 8-K filed on March 16,
      2007.





*
Management contract or compensatory plan or arrangement.


41


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 March 24,
2009.




MICROHELIX,
      INC.By:
                /s/ James E.
      HorswillJames
      E. HorswillPrincipal
      Executive and Chief Executive
Officer





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/
      Thomas
      Sidley
                                  
                                  Chairman
      and Director
                                  
                                  March
      24, 2009Thomas
      Sidley/s/
      Donald Megrath
                                  
                                  Director
                                  
                                  March
      24, 2009Donald
      Megrath/s/
      James E. Horswill
                                  
                                  Director
                                  
                                  March
      24, 2009James
      E. Horswill


42