**UNITED
      STATES**





**SECURITIES
      AND EXCHANGE COMMISSION**


**Washington,
      D.C. 20549**





**FORM
      10-QSB**





x
            **QUARTERLY
                REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
                EXCHANGE****ACT
                OF 1934 for the quarterly period ended June 30,
                2006****OR**o
            **TRANSITION
                REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES
                EXCHANGE****ACT
                OF 1934 for the Transition Period from to****Commission
                file number: 001-16781**





**MICROHELIX,
                INC.****(Exact
                Name of Small Business Issuer as Specified in its
                Charter)**





**Oregon**
            
            **91-1758621**(State
                or Other Jurisdiction of
            
            (I.R.S.
                Employer Identification No.)Incorporation
                or Organization)





**19500
                SW 90****th****Court Tualatin, Oregon**
            
            **97062**(Address
                of Principal Executive
            
            (Zip
                Code)Offices)





(Issuer's
      Telephone Number, Including Area Code): 503-692-5333





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


Yes x No o





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
      August 21, 2006, there were 2,243,662 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-QSB**


**Quarter
      Ended June 30, 2006**





**TABLE
      OF CONTENTS**





**Page****PART
                I — FINANCIAL INFORMATION**
            3**ITEM
                1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS —
                UNAUDITED**
            3Consolidated
                balance sheet as of June 30, 2006
            3Consolidated
                statements of operations for the three and six months ended June
                30, 2006
                and 2005
            4Consolidated
                statements of cash flows for the six months ended June 30, 2006 and
                2005
            5Notes
                to consolidated financial statements
            6**ITEM
                2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
                OPERATION**
            9**ITEM
                3. CONTROLS AND PROCEDURES**
            13**PART
                II — OTHER INFORMATION**
            13**ITEM
                6. EXHIBITS**
            14**SIGNATURE**
            15**EXHIBIT
                INDEX**
            16**CERTIFICATION****EXHIBIT
                31****EXHIBIT
                32**





2


**PART
      I — FINANCIAL INFORMATION**





**ITEM
      1. FINANCIAL STATEMENTS — UNAUDITED**





**MICROHELIX,
      INC.**





**CONDENSED
      CONSOLIDATED BALANCE SHEET**


**(UNAUDITED)**


**JUNE
      30, 2006**


**Assets**Current
                Assets:Cash
            
            $
            24,269Accounts
                receivable, net of allowance of $27,451
            
            
            1,694,647Inventories,
                net
            
            
            1,698,584Prepaid
                expenses and other current assets
            
            
            29,772Total
                current assets
            
            
            3,447,272Property
                and equipment, net
            
            
            1,114,247Deposits
                and other assets
            
            
            31,923Intangible
                assets
            
            
            457,566Goodwill
            
            
            1,620,218Total
                assets
            
            $
            6,671,226**Liabilities
                and Shareholders' Equity**Current
                Liabilities:Accounts
                payable
            
            $
            2,342,609Accounts
                payable-related parties
            
            
            6,995Accrued
                liabilities
            
            
            541,765Accrued
                dividends
            
            
            459,375Line
                of credit
            
            
            1,430,165Current
                portion of obligations under capital leases
            
            
            14,981Current
                portion of notes payable to shareholders
            
            
            376,785Current
                portion of note payable-Vencore
            
            
            116,393Total
                current liabilities
            
            
            5,289,069Long-Term
                Liabilities:Obligations
                under capital lease
            
            
            14,096Deferred
                tax liability
            
            
            389,882Notes
                payable to shareholders
            
            
            768,699Note
                payable -Vencore
            
            
            170,257Total
                long-term liabilities
            
            
            1,342,934Total
                liabilities
            
            
            6,632,003Shareholders'
                Equity:Preferred
                Stock, no par value, 3,500,000 shares authorized,2,750,000
                Series B Preferred Stock issued and outstanding
            
            
            2,475,793Common
                stock, no par value, 25,000,000 shares authorized,2,243,662
                issued and outstanding
            
            
            14,551,350Additional
                paid-in capital
            
            
            6,063,752Accumulated
                deficit
            
            
            (23,051,670
            )Total
                shareholders' equity
            
            
            39,224Total
                liabilities and shareholders' equity
            
            $
            6,671,226




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




3





**MICROHELIX,
      INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF OPERATIONS**


**(UNAUDITED)**




**Three
                    Months Ended**
                  **June
                    30**
                
                **Six Months
                    Ended**
                  **June
                    30****2006**
                
                **2005**
                
                **2006**
                
                **2005**Sales
                
                $
                3,949,315
                
                $
                2,443,595
                
                $
                7,727,299
                
                $
                2,862,279Cost
                    of sales
                
                
                3,145,307
                
                
                2,318,168
                
                
                6,713,268
                
                
                2,658,276Gross
                    profit
                
                
                804,008
                
                
                125,427
                
                
                1,014,031
                
                
                204,003Operating
                    Expenses:Sales
                    and marketing
                
                
                126,312
                
                
                137,930
                
                
                311,357
                
                
                142,876General
                    and administrative
                
                
                634,171
                
                
                826,440
                
                
                1,100,758
                
                
                1,022,236Total
                    operating expenses
                
                
                760,483
                
                
                964,370
                
                
                1,412,115
                
                
                1,165,112Income
                    (loss) from operations
                
                
                43,525
                
                
                (838,943
                )
                
                (398,084
                )
                
                (961,109
                )Other
                    income (expense):Other
                    income (expense)
                
                
                71
                
                
                450
                
                
                449
                
                
                450Interest
                    expense
                
                
                (88,996
                )
                
                (57,245
                )
                
                (156,399
                )
                
                (65,212
                )Other expense
                    - net
                
                
                (88,925
                )
                
                (56,795
                )
                
                (155,950
                )
                
                (64,762
                )Net
                    loss before provision for income taxes
                
                
                (45,400
                )
                
                (895,738
                )
                
                (554,034
                )
                
                (1,025,871
                )Benefit
                    for income taxes
                
                
                (45,869
                )
                
                —
                
                
                (91,738
                )
                
                —Net
                    income (loss)
                
                
                469
                
                
                (895,738
                )
                
                (462,296
                )
                
                (1,025,871
                )Preferred
                    dividends
                
                
                (103,125
                )
                
                (84,375
                )
                
                (206,250
                )
                
                (84,375
                )Net
                    loss available to common shareholders
                
                $
                (102,656
                )
                $
                (980,113
                )
                $
                (668,546
                )
                $
                (1,110,246
                )Net
                    loss per share available to common shareholders - basic and
                    diluted:Basic
                    and diluted
                
                $
                (.05
                )
                $
                (.48
                )
                $
                (.31
                )
                $
                (.55
                )Weighted
                    average number of shares
                  Outstanding
                  Basic
                    and diluted
                
                
                2,186,380
                
                
                2,051,996
                
                
                2,167,285
                
                
                2,012,460








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


4


**MICROHELIX,
      INC.**





**CONDENSED
      CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**





**Six
                Months Ended**
              **June
                30****Cash
                Flows Provided By (Used in) Operating Activities:**
            
            **2006**
            
            **2005**Net
                loss
            
            $
            (462,296
            )
            $
            (1,025,871
            )Adjustments
                to reconcile net loss to cash provided by (used
                in) operating activities:Depreciation -capital
                assets
            
            
            202,604
            
            
            77,428Amortization
                - intangible assets
            
            
            107,460
            
            
            55,780Provision
                for doubtful accounts
            
            
            7,987
            
            
            (20,642
            )Provision
                for inventory reserves
            
            
            97,250
            
            
            (1,653
            )Common
                stock issued for services
            
            
            46,017
            
            
            22,140Benefit
                for deferred income taxes
            
            
            (91,738
            )
            
            —Warrants
                used for services
            
            
            31,923
            
            
            —Change
                in assets and liabilities:(Increase)
                Decrease in assets:Accounts
                receivable
            
            
            (116,609
            )
            
            166,356Inventories
            
            
            (674,326
            )
            
            279,028Prepaid
                expenses and other current assets
            
            
            8,508
            
            
            (16,983
            )Intangibles,
                other assets and deposits
            
            
            (31,923
            )
            
            —Increase
                (Decrease) in liabilities:Accounts
                payable
            
            
            859,337
            
            
            164,668Accrued
                liabilities
            
            
            70,369
            
            
            142,458Customer
                Deposit
            
            
            (163,456
            )
            
            —Net
                cash used in operating activities
            
            
            (108,893
            )
            
            (157,291
            )Net
                cash used for investing activities
            
            
            (225,529
            )
            
            (3,825,368
            )**Cash
                Flows from Investing Activities:**Capital
                Expenditures
            
            
            (225,529
            )
            
            —Cash for
              stock of
              Moore Electronics
            
            
            —
            
            
            (1,500,000
            )Cash
                used to pay off loan
            
            
            —
            
            
            (412,685
            )Net
                Cash used in investing activities
            
            
            —
            
            
            (1,912,683
            )**Cash
                Flows from Financing Activities:**Proceeds
                from preferred stock offering, net of expenses
            
            
            —
            
            
            1,725,793Proceeds
                from line of credit
            
            
            9,260,951
            
            
            2,531,161Payments
                on line of credit
            
            
            (9,156,470
            )
            
            (2,148,011
            )Proceeds
                from loan
            
            
            286,650
            
            
            —Payments
                on capital lease obligation
            
            
            (12,476
            )
            
            —Payments
                on notes payable to shareholders
            
            
            (78,276
            )
            
            —Proceeds
                from issue of notes payable to shareholders
            
            
            —
            
            
            100,000Net
                cash provided by financing activities
            
            
            300,379
            
            
            2,208,943Change
                in cash
            
            
            (34,043
            )
            
            138,969Cash,
                beginning of period
            
            
            58,312
            
            
            24,303Cash,
                end of period
            
            $
            24,269
            
            $
            163,272**Supplemental
                Cash Flow Information:**Interest
                paid
            
            $
            151,707
            
            $
            47,268Income
                taxes paid
            
            $
            —
            
            $
            —**Supplemental
                Disclosure of Non-cash Investing Activities:**Purchase
                price acquisition of Moore Electronic details:Fair
                value of assets acquired
            
            
            —
            
            
            4,558,702Liabilities
                assumed
            
            
            —
            
            
            (1,146,019
            )Note
                payable to former shareholders of Moore as part of the acquisition
                price
            
            
            —
            
            
            (1,250,000
            )Preferred
                stock issued to former shareholder of Moore as part of the acquisition
                price
            
            
            —
            
            
            (250,000
            )Cash
                paid
            
            
            —
            
            
            1,912,683Preferred
                Dividends
            
            $
            (206,250
            )
            $
            (84,375
            )**Supplemental
                Disclosure of Non-cash Financing Activities:**Warrants
                issued to lender
            
            $
            31,923
            
            $
            —Common
                stock issued for services
            
            $
            46,017
            
            $
            22,140





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




5




**MICROHELIX,
      INC.**





**NOTES
      TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**


**Three
      and Six Months Ended June 30, 2006 and 2005**





**1.
      Summary of Significant Accounting Policies and Basis of
      Presentation**





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





*Basis
      of Presentation* —
The
      unaudited consolidated financial statements have been prepared by the Company,
      pursuant to the rules and regulations of the Securities and Exchange Commission
      ("SEC"). The information furnished herein reflects all adjustments (consisting
      of normal recurring accruals and adjustments), which are, in the opinion of
      management, necessary to fairly represent the operating results for the
      respective periods





*Principles
      of Consolidation* —
These
      consolidated financial statements include the accounts of the Company and its
      wholly owned subsidiary, Moore Electronics, Inc. ("Moore"), that was acquired
      on
      April 8, 2005. All material inter-company accounts have been eliminated in
      consolidation.





*Reclassifications* —
Certain
      amounts from the six months ended June 30, 2005 have been reclassified to
      correspond to the six months ended June 30, 2006.





*Going
      Concern* —
These
      consolidated financial statements have been prepared on a going concern basis
      that 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 June 30, 2006 had an accumulated deficit of $23,051,670. These conditions
      raise substantial doubt about its ability to continue as a going concern for
      a
      reasonable period of time. These consolidated financial statements do not
      include any adjustments relating to the recoverability and classification of
      recorded asset amounts or the amounts and classification of liabilities that
      may
      be necessary should the Company be unable to continue as a going
      concern.





As
      a part
      of the Company's plan to return to profitability, the Company initiated a
      strategy in mid 2004 that combined a focus on revenue growth from its existing
      business with the acquisition of a similar business with a history of revenue
      growth and profitability. On April 8, 2005, the Company completed the
      acquisition of 100% of the stock of privately held Moore. Moore is operated
      as a
      wholly owned subsidiary of the Company and had revenues of $6,773,484 for the
      six months ended June 30, 2006. Moore manufactures cable assemblies for a broad
      mix of customers, serving major medical device manufacturers with components
      for
      external defibrillators and serving commercial equipment manufacturers in
      diverse markets including test and measurement, instrumentation, semi-conductors
      and robotics. Combining the Company's existing operations with Moore's have
      had
      a material impact on combined revenues, created new customer opportunities
      and
      expanded the capabilities that the Company can offer customers. Although the
      Company will need to continue to build its business to achieve consistently
      profitable operations, the combination of the Moore acquisition and growth
      in
      the Company's existing business have had a favorable impact on the business
      as
      the Company reported a profit in the quarter ended June 30, 2006.





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




The
      Company expects that for the foreseeable future any
      equity compensation granted to the employees and directors will be in the form
      of grants of shares of Common Stock rather than in the form of stock options.
      Such grants may be restricted or unrestricted. No options were granted and
      no
      stock based compensation expense was recognized in the six months ended June
      30,
      2006 or 2005.




6






On
      April
      27, 2006 the Company granted to three outside board members a total of 107,690
      shares of common stock for services performed in the years 2004 and 2005 in
      lieu
      of cash payments that were due to these board members. The stock was valued
      at
      $.42 per share that represented the average trading price for the 10 business
      days preceding the date of the award.





The
      Company’s policy covering equity compensation grants to either employees or
      directors is to recognize the expense as described in FAS 123 (R) in the period
      the grant is issued. If the Company had elected to recognize compensation
      expense based upon the fair value at the grant date for awards under the Stock
      Option Plan consistent with the methodology prescribed by SFAS No. 123, the
      Company’s net loss and loss per share would be reduced to the pro forma amounts
      indicated below for the three months ended March 31, 2005 and the six months
      ended June 30, 2005, respectively.




**For
                the Three Months Ended**
              **March
                31, 2005**
            
            **For
                the Six Months Ended**
              **June
                30, 2005**Net
                loss available to common shareholders
            
            $
            (130,135
            )
            $
            (1,110,246
            )Deduct:
                Total stock based employee
              compensation
                expense determined
              under
                SFAS 123 method
            
            
            (27,188
            )
            
            (50,586
            )Pro
                forma net loss available to common shareholders
            
            
            (157,323
            )
            
            (1,110,832
            )Basic
                and diluted net loss available
              to
                common shareholders per
              common
                share:As
                reported
            
            
            (.07
            )
            
            (.55
            )Pro
                forma
            
            $
            (.08
            )
            $
            (.58
            )





*Net
      Loss per Share* For
      the
      six month period ended June 30, 2006 the Company
      used SFAS No. 128, "Earnings per Share" for calculating the basic and diluted
      loss per share. Basic loss per share is computed by dividing net loss
      attributable to common stockholders by the weighted average number of common
      shares outstanding. Diluted loss per share is computed similar to basic loss
      per
      share except that the denominator is increased to include the number of
      additional common shares that would have been outstanding if the potential
      common shares had been issued and if the additional common shares were dilutive.
      At June 30, 2006, the outstanding number of potentially dilutive common
      shares totaled 12,694,206 shares of Common Stock, consisting of Series B
      Preferred Stock convertible into 11,000,000 shares of Common Stock, Class B
      warrants to purchase 926,833 shares of Common Stock, and other warrants to
      purchase 767,373 shares of Common Stock. At June 30, 2005, the outstanding
      number of potentially dilutive common shares totaled 1,255,095 shares
      of
      Common Stock, consisting of options to purchase 117,867 shares of Common Stock,
      Class B warrants to purchase 926,833 shares of Common Stock, and other warrants
      to purchase 210,395 shares of Common Stock. In periods when the Company has
      net
      losses, their effect is anti-dilutive and have not been included in the diluted
      weighted average earnings per share as shown on the Consolidated Statements
      of
      Operations.








**2.
      Summary of Recent Accounting Pronouncements**





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





7


In
      February 2006, the FASB issued FSP FAS 123(R)-4, “Classification of Options
      and Similar Instruments Issued as Employee Compensation That Allow for Cash
      Settlement upon the Occurrence of a Contingent Event” (“FSP 123R -4”). FSP
      123(R)-4 addresses the classification of options and similar instruments issued
      as employee compensation that allow for cash settlement upon the occurrence
      of a
      contingent event. A cash settlement feature that can be exercised only upon
      the
      occurrence of a contingent event that is outside the employee’s control does not
      meet the conditions in paragraphs 32 and A229 of Statement 123(R) -4 until
      it
      becomes probable that the event will occur. The guidance in FSP 123(R)-4 was
      effective on February 3, 2006 and is to be applied in the first reporting
      period beginning after the February 3, 2006. The Company does not expect its
      financial statements to be significantly impacted by this
      statement.





In
      July
      of 2006, the FASB issued FIN 48 “Accounting for Uncertainty in Income Taxes”,
      which is intended to clarify the accounting for income taxes by prescribing
      the
      minimum recognition threshold a tax position must meet before being recognized
      in the financial statements. FIN 48 also provides guidance on derecognition,
      measurement, classification, interest and penalties, accounting in interim
      periods, disclosure, and transition. In addition, FIN 48 clearly scopes out
      income taxes from Financial Accounting Standards Board Statement No. 5,
      Accounting for Contingencies. FIN 48 applies to all tax positions related to
      income taxes subject to Financial Accounting Standards Board Statement No.
      109,
      Accounting for Income Taxes, (FAS 109). This includes tax positions considered
      to be "routine" as well as those with a high degree of uncertainty. The guidance
      contained in FIN 48 also applies to pass-through entities, nontaxable entities,
      and entities whose tax liability is subject to 100% credit for dividends paid
      (i.e., real estate investment companies and registered investment companies).
      FIN 48 requires expanded disclosure requirements and disclosures are required
      at
      each annual reporting period unless significant change occurs in an interim
      period. FIN 48 is effective for fiscal years beginning after 15 December 2006
      (i.e., effective 1 January 2007 for calendar year-end companies). Management
      is
      currently evaluating the impact FIN 48 will have on our consolidated financial
      statements, if any.





In
      March
      2006, the FASB issued SFAS No. 156, “Accounting for Servicing of Financial
      Assets an amendment of FASB Statement No. 140”. Companies are required to apply
      SFAS No. 156 as of the first annual reporting period that begins after September
      15, 2006. The Company does not believe adoption of SFAS No. 156 will have a
      material effect on its unaudited condensed consolidated financial position,
      results of operations or cash flow.





**3.
      Customer Concentration**





For
      the
      three months ended June 30, 2006 approximately $2,698,000 in sales were made
      to
      four customers. For the six months ended June 30, 2006 approximately $5,619,000
      in sales were made to these same four customers whose combined accounts
      receivable balance totaled approximately $660,000 as of June 30, 2006. For
      the
      three months ended June 30, 2005 approximately $1,828,000 in sales were made
      to
      three customers. For the six months ended June 30, 2005 approximately $3,969,000
      in sales were made to these same three customers whose combined accounts
      receivable balance totaled approximately $ 210,000 as of June 30,
      2005.





**4.
      Inventories**





Inventories
      at June 30, 2006 are as follows:




Finished
                goods
            
            $
            311,761Work-in
                process
            
            
            91,206Raw
                materials
            
            
            1,651,497Total
                inventory
            
            $
            2,054,464Less:
                reserves
            
            
            (355,880
            )Net
                inventory
            
            $
            1,698,584








**5.
      Goodwill and Other Intangible Assets**





Goodwill
      represents the excess of the purchase price over the estimated fair value of
      the
      net identified tangible and intangible assets of the acquired business. Goodwill
      must be tested for impairment at least on an annual basis, or if an event occurs
      or circumstances change prior to the annual test of impairment, then the
      carrying value of goodwill must be tested on an interim basis. The Company
      performed their annual impairment analysis, as required by FAS 142 during the
      first quarter, and determined that the goodwill recorded as a result of the
      acquisition of Moore was not impaired.




8




As
      a
      result of the Moore purchase, the Company acquired identifiable defined life
      intangible assets such as customer contacts and lists and manufacturing process
      technology. The customer lists and contacts are amortized on a straight-line
      basis over a 3-year period and the manufacturing process technology is amortized
      over a 5-year period on a straight-line basis. The Company will continue to
      amortize these identifiable intangible assets over these lives unless an event
      occurs or circumstances change that indicate that the carrying value of these
      assets may not be recoverable. The following table reflects the cost of other
      identifiable intangible assets and the accumulated amortization related to
      these
      respective assets as of June 30, 2006:




Gross
                Carrying Value
            
            
            Accumulated
                Amortization
            
            
            Net
                Carrying
                ValueCustomer
                lists and contacts
            
            $
            522,466
            
            $
            217,701
            
            $
            304,765Manufacturing
                process technology
            
            
            203,738
            
            
            50,937
            
            
            152,801Total
                other intangible assets
            
            $
            726,204
            
            $
            268,638
            
            $
            457,566





For
      the
      six months ending June 30, 2006 and 2005, the Company recorded $107,460 and
      $55,780 as amortization expense. The Company expects to record annual
      amortization expense of approximately $215,000 in 2006, $215,000 in 2007,
      $84,000 in 2008, $41,000 in 2009 and $10,000 in 2010 related to the other
      identifiable intangible assets purchased in the Moore acquisition.





**6.
      Note Payable and Warrants**





On
      June
      22, 2006 the Company entered into a loan and security agreement and a
      corresponding promissory note with Vencore Solutions LLC (“VenCore”) wherein
      VenCore agreed to make loans to the Company in aggregate principal amount not
      to
      exceed $350,000. VenCore is an independent equipment leasing company based
      in
      Portland, Oregon. The Company plans to use the proceeds from the loan to satisfy
      ongoing working capital requirements. The note requires the Company to pay
      VenCore $14,175 per month, payable in 30 consecutive installments beginning
      on
      July 15, 2006 with subsequent payments due on the 15 th of each
      month thereafter. A final payment of $35,000 is due on January 15, 2009. As
      part
      of the August 15, 2006 agreement the Company issued warrants that grant VenCore
      the right to purchase 72,917 shares of common stock of the Company at an
      exercise price of $.48 per share. The warrants expire on June 22, 2016. The
      warrant has a fair value of $31,923 calculated using the Black-Scholes option
      pricing model with the following assumptions:








Expected
                life (in years)
            10Expected
                volatility
            100%Risk-free
                interest rate
            5.0%Expected
                dividend
            —





The
      warrants are subject to piggyback registration rights.








**ITEM
      2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
      OPERATION**





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.





9





**Forward-Looking
      Statements**





This
      Quarterly Report on Form 10-QSB 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-QSB. We do not intend, and undertake no obligation, to update
      any such forward-looking statements to reflect events or circumstances that
      occur after the date of this filing.





**Critical
      Accounting Policies and Estimates**





The
      discussion and analysis of our financial condition and results of operations
      is
      based upon our consolidated financial statements, which have been prepared
      in
      accordance with accounting principles generally accepted in the United States.
      The preparation of these financial statements requires us to make estimates
      and
      judgments that affect the reported amounts of assets, liabilities, revenues
      and
      expenses, and related disclosure of contingent assets and liabilities. We
      evaluate our estimates on an on-going basis, including those related to product
      returns, bad debts, inventories, prepaid expenses, intangible assets, income
      taxes, warranty obligations, and other contingencies. We base our 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 these
      estimates under different assumptions or conditions. We believe the following
      critical accounting policies and related judgments and estimates affect the
      preparation of our consolidated financial statements.





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





**RESULTS
      OF OPERATIONS**





***Overview***





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





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




10





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





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





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





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





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





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





We
      have
      incurred significant losses since inception and those losses have continued
      following our initial public offering. In our business we have had to rely
      on a
      relatively small number of OEM customers for the majority of our sales. Rapid
      changes in demand by our OEM customers in the short term make our production
      scheduling uncertain and, as such, have made our expenses more difficult to
      control and consequently make our cash requirements difficult to predict. We
      have not been successful in achieving profitability due to in part the
      unpredictability of the OEM requirements. During the past two years we have
      tried to broaden the OEM customer base, in part through our acquisition of
      Moore.





**THREE
      AND SIX MONTHS ENDED JUNE 30** **,
      2006** **AND 2005**





On
      April
      8, 2005 the Company acquired 100% of the outstanding stock of Moore and as
      result of this acquisition date the second quarter, ended June 30, 2006, can
      effectively be compared with the same quarter in 2005. The results for the
      six
      months ended June 30, 2006 will differ, as the Moore acquisition did not occur
      until early April 2005.





Total
      sales in the second quarter of 2006 were $3,949,315 compared to $2,443,595
      in
      the second quarter of 2005, an increase of 62%. The sales increases in both
      the
      Moore and MicroCoax divisions were a result of increased demand from existing
      customers while at the same time new customers contributed significantly to
      the
      increased sales levels. For the six months ended June 30, 2006 total sales
      were
      $7,727,299 compared to $2,862,279, or an increase of $4,865,020 on a year to
      year basis, an increase of 170%. The primary reason for this increase was due
      to
      the acquisition of Moore Electronics and the increase in business during the
      second quarter as previously discussed.





Gross
      profit in the second quarter of 2006 was $804,008 compared to $125,427 in the
      second quarter of 2005. The significant increase in gross profit margin from
      5.1% in the second quarter of 2005 compared to 20.3% in the second quarter
      of
      2006 can be attributed to operating the plants at a higher capacity, lower
      manufacturing expenses, improved inventory management and the sales of higher
      margin products. For the six months ended June 30, 2006 the total gross profit
      was $1,014,031 compared to gross profit of $204,003 recorded during the first
      six months of 2005. The increase in gross profit during this period of $810,028
      is primarily due to the acquisition of Moore Electronics and the improvements
      in
      operating efficiency achieved during the second quarter of 2006.




11




Total
      operating expenses in the second quarter of 2006 were $760,483 compared to
      total
      operating expenses of $964,370 incurred during the same quarter a year earlier.
      The primarily reason for the decrease in expenses of $203,887 is due to the
      additional expenses incurred by the Company associated with the acquisition
      of
      Moore Electronics in the second quarter of 2005. For the six-month period ending
      June 30, 2006 total operating expenses were $1,412,115 compared to $1,165,112,
      or an increase of $247,003. This increase is attributed to an increase in the
      sales and administrative personnel related to the Moore division.





Interest
      expense for the second quarter of 2006 was $88,996 compared to $57,245 for
      the
      same quarter in 2005. On a six month basis interest expense for 2006 was
      $156,399 compared to $65,212 in 2005, or an increase of $91,187. The increase
      in
      interest expense is attributed to the increase in the outstanding line of credit
      balance needed to support the increased level of business and the interest
      expense is related to a shareholder note used in part to acquire Moore
      Electronics.





Primarily
      as a result of the significant increase in sales and the associated improvements
      in gross profit the Company earned a profit of $469 in the second quarter of
      this year compared to a loss of $895,738 recorded in the second quarter of
      2005,
      or an improvement of $896,207. On a year to date basis for the six months ended
      June 30, 2006 the Company recorded a loss of $462,296 compared to a loss of
      $1,025,871 recorded during the first six months of 2005, or an improvement
      of
      $563,575 that can primarily be attributed to second quarter changes previously
      discussed.





**LIQUIDITY
      AND CAPITAL RESOURCES**





As
      of
      June 30, 2006 the Company had $24,269 of cash and cash equivalents. Cash used
      in
      operating activities for the six-month period ended June 30, 2006 was $108,893
      compared to $157,291 used in the same period a year ago. The cash used in
      operations during the first six months of the year primarily related to an
      increase in inventories of $674,326 and a decrease in customer deposits of
      $163,456 that were offset by an increase in accounts payable of $859,337. The
      decrease in cash of $34,043 since December 31, 2005 reflects $108,893 used
      for
      operating activities plus $225,529 invested in capital expenditures for tooling
      and equipment to support our manufacturing partner in Malaysia, and the
      installation of a new ERP software system. These expenditures were partially
      financed by $300,379 of cash proceeds from a note and through an increase in
      our
      line of credit.





As
      of
      June 30, 2006, the Company had a $2,000,000 line of credit for working capital,
      secured by accounts receivable and inventory. As of June 30, 2006, there was
      $1,430,165 outstanding on the line of credit and the availability on the line
      of
      credit was $569,835. The line of credit expires on April 7, 2007.





On
      June
      22, 2006, the Company entered into a $350,000 term loan agreement secured by
      equipment. The loan will be repaid in 30 equal installments (August 15, 2006
      -
      January 15, 2009) consisting of principal and interest with the final payment
      due on January 15, 2009.





As
      of
      June 30, 2006, there were no outstanding purchase orders for capital
      equipment.





On
      April
      8, 2005, the Company issued a promissory note in the amount of $1,250,000 to
      Marti D. Lundy as part of the Moore acquisition. The note bears an annual
      interest rate of 10%. On August 8, 2006 the payment terms were changed to state
      that a monthly payment of $23,482 is due through September 8, 2006, and a
      monthly payment of $43,482 is due beginning on October 8, 2006 through April
      8,
      2008, at which time all unpaid principal and accrued but unpaid interest is
      due
      and payable. The note is secured by a lien on substantially all of the Company
      assets.





Each
      share of our Series B Preferred Stock is convertible into four shares of Common
      Stock (subject to adjustment for stock splits, stock dividends,
      reclassifications and the like). We can redeem the shares of Series B Preferred
      Stock at any time after April 8, 2006 for $1.50 per share (as adjusted for
      stock
      splits, stock dividends, reclassification and the like). The Company plans
      to
      declare and pay the accrued dividends on our Series B Preferred Stock, in shares
      of our Common Stock, in connection with our 2006 Annual Meeting of Shareholders
      on August 17, 2006. We have granted demand and piggy-back registration rights
      to
      the holders of Series B Preferred Stock with respect to the underlying shares
      of
      Common Stock obtainable upon conversion.




12





**ITEM
      3. CONTROLS AND PROCEDURES**





The
      Company's Chief Executive Officer/Chief Financial Officer evaluated the
      effectiveness of the design and operation of the Company's disclosure controls
      and procedures as of June 30, 2006. Based on that evaluation, the Company's
      Chief Executive Officer/Chief Financial Officer concluded that as of the end
      of
      the period covered by this report the Company's disclosure controls and
      procedures are designed to and are effective to give reasonable assurance that
      the information the Company must disclose in reports filed with the Securities
      and Exchange Commission are properly recorded, processed, summarized, and
      reported as required. The Company's Chief Executive Officer/Chief Financial
      Officer also concluded that the Company's disclosure controls and procedures
      are
      effective to ensure that the information required to be disclosed in reports
      filed or submitted by the Company under the Securities Exchange Act of 1934,
      as
      amended, is accumulated and communicated to the Company's management, including
      its principal executive and principal financial officers, as appropriate to
      allow timely decisions regarding required disclosure. There were no changes
      in
      the Company's internal control over financial reporting during the quarter
      ended
      June 30, 2006 that materially affected, or were reasonably likely to
      materially affect, the Company's internal control over financial
      reporting.













PART
      II.
      OTHER INFORMATION







**ITEM
      1. LEGAL PROCEEDINGS**





As
      of
      June 30, 2006 microHelix was not involved in any legal proceedings.





**ITEM
      5. OTHER INFORMATION**





Declaration
      of Dividend on and Conversion of Series B Preferred Stock





On
      August
      17, 2006, our 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 our 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 Amended and Restated
      Articles of Incorporation (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 $0.435 per share.





Immediately
      after the declared dividend on the Series B Preferred Stock, the holders of
      the
      Series B Preferred Stock, voting as a separate class at our 2006 Annual Meeting
      of shareholders, voted to authorize conversion of their shares of Series B
      Preferred Stock into shares of our Common Stock. The 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.




13




**ITEM
      6. EXHIBITS**








(a)  Exhibits:





10.1(1)
            
            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, January 5, 2006 and
                April 17, 200610.2(2)
            
            Secured
                Promissory Note dated April 17, 2006 among microHelix, Inc., Moore
                Electronics, Inc. and BFI Business Finance10.3(3)
            
            Promissory
                Note dated April 8, 2005 made by microHelix, Inc. in favor of Marti
                D.
                Lundy, as modified on August 5, 2005, November 18, 2005, January
                3, 2006,
                May 18, 2006 and August 8, 2006.10.4(4)
            
            Loan
                and Security Agreement Number 1202, dated June 22, 2006, between
                VenCore
                Solutions LLC and microHelix, Inc. and Moore Electronics,
                Inc.10.5(4)
            
            Promissory
                Note, dated June 22, 2006, executed in favor of VenCore Solutions
                LLC by
                microHelix, Inc. and Moore Electronics, Inc.31.1(5)
            
            Certification
                of Principal Executive Officer and Principal Financial Officer pursuant
                to
                18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1(5)
            
            Certification
                of Principal Executive Officer and Principal Financial Officer pursuant
                to
                18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002







(1)
            Incorporated
                by reference to the Company's Form 8-K filed on April 14, 2005, and
                to the
                Company's Forms 8-K filed on October 31, 2005, January 4, 2006, January
                26, 2006 and April 21, 2006.(2)
            Incorporated
                by referenced to the Company's Form 8-K filed on April 21,
                2006.(3)
            Incorporated
                by reference to the Company's Forms 8-K and 8-K/A filed on April
                14, 2005,
                Form 8-K filed on August 8, 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.(4)
            Incorporated
                by reference to the Company's Form 8-K filed on June 28,
                2006.(5)
            Filed
                herewith.








14








**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/
                Tyram H. Pettit
            
            President,
                Chief Executive Officer
            
            August
                21, 2006Tyram
                H. Pettit
            
            and
                Chief Financial Officer




15





EXHIBIT
      INDEX








10.1(1)
            
            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, January 5, 2006 and
                April 17, 200610.2(2)
            
            Secured
                Promissory Note dated April 17, 2006 among microHelix, Inc., Moore
                Electronics, Inc. and BFI Business Finance10.3(3)
            
            Promissory
                Note dated April 8, 2005 made by microHelix, Inc. in favor of Marti
                D.
                Lundy, as modified on August 5, 2005, November 18, 2005, January
                3, 2006,
                May 18, 2006 and August 8, 2006.10.4(4)
            
            Loan
                and Security Agreement Number 1202, dated June 22, 2006, between
                VenCore
                Solutions LLC and microHelix, Inc. and Moore Electronics,
                Inc.10.5(4)
            
            Promissory
                Note, dated June 22, 2006, executed in favor of VenCore Solutions
                LLC by
                microHelix, Inc. and Moore Electronics, Inc.31.1(5)
            
            Certification
                of Principal Executive Officer and Principal Financial Officer pursuant
                to
                18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the
                Sarbanes-Oxley Act of 200232.1(5)
            
            Certification
                of Principal Executive Officer and Principal Financial Officer pursuant
                to
                18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
                Sarbanes-Oxley Act of 2002







(1)
            Incorporated
                by reference to the Company's Form 8-K filed on April 14, 2005, and
                to the
                Company's Forms 8-K filed on October 31, 2005, January 4, 2006, January
                26, 2006 and April 21, 2006.(2)
            Incorporated
                by referenced to the Company's Form 8-K filed on April 21,
                2006.(3)
            Incorporated
                by reference to the Company's Forms 8-K and 8-K/A filed on April
                14, 2005,
                Form 8-K filed on August 8, 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.(4)
            Incorporated
                by reference to the Company's Form 8-K filed on June 28,
                2006.(5)
            Filed
                herewith.





16