UNITED
STATES
 
 SECURITIES
AND EXCHANGE COMMISSION
 Washington,
D.C. 20549
 
 FORM
10-Q
 
 x
              QUARTERLY
      REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
  EXCHANGEACT
      OF 1934 for the quarterly period ended March 31, 2007ORo
              TRANSITION
      REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
  EXCHANGEACT
      OF 1934 for the Transition Period from toCommission
      file number: 001-16781
 
 MICROHELIX,
      INC.(Exact
      Name of Registrant as Specified in its
Charter)
 
 Oregon
              
              91-1758621(State
      or Other Jurisdiction of
              
              (I.R.S.
      Employer Identification No.)Incorporation
      or Organization)
 
 5300
      Meadows Rd, Suite 400, Lake Oswego, Oregon
              
              97035(Address
      of Principal Executive
              
              (Zip
      Code)Offices)
 
 (Issuer's
Telephone Number, Including Area Code): 503-419-3564
 
 Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports and (2) has been subject to such filing requirements for
the past 90 days.
 Yes o No x
 
 Indicate
by a check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, a non-accelerated filer, or a
smaller reporting company.
 Large accelerated filer o
                
                Accelerated filer oNon-accelerated filer o
                
                Smaller reporting company x
  Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
 Yes o No x
 
 As of
March 16, 2009, there were 1,972,568 shares of the issuer's Common Stock
outstanding.
 
 Transitional
Small Business Disclosure Format (Check One):Yes o No x
  
 
 microHelix,
Inc.
 Quarterly
Report on Form 10-Q
 Quarter
Ended March 31, 2007
 
 TABLE
OF CONTENTS
 
 PagePART
      I — FINANCIAL INFORMATION
                3ITEM
      1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS — UNAUDITED
                3Consolidated
      balance sheets as of March 31, 2007 and December 31, 2006
                3Consolidated
      statements of operations for the three months ended March 31, 2007 and
      2006
                4Consolidated
      statements of cash flows for the three months ended March 31, 2007 and
      2006
                5Notes
      to consolidated financial statements
                6ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
    OPERATION
                12ITEM
      3. MANAGEMENT’S DISCUSSION CONCERNING MARKET RISK
                16ITEM
      4. CONTROLS AND PROCEDURES
                18PART
      II — OTHER INFORMATION
                19ITEM
      1. LEGAL PROCEEDINGS
                19ITEM
      2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
    PROCEEDS
                19ITEM
      6. EXHIBITS
                19SIGNATURE
                20
  2
 
 PART
I — FINANCIAL INFORMATION
 
 ITEM 1. FINANCIAL STATEMENTS —
UNAUDITED
 
 MICROHELIX,
INC.
 
 CONDENSED
CONSOLIDATED BALANCE SHEETS
 (UNAUDITED)
 MARCH
31, 2007 and DECEMBER 31, 2006
 
 2007
                            
                            
                            2006AssetsCurrent
      Assets:Cash
                            
                            $
                            158,671
                            
                            
                            
                            40,680Accounts
      receivable, net of allowance of $63,812 and $3,206 at March 31, 2007 and
      December 31, 2006 respectively
                            
                            
                            1,106,307
                            
                            
                            
                            1,905,660Inventories,
      net
                            
                            
                            1,172,506
                            
                            
                            
                            1,600,403Prepaid
      expenses and other current assets
                            
                            
                            30,673
                            
                            
                            
                            43,692Total
      current assets
                            
                            
                            2,468,157
                            
                            
                            
                            3,590,435Property
      and equipment, net
                            
                            
                            810,761
                            
                            
                            
                            904,231Intangible
      assets
                            
                            
                            296,385
                            
                            
                            
                            350,112Goodwill
                            
                            
                            732,365
                            
                            
                            
                            732,365Total
      assets
                            
                            $
                            4,307,668
                            
                            
                            $
                            5,577,143Liabilities
      and Shareholders' DeficitCurrent
      Liabilities:Checks
      issued in excess of bank balances
                            
                            $
                            169,389
                            
                            
                            $
                            129,397Accounts
      payable
                            
                            
                            1,576,107
                            
                            
                            
                            1,633,288Accounts
      payable-related parties
                            
                            
                            —
                            
                            
                            
                            8,232Accrued
      liabilities
                            
                            
                            332,020
                            
                            
                            
                            609,599Line
      of credit
                            
                            
                            1,172,604
                            
                            
                            
                            1,897,432Common
      stock warrant liability
                            
                            
                            2,514,003
                            
                            
                            
                            —Note
      payable to shareholder
                            
                            
                            —
                            
                            
                            
                            150,000Current
      maturities of notes payable, net of debt discounts of $515,999 at
      March     31, 2007
                            
                            
                            317,296
                            
                            
                            
                            347,938Total
      current liabilities
                            
                            
                            6,081,419
                            
                            
                            
                            4,775,886Long-Term
      Liabilities:Notes
      payable, less current maturities, net of debt discount
                            
                            
                            1,068,619
                            
                            
                            
                            801,262Deferred
      tax liability
                            
                            
                            252,276
                            
                            
                            
                            298,145Total
      long-term liabilities
                            
                            
                            1,320,895
                            
                            
                            
                            1,099,407Total
      liabilities
                            
                            
                            7,402,314
                            
                            
                            
                            5,875,293Shareholders'
      Deficit:Preferred
      Stock, convertible, no par value, 750,000 shares
    authorized,279,070
      Series C Preferred Stock issued and outstanding, liquidation preference
      $600,000
                            
                            
                            533,000
                            
                            
                            
                            533,000Common
      stock, no par value, 25,000,00 shares authorized, 966,339 and 965,672
      shares issued and outstanding at March 31, 2007 and December 31, 2006,
      respectively
                            
                            
                            17,462,823
                            
                            
                            
                            17,462,823Additional
      paid-in capital
                            
                            
                            5,989,455
                            
                            
                            
                            6,292,850Accumulated
      deficit
                            
                            
                            (27,079,924
                            )
                            
                            
                            (24,586,823
                            )Total
      shareholders' deficit
                            
                            
                            (3,094,646
                            )
                            
                            
                            (298,150
                            )Total
      liabilities and shareholders' deficit
                            
                            $
                            4,307,668
                            
                            
                            $
                            5,577,143
  The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  3
 
 MICROHELIX,
INC.
 
 CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
 (UNAUDITED)
 
 Three Months EndedMarch 312007
                                
                                
                                2006Sales
                                
                                $
                                2,805,143
                                
                                
                                $
                                3,777,984Cost
      of sales
                                
                                
                                2,812,932
                                
                                
                                
                                3,567,961Gross
      profit (loss)
                                
                                
                                (7,789
                                )
                                
                                
                                210,023Operating
      Expenses:Sales
      and marketing
                                
                                
                                127,960
                                
                                
                                
                                185,045General
      and administrative
                                
                                
                                463,723
                                
                                
                                
                                466,587Total
      operating expenses
                                
                                
                                591,683
                                
                                
                                
                                651,632Loss
      from operations
                                
                                
                                (599,472
                                )
                                
                                
                                (441,609
                                )Other
      income (expense):Other
      income
                                
                                
                                —
                                
                                
                                
                                378Loan
      restructuring expense
                                
                                
                                (992,270
                                )
                                
                                
                                —Warrant
      valuation loss
                                
                                
                                (695,803
                                )
                                
                                
                                —Interest
      expense
                                
                                
                                (251,425
                                )
                                
                                
                                (67,403
                                )Other
      income (expense) – net
                                
                                
                                (1,939,498
                                )
                                
                                
                                (67,025
                                )Net
      loss before benefit from income taxes
                                
                                
                                (2,538,970
                                )
                                
                                
                                (508,634
                                )Benefit
      from income taxes
                                
                                
                                (45,869
                                )
                                
                                
                                (45,869
                                )Net
      loss
                                
                                
                                (2,493,101
                                )
                                
                                
                                (462,765
                                )Preferred
      dividends
                                
                                
                                —
                                
                                
                                
                                (103,125
                                )Net
      loss attributable to common shareholders
                                
                                $
                                (2,493,101
                                )
                                
                                $
                                (565,890
                                )Net
      loss per share attributable to common shareholders-basic and
      diluted
                                
                                $
                                (2.58
                                )
                                
                                $
                                (3.99
                                )Weighted
      average number of shares outstanding -Basic
      and Diluted
                                
                                
                                966,280
                                
                                
                                
                                141,940
  The
accompanying notes are an integral part of these condensed consolidated
financial statements.
  4
 
 MICROHELIX,
INC.
 
 CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
 (UNAUDITED)
  Three Months Ended
                              March 312007
                            
                            
                            2006Cash
      Flows Provided By (Used in) Operating Activities:Net
      loss
                            
                            $
                            (2,493,101
                            )
                            
                            $
                            (462,765
                            )Adjustments
      to reconcile net loss to cash provided byoperating
      activities:Depreciation –capital
      assets
                            
                            
                            93,470
                            
                            
                            
                            79,889Amortization
      – intangible assets
                            
                            
                            53,724
                            
                            
                            
                            53,733Provision
      for doubtful accounts
                            
                            
                            60,606
                            
                            
                            
                            7,557Provision
      for inventory reserves
                            
                            
                            43,373
                            
                            
                            
                            24,000Common
      stock issued for services
                            
                            
                            2,500
                            
                            
                            
                            —Loan
      restructuring costs
                            
                            
                            992,270
                            
                            
                            
                            —Warrant
      valuation loss
                            
                            
                            695,803
                            
                            
                            
                            —Interest
      expense-amortization
                            
                            
                            47,416
                            
                            
                            
                            —Benefit
      for deferred income taxes
                            
                            
                            (45,869
                            )
                            
                            
                            (45,869
                            )Change
      in assets and liabilities:(Increase)
      Decrease in assets:Accounts
      receivable
                            
                            
                            738,748
                            
                            
                            
                            (351,794
                            )Inventories
                            
                            
                            384,524
                            
                            
                            
                            (263,541
                            )Prepaid
      expenses and other current assets
                            
                            
                            13,021
                            
                            
                            
                            (1,226
                            )Increase
      (Decrease) in liabilities:Accounts
      payable and checks issued in excess of cash balances
                            
                            
                            (25,420
                            )
                            
                            
                            648,177Accrued
      liabilities
                            
                            
                            (277,579
                            )
                            
                            
                            333,918Net
      cash provided by operating activities
                            
                            
                            283,486
                            
                            
                            
                            22,079Cash
      Flows Provided By (Used In) Investing Activity:Capital
      Expenditures
                            
                            
                            —
                            
                            
                            
                            (115,265
                            )Net
      Cash used in investing activity
                            
                            
                            —
                            
                            
                            
                            (115,265
                            )Cash
      Flows Provided by (Used In) Financing Activities:Proceeds
      from line of credit
                            
                            
                            5,338,778
                            
                            
                            
                            3,828,532Payments
      on line of credit
                            
                            
                            (6,063,606
                            )
                            
                            
                            (3,684,131
                            )Payments
      on notes payable to shareholders
                            
                            
                            (150,000
                            )
                            
                            
                            (31,415
                            )Proceeds
      from notes payable to shareholders
                            
                            
                            750,000
                            
                            
                            
                            —Payments
      on notes payable
                            
                            
                            (40,667
                            )
                            
                            
                            (11,619
                            )Net
      cash provided by (used in) financing activities
                            
                            
                            (165,495
                            )
                            
                            
                            101,367Change
      in cash
                            
                            
                            117,991
                            
                            
                            
                            8,161Cash,
      beginning of period
                            
                            
                            40,680
                            
                            
                            
                            58,312Cash,
      end of period
                            
                            $
                            158,671
                            
                            
                            $
                            66,473Supplemental
      Cash Flow Information:Interest
      paid
                            
                            $
                            118,115
                            
                            
                            $
                            67,403Income
      taxes paid
                            
                            $
                            —
                            
                            
                            $
                            —Supplemental
      disclosure of non-cash Financing ActivitiesCommon
      stock warrant liability
                            
                            $
                            1,818,200
                            
                            
                            $
                            —Warrants
      issued to lender-recorded as debt discount
                            
                            $
                            551,970
                            
                            
                            $
                            —
 
 The accompanying notes are an
integral part of these condensed consolidated financial
statements.
  5
 
 MICROHELIX,
INC.
 
 NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 Three
Months Ended March 31, 2007 and 2006
 
 1.
Summary of Significant Accounting Policies and Basis of
Presentation
 
 Nature of Operations— For the
period covered by this report microHelix, Inc. ("we," "us," the "Company" or
"microHelix") was a manufacturer of custom cable assemblies and mechanical
assemblies for the medical and commercial original equipment manufacturer
markets.   On May 31, 2007, the Company surrendered substantially
all its assets to its secured creditors.  On September 28, 2007, the
Company suspended manufacturing operations and concluded the disposition of all
its assets to its secured creditors.  The Company thereafter became a
shell company (See “Going Concern” and Note 9-Subsequent Events).
 
 Basis of Presentation— The
unaudited consolidated financial statements included in this Report have been
prepared by the Company, pursuant to the rules and regulations of the Securities
and Exchange Commission ("SEC").  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.  The information furnished herein reflects all
adjustments (consisting of normal recurring accruals and adjustments), which
are, in the opinion of management, necessary to fairly represent the operating
results for the respective periods.
 
 Use of Estimates— The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period.  Actual results
could differ from those estimates.
 
 Principles of Consolidation—
These consolidated financial statements include the accounts of the Company and
its wholly owned subsidiary, Moore Electronics, Inc. ("Moore"). All material
inter-company accounts have been eliminated in consolidation.
 
 Going Concern— These
consolidated financial statements have been prepared on a going concern basis
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business.  The Company has incurred recurring
net losses and had negative cash flows from operations during each of the past
two years and at March 31, 2007 had an accumulated deficit of
$27,079,924.  These conditions raise substantial doubt about its
ability to continue as a going concern for a reasonable period of
time.  These consolidated financial statements do not include any
adjustments relating to the recoverability and classification of recorded asset
amounts or the amounts and classification of liabilities that may be necessary
should the Company be unable to continue as a going concern.
 
 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 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.
 
 Stock-Based Compensation— No
options were granted or stock grants made during the three months ended March
31, 2007 or 2006.  The Company's policy covering equity compensation
grants to either employees or directors is to recognize the expense as described
in FAS 123 (R).
  6
  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 losses for the three months
ended March 31, 2007 and 2006, the issuance of shares from the conversion or
exercise of preferred stock, options or warrants would be anti-dilutive. Thus,
the basic and diluted loss per common share was identical for these
periods.  The Company computes dilutive shares using the treasury
method.
 
 At
March 31, 2007, the outstanding number of potentially dilutive shares of
our Common Stock totaled 1,250,985 shares, 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 March 31, 2006, the
outstanding number of potentially dilutive shares of our Common Stock totaled
841,419 shares, consisting of Series B Preferred Stock convertible into 733,333
shares of Common Stock, Class B warrants to purchase 61,789 shares of Common
Stock, and other warrants to purchase 46,297 shares of Common
Stock.
 
 2.
Terms of Troubled Debt Modification
 
 At
December 31, 2006, the Company had outstanding a promissory note payable to MH
Financial Associates, LLC, an Oregon limited liability company (“MH
Financial”)with an outstanding principal balance of $1,006,086 (the “Original
Note”).  Effective March 12, 2007 the Company and MH Financial
modified the terms of the Original Note as follows (the “Amended
Note”):
  (a)
              MH
      Financial loaned the Company an additional
  $750,000;
 
 (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 deleted;
 
 (d)
              The
      Company issued MH Financial and a related party to MH Financial combined
      warrants 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 issue 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 forebearance 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 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 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.
 
 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.
 
 7
  3.  Summary
of Recent Accounting Pronouncements
 
 In
December 2007, the FASB issued SFAS no. 141(R), “Business Combinations” (“SFAS
141(R)”), which replaces SFAS No. 141. SFAS No. 141(R) establishes principles
and requirements for how an acquirer recognizes and measures in its financial
statements the identifiable assets acquired, the liabilities assumed, any
non-controlling interest in the acquiree and the goodwill
acquired.  The Statement also establishes disclosure requirements
which will enable users to evaluate the nature and financial effects of the
business combination.  SFAS 141 (R) is effective for fiscal years
beginning after December 15, 2008.  The adoption of SFAS 141(R) will
have an impact on accounting for business combinations once adopted, but the
effect is dependent upon acquisitions occurring after that time.
 
 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
evaluating the potential impact of SFAS No. 159 on its consolidated financial
statements.
 
 In
December 2007, the FASB issued SFAS No. 160, “Non-controlling Interests in
Consolidated Financial Statements-an amendment of Accounting Research Bulletin
No. 51” (“SFAS No. 160”), which establishes accounting and reporting
standards for ownership interests in subsidiaries held by parties other than the
parent, the amount of consolidated net income attributable to the parent and to
the non-controlling interest, changes in a parent’s ownership interest and the
valuation of retained non-controlling equity investments when a subsidiary is
deconsolidated.  SFAS No. 160 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 on its consolidated financial statements.
 
 4.  Customer
Concentration
 
 Revenues
from the Company’s three largest customers during the three months ended March
31, 2007 and 2006 were $1,027,390 and $2,237,025, respectively; and accounts
receivable due from these customers were $300,559 and $1,101,219,
respectively.
 
 5.  Inventories
 
 Inventories
at March 31, 2007 were as follows:
  Finished
      goods
                      
                      $
                      135,092Work-in
      process
                      
                      
                      155,748Raw
      materials
                      
                      
                      1,329,515Total
      inventory
                      
                      
                      1,620,355Less:
      reserves
                      
                      
                      (447,849)Net
      inventory
                      
                      $
                      1,172,506
 
 6.  Goodwill
and Other Intangible Assets
 
 Goodwill
represents the excess of the purchase price over the estimated fair value of the
net identified tangible and intangible assets of an acquired
business.  The Company evaluates the recorded value of Goodwill on at
least an annual basis, or more frequently when a significant event occurs or
circumstances change.  The Company intends to perform the impairment
analysis as required by FAS 142 during the second quarter of
2007.
  8
 
 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 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 May 31, 2007, writing the value
of its Goodwill to $0.  (See Note 9-Subsequent Events.)
 
 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
are amortized on a straight-line basis over a 3-year period and the
manufacturing process technology is amortized over a 5-year period on a
straight-line basis.  The Company 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 following table reflects the cost of other identifiable
intangible assets and the accumulated amortization related to these respective
assets as of March 31, 2007:
 
 Gross
                    
                    
                    
                    
                    
                    NetCarrying
                    
                    
                    Accumulated
                    
                    
                    CarryingValue
                    
                    
                    Amortization
                    
                    
                    ValueCustomer
      lists and contacts
                    
                    $
                    522,466
                    
                    
                    $
                    348,318
                    
                    
                    $
                    174,148Manufacturing
      process technology
                    
                    
                    203,738
                    
                    
                    
                    81,501
                    
                    
                    
                    122,237Total
      other intangible assets
                    
                    $
                    726,204
                    
                    
                    $
                    429,819
                    
                    
                    $
                    296,385
  For the
three months ending March 31, 2007 and 2006, the Company recorded $53,724 and
$53,733 as amortization expense, respectively.  Before the events that
led to the impairment charges taken during the three months ending June 30,
2007, the Company expected to record annual amortization expense of
approximately $215,000 in 2007, $84,000 in 2008, $41,000 in 2009 and $10,000 in
2010 related to the other identifiable intangible assets purchased in the Moore
acquisition.
 
 7.
Notes Payable and Warrants
 
 A summary
of the Company’s notes payable outstanding as of March 31, 2007
follows:
  VenCore
      Solutions, LLC
                    
                    $
                    225,787MH
      Financial Associates, LLC
                    
                    
                    1,739,081EPICOR
      Software Corporation
                    
                    
                    63,137Other
                    
                    
                    16,816Total
      notes payable
                    
                    $
                    2,044,821Debt
      discountsWarrants
      issued with VenCore note
                    
                    $
                    (22,346)Warrants
      issued with MH Financial note
                    
                    
                    (529,938)Warrants
      issued with MH Financial note
                    
                    
                    (106,622)Notes
      payable, net
                    
                    
                    1,385,915Less
      current maturities
                    
                    
                    (317,296)Notes
      payable, less current maturities
                    
                    $
                    1,068,619
  9
  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:
 
 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 for a forebearance 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 previously granted to MH Financial giving it the right to purchase
153,102 shares of Common Stock.  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
                    
                    
                    —
 
 As of
March 31, 2007, the Company was in default on its note payable to EPICOR
Software Corporation, an unsecured creditor.
 
 8.
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 and that are in excess of authorized shares, as
a liability that is recorded at fair value.  Effective with the March
12, 2007 modification of its debt with MH Financial, total potential outstanding
Common Stock exceeded the Company’s authorized shares of Common
Stock.  At that time, outstanding warrants granted their holders the
right to purchase approximately 579,867 more shares of Common Stock (post-split)
than were authorized in the Company’s Amended and Restated Articles of
Incorporation as amended. 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 that date. This liability is required to be evaluated at each
reporting date with any change in value included in other income/ (expense)
until such time as enough shares are authorized to cover all potentially
convertible instruments.  At March 31, 2007 the Company had recorded
$695,803 in loss related to the change the fair value of its potential
liability.
 
 The
Company’s shareholders in January 2008 voted to amend the Company’s Amended and
Restated Articles of Incorporation, as amended, to increase the number of
authorized shares of Common Stock such that a sufficient number of authorized
shares existed to permit the exercise of all outstanding warrants. (See Note
9—Subsequent Events)
  10
 
 9.  Subsequent
Events
 
 On April
1, 2007 the Company issued a warrant to purchase 6,460 shares of the Company’s
Common Stock with an exercise price of $0.015 per share to MH Financial pursuant
to the terms of the Amended Note.
 
 During
May, 2007 EPICOR Software Corporation, unsecured creditor, initiated legal
action to collect the outstanding balance of $63,137 owed to it under an
unsecured note.
 
 On May
31, 2007 the Company informed its three secured creditors that it was unable to
continue business operations due to continuing operating losses and a lack of
working capital.  The secured creditors were BFI Business Finance,
VenCore Solutions, LLC and MH Financial, LLC.  The collateral held by
the secured creditors consisted of substantially all of the assets of the
Company, including its MicroCoax Assembly Solutions division, and of Moore. The
Company estimated that as of May 31, 2007, total consolidated liabilities were
approximately $5.4 million which included debt owed to the Company’s three
secured lenders of approximately $2.9 million.  The Company estimated
that the total realizable value of its assets in liquidation would be
approximately $1.5 million less disposition expenses.
 
 On June
11, 2007 the Company filed a Form 15 with the Securities and Exchange Commission
terminating its registration under Section 12(g) of the Securities Exchange Act
of 1934 and the suspension of its duty to file reports under Sections 13 and
15(d)of the Securities Exchange Act of 1934.  On March 24, 2009, the
Company recommenced filing reports due under Securities Exchange Act of
1934.
 
 On July
10, 2007 the assets and inventory of the MicroCoax Assembly Solutions division
of the Company were sold to an unrelated third party.   VenCore
Solutions, LLC, as a secured creditor, received $5,000 from the sale of
equipment.  MH Financial, as a secured creditor, received $10,000 from
the sale of inventory and $2,000 from the sale of the intangible
assets.
 
 On
September 28, 2007 the assets and inventory of Moore were sold to an unrelated
third party.  VenCore Solutions, LLC, as a secured creditor, received
$75,000 from the sale.  MH Financial, as a secured party, received 90%
of the cost of any inventory used in the assembly or manufacturing of products
through March 31, 2008.  The purchaser was also to pay MH Financial
three percent (3%) of all revenue for products and services provided to certain
Moore customers through December 31, 2008.
 
 In
connection with the surrender of its assets to its secured creditors, 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
accounts receivable and cure certain outstanding deficiencies in rent payments
and benefit plans.  The Company applied the proceeds from filling
these orders to outstanding balances due its secured creditors.  On
September 28, 2007, Moore Electronics and the Company discontinued all
operations.  After concluding these transactions and disposing of the
Company’s other assets, microHelix still owed its secured creditors
$320,279.
 
 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 Amended
and Restated Articles of Incorporation, as amended, were amended to increase the
number of shares of Common Stock the Company is authorized to issue to 75
million and the number of shares of Preferred Stock the Company is authorized to
issue to 10 million.
 
 On
February 27, 2008 a related party to MH Financial exercised warrants to purchase
73,915 shares of Common Stock for $1,109.
  11
 
 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 Company’s shareholders the Company’s
Amended and Restated Articles of Incorporation, as amended, were amended to
effect a 15-for-1 reverse split of the Company’s Common Stock.  The
accompanying condensed consolidated financial statements, notes, and other
references to share and per share data have been retroactively restated to
reflect the reverse stock split for all periods presented.  At that
same meeting, Thomas Sidley and Donald Megrath were elected to the Company’s
Board of Directors.  Each of Messrs, Sidley and Megrath is an employee
of Aequitas Capital Management, Inc., an affiliate of MH Financial.
 
 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 on 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 shares
of Common Stock at $0.001 per share.  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.
 
 ITEM
2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
 
 The
following discussion provides information that management believes is relevant
to an assessment and understanding of the Company's operations and financial
condition.  This discussion should be read in conjunction with the
unaudited consolidated financial statements and accompanying notes.
 
 Forward-Looking
Statements
 
 This
Quarterly Report on Form 10-Q contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.  Such
statements reflect management's current view and estimates of future economic
and market circumstances, industry conditions, Company performance and financial
results.  Words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" and variations of such words and similar
expressions are intended to identify such forward-looking
statements.  These statements are subject to risks and uncertainties
that could cause our future results to differ materially from the results
discussed herein.  Factors that might cause such a difference include,
but are not limited to, those discussed elsewhere in this Quarterly Report on
Form 10-Q.  The Company does not intend, and undertakes no obligation,
to update any such forward-looking statements to reflect events or circumstances
that occur after the date of this filing.
 
 Critical
Accounting Policies and Estimates
 
 The
discussion and analysis of the Company’s financial condition and results of
operations is based upon the Company’s consolidated financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States.  The preparation of these financial statements
requires the Company to make estimates and judgments that affect the reported
amounts of assets, liabilities, revenues and expenses, and related disclosure of
contingent assets and liabilities.  The Company evaluates its
estimates on a going concern basis that assumes continued operations, including
those related to product returns, bad debts, inventories, prepaid expenses,
intangible assets, income taxes, warranty obligations, and other
contingencies.  The Company bases its estimates on historical
experience and on various other assumptions that are believed to be reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that are not
readily apparent from other sources.  Actual results may differ from
those estimated.  The Company believes the following critical
accounting policies and related judgments and estimates affect the preparation
of the consolidated financial statements.
  12
 
 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.   The products must be physically shipped from the
factory. In some cases, tooling that has been paid for by a customer may remain
at our facility or at a vendor's facility. Returns are limited to nonconforming
products and the volume of returns has been insignificant.  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 we determine the fair value
of each reporting unit, and compare the fair value to the reporting unit's carry
amount.  To the extent a reporting unit's carrying amount exceeds its
fair value, an indication exists that the reporting unit's goodwill may be
impaired and 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.  The Company
performs the annual impairment test during the fiscal first quarter in
connection with the preparation of its Annual Report on Form 10-K, unless events
or circumstances indicate impairment may have occurred before that
time.
 
 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.  See Note 9 –of Notes to Consolidated
Financial statements.  In connection with the windup, the Company
determined that the liquidation value of its tangible assets was insufficient to
repay its secured and unsecured creditors, and therefore, the carrying value of
Goodwill required adjustment.  The Company recorded a charge of
$732,365 as of May 31, 2007, writing the value of its Goodwill to $0; and a
charge of $242,658, writing the value of its intangibles to $0.
 
 RESULTS
OF OPERATIONS
 
 Overview
 
 For the
period covered by this Report, microHelix manufactured custom cable assemblies
for the medical and commercial original equipment manufacturer ("OEM")
markets.  Typical cable assemblies included cable, connectors,
contacts, flex reliefs and housings; sub-components of medical devices and
commercial electronic systems.  The Company operated the business in a
single operating segment through two units: the Moore subsidiary and the
MicroCoax Assembly Solutions division.
 
 The
Company has incurred significant losses since inception and those losses have
continued.  In the normal course of its business the Company has had
to rely on a relatively small number of OEMs for the majority of its
sales.  Short term changes in the OEM’s demand schedule have made
expenses and cash requirements uncertain.  The Company has not been
successful in achieving profitability.  During April and May 2007, the
Company’s financial condition deteriorated significantly.  On May 31,
2007 the Company surrendered its assets to its secured creditors and began
winding up its affairs.  The Company operated for the benefit of its
secured creditors until September 2007, at which time it ceased manufacturing
operations.
 
 microHelix
was formed in 1991 to develop manufacturing techniques for medical device
interconnect systems.  The Company began manufacturing operations in
1998, designing and building cable assemblies and micro-electric interconnects
and subsequently sold this operation to an unrelated third party in
2004.
  13
 
 The
MicroCoax division designed and manufactured cable assemblies for OEM customers
for use in medical ultrasound probes, laparoscopes, catheters and flaw detection
ultrasound.  The division was built around assets acquired in 1999.
The Company sold this operation to an unrelated third party during July 2007 and
used the proceeds of this sale to partially repay secured debt.
 
 In April
2005, the Company acquired 100% of the outstanding stock of Moore Electronics,
Inc. (“Moore”).  Moore manufactured custom cable assemblies, wire
harnesses and electro-mechanical assemblies for medical and commercial equipment
manufacturers.  The Company sold this operation to an unrelated third
party during September 2007 and used the proceeds of this sale to partially
repay debt.
 
 The
Company completed its initial public offering in November
2001.  During the period covered by this report, the Common
Stock currently trades on the Pink Sheets under the symbol
MHLX.PK.  On June 11, 2007 the Company filed a Form 15 with the
Securities and Exchange Commission terminating its registration under Section
12(g) of the Securities Exchange Act of 1934 and the suspension of its duty to
file reports under Sections 13 and 15(d)of the Securities Exchange Act of
1934.  On March 24, 2009, the Company recommenced filing reports due
under the Securities Exchange Act of 1934.
  THREE
MONTHS ENDED MARCH 31, 2007 AND 2006
 
 Total
sales in the first quarter of 2007 were $2,805,143, compared to $3,777,984 in
the first quarter of 2006, a decrease of $972,841 or 25.8%.  This
decrease is primarily due to the suspension of shipments of products
manufactured by the Redmond, Washington facility of Physio-Control, Inc., a
subsidiary of Medtronic, Inc., due to regulatory actions taken against
Physio-Control by the United States FDA that were unrelated to the
Company
 
 Gross
loss in the first quarter of 2007 was ($7,789) compared to a gross profit of
$210,023 in the first quarter of 2006, a decrease of $217,812.  The
degradation in the gross profit resulted primarily from the suspension of
shipments of products to Physio-Control and higher than anticipated
manufacturing expenses and material costs.
 
 Total
operating expenses in the first quarter of 2007 were $591,683 compared to
$651,632 for the same period one year ago, a decrease of $59,949 or
9.2%.  The decrease is due to head count reductions that reduced
salary and related benefits expenses, and due to reduced consultant
expenses.
 
 Sales and
marketing expenses for the first quarter of 2007 were $127,960 compared to
$185,045 in the first quarter of 2006, a decrease of $57,085 or
30.9%.  This decrease was primarily a result head count reductions
that reduced salary and related benefits expense.
 
 General
and administrative expenses for the first quarter of 2007 were $463,723 compared
to $466,587 in the first quarter of 2006, a decrease of $2,864 or
0.6%.  The decrease resulted principally from head count reductions
that reduced salary and related benefit expenses.
 
 Net other
expense for the first quarter of 2007 was $1,939,498 compared to net other
expense of $67,025 for the first quarter of 2006.  The increase
resulted primarily from increased interest expense on the Company’s line of
credit due to increased borrowings, the write-off of note discounts, loan
restructuring expenses, warrant valuation expense, and higher interest
rates.
 
 The
Company recorded a net loss of $(2,493,101) in the first quarter of 2007
compared to a net loss of $(462,765) in the first quarter of 2006.  No
dividends accrued in the first quarter of 2007. Dividends accrued on the
Company's Series B Preferred Stock were $103,125 in the first quarter of 2006
and were paid in shares of the Company’s  Common Stock during
2006.  Net loss attributable to common shareholders was $(2,493,101)
in the first quarter of 2007 and $(565,890) in the first quarter of
2006.
  14
 
 LIQUIDITY
AND CAPITAL RESOURCES
 
 As of
March 31, 2007, the Company had $158,671 of cash and cash
equivalents.  Cash provided by operating activities in the first
quarter of 2007 was $283,486 compared to $22,079 in the first quarter of 2006,
an improvement of $261,407.  Sources of funds in the first quarter of
2007 included a decrease in accounts receivable of $738,748 and a decrease in
inventories of $384,524, offset in part by decreases in accounts payable of
$25,420 and in accrued liabilities of $277,579.
 
 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 to an unrelated third party 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 to
various secured lending agreements.  At the conclusion of business
operations in September 2007, the Company still owed its secured lenders
approximately $320,279.  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, certain of
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 Note 9 of
Notes to Consolidated Financial Statements.
 
 As of
March 31, 2007, the Company had a $2,000,000 line of credit for working capital,
secured by accounts receivable and inventory.  The line of credit
expired on April 7, 2007.
 
 On March
12, 2007, the Company obtained an additional loan from MH Financial of
$750,000.  The original note (the “Original Note”) evidencing
then-exiting 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").  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 will 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 will 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, are 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 Note are due and payable upon the sale of all or
substantially all of the Company’s assets to anyone other than MH Financial, or
upon the transfer of ownership of more than 50% of the 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 its
directors as of the date of this Report.  The remaining proceeds were
used to make payments to certain vendors and to fund operating
costs.  The Amended Note replaces and supersedes the Original
Note.  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 the Company’s Common Stock was
deleted.
  15
 
 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 would be not later than
September 30, 2007.  The Sale was subject to the following terms
and conditions:
 
 (a)         The
purchase price for the Sale would consist of the release of the Company from
liability under the Amended Note, including all amendments and modifications
thereto, and assumption by the purchaser or by Moore of all of the loans, debts
and payables.
 
 (b)          All
of the outstanding Series C Preferred Stock (which is currently held by MH
Financial) would be converted into shares of the Common Stock before or
concurrently with the closing of the Sale.
 
 (c)          The
Board of Directors retained the right to obtain a better offer for the purchase
of the Company’s and/or the assets (an "Alternative Sale"), provided that no
Event of Default (as defined in the Amended Note) had occurred or was
continuing, and, subject to MH Financial's right to close the Sale as set forth
in (d) below, all principal, interest and other amounts due under the Amended
Note are to be paid in full before the closing of the Sale and contemporaneously
with the closing of the Alternative Sale.
 
 (d) MH
Financial or its assigns may close the Sale at any time following approval of
the Sale by the shareholders.  Following
such approval, MH Financial may give the Company notice of its intent to close
the Sale.  If the Company has not closed an Alternative Sale within 10
days following MH Financial's notice, the Company and MH Financial shall proceed
to close the Sale within 20 days following MH Financial's notice or such longer
period as is mutually agreed.
 
 Shareholder
approval for the Sale was not requested and the Sale did not occur.
 
 On March
12, 2007 the Company was in default under the Original Loan.  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 the
Company and MH Financial.    As consideration for the
Forbearance Agreement, the Company 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
153,102 shares of the Common Stock.  The Company also agreed to issue
future warrants under the Amended Note with an exercise price of $0.015 per
share.  After giving effect to the additional warrants issued in
connection with the Amended Note and the Forbearance Agreement, MH Financial,
together with its affiliates, is the beneficial holder of approximately 55% of
the Company’s voting capital stock.
 
 ITEM
3.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
RISK
 
 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.
 
 16
  Adequate
financing may not be available when needed
 
 Additional
sources of funding would be required for us to continue operations. There is no
assurance that the Company can raise working capital or if any capital would be
available at all. Failure to obtain financing when needed could result in
curtailing operations, acquisitions or mergers and investors could lose some or
all of their investment.
 
 Speculative
nature of the Company's proposed operations
 
 The
success of the Company's proposed plan of operation will depend to a great
extent on the operations, financial condition and management of the identified
target company. While management will prefer business combinations with entities
having established operating histories, there can be no assurance that 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.
 
 Continued
management control, limited time availability
 
 While
seeking a business combination, our remaining officer anticipates 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 remaining officer and directors participate in other business ventures
which may compete directly with the Company.
 
 Reporting
requirements may delay or preclude acquisitions
  Section
13 of the Securities Exchange Act of 1934 (the "Exchange Act") requires
companies subject thereto to provide certain information about significant
acquisitions including certified financial statements for the company acquired
covering one or two years, depending on the relative size of the acquisition.
The time and additional costs that may be incurred by some target companies to
prepare such financial statements may significantly delay or essentially
preclude consummation of an otherwise desirable acquisition by the Company.
Acquisition prospects that do not have or are unable to obtain the required
audited statements may not be appropriate for acquisition so long as the
reporting requirements of the Exchange Act are applicable.
 
 17
  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.
 
 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
4.  CONTROLS AND PROCEDURES
 
 The
Company’s President and Chief Financial Officer evaluated the effectiveness of
the Company’s disclosure controls and procedures pursuant to Rule 13a-15 under
the Securities Exchange Act of 1934 as of March 31, 2007.  Based on
that evaluation, the Company’s President and Chief Financial Officer concluded
that the Company’s disclosure controls and procedures are not designed at a
reasonable assurance level nor are they effective to give reasonable assurance
that the information the Company must disclose in reports filed with the
Securities and Exchange Commission are properly recorded, processed, summarized,
and reported as required, and that such information is not accumulated and
communicated to our management, including our President and Chief Financial
Officer, to allow timely decisions regarding required
disclosure.
  18
 
 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.  The Company believes that remediation of the lack of
segregated duties can be accomplished through the hiring of additional
accounting personnel or be adding or modifying certain existing internal control
procedures.  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.
 
 PART
II.  OTHER INFORMATION
 
 ITEM
1.  LEGAL PROCEEDINGS
 
 As of
March 31, 2007 microHelix was not involved in any legal
proceedings.
 
 ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
 During
the three months ended March 31, 2007, the Company issued warrants to its
lenders exercisable for share of its Common Stock.  See Item 2.
Management’s Discussion and Analysis or Plan of Operation—Liquidity and Capital
Resources.  All of such warrants were issued in reliance on Regulation
D promulgated under the Securities Act of 1933, as amended (the “Securities
Act”), and the Company obtained representations from the investors as to their
status as “accredited investors” as that term is defined in Regulation
D.
 
 ITEM
6. EXHIBITS
 
 (a) Exhibits:
 
 10.1(1)
                
                Promissory
      Note dated December 28, 2006 issued by microHelix, Inc. to James M.
      Williams10.2(1)
                
                Subordination
      Agreement dated December 28, 2006 among microHelix, Inc., James M.
      Williams and BFI Business Finance10.3(2)
                
                Second
      Agreement Regarding Amendment of Promissory Note dated March 12, 2007
      between microHelix, Inc. and MH Financial Associates,
  LLC10.4(2)
                
                Second
      Amended and Restated Promissory Note dated March 12, 2007 issued by
      microHelix, Inc. to MH Financial Associates, LLC10.5(2)
                
                Form
      of Warrant dated March 12, 2007 issued by microHelix, Inc. to MH Financial
      Associates, LLC.10.6(2)
                
                Form
      of Amendment to Warrant dated March 12, 2007 between microHelix, Inc. and
      MH Financial Associates, LLC10.7(2)
                
                Forbearance
      and Waiver Agreement dated March 12, 2007 between microHelix, Inc. and MH
      Financial Associates, LLC10.8(2)
                
                Amendment
      to Registration Rights Agreement dated March 12, 2007 between microHelix,
      Inc. and MH Financial Associates, LLC10.9(3)*
                
                Independent
      Contractor Agreement effective February 12, 2007 between Moore
      Electronics, Inc. and Dr. Steven G. Ashton, as amended31.1(4)
                
                Certification
      of Principal Executive and Financial Officer pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
      200232.1(4)
                
                Certification
      of Principal Executive and Financial Officer pursuant to 18 U.S.C. Section
      1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
      2002
  19
 (1)
                  Incorporated by reference to the
      Company's Form 8-K filed on January 3,
  2007.
 (2)
                  Incorporated by referenced to the
      Company's Form 8-K filed on March 16,
  2007.
 (3)
                  Incorporated
      by reference to the Company's Forms 8-K filed on March 16, 2007 and April
      5, 2007.
 (4)
                  Filed
      herewith.
 *
                  Management
      contract or compensatory plan or
arrangement.
 
 SIGNATURE
 
 In
accordance with the requirements of the Securities Exchange Act of 1934, the
registrant has caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
 
 Signature
                      
                      Title
                      
                      Date/s/
      James E. Horswill
                      
                      President
      and Chief Financial Officer
                      
                      March
      24, 2009James
      E. Horswill
  20