**UNITED
STATES SECURITIES AND EXCHANGE COMMISSION**
 **Washington,
D.C. 20549**
 **Form
10-KSB**
 
 x
    **ANNUAL
      REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934****For
      the year ended December 31, 2004****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.**
 *(Name
of Small Business Issuer in Its Charter)*
 
 **Oregon**
    **911758621***(State
      or Other Jurisdiction of Incorporation or
    Organization)*
    *(I.R.S.
      Employer Identification No.)***16125
      SW 72nd Ave.; Portland, Oregon**
    **97224***(Address
      of Principal Executive Offices)*
    *(Zip
      Code)*
 
 **(Issuer’s
Telephone Number, Including Area Code):**
 **503/968-1600**
 
 **Securities
registered under Section 12(g) of the Exchange Act:**
 
 **Common
Stock, no par value per share**
 **Class
B Warrants to purchase one share of Common Stock**
 
 Check
whether 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 o No x
 
 Check if
no disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is
contained in this form, and no disclosure will be contained, to the best of
registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB, or any amendments to
this Form 10-KSB. o
 
 The
issuer’s revenues for its most recent fiscal year: $1,299,630.
 
 The
aggregate market value of the voting and non-voting common equity held by
non-affiliates, as of April 8, 2005, was approximately $395,722 based upon the
last sale price reported for such date on the NASDAQ OTC Market.
 
 There
were 2,082,746 shares of the issuer's common stock outstanding as of April 8,
2005.
 
 **Documents
Incorporated by Reference**
 
 None
 
 **Transitional
Small Business Disclosure Format: Yes o** **No x**
 
 
 **PART
I**
 
 This
Annual Report on Form 10-KSB contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995. Such statements
reflect management’s current view and estimates of future economic and market
circumstances, industry conditions, company performance and financial results.
Words such as "expects", "anticipates", "intends", "plans", "believes", "seeks",
"estimates" and variations of such words and similar expressions are intended to
identify such forward-looking statements. These statements are subject to risks
and uncertainties that could cause our future results to differ materially from
the results discussed herein. Factors that might cause such a difference
include, but are not limited to, those discussed elsewhere in this Annual Report
on Form 10-KSB. We do not intend, and undertake no obligation, to update any
such forward-looking statements to reflect events or circumstances that occur
after the date of this filing.
 
 
 **Item
1.** ***Description
of Business***
 
 **Overview**
 
 microHelix,
Inc. (microHelix or the Company) is a manufacturer and distributor of complex
cable assemblies and complete ultrasound probes for the medical and commercial
ultrasound markets. microHelix serves a segment of the quick turn, high mix, low
volume cable assembly market generally referred to as the complex cable assembly
market. Typical cable assemblies include cable, connectors, flex reliefs,
housings and printed circuit boards ("PCBs") and are critical sub-components of
high value medical devices and electronic systems.
 
 microHelix
commenced business as a research and development company in 1991. In the
following years, we established a foundation of proprietary processes and
intellectual property that we developed or acquired in the areas of fine wire
handling, materials composition, micro-interconnect technology and
micro-manufacturing. Building on this foundation, our business developed into
two divisions: our ultrasound division and our wire and cable division.
 
 Our
ultrasound division designs and manufactures cable assemblies for original
equipment manufacturer ("OEM") customers that are used in applications such as
medical ultrasound probes, patient monitoring devices and flaw detection
ultrasound.
 
 On April
21, 2004, we sold the assets associated with our wire and cable division,
located in Portland, Oregon to Advanced Neuromodulation Systems, Inc. ("ANS").
Our wire and cable division manufactured and marketed coated wire, including
ultra-thin wall pinhole free wire and custom cable for a number of applications.
The wire and cable division also designed and manufactured specialty connectors
and flex circuits, and offered a range of laser micro-machining
services.
 
 
 **Ultrasound
Division**
 
 The total
worldwide market for medical ultrasound systems exceeded $3.6 billion in 2004,
with the U.S. market accounting for approximately 40% of this total. Demand has
been growing in excess of 5% annually, and has been driven by a combination of
replacement and upgrading needs, increased use of ultrasound systems for
diagnosis, and various procedures and system enhancements such as real time 3-D
"color" imaging. Portable
ultrasound units (PC-based) have also taken ultrasound imaging
into the field, reducing cost and increasing potential applications. With
cost-containment driving the medical world, diagnosis and treatment are
continuing to move the industry toward outpatient procedures and to reinforce
its traditional focus on preventative care. Doctors now regularly use ultrasound
devices for initial soft tissue diagnoses because they are non-invasive and do
not involve radiation.
 
 Over the
past ten years, the ultrasound business has consolidated, leaving four principal
global integrated manufacturers and several smaller specialty manufacturers. A
number of smaller cable suppliers have left the business as part of this
process, creating additional market opportunities for the remaining
manufacturers of cable assemblies for sale to OEM customers. Although microHelix
has a small share of the total market, we have the benefit of low cost
manufacturing operations, a reputation for quality, on-time delivery and
responsiveness to customer needs.
  2
 ***Principal
Markets***
 
 **Cable
Assemblies**
 
 ·  *Diagnostic
Ultrasound* . We
design and manufacture complex interconnect systems for medical ultrasound
imaging systems. We serve the OEM market. Our typical probe cable connects to a
transducer and an ultrasound imaging system, and typically consists of between
64 and 256 micro-coaxial wires.
 
 ·  *Patient
Monitoring* . We
design and manufacture leads for a variety of applications including EKG, EEG
and oxygen sensors. We focus on flexibility and durability, which we believe are
the two principal end-user requirements.
 
 ·  *Catheters* . We
manufacture balloon ablation cardiac catheter sub-assemblies, used in the
treatment of atrial fibrillation.
 
 ·  *Commercial.* We
manufacture cable assemblies for a variety of ultrasound inspection and flaw
detection applications
 
 **·**  *PCB
Design* . We
design and source custom PCBs to meet customer specifications.
 
 *·*  *Contract
Manufacturing.* We offer
our low-cost manufacturing and assembly services to non-medical manufacturers,
specializing in sub-assemblies involving wires, cables, connectors, flex
circuits and/or PCBs.
 
 **Ultrasound
Probes**
 
 We market
our own line of new replacement ultrasound probes for sale to group purchasing
organizations, distributors and end-users. These
branded replacement ultrasound probe assemblies are manufactured by a third
party from new components. Each probe we market requires the clearance of a
510(k) application with the U.S. Food and Drug Administration
("FDA").
 
 ***Engineering***
 
 We have
experienced engineering personnel in Tucson, Arizona and Nogales, Mexico. The
Tucson engineering team is principally focused on the design and development of
ultrasound cable assemblies and supervises our Nogales-based manufacturing
engineering functions.
 
 ***Manufacturing***
 
 We have
available for our OEM ultrasound customers a skilled work force and experienced
management in Tucson and Nogales that offers a low-cost production alternative.
We have 4,500 square feet of office and warehouse space in Tucson. This facility
provides space for administration, ultrasound design and manufacturing
engineering, customer service personnel, inventory storage, shipping and
receiving. In Nogales we have a 15,000 square foot modern facility that provides
for our manufacturing, warehouse and office space. We assemble and test all of
our ultrasound, patient monitoring, flaw detection ultrasound and contracted
cable assemblies in this facility.
  3
 We
purchase cables and other components from many qualified vendors. Our customers
sometimes provide us with the raw materials for their manufacturing builds.
Cable and components are shipped to our office in Tucson where they are staged
and submitted on the proper permits for shipment to our Nogales facility where
the interconnect systems are assembled. After testing and quality inspection in
Nogales, the completed assemblies are returned to our facility in Tucson for
shipment to our customers.
 
 ***Government
Regulation***
 
 Certain
aspects of our operations and products are subject to regulation by the FDA. We
rely on outside consultants, under the guidance of our Director of Quality
Assurance and Regulatory Affairs, to assist us in meeting all regulatory
requirements.
 
 ***Principal
Customers***
 
 In 2004
and 2003 sales to our largest customer, GE Parallel Design, accounted for 58%
and 69%, respectively, of total sales.
 
 ***Sales
and Marketing***
 
 Our sales
and marketing efforts are managed by our Vice President for the Ultrasound
Division headquartered in Tucson. Product development and manufacturing
engineers located both in Tucson and Nogales support sales efforts, working
closely with customers and their engineering teams.
 
 Our OEM
sales cycle, depending on the type of product, generally takes from three to
twelve months from the initial contact to the first shipment. Our sales process
frequently involves designing cable assemblies for new systems, so the sale of
these assemblies in commercial quantities may be preceded by a pre-production
design phase in which we produce various prototype cable assemblies based on the
input from our customers’ engineers and our staff. After the prototypes are
submitted to the customer it may take several months for the customer's quality
assurance or product engineering department to complete their evaluation testing
to determine if the prototypes meet their qualification test
requirements.
 
 Our OEM
customers often must obtain the approval of the FDA and other regulatory
agencies before commercial production can begin. If their system is approved, we
can expect to begin manufacturing our interconnect systems and/or components in
commercial quantities. Products going through this kind of development cycle can
usually expect a three to five year product life before next generation
technology or new models supplant the current version. Our objective is to be
working on next generation prototypes while providing assemblies for the current
device in commercial quantities.
 
 With
respect to our line of replacement ultrasound probes, we market these directly
to group purchasing organizations, distributors and end-users in the medical
products field.
 
 ***Competition***
 
 Several
companies, most of which are more established and larger than we are,
manufacture ultrasound cable assemblies, offering our customers and potential
customers competitive alternatives to microHelix for most applications. These
companies include W.L. Gore, Precision Interconnect (Tyco) and Tensolite, all of
which are larger and financially stronger than we are.
  As a
small cable assembly supplier, we believe we have certain cost advantages,
principally making effective use of our low-cost Nogales, Mexico assembly
operation, and a reputation for quality, on-time delivery, engineering expertise
and responsiveness. In addition to competing for business in the non-invasive
medical ultrasound industry, we apply the same cable assembly and component
design and manufacturing capabilities to serve customers in several other
industries including patient monitoring, flaw detection and inspection, test and
measurement and non-medical contract manufacturing. In almost all situations, we
compete against larger and financially stronger companies.
  4
 The
consolidation in the ultrasound industry has also reduced the number of cable
assembly suppliers, providing the remaining suppliers with additional
opportunities to compete for business. We believe that our focus on serving the
medical market, principally medical ultrasound, will enable us to continue to
build this business despite the size and financial strength of our principal
competitors.
 
 ***Research
and development***
 
 Our
research and development efforts are limited to leveraging our competencies as a
designer and manufacturer of miniaturized interconnect systems. In the initial
stages of the our development, we received funding for a substantial portion of
our research and development efforts from government grants. For the past two
years we have received virtually no funding from governmental agencies.
 **Patents
and intellectual property**
 
 We have
no patents or patent applications pending as of December 31, 2004. All of our
patents and pending patent applications were sold to ANS in April 2004 as part
of the sale of the assets of the wire and cable division. We continue to have
certain know-how and trade secrets that we use as part of our ongoing
manufacturing processes and development contracts with customers.
 
 We
currently own the trademark "MICROHELIX" that is listed on the principal
register of the United States Patent and Trademark Office. Our intellectual
property also includes common law trademarks, service marks and trade
names.
 
 **Employees**
 
 We had
six full-time employees and one part-time employee in the United States as of
December 31, 2004. In our corporate offices in Portland, Oregon, we had two
full-time employees and one part-time employee, and in our office in Tucson, we
had four full-time employees. Additionally, we contract with a company in Mexico
that employs 20 people who work at our factory in Nogales. None of our employees
are represented by a collective bargaining agreement, nor have we experienced
any work stoppage. We consider our relationship with our employees to be good.
 
 **Company
history**
 
 The
company 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. We began manufacturing operations in 1998,
designing and building cable assemblies and micro-electric interconnects for use
in the medical device and commercial industries.
 
 In April
1999, we acquired Key-Tech, a privately held Portland-based designer and
manufacturer of interconnect systems for the medical and commercial markets. In
addition to acquiring a customer base, we significantly enhanced our
manufacturing and engineering capabilities.
 
 In
December 1999, we acquired the assets of the medical ultrasound division of
Alcatel NA Cable Systems, Inc., the United States subsidiary of one of the
largest wire and cable manufacturers in the world, which designs and
manufactures cable assemblies for use in non-invasive ultrasound probes and
systems. In connection with this acquisition, we acquired facilities and
employees in Tucson, Arizona and Nogales, Mexico.
 
 In
December 1999 we acquired all the stock of BioElectric Corporation.
 
 microHelix,
Inc. (OTCBB: MHLX) completed its initial public offering in November 2001. The
offering proceeds were invested in our manufacturing and assembly capabilities
and to meet ongoing working capital requirements.
 
 5
 **Item
2.** ***Properties***
 
 We lease
20,000 square feet of office and manufacturing space at our corporate
headquarters in Portland, Oregon under a lease that expires in November 2005.
Following the sale of the wire and cable division to ANS in April 2004, we
subleased 92% of the space to ANS at market rates, retaining approximately 1,500
square feet for our corporate offices. Effective April 21, 2005, we have
subleased 100% of the space to ANS for the remainder of the lease
term.
 
 We lease
approximately 4,500 square feet of office and warehouse space in Tucson, Arizona
under a lease that expires on August 31, 2005. This facility provides space for
administration, ultrasound design and manufacturing engineers, customer service
personnel, inventory storage, and shipping and receiving.
 
 We have
approximately 15,000 square feet of manufacturing, warehouse and office space in
Nogales, Mexico. The current lease expires in January 2006 and contains renewal
options.
 
 As of the
date of this report, we have no investments in publicly traded securities, real
estate, mortgages or securities of or interests in persons engaged in real
estate activities.
 
 **Item
3.** ***Legal
Proceedings***
 
 From time
to time we may become involved in ordinary, routine, or regulatory legal
proceedings incidental to our business. We are not engaged in any legal
proceedings nor are we aware of any pending or threatened legal proceedings
that, singly or in the aggregate, could have a material adverse effect on our
business, financial condition or results of operations.
 
 **Item
4.** ***Submission of Matters to a Vote of Security Holders***
 
 The
annual meeting of our shareholders was held on December 30, 2004 for the purpose
of electing directors.
 
 The
following votes were cast for or withheld as to each of the four nominees for
the position of director:
  Director
      Nominee
    
    Votes
      For
    
    Votes
      WithheldJames
      M. Williams
    
    
    1,814,340
    
    
    7,499Tyram
      H. Pettit
    
    
    1,797,807
    
    
    24,032Terrence
      A. Rixford
    
    
    1,791,307
    
    
    30,532John
      L. Crary
    
    
    1,814,340
    
    
    7,499
 
 All of
the nominees for director were elected by the shareholders. There were no
abstentions or broker non-votes with regard to this matter.
  6
 **PART
II**
 
 **Item
5.** ***Market for Common Equity and Related Shareholder
Matters***
 
 Our
Common Stock and Class B Warrants began trading on the Nasdaq OTC Bulletin Board
on February 19, 2004 under the symbols MHLX.OB and MHLXZ.OB respectively. Prior
to that date, our Common Stock and Warrants traded on the Nasdaq SmallCap
Market. The table below sets forth for the periods indicated the high and low
bid prices for the Common Stock and Class B Warrants, respectively, as reported
by the Nasdaq SmallCap Market from January 1, 2003 through February 18, 2004,
and as reported by the Nasdaq OTC Bulletin Board from February 19, 2004 through
December 31, 2004. The prices shown for the Common Stock have been adjusted to
reflect a 1-for-3 reverse stock split of our Common Stock that was effected on
December 5, 2003. No adjustments have been made to the prices of the Class B
Warrants. The prices shown represent inter-dealer prices without adjustments for
retail mark-ups, mark-downs or commissions and consequently do not necessarily
reflect actual transactions.
 
 **Common
Stock "MHLX"**
 
 **2004
      Fiscal Quarters**
    
    **High**
    
    **Low**First
      Quarter
    
    $
    .75
    
    $
    .60Second
      Quarter
    
    $
    .75
    
    $
    .58Third
      Quarter
    
    $
    .58
    
    $
    .41Fourth
      Quarter
    
    $
    .41
    
    $
    .26
 
 **2003
      Fiscal Quarters**
    
    **High**
    
    **Low**First
      Quarter
    
    $
    2.07
    
    $
    .90Second
      Quarter
    
    $
    2.28
    
    $
    .87Third
      Quarter
    
    $
    3.03
    
    $
    1.47Fourth
      Quarter
    
    $
    2.40
    
    $
    1.01
 **Class
B Warrant "MHLXZ"**
 
 **2004
      Fiscal Quarters**
    
    **High**
    
    **Low**First
      Quarter
    
    $
    .10
    
    $
    .06Second
      Quarter
    
    $
    .07
    
    $
    .05Third
      Quarter
    
    $
    .065
    
    $
    .05Fourth
      Quarter
    
    $
    .05
    
    $
    .05
 
 **2003
      Fiscal Quarters**
    
    **High**
    
    **Low**First
      Quarter
    
    $
    .18
    
    $
    .02Second
      Quarter
    
    $
    .40
    
    $
    .04Third
      Quarter
    
    $
    .28
    
    $
    .14Fourth
      Quarter
    
    $
    .19
    
    $
    .06
 
 Holders
of shares of Common Stock are entitled to receive such dividends, if any, as may
be declared by the Board of Directors of the Company out of funds legally
available therefore and, upon the liquidation, dissolution or winding up of the
Company are entitled to share ratably in all net assets available for
distribution to such shareholders. The Company has not, to date, declared or
paid any cash dividends.
 
 **Shareholders
of Record**
 
 As of
April 8, 2005, there were approximately 38 shareholders of record of the
Company’s Common Stock and 16 Class B warrantholders of record.
 
 7
 **Securities
Authorized for Issuance Under Equity Compensation
Plans**
 
 As of
December 31, 2004, securities authorized for issuance under equity compensation
plans consisted of the following:
  ****
    
    **(a)**
    
    **(b)**
    
    **(c)******
    
    **Number
      of****securities
      to be**
      **issued
      upon****exercise
      of****outstanding****options,****warrants
      and****rights**
    
    **Weighted-****average
      exercise**
      **price
      of****outstanding**
      **options,****warrants
      and****rights**
    
    **Number
      of****securities****remaining**
      **available
      for****future****issuance**
      **under
      equity**
      **compensation****plans**
      **(excluding****securities****reflected
      in****column(a))****Plan
      Category**Equity
      compensation plans approved by security holders
    
    
    117,028
    
    $
    4.05
    
    
    104,364Equity
      compensation plans not approved by security holders
    
    
    839
    
    $
    1.02
    
    
    19,161Total
    
    
    117,867
    
    $
    4.03
    
    
    123,525
 
 Our 2002
Nonqualified Stock Option Plan, which has not been approved by our shareholders,
permits up to 20,000 shares of Common Stock to be granted as nonqualified stock
options or sold to employees and consultants. The exercise price is determined
by our Board of Directors. If an employment or consulting relationship
terminates (except for death or disability), an optionee may exercise his or her
option within the time determined by the stock option plan at the time the grant
is made, not to exceed 90 days or the expiration date stated in the grant. If
employment is terminated due to disability or death, the optionee or his or her
estate has 12 months from termination or death to exercise.
 
 **Item
6.** ***Management’s
Discussion and Analysis of Financial Condition and Results of
Operations***
 
 **Overview**
 
 microHelix,
Inc. began business as a research and development company in 1991. In the years
that followed microHelix 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. All of this technology was based in our wire and
cable division located in Portland, Oregon. In December 1999 we acquired the
assets of the medical ultrasound division of Alcatel NA Cable Systems, Inc., a
subsidiary of Alcatel S.A. based in Paris, France, that designs and manufactures
cable assemblies that are used in non-invasive ultrasound probes and systems.
These facilities are located in Tucson, Arizona and Nogales,
Mexico.
 
 We have
incurred significant losses since inception and those losses have continued
following our initial public offering in November 2001. In our business we have
had to rely on a relatively small number of OEMs for the majority of our sales.
Short term changes in the OEM’s demand schedule have made our expenses and cash
requirements uncertain. We have had difficulty in matching expenses with sales
primarily because of the unpredictability of the OEM requirements. During the
past two years we have tried to broaden the OEM customer base but have not had
any material success. In an effort to lower the break-even point for the
business and to reduce the cash burn rate, we implemented a major cost reduction
program in October 2002 and another round of reductions was implemented in April
2003. Although these cost reduction programs helped reduce the cash usage they
were not sufficient to stabilize our cash position. During 2003 we attempted to
raise additional capital but we were not successful. In December 2003, our board
of directors concluded that only a sale of existing assets or a business
combination with a company that had a strong financial position would enable us
to continue operations. As a result of this effort, on March 8, 2004, we
announced that an agreement had been reached to sell the assets of the Portland
based wire and cable division to ANS of Dallas, Texas. The asset sale closed on
April 21, 2004 following the approval of our shareholders.
 
 8
 Our
continuing operations are entirely focused on our ultrasound business that
designs and manufactures cable assemblies for OEM customers that are used in
applications such as medical ultrasound probes, patient monitoring devices and
flaw detection ultrasound.
 
 Over the
past ten years, the ultrasound business has consolidated, leaving four principal
global integrated OEM manufacturers and several smaller specialty manufacturers.
Although microHelix is a small cable assembly supplier, we enjoy certain cost
advantages and a reputation for quality, on-time delivery and responsiveness and
are currently a supplier to several leading OEMs. In addition to our supplier
role in the non-invasive medical ultrasound industry, we apply the same cable
assembly and component design and manufacturing capabilities to serve customers
in several other applications including patient monitoring, test and
measurement, flaw detection ultrasound, PCB design and non-medical contract
manufacturing.
 
 **Critical
Accounting Policies and Estimates**
 
 The
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States.
The preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. We
evaluate our estimates on an on-going basis, including those related to product
returns, bad debts, inventories, prepaid expenses, income taxes, warranty
obligations, and other contingencies. We base our estimates on historical
experience and on various other assumptions we believe are reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying value of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. We believe the following critical accounting policies
and related judgments and estimates affect the preparation of our consolidated
financial statements:
 
 *Revenue
Recognition* —We
recognize revenue from commercial sales of cable assemblies and related products
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
facilities or at a vendor's facilities. Returns are limited to nonconforming
products and the volume of returns has been insignificant so we do not establish
reserves for returns.
 
 Development
contracts are structured on a cost reimbursement or cost plus basis. Revenue
from development contracts for non-recurring engineering is recognized using the
percentage of completion method as time and materials costs are incurred.
Revenue from contracts for the production of prototypes is recognized when the
title passes, which is upon shipment. In some cases, customers pre-pay for
product and services that is classified as deferred revenue until the services
are performed, at which time it is recognized as revenue. As of December 31,
2004, there was no deferred revenue compared to $59,428 as of December 31,
2003.
 
 Government
grant sales are recognized as time and materials costs are incurred using the
percentage of completion method. The government generally provides grants to
perform specific research and is not the ultimate customer. The Company closed
out a small amount of government grants at the end of 2003. There was no revenue
from government grants in 2004.
  9
 **Results
of operations**
 
 The
following table presents our historical operating results for the periods
indicated as a percentage of sales:
 
 ****
    
    **Year
      Ended****December
      31,******
    
    **2003**
    
    **2004**Sales
    
    
    100
    %
    
    100
    %Cost
      of sales
    
    
    101
    
    
    115Gross
      profit (loss)
    
    
    (
      1
    )
    
    (15
    )Operating
      expenses:Research
      and development
    
    
    12
    
    
    5Sales
      and marketing
    
    
    2
    
    
    2General
      and administrative
    
    
    63
    
    
    79Total
      operating expenses
    
    
    77
    
    
    86Loss
      from operations
    
    
    (78
    )
    
    (101
    )Other
      income (expense)
    
    
    (5
    )Net
      loss from continuing operations
    
    
    (83
    )
    
    (101
    )Discontinued
      operations:Loss
      from operations of wire and cable division
    
    
    (80
    )
    
    (10
    )Loss
      on sale of wire and cable division
    
    
    0
    
    
    (
      9
    )Net
      loss
    
    
    (163
    )%
    
    (120
    )%
 
 ***Year
ended December 31, 2004 compared with year ended December 31,
2003***
 
 On March
8, 2004 we announced that we signed an agreement with ANS, based in Dallas,
Texas, to sell the assets of our Portland wire and cable division. The sale
closed on April 21, 2004 following the approval of microHelix shareholders. As a
result of this material transaction we are required under GAAP (Generally
Accepted Accounting Principles) to prepare our financial statements in a format
that accounts for the wire and cable division as a discontinued operation in the
consolidated statements of operations. In addition, the balance sheet as of
December 31, 2003 classified all assets and liabilities related to this
transaction as "held for sale." As a result, all comments in this section
primarily relate to the continuing operations of the ultrasound division and the
related microHelix corporate functions.
 
 Sales for
the year ended December 31, 2004 were $1,299,630, compared to $1,666,424, for
the year ended December 31, 2003, or a decrease of 22.0%. This decrease can be
attributed primarily to a reduction in sales to the Parallel Design division of
General Electric and a decline in contract manufacturing work. As a result of
this decline in manufacturing volume, gross margin for the year ended December
31, 2004 was a negative $193,797 compared with a negative gross margin of
$18,197 recorded in the year ended December 31, 2003.
 
 For the
year ended December 31, 2004 we invested $63,629 in research and development, a
decrease of $129,091 from 2003, to continue the development of our own line of
replacement ultrasound probes for sale to OEMs, distributors and end-users. In
June 2004, we determined it would be more cost effective to purchase complete
probes that had received FDA 510(k) clearance and private label these for sale
to prospective customers. Research and development expenditures on this project
were curtailed during the second quarter of 2004.
 
 Sales and
marketing expenses declined  from
$41,183 for the year ended December 31, 2003 to $26,040 for the year ended
December 31, 2004, primarily as a result of lower expenses for trade shows.
 
 General
and administrative expenses for the year ended December 31, 2004 were $1,024,253
compared to $1,055,006 for the year ended December 31, 2003, or a reduction of
$30,753. General and administrative expenses declined sharply during the second
half of 2004 because corporate expenses to support only the ultrasound
operations were significantly less due to the simplified and smaller
organization.
 
 10
 Other
income on a net basis for the year ended December 31, 2004 was $6,417 compared
to net other expense of $80,592 for the period ended December 31, 2003. This
improvement for the year ended December 31, 2004 can be attributed principally
to banking fees refunded from the prior year, recovery of a bad debt previously
written off, proceeds from the sale of assets and a reduction in the losses
associated with those assets.
 
 The loss
from continuing operations for the year ended December 31, 2004 was $1,301,302,
$86,396 lower than the loss from continuing operations of $1,387,698 that was
recorded in the prior year ended December 31, 2003. This decrease in net
operating losses can be directly attributed to the reduction in operating
expenses of $174,987.
 
 The wire
and cable division financial results have been reported as discontinued
operations. For the year ended December 31, 2004 the loss from operations for
this division was $122,877 through the sale date of April 21, 2004 compared to a
net loss of $1,336,357 for the full year ended December 31, 2003. In addition,
the Company recorded a loss of $129,816 on the sale of the wire and cable
division to ANS in 2004.
 
 The net
loss was $1,553,995 for the year ended December 31, 2004 compared to a net loss
of $2,724,055 for the year ended December 31, 2003. This reduction in net loss
in 2004 compared to 2003 can primarily be attributed to the sale of the wire and
cable division in 2004.
 
 No
provision for income taxes has been made due to the Company’s accumulated net
operating losses.
 
 Since
inception the Company has incurred operating losses because it has not been
successful in converting a sufficient number of research and development
programs to predictable, high volume, regular manufacturing contracts. Product
cost and operating expenses have significantly exceeded the revenue levels
achieved during this period of time.
 
 ***Liquidity
and Capital Resources***
 
 As of
December 31, 2004, the Company had $30,472 of cash and cash equivalents. Cash
used in operating activities in 2004 was $1,490,200 compared to $1,276,019 used
in 2003. Although the net losses (including continuing operations, discontinued
operations and loss of sale of the wire and cable division) were considerably
less in 2004 than in 2003 this improvement was more than offset by less cash
generated from reductions in accounts receivable, less depreciation recognized
in 2004 than 2003 and cash was used to pay vendors and suppliers in 2004,
actually reducing the payables balance, compared to an absolute increase in
accounts payable balance in 2003 that served as a source of cash.
 
 As of
December 31, 2004, the Company had a $200,000 line of credit for working
capital, secured by accounts receivable and inventory. As of December 31, 2004,
there was $137,924 outstanding on the line of credit. The Company has the option
of extending the line of credit providing it is in compliance with the terms of
the agreement.
 
 As of
December 31, 2004, the Company had no purchase orders outstanding for capital
equipment.
 
 The
following table discloses the Company’s contractual cash obligations as of
December 31, 2004:
 
 ****
    
    **Payments
      Due by Period******
      **Contractual
      Obligations**
    
    ****
      **Total**
    
    **Less
      than**
      **1
      Year**
    
    ****
      **1-3
      Years**
    
    ****
      **4-5
      Years**Operating
      leases
    
    $
    606,300
    
    $
    377,324
    
    
    228,976
    
    $
    —Line
      of credit
    
    
    137,924
    
    
    137,924
    
    
    —
    
    
    —Total
      contractual cash obligations
    
    $
    744,224
    
    $
    515,248
    
    $
    228,976
    
    $
    —
 
 On March
8, 2005 the Company reached an agreement with ANS to sublease the entire
Portland building to ANS beginning April 21, 2005 through November 30, 2005, the
expiration date of the original lease. The table above does not reflect the
assumption of this lease by ANS
 
 11
 In March
2003, the Company borrowed $200,000 from a shareholder and repaid $100,000 to
the lender during the year ended December 31, 2003. On September 28, 2004, the
remaining $100,000 of the note and $13,942 of accrued interest was settled, and
considered paid in full with the issuance of 299,907 shares of common stock at a
market rate of $0.41 per share.
 
 **Risk
Factors**
 
 Following
are the key risk factors that have affected our net sales and net loss in the
past and could materially impact our business, financial condition or results of
operations. In addition, if any of these risks occur, the market price of our
securities could decline and investors could lose all or part of their
investment:
 
 **The
sale of our Portland, Oregon-based wire and cable business has made us highly
dependent on our ability to compete successfully in the medical ultrasound
business.**
 
 The wire
and cable business accounted for over 66% of our total annual revenues in 2003.
These revenues were derived from 10-12 significant customers that purchased
coated wire, cable, cable assemblies, interconnect systems, leads, connectors,
coils, laser micro-machining services and development services from us. We now
rely entirely on OEM customers that serve the medical ultrasound business or
serve needs in specific specialty areas such as flaw detection ultrasound,
patient monitoring and directional controlled catheters. We will now be entirely
dependent on our ability to successfully serve customers in this highly
competitive market where we face significant competition from industry leading
cable suppliers with resources significantly greater than ours.
 
 **Our
on-going business plan is based on assumptions that could prove to be incorrect,
which could mean that we may be unable to expand as planned and could cause us
to invest in areas that do not result in new sales.**
 
 The key
element of our on-going business plan involves the expansion of our ultrasound
cable assembly capabilities and customer base. This effort intends to capitalize
on what we expect to be new growth in the medical ultrasound equipment market.
The success of our plan depends on numerous assumptions that we cannot be
certain will materialize. If some of our key assumptions prove to be incorrect
then it could impact our ability to expand our business as we currently
anticipate. This could also result in making substantial investments in product
development and/or marketing efforts that will not result in new product sales
as anticipated. Some of our key assumptions include the following:
 
 ·
    demand
      for sophisticated "next generation" ultrasound imaging and diagnostic
      systems will continue to increase;
 
 ·
    our
      cable assembly capabilities that serve ultrasound system OEMs and our
      replacement ultrasound probes will efficiently address market needs as
      they develop;
 
 ·
    OEMs
      with whom we have or may develop relationships will be successful in
      developing their technologies and addressing their markets and will remain
      agreeable to outsourcing some or all of these cable assemblies;
      and
 
 ·
    other
      companies will not expand their cable assembly capabilities that offer
      technological or economic advantages over
ours.
 
 **The
development of ultrasound imaging systems by our OEM customers is usually
subject to review by the U.S. FDA and other regulatory agencies, which means
that new cable assemblies provided by us that are designed as part of these
systems may not be sold in commercial quantities for a long time, if
ever.**
 
 Our sales
process involves designing our cable assemblies into both existing and new OEM
devices. The sale of any new system in commercial quantities is generally
preceded by a pre-production design phase in which we produce various cable
assembly prototypes based on a collaboration with the customer’s engineering and
product design staff. The OEM’s imaging systems are subject to regulation and
licensing, usually by the U.S. FDA, and sometimes by comparable foreign
regulatory bodies, which increases the cost and time required for the
development, marketing and sale of these systems. We expect that the sales cycle
for most of our cable assemblies will take 3-12 months to develop and validate.
We are generally paid for prototypes during the design phase but do not expect
such payments to contribute significantly to our profitability. If either our
proposed cable assembly solution or the overall imaging system is not approved
or is not successfully brought to market in a timely manner, the failure to do
so will have a direct and adverse impact on our future sales.
 
 12
 **A
large portion of our sales is concentrated with a few customers that could make
fluctuations in revenue and earnings more severe.**
 
 In 2003
sales to our largest customer, GE Parallel Design, accounted for 69% of total
ultrasound sales. In 2004 sales to our largest customer, GE Parallel Design,
accounted for 58% of total ultrasound sales. There are a relatively limited
number of OEMs that make ultrasound-imaging systems. Although we provide cable
assemblies and/or other services to industry-leading OEMs and to several
specialized competitors, the loss of a significant customer could have a
material adverse impact on us. While we expect the overall size of the medical
ultrasound market to expand, it remains possible that significant penetration of
these markets may depend on large volume sales to a limited number of potential
customers. Concentration in our customer base may make fluctuations in revenue
and earnings more severe and make business planning more difficult.
  **Large
OEM customers can change their demand on short notice, further adding to the
unpredictability of our quarterly sales and earnings.**
 
 Our
quarterly results have in the past and may in the future vary significantly due
to the lack of dependable long-term demand forecasts from our larger OEM
customers. In addition to this risk, many of our OEM customers have the right to
change their demand schedule, either up or down, within a relatively short time
horizon. These changes may result in us incurring additional working capital
costs and causing increased manufacturing expenses due to these short-term
fluctuations. In particular, our quarterly operating results have in the past
fluctuated as a result of some of the larger OEM customers changing their orders
within a fiscal quarter. Our expense levels, to a large extent, are based on
shipment expectations in the quarter. If sales levels fall below these
expectations, operating results are likely to be adversely affected. Although we
have tried to lessen our dependency on a few large customers, this is the nature
of the OEM medical ultrasound industry that we serve and we can provide no
assurance that we will be able to materially alter this dependency in the
immediate future, if at all.
  **In
our highly competitive markets, many of our potential competitors have resources
that we lack, which could impair our relationships with actual or potential
customers.**
 
 Our
markets are highly competitive. This is particularly true in the area of
ultrasound cable assemblies sold to OEM customers. Competition is based on
technology, established relationships, quality of support, location of
facilities and price. Several of our competitors have a longer history of
operations and more established relationships with actual and potential
customers than we have. In addition, most of our OEM customers choose to
concentrate their cable assembly business with one or two suppliers and may have
certain geographic preferences. The combination of these factors may have a
direct and adverse impact on our ability to serve these customers in the future.
Our principal competitive advantages remain the following: (1) low cost
manufacturing in Nogales, Mexico; (2) exceptional quality record; (3) highly
responsive to customers with quick turn capability; and (4) very competitive
pricing. Despite these advantages, many of our competitors and potential
competitors have technological and financial resources and established business
relationships that may afford them a competitive advantage.
 
 **Recent
Accounting Pronouncements**
 
 In
January 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin (ARB) No. 51." This
interpretation clarifies the application of ARB No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. In December 2003, the FASB
revised FASB Interpretation No. 46 (FIN 46R) which allowed companies with
certain types of variable interest entities to defer implementation until March
31, 2004.
 
 13
 During
April 2003, the FASB issued SFAS 149 - “Amendment of Statement 133 on Derivative
Instruments and Hedging Activities,” effective for contracts entered into or
modified after June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003. In addition, except as stated
below, all provisions of this Statement should be applied prospectively. The
provisions of this Statement that relate to Statement 133 Implementation Issues
that have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective
dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases
or sales of *when-issued* securities or other securities that do not yet exist, should be applied to both
existing contracts and new contracts entered into after June 30, 2003. The
Company does not participate in such transactions. However, the Company is
evaluating the effect of this new pronouncement, if any, and will adopt FASB 149
within the prescribed time.
 
 During
May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective for public entities at the beginning of the first interim period
beginning after June 15, 2003. This Statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a freestanding financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those instruments were
previously classified as equity. Some of the provisions of this Statement are
consistent with the current definition of liabilities in FASB Concepts Statement
No. 6, Elements of Financial Statements. The Company is evaluating the effect of
this new pronouncement and will adopt FASB 150 within the prescribed
time.
  In
December 2003, the FASB issued Summary of Statement No. 132 (revised 2003),
“Employer’s Disclosures about Pensions and Other Post Retirement Benefits - an
amendment to FASB Statements No. 87, 88, and 106.” This statement revises
employers’ disclosures about pension plans and other postretirement benefit
plans. However, it does not change the measurement or recognition of those plans
as required by FASB Statements No. 87, “Employers’ Accounting for Pensions,” No.
88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits,” and No. 106, “Employers’ Accounting
for Postretirement Benefits Other Than Pensions.” This statement requires
additional disclosures to those in the original Statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost. This statement also
calls for certain information to be disclosed in financial statements for
interim period. The disclosures required by this statement are effective for
year ending after December 15, 2003. The Company does not expect the adoption of
this pronouncement to have a material impact on its consolidated financial
position or results of operations.
  In
December 2003, the Securities and Exchange Commission (the "SEC") issued Staff
Accounting Bulletin ("SAB") No. 104, "Revenue Recognition." SAB 104 supersedes
SAB 101, "Revenue Recognition in Financial Statements." SAB No. 104, which was
effective upon issuance, rescinded certain guidance contained in SAB No. 101
related to multiple element revenue arrangements, and replaced such guidance
with that contained in EITF 00-21, "Accounting for Revenue Arrangements with
Multiple Deliverables." Additionally, SAB No. 104 rescinded the SEC's Revenue
Recognition in Financial Statements Frequently Asked Questions and Answers
issued with SAB No. 101. The revenue recognition principles of SAB No. 101
remain largely unchanged by the issuance of SAB No. 104, and therefore the
adoption of SAB No. 104 did not have a material effect on the Company's results
of operations or financial condition.
 
 In March
2004, the Financial Accounting Standards Board (FASB) approved the consensus
reached on the Emerging Issues Task Force (EITF) Issue No. 03-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments." The
objective of this Issue is to provide guidance for identifying impaired
investments. EITF 03-1 also provides new disclosure requirements for investments
that are deemed to be temporarily impaired. The accounting provisions of EITF
03-1 are effective for all reporting periods beginning after June 15, 2004,
while the disclosure requirements for certain investments are effective for
annual periods ending after December 15, 2003, and for other investments such
disclosure requirements are effective for annual periods ending after June 15,
2004.
 
 14
 In
November 2004, the FASB issued SFAS No. 151 “Inventory Costs, an amendment of
ARB No. 43, Chapter 4.” The amendments made by Statement 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and require
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years
beginning after November 23, 2004. . The Company has evaluated the impact of the
adoption of SFAS 151, and does not believe the impact will be significant to the
Company's overall results of operations or financial position.
  In
December 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate
Time-Sharing Transactions—an amendment of FASB Statements No. 66 and 67.” This
Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to
reference the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position (SOP)
04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also
amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations
of Real Estate Projects, to state that the guidance for (a) incidental
operations and (b) costs incurred to sell real estate projects does not apply to
real estate time-sharing transactions. The accounting for those operations and
costs is subject to the guidance in SOP 04-2. This Statement is effective for
financial statements for fiscal years beginning after June 15, 2005, with
earlier application encouraged. The Company has evaluated the impact of the
adoption of SFAS 152, and does not believe the impact will be significant to the
Company's overall results of operations or financial position as the Company
does not engage in these activities.
  In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets,
an amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions.”
The amendments made by Statement 153 are based on the principle that exchanges
of non-monetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
non-monetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of non-monetary assets that do not have
commercial substance. Previously, Opinion 29 required that the accounting for an
exchange of a productive asset for a similar productive asset or an equivalent
interest in the same or similar productive asset should be based on the recorded
amount of the asset relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
The FASB believes that exception required that some non-monetary exchanges,
although commercially substantive, be recorded on a carryover basis. By focusing
the exception on exchanges that lack commercial substance, the FASB believes
this Statement produces financial reporting that more faithfully represents the
economics of the transactions. The Statement is effective for non-monetary asset
exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier
application is permitted for non-monetary asset exchanges occurring in fiscal
periods beginning after the date of issuance. The provisions of this Statement
will be applied prospectively. The Company has evaluated the impact of the
adoption of SFAS 152, and does not believe the impact will be significant to the
Company's overall results of operations or financial position.
  In
December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
Payment.” Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. Statement 123(R) covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued in
1995, established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that Statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable fair-value-based method been used. Public entities
(other than those filing as small business issuers) will be required to apply
Statement 123(R) as of the first interim or annual reporting period that begins
after December 15, 2005. The Company has not yet determined which transition
method it will adopt for the recognition of the stock based compensatory expense
previously reported in pro-forma format as the options vest. The Company has
determined not to early adopt and will recognize the fair value of all newly
issued share-based payments to employees in the prescribed period.
 
 In December 2004 the Financial Accounting Standards
Board issued two FASB Staff Positions—FSP FAS 109-1, Application of FASB
Statement 109 "Accounting for Income Taxes" to the Tax Deduction of Qualified
Production Activities Provided by the American Jobs Creation Act of 2004, and
FSP FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004. 
Neither of these affected the Company as it does not participate in the related
activities.
  ****
 15
 **Item
7.  *Consolidated*** ***Financial
Statements***
 
 
 
 
 **INDEX
TO CONSOLIDATED FINANCIAL STATEMENTS**
 
 ****
    **Page**microHelix,
      Inc.Report
      of Independent Registered Public Accounting Firm - 2004
    17Independent
      Auditors Report - 2003
    18Consolidated
      Balance Sheet as of December 31, 2004
    19Consolidated
      Statements of Operations for the Years Ended December 31, 2003 and
      2004
    20Consolidated
      Statements of Shareholders’ Equity for the Years Ended December 31, 2003
      and 2004
    21Consolidated
      Statements of Cash Flows for the Years Ended December 31, 2003 and
      2004
    22-23Notes
      to Consolidated Financial Statements
    24-36
  16
 **REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM**
 
 
 
 To the
Board of Directors and Shareholders of
 microHelix,
Inc.
 
 
 We have
audited the accompanying consolidated balance sheet of microHelix, Inc., (the
“Company”) as of December 31, 2004, and the related consolidated statements of
operations, shareholders’ equity and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
 
 We
conducted our audit in accordance with standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the consolidated financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
 
 In our
opinion, the consolidated financial statements present fairly, in all material
respects, the consolidated financial position of microHelix, Inc. at December
31, 2004, and the results of their consolidated operations and their cash flows
for the year then ended in conformity with accounting principles generally
accepted in the United States of America.
 
 The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company’s recurring losses from
operations, recurring negative cash flows from operations, and accumulated
deficit raise substantial doubt about its ability to continue as a going
concern. Management’s plans concerning these matters are also discussed in Note
1. The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
  /s/
STONEFIELD JOSEPHSON, INC.
  Santa
Monica, California
 April 14,
2005
 
 17
 **INDEPENDENT
AUDITORS’ REPORT**
 
 To the
Board of Directors and Shareholders of
 microHelix,
Inc.
 
 
 We have
audited the accompanying consolidated statements of operations, shareholders’
equity, and cash flows of microHelix, Inc. (the "Company") for the year ended
December 31, 2003. These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these
financial statements based on our audit.
 
 We
conducted our audit in accordance with auditing standards generally accepted in
the United States of America. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
 
 In our
opinion, such consolidated statements of operations, shareholders' equity, and
cash flows present fairly, in all material respects, the financial position,
results of operations and cash flows of the Company for the year ended
 December 31, 2003, in conformity with accounting principles generally
accepted in the United States of America.
 
 The
accompanying financial statements have been prepared assuming that the Company
will continue as a going concern. As discussed in Note 1 to the financial
statements, the Company’s recurring losses from operations, recurring negative
cash flows from operations, and accumulated deficit raise substantial doubt
about its ability to continue as a going concern. Management’s plans concerning
these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
  /s/ Deloitte
& Touche LLP
 
 Portland,
Oregon
 April 14,
2004
 
 18
 **MICROHELIX,
INC.**
 
 **CONSOLIDATED
BALANCE SHEET**
 **December
31, 2004**
 
 ****
      ******Assets**Current
      Assets:Cash
    
    $
    30,472Accounts
      receivable, net of allowance of $11,567
    
    
    213,277Inventories,
      net
    
    
    179,677Prepaid
      expenses and other current assets
    
    
    24,333Total
      current assets
    
    
    447,759Property
      and equipment, net
    
    
    95,203Total
      assets
    
    $
    542,962**Liabilities
      and Shareholders’ Equity**Current
      Liabilities:Accounts
      payable
    
    $
    178,414Accrued
      liabilities
    
    
    155,913Line
      of credit
    
    
    137,924Total
      liabilities
    
    
    472,251Commitments
      and contingencies (Note 9)
    
    
    —Shareholders’
      Equity:Preferred
      stock, no par value, 3,500,000 shares authorized, zero issued and
      outstanding
    
    
    —Common
      stock, no par value, 25,000,000 shares authorized, 1,959,713 issued and
      outstanding
    
    
    14,473,409Additional
      paid-in capital
    
    
    6,487,417Accumulated
      deficit
    
    
    (20,890,115
    )Total
      shareholders’ equity
    
    
    70,711Total
      liabilities and shareholders’ equity
    
    $
    542,962
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  19
 **MICROHELIX,
INC.**
 
 **CONSOLIDATED
STATEMENTS OF OPERATIONS**
 
 **Year
      Ended December 31,******
    
    **2003**
    
    **2004**Sales,
      net
    
    $
    1,666,424
    
    $
    1,299,630Cost
      of Sales
    
    
    1,684,621
    
    
    1,493,427Gross
      loss
    
    
    (18,197
    )
    
    (193,797
    )Operating
      Expenses:Research
      and development
    
    
    192,720
    
    
    63,629Sales
      and marketing
    
    
    41,183
    
    
    26,040General
      and administrative
    
    
    1,055,006
    
    
    1,024,253Total
      operating expenses
    
    
    1,288,909
    
    
    1,113,922Loss
      from operations
    
    
    (1,307,106
    )
    
    (1,307,719
    )Other
      income (expense):Interest
      income
    
    
    10,731
    
    
    —Other
      income
    
    
    —
    
    
    36,585Loss
      on sale of assets
    
    
    (57,940
    )
    
    (1,493
    )Interest
      expense
    
    
    (33,383
    )
    
    (28,675
    )Total
      other income (expense) — net
    
    
    (80,592
    )
    
    6,417Loss
      from continuing operations before provision for income
    taxes
    
    
    (1,387,698
    )
    
    (1,301,302
    )Provision
      for income taxes
    
    
    —
    
    
    —Loss
      from continuing operations
    
    
    (1,387,698
    )
    
    (1,301,302
    )Discontinued
      operations: (net of $-0- tax effect) (Note 12)Loss
      from operations of wire and cable division
    
    
    (1,336,357
    )
    
    (122,877
    )Loss
      on sale of wire and cable division
    
    
    —
    
    
    (129,816
    )Loss
      from discontinued operations
    
    
    (1,336,357
    )
    
    (252,693
    )Net
      loss
    
    $
    (2,724,055
    )
    $
    (1,553,995
    )Loss
      per common share — basic and diluted:Loss
      from continuing operations
    
    $
    (.90
    )
    $
    (.74
    )Loss
      from discontinued operations
    
    
    (.86
    )
    
    (14
    )Net
      loss
    
    $
    (1.76
    )
    $
    (.88
    )Weighted
      average number of shares outstanding — basic and diluted
    
    
    1,550,886
    
    
    1,767,316
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 20
  **MICROHELIX,
INC.**
 
 **CONSOLIDATED
STATEMENTS OF SHAREHOLDERS’ EQUITY**
 **Years
Ended December 31, 2003 and 2004**
 
 **Additional****Common
      Stock**
    
    **Paid-In**
    
    **Notes**
    
    **Deferred**
    
    **Accumulated****Shares**
    
    **Amount**
    
    **Capital**
    
    **Receivable**
    
    **Compensation**
    
    **Deficit**
    
    **Total**Balance,
      January 1, 2003
    
    
    1,553,295
    
    $
    14,179,467
    
    $
    6,487,417
    
    $
    (57,940
    )
    $
    (48,734
    )
    $
    (16,612,065
    )
    $
    3,948,145Repurchase
      of common stock
    
    
    (13,333
    )
    
    (20,000
    )
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    (20,000
    )Conversion
      of debt
    
    
    141,844
    
    
    200,000
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    200,000Write-off
      of notes receivablefrom
      shareholders
    
    
    —
    
    
    —
    
    
    —
    
    
    57,940
    
    
    —
    
    
    —
    
    
    57,940Amortization
      of deferred compensation
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    21,549
    
    
    —
    
    
    21,549Net
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,724,055
    )
    
    (2,724,055
    )Balance,
      December 31, 2003
    
    
    1,681,806
    
    
    14,359,467
    
    
    6,487,417
    
    
    —
    
    
    (27,185
    )
    
    (19,336,120
    )
    
    1,483,579Conversion
      of note payableand
      accrued interest
    
    
    277,907
    
    
    113,942
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    113,942Amortization
      of deferredcompensation
    
    
    —
    
    
    —
    
    
    —
    
    
    —
    
    
    27,185
    
    
    —
    
    
    27,185Net
      loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,553,995
    )
    
    (1,553,995
    )Balance,
      December 31, 2004
    
    
    1,959,713
    
    $
    14,473,409
    
    $
    6,487,417
    
    $
    —
    
    $
    —
    
    $
    (20,890,115
    )
    $
    70,711
  The
accompanying notes are an integral part of these consolidated financial
statements.
  21
 ****
 **MICROHELIX,
INC.**
 **CONSOLIDATED
STATEMENTS OF CASH FLOWS**
 **Year
      Ended December 31,******
    
    **2003**
    
    **2004****Cash
      Flows Provided By (Used For) Operating
Activities:**Net
      loss
    
    $
    (2,724,055
    )
    $
    (1,553,995
    )Adjustments
      to reconcile net loss to cash used in operating
activities:Depreciation
      and amortization
    
    
    526,069
    
    
    41,747Accounts
      receivable reserves
    
    
    2,639
    
    
    (10,589
    )Inventory
      reserves
    
    
    (4,329
    )
    
    185,621Stock
      compensation expense
    
    
    21,549
    
    
    27,185Amortization
      of deferred inventory charges
    
    
    6,160
    
    
    —Write-off
      of notes receivable from shareholders
    
    
    57,940
    
    
    —Loss
      on sale of equipment
    
    
    (59,057
    )
    
    1,493Change
      in assets and liabilities:(Increase)
      Decrease in assets:Accounts
      receivable
    
    
    727,089
    
    
    222,638Inventories
    
    
    96,462
    
    
    (21,761
    )Prepaid
      expenses and other assets
    
    
    40,438
    
    
    45,753Intangibles
      and other assets
    
    
    102,661
    
    
    9,516Increase
      (Decrease) in liabilities:Accounts
      payable
    
    
    100,563
    
    
    (319,056
    )Accrued
      liabilities
    
    
    (170,148
    )
    
    (118,752
    )Net
      cash used in operating activities
    
    
    (1,276,019
    )
    
    (1,490,200
    )**Cash
      Flows from Investing Activities:**Capital
      expenditures
    
    
    (36,143
    )
    
    (36,011
    )Proceeds
      from the sale of equipment
    
    
    469,000
    
    
    27,500Net
      book value of wire and cable division sold
    
    
    —
    
    
    1,591,785Net
      Cash provided by investing activities
    
    
    432,857
    
    
    1,583,274**Cash
      Flows from Financing Activities:**Proceeds
      from borrowings against line of credit
    
    
    4,873,363
    
    
    1,620,954Principal
      payments on line of credit
    
    
    (5,971,181
    )
    
    (1,732,323
    )Principal
      payments on capital lease obligation
    
    
    (121,802
    )
    
    —Repurchase
      of common stock
    
    
    (20,000
    )
    
    —Net
      Cash used in financing activities
    
    
    (1,239,620
    )
    
    (111,369
    )Change
      in cash
    
    
    (2,082,782
    )
    
    (18,295
    )Cash,
      beginning of year
    
    
    2,131,549
    
    
    48,767Cash,
      end of year
    
    $
    48,767
    
    $
    30,472
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
 
 22
 **MICROHELIX,
INC.**
 
 **CONSOLIDATED
STATEMENTS OF CASH FLOWS, (CONTINUED)**
 **Years
Ended December 31, 2003 and 2004**
 
 Supplemental
      disclosure of cash flow information — Cash paid for interest
    
    $
    140,892
    
    $
    95,350Supplemental
      disclosure of cash flow information — Cash paid for taxes
    
    $
    —
    
    $
    —See
      notes to consolidated financial statements.
 
 Supplemental
Disclosure of Non Cash Financing Activity:
 
 In March
2003, the Company borrowed $200,000 on a short-term unsecured note at a 12
percent interest rate to finance short-term working capital requirements. During
2003, the Company repaid $100,000 on the short-term note. The remaining $100,000
of the note and $13,942 of accrued interest was settled, and considered to be
paid in full with the issuance of 299,907 shares of common stock at a market
rate of $.41 per share on September 28, 2004.
 
 
 The
accompanying notes are an integral part of these consolidated financial
statements.
  23
 **MICROHELIX,
INC.**
 
 **NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS**
 **Years
Ended December 31, 2004 and 2003**
 
 **1.
Summary of Significant Policies**
 
 *Nature
of Operations* —
microHelix, Inc. (the “Company”), is primarily engaged in the design,
manufacture, and sale of cable assemblies for use in medical and commercial
devices and systems.
 
 *Basis
of Presentation* — The
audited consolidated financial statements have been prepared by the Company,
pursuant to the rules and regulations of the Securities and Exchange Commission
(“SEC”). The information furnished herein reflects all adjustments (consisting
of normal recurring accruals and adjustments), which are, in the opinion of
management, necessary to fairly represent the operating results for the
respective periods. In December 2003, the Company completed a 1-for-3 reverse
split of its common stock, the effects of which have been applied to the
Company’s financial statements for all periods presented. The reverse split was
applied to outstanding common stock, as well as any common stock warrants and
options granted as of the time of the reverse split.
 
 *Principles
of Consolidation* — These
consolidated financial statements include the accounts of the Company and its
wholly owned subsidiary, BioElectric Corporation (“BioElectric”). In 2004,
BioElectric was dissolved. All
material inter-company accounts have been eliminated in
consolidation.
 
 *Use
of Estimates*—** The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States of America, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the consolidated financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
 
 *Reclassifications* — 
Certain amounts from the year ended December 31, 2003 have been reclassified to
correspond to the year ended December 31, 2004.
 
 *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 losses and
had negative cash flows from operations during each of the past two years and at
December 31, 2004 had an accumulated deficit of $20,890,115. This indicates that
the Company may be unable 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. Subsequent to December 31,
2004, microHelix announced a material development that may favorably impact its
ability to continue as a going concern as described below.
  On April
13, 2005, the Company announced that it had completed the acquisition of 100% of
the stock of privately-held Moore Electronics, Inc. (“MEI”) for $3,000,000 in
cash. The Company also refinanced $400,000 of MEI bank debt. MEI will
be operated as a wholly-owned subsidiary of the Company and had 2004 unaudited
revenues of approximately $11,100,000 and unaudited operating income of
approximately $75,000. MEI manufactures cable assemblies for a broad mix of
customers, serving major medical device manufacturers with components for
defibrillators and patient monitoring devices and serving commercial equipment
manufacturers in diverse markets including instrumentation, semi-conductors and
robotics. (See Note 13)
 
 
 24
 *Cash
Equivalents* — For
the purpose of the statement of cash flows, cash equivalents include all highly
liquid debt instruments with original maturities of three months or less which
are not securing any debt or obligations. The Company maintains its cash in bank
accounts which, at times, may exceed federally insured limits. The Company has
not experienced any losses in such accounts.
 
 *Credit
and Collection* — The
Company extends credit to its customers based on an assessment of a customer’s
financial circumstances, generally without requiring collateral. None of our
significant customers have experienced financial difficulties in the past,
although future financial difficulties of customers could have a material
adverse effect on the Company’s business. A reserve for bad debts has been
provided and on a regular basis individual accounts that are past due are
reviewed. If an account is determined to be uncollectible the amount is charged
to the bad debt reserve. These write-offs have been insignificant and have been
adequately covered by the bad debt reserve.
 
 *Inventories* are
stated at the lower of cost (first-in, first-out) or market. The inventory
reserves for slow moving and obsolete parts are adjusted on the basis of
reviewing quantities on hand, quantities on order, sales projections by
customers and actual versus projected sales volume.
 
 *Property
and Equipment* are
recorded at cost. Depreciation is provided using the straight-line method over
the estimated useful lives of the assets (three to seven years) beginning on the
date placed in service. Leasehold improvements are amortized over the lesser of
the remaining lease term or the useful life. Costs of repairs and maintenance
are expensed as incurred. Management periodically evaluates the recoverability
of property and equipment by comparing the carrying amounts to future
undiscounted cash flows expected to be generated by such assets. The Company has
not identified any such impairment losses to date.
 
 *Revenue
Recognition* — The
Company recognizes revenues from commercial sales of cable assemblies and
related supplies when title passes, which is upon shipment. Commercial sales are
made F.O.B. point of shipment. Returns are limited to nonconforming products.
The Company expenses shipping and handling costs as incurred, which are included
in operating expense. Shipping costs recovered from customers, if any, are
included in net sales.
 
 Development
contracts are structured on a cost or cost plus basis. Revenues from development
contracts for non-recurring engineering are recognized as time and materials
costs are incurred. Revenue from contracts for the production of prototypes are
recognized when the title passes, which is upon shipment. Prototypes are tested
at the Company’s facility for customer specifications prior to
shipment.
 
 Revenues
on government grants are recognized as time and materials costs are incurred
using the percentage of completion method. The government generally provides
grants to perform specific research and is not the ultimate customer. The
Company did not recognize any government grant revenues for the year ended
December 31, 2004.
 
 As of
December 31, 2004 and 2003, there were no unbilled or pre-billed amounts on
outstanding contracts. Earnings on non-recurring engineering contracts were
immaterial for the years ended December 31, 2004 and 2003. Earnings on
government grants are presented in the statements of operations.
 
 *Research
and Development* —
Internal research and development costs are expensed as incurred. Third-party
research and development costs are expensed as the contracted work is performed.
Research and development costs totaled approximately $64,000 and $193,000 for
the years ended December 31, 2004 and 2003, respectively.
 
 *Income
Taxes* — The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards, No. 109, Accounting for Income Taxes. Deferred income
taxes result primarily from temporary differences between financial and tax
reporting. Deferred tax assets and liabilities are determined based on the
differences between the financial statement bases and tax bases of assets and
liabilities using enacted tax rates. A valuation allowance is recorded to reduce
a deferred tax asset to that portion that is expected to more likely than not be
realized.
 
 25
 *Stock-Based
Compensation* — SFAS No.
123, “Accounting for Stock-Based Compensation,” establishes and encourages the
use of the fair value based method of accounting for stock-based compensation
arrangements under which compensation cost is determined using the fair value of
stock-based compensation determined as of the date of grant and is recognized
over the periods in which the related services are rendered. The statement also
permits companies to elect to continue using the current intrinsic value
accounting method specified in Accounting Principles Board (“APB”) Opinion No.
25, “Accounting for Stock Issued to Employees,” to account for stock-based
compensation. The Company has elected to use the intrinsic value based method
and has disclosed the pro forma effect of using the fair value based method to
account for its stock-based compensation. The Company uses the fair value method
for options granted to non-employees. 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 years ended December 31, 2004 and
2003:
 
 
 ****
    
    **Year
      Ended December 31,******
    
    **2003**
    
    **2004**Net
      loss, as reported
    
    $
    (2,724,055
    )
    $
    (1,553,995
    )Deduct:
      Total stock-based employee compensation expense determined under SFAS
      123
      method.
    
    
    (109,901
    )
    
    (168,802
    )Pro
      forma net loss
    
    $
    (2,833,956
    )
    $
    (1,722,797
    )Basic
      and diluted net loss per common share:As
      reported
    
    $
    (1.76
    )
    $
    (.88
    )Pro
      forma
    
    $
    (1.83
    )
    $
    (.97
    )
 
 The pro
forma amounts may not be indicative of the effects on reported net income for
future years due to the effect of options vesting over a period of years and the
granting of stock compensation awards in future years.
 
 The fair
value of each option grant was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions used for the grants:
 
 ****
    
    **Year
      Ended December 31,******
    
    **2003**
    
    **2004**Dividend
      yield
    
    None
    
    NoneRisk-free
      interest rate
    
    
    4.000
    %
    
    4.000
    %Expected
      volatility
    
    
    99
    %
    
    99
    %Expected
      option lives
    
    
    4.00
      years
    
    
    4.00
      yearsWeighted-average
      fair value of options granted per share
    
    $
    1.09
    
    
    —
 
 Refer to
Note 7 for further information regarding the Company’s stock option
plan.
 
 *Fair
Value of Financial Instruments* — The
carrying value of the Company’s accounts receivable, accounts payable, other
accrued liabilities, and line of credit approximate their estimated fair values
due to the relatively short maturities of those instruments.
 
 *Comprehensive
Loss* — The
Company has no components of Other Comprehensive Income (Loss) and, accordingly,
no Statement of Comprehensive Income (Loss) has been included in the
accompanying consolidated financial statements.
  *Net
Loss per Share* — The
Company uses SFAS No. 128, "Earnings Per Share" for calculating the basic and
diluted loss per share. Basic loss per share is computed by dividing net loss
attributable to common stockholders by the weighted average number of common
shares outstanding. Diluted loss per share is computed similar to basic loss per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
common shares had been issued and if the additional common shares were dilutive.
At
December 31, 2004, the outstanding number of potentially dilutive common shares
totaled 1,255,095 shares of common stock, consisting of options to purchase
117,867 shares of common stock, Class B warrants to purchase 926,833 shares of
common stock, and other warrants to purchase 210,395 shares of common stock. At
December 31, 2003, the outstanding number of potentially dilutive common shares
totaled 1,347,086 shares, consisting of options to purchase 209,858 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. However,
as the Company has net losses, their effect is anti-dilutive and has not been
included in the diluted weighted average earnings per share as shown on the
Consolidated Statements of Operations.
 
 26
 *Operating
Segments and Reporting Units* **—** Based on
the Company’s integration and management strategies, it operates in a single
business segment and reporting unit. For the years ended December 31, 2004 and
2003, substantially all revenues have been derived from domestic
operations.
 
 ***Recent
Accounting Pronouncements***
 
 In
January 2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
Interpretation of Accounting Research Bulletin (ARB) No. 51." This
interpretation clarifies the application of ARB No. 51, "Consolidated Financial
Statements," to certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. In December 2003, the FASB
revised FASB Interpretation No. 46 (FIN 46R) which allowed companies with
certain types of variable interest entities to defer implementation until March
31, 2004.
 
 During
April 2003, the FASB issued SFAS 149, “Amendment of Statement 133 on Derivative
Instruments and Hedging Activities,” effective for contracts entered into or
modified after June 30, 2003, except as stated below and for hedging
relationships designated after June 30, 2003. In addition, except as stated
below, all provisions of this Statement should be applied prospectively. The
provisions of this Statement that relate to Statement 133 Implementation Issues
that have been effective for fiscal quarters that began prior to June 15, 2003,
should continue to be applied in accordance with their respective effective
dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases
or sales of *when-issued* securities or other securities that do not yet exist, should be applied to both
existing contracts and new contracts entered into after June 30, 2003. The
Company does not participate in such transactions. However, the Company is
evaluating the effect of this new pronouncement, if any, and will adopt FASB 149
within the prescribed time.
 
 During
May 2003, the FASB issued SFAS 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity," effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
is effective for public entities at the beginning of the first interim period
beginning after June 15, 2003. This Statement establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. It requires that an issuer
classify a freestanding financial instrument that is within its scope as a
liability (or an asset in some circumstances). Many of those instruments were
previously classified as equity. Some of the provisions of this Statement are
consistent with the current definition of liabilities in FASB Concepts Statement
No. 6, Elements of Financial Statements. The Company is evaluating the effect of
this new pronouncement and will adopt FASB 150 within the prescribed
time.
 
 In
December 2003, the FASB issued Summary of Statement No. 132 (revised 2003),
“Employer’s Disclosures about Pensions and Other Post Retirement Benefits - an
amendment to FASB Statements No. 87, 88, and 106.” This statement revises
employers’ disclosures about pension plans and other postretirement benefit
plans. However, it does not change the measurement or recognition of those plans
as required by FASB Statements No. 87, “Employers’ Accounting for Pensions,” No.
88, “Employers’ Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits,” and No. 106, “Employers’ Accounting
for Postretirement Benefits Other Than Pensions.” This statement requires
additional disclosures to those in the original Statement 132 about the assets,
obligations, cash flows, and net periodic benefit cost. This statement also
calls for certain information to be disclosed in financial statements for
interim period. The disclosures required by this statement are effective for
year ending after December 15, 2003. The Company does not expect the adoption of
this pronouncement to have a material impact on its consolidated financial
position or results of operations.
 
 In
December 2003, the Securities and Exchange Commission (the "SEC") issued Staff
Accounting Bulletin ("SAB") No. 104, "Revenue Recognition." SAB 104 supersedes
SAB 101, "Revenue Recognition in Financial Statements." SAB No. 104, which was
effective upon issuance, rescinded certain guidance contained in SAB No. 101
related to multiple element revenue arrangements, and replaced such guidance
with that contained in EITF 00-21, "Accounting for Revenue Arrangements with
Multiple Deliverables." Additionally, SAB No. 104 rescinded the SEC's Revenue
Recognition in Financial Statements Frequently Asked Questions and Answers
issued with SAB No. 101. The revenue recognition principles of SAB No. 101
remain largely unchanged by the issuance of SAB No. 104, and therefore the
adoption of SAB No. 104 did not have a material effect on the Company's results
of operations or financial condition.
 
 27
 In March
2004, the Financial Accounting Standards Board (FASB) approved the consensus
reached on the Emerging Issues Task Force (EITF) Issue No. 03-1, "The Meaning of
Other-Than-Temporary Impairment and Its Application to Certain Investments." The
objective of this Issue is to provide guidance for identifying impaired
investments. EITF 03-1 also provides new disclosure requirements for investments
that are deemed to be temporarily impaired. The accounting provisions of EITF
03-1 are effective for all reporting periods beginning after June 15, 2004,
while the disclosure requirements for certain investments are effective for
annual periods ending after December 15, 2003, and for other investments such
disclosure requirements are effective for annual periods ending after June 15,
2004.
 
 In
November 2004, the FASB issued SFAS No. 151 “Inventory Costs, an amendment of
ARB No. 43, Chapter 4.” The amendments made by Statement 151 clarify that
abnormal amounts of idle facility expense, freight, handling costs, and wasted
materials (spoilage) should be recognized as current-period charges and require
the allocation of fixed production overheads to inventory based on the normal
capacity of the production facilities. The guidance is effective for inventory
costs incurred during fiscal years beginning after June 15, 2005. Earlier
application is permitted for inventory costs incurred during fiscal years
beginning after November 23, 2004. . The Company has evaluated the impact of the
adoption of SFAS 151, and does not believe the impact will be significant to the
Company's overall results of operations or financial position.
 
 In
December 2004, the FASB issued SFAS No. 152, “Accounting for Real Estate
Time-Sharing Transactions—an amendment of FASB Statements No. 66 and 67.” This
Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to
reference the financial accounting and reporting guidance for real estate
time-sharing transactions that is provided in AICPA Statement of Position (SOP)
04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also
amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations
of Real Estate Projects, to state that the guidance for (a) incidental
operations and (b) costs incurred to sell real estate projects does not apply to
real estate time-sharing transactions. The accounting for those operations and
costs is subject to the guidance in SOP 04-2. This Statement is effective for
financial statements for fiscal years beginning after June 15, 2005. with
earlier application encouraged The Company has evaluated the impact of the
adoption of SFAS 152, and does not believe the impact will be significant to the
Company's overall results of operations or financial position as the Company
does not engage in these activities.
 
 In
December 2004, the FASB issued SFAS No. 153, “Exchanges of Non-monetary Assets,
an amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions.”
The amendments made by Statement 153 are based on the principle that exchanges
of non-monetary assets should be measured based on the fair value of the assets
exchanged. Further, the amendments eliminate the narrow exception for
non-monetary exchanges of similar productive assets and replace it with a
broader exception for exchanges of non-monetary assets that do not have
commercial substance. Previously, Opinion 29 required that the accounting for an
exchange of a productive asset for a similar productive asset or an equivalent
interest in the same or similar productive asset should be based on the recorded
amount of the asset relinquished. Opinion 29 provided an exception to its basic
measurement principle (fair value) for exchanges of similar productive assets.
The FASB believes that exception required that some non-monetary exchanges,
although commercially substantive, be recorded on a carryover basis. By focusing
the exception on exchanges that lack commercial substance, the FASB
believes this Statement produces financial reporting that more faithfully
represents the economics of the transactions. The Statement is effective for
non-monetary asset exchanges occurring in fiscal periods beginning after June
15, 2005. Earlier application is permitted for non-monetary asset exchanges
occurring in fiscal periods beginning after the date of issuance. The provisions
of this Statement will be applied prospectively. The Company has evaluated the
impact of the adoption of SFAS 152, and does not believe the impact will be
significant to the Company's overall results of operations or financial
position.
 
 28
 In
December 2004, the FASB issued SFAS No. 123 (revised 2004), “Share-Based
Payment.” Statement 123(R) will provide investors and other users of financial
statements with more complete and neutral financial information by requiring
that the compensation cost relating to share-based payment transactions be
recognized in financial statements. That cost will be measured based on the fair
value of the equity or liability instruments issued. Statement 123(R) covers a
wide range of share-based compensation arrangements including share options,
restricted share plans, performance-based awards, share appreciation rights, and
employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123,
Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25,
Accounting for Stock Issued to Employees. Statement 123, as originally issued in
1995, established as preferable a fair-value-based method of accounting for
share-based payment transactions with employees. However, that Statement
permitted entities the option of continuing to apply the guidance in Opinion 25,
as long as the footnotes to financial statements disclosed what net income would
have been had the preferable fair-value-based method been used. Public entities
(other than those filing as small business issuers) will be required to apply
Statement 123(R) as of the first interim or annual reporting period that begins
after December 15, 2005. The Company has not yet determined which transition
method it will adopt for the recognition of the stock based compensatory expense
previously reported in pro-forma format as the options vest. The Company has
determined not to early adopt and will recognize the fair value of all newly
issued share-based payments to employees in the prescribed period.
 
 In December 2004 the Financial Accounting Standards
Board issued two FASB Staff-Positions—FSP FAS 109-1, Application of FASB
Statement 109 "Accounting for Income Taxes" to the Tax Deduction of Qualified
Production Activities Provided by the American Jobs Creation Act of 2004, and
FSP FAS 109-2, Accounting and Disclosure Guidance for the Foreign Earnings
Repatriation Provision within the American Jobs Creation Act of 2004. 
Neither of these affected the Company as it does not participate in the related
activities.
 
 **2.
Inventories**
 
 A summary
is as follows:
 
 ****
      ****
    
    **December
      31,**
      **2004**Finished
      goods
    
    $
    59,700Raw
      materials
    
    
    331,025Total
      inventories
    
    
    390,725Less:
      Reserves
    
    
    (211,048
    )Inventories,
      net
    
    $
    179,677
 
 During
the year ended December 31, 2004, the Company increased its inventory reserve by
$185,621 due to the cancellation of a contract by a specific customer and other
reserves were provided to cover slow moving and obsolete
inventories.
  29
 **3.
Property and Equipment**
 
 A summary
is as follows:
 
 ****
      ****
    
    **December
      31,**
      **2004**Machinery
      and equipment
    
    $
    214,037Leasehold
      improvements
    
    
    11,950Office
      furniture and equipment
    
    
    37,286Automobiles
    
    
    20,000Software
    
    
    6,542289,815Accumulated
      depreciation and amortization
    
    
    (194,612
    )Property
      and equipment — net
    
    $
    95,203
 
 Depreciation
and amortization expense totaled $41,747 and $41,832 for the years ended
December 31, 2004 and 2003, respectively.
 
 **4.
Line of Credit**
 
 In
October 2004, the Company entered into a new revolving line of credit with an
asset-based lender. The line of credit is fully secured by accounts receivable
and inventory. The line of credit bears interest at the prime rate plus 6.00%
(11.25% at December 31, 2004) per annum and allows the Company to borrow up to
$200,000. At December 31, 2004, $137,924 was outstanding on the line of credit.
As of December 31, 2004, the Company was in compliance with the terms of the
line of credit. (See Note 13)
 
 **5.
Note Payable**
 
 In March
2003, the Company borrowed $200,000 on a short-term unsecured note at a 12%
percent interest rate to finance short-term working capital requirements. During
2003, the Company repaid $100,000 on the short-term note. The remaining note
balance of $100,000 plus accrued interest was converted into shares of the
Company’s common stock at the prevailing market price, $0.41 per share, on
September 28, 2004; accordingly, as of December 31, 2004, the balance was zero.
(See Note 7)
 
 **6.
Income Taxes**
 
 Deferred
income taxes, reflecting the net tax effects of temporary differences between
the carrying amount of assets and liabilities recognized for financial reporting
purposes and the amounts recognized for income tax purposes, are based on tax
laws currently enacted.
  Components
of deferred tax assets are as follows:
  **F****or
      the year ended December 31,****2003**
    
    **2004**Federal
      net operating loss carryforwards
    
    $
    5,010,409
    
    $
    5,362,000State
      net operating loss carryforwards
    
    
    714,433
    
    
    1,041,000Deferred
      compensation
    
    
    161,140
    
    
    —Basis
      difference in property and equipment
    
    
    (124,800
    )
    
    (94,000
    )Basis
      difference in intangible assets
    
    
    (364,514
    )
    
    —Other
    
    
    66,480
    
    
    18,000Deferred
      tax asset
    
    
    5,563,147
    
    
    6,327,000Valuation
      allowance
    
    
    (5,563,147
    )
    
    (6,327,000
    )Netdeferred
      tax asset
    
    $
    —
    
    $
    —
 ****
 As of
December 31, 200 4 , the
Company had federal and state net operating loss carryforwards of $ 15,769,449 and
$ 15,637,335 ,
respectively, expiring during the years 2013 through 20 24 .
 
 30
 No
provision for income taxes has been recorded due to the Company’s net operating losses. The
differences between the provision for income taxes and income taxes computed
using the U.S. federal income tax rate were as follows:
 **For
      the year ended December 31,****2004**
    
    **200****3**Amount
      computed using statutory rate (34%)
    
    $
    (528,400
    )
    $
    (811,390
    )Change
      in Valuation Allowance
    
    
    763,853
    
    
    836,241Non-Deductible
      Items
    
    
    (131,453
    )
    
    154,933State
      Income Taxes
    
    
    (104,000
    )
    
    (179,784
    )Provision
      for Income Taxes$
    —
    
    $
    —
 SFAS No.
109, *Accounting for Income Taxes,* requires
that the tax benefit of net operating losses, temporary differences, and credit
carryforwards be recorded as an asset to the extent that management assesses
that realization is “more likely than not.” Realization of the future tax
benefits is dependent on the Company’s ability to generate sufficient taxable
income within the carryforward period. Because of the Company’s current
operating losses, management has provided a 100% valuation allowance for its net
deferred tax assets.
  **7.
Shareholders’ Equity**
 
 *Common
Stock —* In
December 2003, the Company completed a 1-for-3 reverse split of its common
stock, the effects of which have been applied to the Company’s financial
statements for all periods presented. The reverse split was applied to
outstanding common stock, as well as any common stock warrants and options
granted as of the time of the reverse split.
 *Class
B Warrants* *—* The Company has Class B warrants (OTCBB: MHLXZ)
outstanding that may be exercised to purchase approximately 926,833 shares of
common stock at a price of $21.60 per share. The Class B warrants were issued as
part of units in the Company’s initial public offering on November 16, 2001 and
expire on November 16, 2006.
 *Preferred
Stock —* The
Company is authorized to issue 3,500,000 shares of preferred stock. 500,000
shares are designated Series A Preferred Stock. As of December 31, 2004, there
were zero shares of preferred stock issuance and outstanding. (See Note 13 for
subsequent issuance of Series B Preferred Stock)
 
 *Treasury
Stock* --- In
January 2003 the Board of Directors approved the purchase of 13,333 shares of
microHelix common stock in a private transaction from a shareholder at $1.50 per
share which represented the fair market value of the common stock on the date of
the repurchase. As of December 31, 2004 the Company continued to own the stock.
Treasury stock is not considered issued and outstanding under Oregon law and
therefore is not shown as issued on the consolidated balance sheet.
 
 *Stock
Option Plan —* The
Company’s 2002 Non Qualified Stock Option Plan (the “2002 Non Qualified Plan”)
was adopted by the Board of Directors in October 2002. The 2002 Non Qualified
Plan provides for the issuance of options to purchase up to 20,000 shares of
common stock to its employees and consultants. Options are granted under various
vesting arrangements, up to a maximum of four years and expire after a maximum
of ten years, and are subject to a stock transfer restriction agreement to be
entered into upon exercise.
 
 *Stock
Incentive Plans —* The
Company’s 2001 Stock Incentive Plan (the “2001 Plan”) was adopted by the Board
of Directors in July 2001 and approved by the shareholders in August 2001. The
2001 Plan provides for the issuance of options to purchase up to 200,000 shares
of common stock. Options are granted under various vesting arrangements, up to a
maximum of five years and expire after a maximum of ten years and are subject to
a stock transfer restriction agreement to be entered into upon
exercise.
 
 The
Company has a 1998 Stock Incentive Plan (the “1998 Plan”), under which grants of
options to purchase up to 21,392 shares of common stock to its employees and
service providers are outstanding. Options were granted under various vesting
arrangements, up to a maximum of five years and expire after a maximum of ten
years and are subject to a stock transfer restriction agreement to be entered
into upon exercise. In 2002, the Board of Directors voted to discontinue further
grants of options under this plan.
 
 The
following table summarizes current year activity under the 1998, 2001, and 2002
Plans:
 
 31
 
 
 ****
    
    **Outstanding
      Options******
      ****
    
    ****
      **Number****of 
      Shares**
    
    **Weighted****Average**
      **Exercise****Price**
      **Per
      S****hare**Balance
      at December 31, 2001
    
    
    78,536
    
    $
    5.54Options
      granted, less than market price
    
    
    20,173
    
    
    3.10Options
      granted at market price
    
    
    58,687
    
    
    .97Options
      granted, greater than market price
    
    
    1,167
    
    
    1.28Options
      cancelled
    
    
    (24,503
    )
    
    3.28Balance
      at December 31, 2002
    
    
    134,060
    
    
    2.60Options
      granted at market price
    
    
    101,646
    
    
    1.56Options
      cancelled
    
    
    (25,848
    )
    
    9.11Balance
      at December 31, 2003
    
    
    209,858
    
    
    4.65Options
      granted
    
    
    —
    
    
    —Options
      cancelled
    
    
    (91,991
    )
    
    5.45Balance
      at December 31, 2004
    
    
    117,867
    
    $
    4.03
 
 The
following table summarizes information about stock options outstanding and
exercisable under the 1998, 2001, and 2002 Plans at December 31,
2004:
 
 
 **Options
      Outstanding**
    
    **Options
      Exercisable****Weighted-****Average**
    
    **Weighted-**
    
    
    
    **Weighted-****Remaining**
    
    **Average**
    
    **Number**
    
    **Average****Number
      of**
    
    **Contractual**
    
    **Exercise**
    
    **of
      Options**
    
    **Exercise****Range
      of Exercise Prices**
    
    **Options**
    
    **Life
      (yrs)**
    
    **Price**
    
    **Exercisable**
    
    **Price**$
      .00 - $1.95
    
    
    61,329
    
    
    8.3775
    
    $
    1.32
    
    
    36,665
    
    $
    1.25$
      3.84 - $ 4.20
    
    
    33,306
    
    
    7.2076
    
    
    3.92
    
    
    22,942
    
    
    3.94$
      8.16 - $9.30
    
    
    19,478
    
    
    4.4897
    
    
    8.27
    
    
    17,791
    
    
    8.28$27.18
    
    
    3,754
    
    
    6.5449
    
    
    27.18
    
    
    2,253
    
    
    27.18117,867
    
    
    7.3461
    
    $
    4.03
    
    
    79,651
    
    $
    4.33
  *Stock
Warrants —* In
connection with bridge loans issued in June 2001, the Company granted warrants
to purchase 52,000 units, with each unit consisting of a share of common stock
and a Class B warrant, at a price of $16.20 per unit. The warrants may be
exercised at any time during a period of three years commencing on the first
anniversary of the effective date of the offering, November 16, 2002.
 
 In
connection with a credit facility agreement entered into in January 2001, the
Company granted 1,472 common stock warrants at an exercise price of $27.18 per
share. The warrants expire in January 2008.
 
 *Deferred
Compensation —* In prior
years, deferred compensation related to stock options granted ** was
amortized over a 10 year service period on a straight line basis through
December 31, 2003. The majority of employees who received these stock options
are no longer employed by the Company and, accordingly, their stock options have
been cancelled and the remaining deferred compensation was expensed in the year
ended December 31, 2004.
 
 **8.
Related-Party Transactions**
 
 There are
no transactions with affiliates or related parties that impact sales or
expenses. All transactions with shareholders were consummated on terms
equivalent to those that prevail in arm’s length transactions. The significant
transactions are summarized below:
 
 ****
      ****
    
    **Year
      Ended December****31,******
    
    **2003**
    
    **2004**Interest
      expense on note payable to shareholder
    
    $
    42,869
    
    $
    5,094
 
 32
 On April
22, 2004, the Company repaid $227,000, which represented the full principal and
interest outstanding of the note payable to shareholder.
 
 9. **Commitments
and Contingencies**
 
 *Operating
Leases —* The
Company leases certain office space and equipment. The operating leases expire
at various dates through August 2007. The
following is a schedule by years of future minimum rental payments required
under operating leases that have non-cancelable lease terms in excess of one
year without regards to renewal options as of December 31, 2004
  **Year
      Ending December 31,**
    
    ****2005
    
    $
    377,3242006
    
    
    194,3762007
    
    
    34,600Net
      operating lease commitments
    
    $
    606,300
 
 For the
years ended December 31, 2004 and 2003, the Company incurred rent expense of
$393,492 and $348,228, respectively.
The Company sub-leased most of the Portland building to ANS during 2004 and
received $124,300 of income that was used to offset the cost of leasing the
facility. (See Note 13)
  *Litigation
—* From time
to time, the Company is involved as a defendant in litigation in the ordinary
course of business, the outcome of which cannot be predicted with certainty. As
of December 31, 2004, the Company is not aware of any legal proceedings or
claims against the Company.
 
 10. **Major
Customers**
 In 2004,
sales from two customers represented $754,698 or 58%, and $143,054 or 11%
respectively, of the Company’s sales from continuing operations. In 2003, one
customer accounted for $1,153,434 or 69% of the Company’s sales from continuing
operations. No other customer in 2004 or 2003 accounted for more than 10% of
sales from continuing operations.
 
 **11.
Retirement Plan**
 
 The
Company offers a 401(k) employee savings plan with eligibility requirements of
three months of service. There are no required employer contributions and no
Company contributions were made to the plan during the years ended December 31,
2003 and 2004, respectively.
 
 **12.**  **Discontinued
Operations**
 
 In view
of the continued losses incurred by the Company, the Board of Directors, in
December 2003, concluded that a sale of existing assets or a business
combination with another company was necessary. As a result of this effort, on
March 8, 2004, the Company announced that an agreement had been reached to sell
the assets of the Company’s Portland based wire and cable division to ANS of
Dallas, Texas. The transaction closed on April 21, 2004, following the approval
of the shareholders. The Company does not have any continuing obligations to
ANS, and therefore, there are no risks of continuing ownership that apply to
this transaction.
 
 In
accordance with SFAS 144 “Accounting for the Impairment or Disposal of
Long-Lived Assets,” the Company accounted for the pending sale of the wire and
cable division as a discontinued operation for the year ended December 31, 2003.
Accordingly, the net operating results, assets held for sale and liabilities
held for sale and net cash flows of the new wire and cable division were
accounted for separately from those of continuing operations and reported as
“Discontinued Operations.”
  33
 Note
Payable to Shareholder represents the principal value of a note that was due on
December 31, 2004.
 
 The
Company continued to operate the wire and cable division until the transaction
closed on April 21, 2004. The results, including an allocation of interest
expense, relating to the discontinued operations for the interim period between
January 1, 2004 and April 20, 2004, as well as for the year ended December 31,
2003 are reflected in the following table.
 
 
 
 
 Year Ended December 31,2003
    
    2004Sales
    
    $
    3,226,649
    
    $
    749,195Cost
      of Sales
    
    
    3,147,100
    
    
    599,340Gross
      Profit (Loss)
    
    
    79,549
    
    
    149,855Operating
      Expenses:Research
      and development
    
    
    517,910
    
    
    133,614Sales
      and marketing
    
    
    502,332
    
    
    59,188General
      and administrative
    
    
    197,970
    
    
    55,325Impairment
      loss on intangibles
    
    
    149,242
    
    
    —Total
      Operating Expenses
    
    
    1,367,454
    
    
    248,127Total
      Operating Loss
    
    
    (1,287,905
    )
    
    (98,272
    )Total
      Other Expense
    
    
    (48,452
    )
    
    (24,605
    )Net
      Loss
    
    $
    (1,336,357
    )
    $
    (122,877
    )
  On April
21, 2004, the Company completed the previously announced sale of its wire and
cable division to ANS. The Company recognized a loss of $129,816 on the
transaction after taking into account transaction expense totaling $125,598. The
results of this transaction are reported separately in the consolidated
Statement of Operations and the details associated with the transaction are
outlined below:
  Value
      Received:Cash
    
    $
    1,500,000Accounts
      payable transferred
    
    
    75,491Payoff
      of shareholder note
    
    
    227,000Gain
      on leased asset transfer
    
    
    99,742Total
    
    $
    1,902,233Value
      Transferred:Intellectual
      property
    
    $
    908,534Property,
      plant and equipment
    
    
    796,261Inventory,
      net
    
    
    201,656Total
    
    $
    1,906,451Net
      liabilities
    
    
    4,218Transaction
      expenses (banking fees, legal expense and other costs)
    
    
    125,598Loss
      on sale of wire and cable division
    
    
    ($129,816
    )
  34
 **13.
Subsequent Events**
 
 *Acquisition
of Subsidiary*
 
 On April
8, 2005, the Company entered into a merger agreement and acquired 100% of the
outstanding stock of Moore Electronics, Inc., an Oregon corporation ("MEI"),
from two shareholders. On April 4, 2005, the Company incorporated microHelix
Acquisition Corp., an Oregon corporation, as a 100% owned subsidiary of the
Company. microHelix Acquisition Corp. was merged with MEI with MEI being the
surviving corporation and becoming a wholly-owned subsidiary of the Company.
 
 MEI,
headquartered in Tualatin, Oregon, was founded in 1978 and is an independent
manufacturer of customized cable assemblies, sub-assemblies, wire harnesses and
electro-mechanical assemblies. MEI serves major medical equipment manufacturers
and commercial equipment manufacturers. MEI will be operated as a wholly owned
subsidiary of microHelix. MEI occupies a leased 33,000 square foot facility and
employees 130 people. For the year ended December 31, 2004, MEI had unaudited
sales of approximately $11,100,000 and operating income of approximately
$75,000.
  *Issuance
of Common Stock*
 
 The
Company paid $3,000,000 for the stock of MEI which payment consisted of
$1,500,000 in cash, $1,250,000 in the form of a promissory note and 250,000
shares of Series B Preferred Stock valued at $250,000. In addition, the Company
refinanced $400,000 of bank debt owed by MEI. The promissory note bears interest
at 10% per annum, with interest only payable for the first three months and then
principal and interest amortized in monthly payments until April 2008. The
promissory note may be prepaid at any time without penalty . The
Company intends to engage an independent party to provide a “fair value”
appraisal so the purchase cost of the MEI acquisition can be appropriately
allocated to the various assets and liabilities acquired. Since the acquisition
was completed on April 8, 2005, it is not practicable to include such
information in this report.
 
 In order
to finance the acquisition of MEI, the Company sold 2 million shares of Series B
Preferred Stock at $1.00 per share in a private placement. Each share of Series
B Preferred Stock is convertible into four shares of Common Stock. Each share of
Series B Preferred Stock is eligible for a cumulative dividend of $0.15 per
share per annum, payable quarterly if declared by the Board of Directors of the
Company. The Company can redeem the shares of Series B Preferred Stock at any
time after April 8, 2006 for $1.50 per share. Series B Preferred Stock have the
same voting rights as the holders of Common Stock and each Series B Preferred
Stock shareholder is entitled to the number of votes as the shares of Common
Stock into which such shares of Series B Preferred Stock could, at the time of
such vote, be converted.
 
 The
Company and MEI also entered into an amended and restated loan and security
agreement with Business Finance Inc. (BFI) dated as of April 5, 2005 that became
effective on April 8, 2005 under which the Company and MEI can borrow up to
$1,500,000 subject to advance rates on accounts receivable and inventories. The
loan agreement amends and restates in its entirety the existing loan and
security agreement dated October 7, 2004 between the Company and BFI. The loan
agreement is scheduled to expire on April 8, 2006. The Company and MEI have
granted security interests in the loan agreement to BFI covering substantially
all of their respective assets.
 
 Borrowings
under the loan agreement will be used to refinance existing bank debt owed by
the Company and MEI, to pay a portion of the purchase price of the MEI stock
acquired by the Company in the merger and for general corporate purposes.
Borrowings under the loan agreement will bear interest at the "deemed prime
rate" plus 5%. The "deemed prime rate" equals the greater of the prime rate as
published in The Wall Street Journal or 5.25%. The loan agreement contains
customary affirmative and negative covenants and events of default for a secured
financing arrangement, including, among other things, limitations on
consolidations, mergers and sales of assets.
 
 The
Company issued warrants on April 8, 2005 to its financial advisor and its
affiliates to purchase a total of 478,000 shares of Common Stock. Such warrants
can be exercised through April 7, 2015 for a price of $0.25 per share. The
Company also issued a total of 123,000 shares of common stock to six of its
employees and directors. These grants were unrestricted and were made for
services related to the successful completion of the merger.
 
 35
 *Sub
Lease Rental Agreement*
 
 On March
8, 2005 the Company signed a sub-lease agreement with ANS whereby ANS has agreed
to assume the lease obligation for the Company's facilities in Portland, Oregon
beginning April 21, 2005 through the termination of the lease on November 30,
2005.
 
 **Item
8.** ***Changes
In and Disagreements with Accountants on Accounting and Financial
Disclosure***
 
 None.
 
 **Item
8A.** ***Controls
and Procedures***
 
 The
Company's Chief Executive Officer/Principal Financial Officer evaluated the
effectiveness of the design and operation of the Company's disclosure controls
and procedures as of December 31, 2004. Based on that evaluation, the Company's
Chief Executive Officer/Principal Financial Officer concluded that,
notwithstanding the material weakness discussed in the following paragraph, as
of the evaluation date the Company's disclosure controls and procedures are
designed to and are effective to give reasonable assurance that the information
the Company must disclose in reports filed with the Securities and Exchange
Commission is properly recorded, processed, summarized, and reported as
required.
 
 There
were no changes in the Company's internal control over financial reporting
during the year ended December 31, 2004 that materially affected, or were
reasonably likely to materially affect the Company's internal control over
financial reporting. However, in January 2005, our management and our newly
appointed independent registered public accountants reviewed our 10-QSB filings
for the periods ended March 31, 2004, June 30, 2004, and September 30, 2004, and
reported to our Audit Committee two matters with regard to the interim financial
statements prepared for the periods ending March 31, 2004 and June 30, 2004 that
should be changed. Management believes these recommended adjustments to the
interim financial statements reflect a material weakness under standards
established by the Public Company Accounting Oversight Board ("PCAOB"). The
Company restated the 10-QSB’s for each quarter in 2004 due to a correction of an
error for inventory reserves during the quarterly period ending March 31, 2004,
and a reclassification of a one-time entry that recorded a sale of assets that
occurred during the quarterly period ending June 30, 2004. Additional inventory
reserves were provided for the quarterly period ending December 31, 2004. These
material weakness issues have been discussed in detail among management,
our Audit Committee, and our independent registered public accountants. The
Company plans to hire additional finance personnel, make the necessary changes
to strengthen inventory controls, and we will continue to evaluate our internal
controls and procedures to identify any needed improvements.
 
 **Item
8B.** ***Other
Information***
 
 None.
 
 36
 **PART
III**
 
 
 **Item
9.** ***Directors,
Executive Officers, Promoters and Control Persons; Compliance With Section 16(a)
of the Exchange Act***
 
 The
following table sets forth the names of our directors. Also set forth is certain
information with respect to each such person's age at March 25, 2005, principal
occupation or employment during at least the past five years, the periods during
which he or she has served as a director of microHelix and positions currently
held with microHelix.
 
 **Name**
    **Age**
    **Position**James
      M. Williams
    61
    Director
      and Chairman of the BoardTyram
      H. Pettit
    54
    Director,
      President, Chief Executive Officer, Vice President - Finance and Assistant
      SecretaryTerrence
      A. Rixford
    69
    Director
      and SecretaryJohn
      L. Crary
    51
    Director
 
 *James
M. Williams* has been
a director of microHelix since 1998 and was elected Chairman of the Board in
April 2003. He is currently the Chairman of Encore Senior Living, LLC one of the
nation's largest privately held providers of senior living services. From
Encore's inception in 1996 until his retirement in 2001, Mr. Williams was
President and CEO. Prior to Encore, Mr. Williams was a co-founder, Chief
Operating Officer and Vice-Chairman of Brim, Inc., one of the nation's leading
hospital management companies, which merged into Province Healthcare Inc. in
1996. Mr. Williams obtained a B.S. in Engineering and an M.B.A. from Oregon
State University.
 
 *Tyram
H. Pettit* has
served as President and Chief Executive Officer of microHelix since August 2002,
and has also served as our Vice-President - Finance and Assistant Secretary
since June 2004. Mr. Pettit has been a director of microHelix since 1998, joined
the Company in June 2001 as Director of Business Development, and served the
Company as Chief Operating Officer from December 2001 to August 2002. Mr. Pettit
has over 29 years of finance and management experience in commercial and
investment banking with Bank of America, Union Bank and Glen Eden Capital and
has served in various executive positions with several small growth companies,
including CMC ReSearch, The Coast Airlines and Djangos.com. From 1988 to 1991,
Mr. Pettit served as President of Vailwood Products, the manufacturer of Vailtex
and LiquiGrip high performance latex exam gloves for the biotechnology and
laboratory markets. Between 1983 and 1984, Mr. Pettit served the Reagan
Administration as a Special Assistant in the Federal Aviation Administration.
Mr. Pettit holds a B.A. in Liberal Arts from Pomona College and an M.B.A. in
Finance from the Columbia University Graduate School of Business.
 
 *Terrence
A. Rixford* has been
a director of microHelix since September 2001 and has been our Secretary since
August 2002. Mr. Rixford also served as microHelix's Chief Financial Officer
from September 2001 through April 2004, and as our Senior Vice President -
Finance from August 2002 through April 2004. From 1998 to 2001, Mr. Rixford was
involved in various charitable activities. From 1992 to 1998, Mr. Rixford was
Vice President, Finance for Analogy, Inc., a software design company
(subsequently acquired by Avant! Corporation in March 2000). During his
employment at Analogy, Inc., he was involved with its initial public offering.
Mr. Rixford has more than 30 years of experience in senior financial positions
in the high technology industry. Mr. Rixford earned a B.S. in Business
Administration from Mt. St. Mary's College and an M.B.A. in Accounting from the
Cornell University Graduate School of Business.
 
 *John
L. Crary* became a
director of microHelix in June 2001. Since 1999 Mr. Crary has been the managing
member of Crary Enterprises, LLC, a private investment company. Since 1988 Mr.
Crary has been an independent corporate financial advisor and private investor
in various biotechnology, software and other early stage business ventures. Mr.
Crary began his business career as an investment banker with E.F. Hutton &
Company Inc. Mr. Crary is also a director of Scheid Vineyards, Inc. Mr. Crary
holds a B.A. in Social Ecology from the University of California at Irvine and
an M.B.A. from the Columbia University Graduate School of Business.
 
 37
 The
following table sets forth certain information with respect to the executive
officers and other significant employees of the Company.
 
 **Name**
    **Age**
    **Position**Tyram
      H. Pettit
    54
    Director,
      President, Chief Executive Officer, Vice President - Finance, and
      Assistant SecretaryDavid
      G. Martell
    59
    Vice-President
      - Ultrasound Division
 
 Information
concerning Mr. Pettit is set forth under the director section above.
 
 *Mr.
David G. Martell* was
appointed a Vice President of microHelix in June 2004. Prior to his appointment
he was General Manager of the Tucson/Nogales ultrasound assembly division for
the Company. Mr. Martell was Operations Manager for Alcatel Cable for five years
prior to joining microHelix. Mr. Martell was a co-founder of Vermont
Semiconductor Inc., and has 35 years of management, engineering and business
experience in micro miniature medical cable assembly, chip & wire, IC &
hybrid assembly, thick film ceramic fabrication and electronic fuel gauging
systems for space systems. Mr. Martell has managed manufacturing companies in
Canada, the United States and Mexico. Mr. Martell attended Vermont State College
and the DeVry Technical Institute for Electronic Engineering.
 
 Officers
serve at the discretion of the Board of Directors. There are no family
relationships among any of our directors and executive officers.
 
 **Audit
Committee**
 
 The
current members of the Audit Committee are James M. Williams, John L. Crary and
Terrence A. Rixford. Mr. Rixford is chairman of the Audit Committee. Mr. Rixford
is qualified as an audit committee financial expert. Mr. Rixford is not an
independent director under NASD Rule 4200(a) (15) since he is the Secretary of
the Company, was employed by the Company within the past three years, and is
compensated for accounting-related consulting services for the Company. Mr.
Williams and Mr. Crary are independent directors.
 
 **Section
16(a) Beneficial Ownership Reporting Compliance**
 
 Section
16(a) of the Exchange Act requires the Company's executive officers, directors,
and persons who own more than 10 percent of the Common Stock to file reports of
ownership and changes in ownership with the SEC. Executive officers, directors
and beneficial owners of more than 10 percent of the Common Stock are required
by the SEC's regulations to furnish the Company with copies of all Section 16(a)
reports they file. Based solely on a review of such reports received the Company
believes that the following Section 16(a) filing requirements applicable to its
executive officers and directors were not filed in a timely manner: in December
2003 a corporation controlled by director James M. Williams, CTK Capital
Corporation, and John L. Crary each agreed to convert $50,000 loans to the
Company into shares of Common Stock at a conversion rate of $1.41 per share, and
it does not appear that Form 4 filings were made to report such conversions.
With regard to beneficial owners of more than 10 percent of the Common Stock, a
Form 4 filed by Paulson Capital Corp. to reflect a transaction on September 28,
2004 in which its affiliate, Paulson Investment Company, Inc., converted a March
2003 promissory note into 277,907 shares of Common Stock was not filed until
January 3, 2005. Each individual or entity referenced above has one instance
when a Section 16(a) report was not filed on a timely basis, each report
involving one transaction.
 
 **Code
of Ethics**
 
 microHelix
on April 6, 2005 adopted a code of ethics that applies to our directors,
officers and employees. A copy of the code of ethics is attached as an exhibit
to this report.
 
 **Item
10.** ***Executive
Compensation***
 
 **Summary
Compensation Table**
 
 38
 The
following table sets forth certain information regarding compensation paid
during the last three fiscal years to our President and Chief Executive Officer.
No other executive officer received compensation in excess of $100,000 in any
year.
 
 **Annual
      Compensation**
    
    **Long-Term**
      **Compensation**
      ****
      **Securities**
      **Underlying
      Options**
    
    **All
      Other**
      **Compensation****Name**
    
    **Year**
    
    **Salary**
    
    **Bonus**Tyram
      H. Pettit
    
    
    2004
    
    $90,000
    
    $   
      0
    
    
    0
    
    $   
      02003
    
    $   
      87,077
    
    $   
      0
    
    
    16,667
    
    $   
      02002
      (1)
    
    $   
      98,000
    
    $   
      0
    
    
    18,320
    
    ********$   
      0
 
 
 (1)
    Mr.
      Pettit served as Chief Operating Officer from January through August 2002
      and was appointed President and Chief Executive Officer at that time.
 
 **Option
Grants in Last Fiscal Year**
 
 No stock
options were granted to executive officers in 2004.
 
 **Option
Exercises in Last Fiscal Year and Fiscal Year End Option Values**
 
 The
following table sets forth for the named executive officer the number and value
of unexercised options as of December 31, 2004. No stock options were exercised
by the named executive officer during 2004.
  **Shares****Acquired
      on Exercise**
    
    **Value
      Realized**
    
    **Number
      of Securities**
      **Underlying
      Unexercised**
      **Options
      At December 31, 2004**
    
    **Value
      of Unexercised**
      **Options**
      **At
      December 31, 2004****Name**
    
    
    
    
    
    **Exercisable**
    
    **Unexercisable**
    
    **Exercisable**
    
    **Unexercisable**Tyram
      H. Pettit
    
    
    0
    
    $   
      0
    
    
    19,017
    
    
    20,755
    
    $   
      0
    
    $   
      0
 
 
 **Director
Compensation**
 
 A
non-employee director compensation plan was approved at the Board of Directors
meeting on June 6, 2002. During 2004, non-employee directors received a $2,000
annual retainer, $350 for each Board meeting attended and $200 for each
committee meeting attended. In addition the Compensation Committee Chair and the
Audit Committee Chair each received an additional $1,000 retainer. Non-employee
directors are also reimbursed for their out-of-pocket expenses incurred on
behalf of the Company. Employee directors do not receive any fees for serving on
the Board.
  **Item
11.** ***Security
Ownership of Certain Beneficial Owners and Management***
 
 A chart
showing the securities authorized for issuance under equity compensation plans
is contained in Item 5.
 
 **Common
Stock Ownership of Certain Beneficial Owners**
 
 The
following table sets forth information, as of April 8, 2005, with respect to the
beneficial ownership of the Common Stock by each shareholder known by us to be
the beneficial owner of more than five percent of the Common Stock. Beneficial
ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Shares of Common
Stock issuable on exercise of currently exercisable or convertible securities or
securities exercisable or convertible within 60 days of April 8, 2005 are deemed
beneficially owned and outstanding for computing the percentage owned by the
person holding such securities, but are not considered outstanding for computing
the percentage of any other person. Unless otherwise noted, each shareholder
named in the table has sole voting and investment power with respect to the
shares set forth opposite that shareholder's name.
 
 microHelix has outstanding as of April 8, 2005
2,082,746 shares of Common Stock, with each share having one vote. microHelix
has outstanding as of April 8, 2005 2,250,000 shares of Series B Preferred
Stock, with each share having four votes on an as-converted basis. Common Stock
and Series B Preferred Stock vote together as a single class on virtually all
matters. Therefore, as of April 8, 2005 11,082,746 votes are eligible to be cast
by microHelix shareholders.
 
 39
 **Class**
    **Name
      and Address**
      **Of
      Beneficial Owner**
    **Number
      of Shares Beneficially Owned**
    **Percent
      of Class**Common
    Richard
      G. Sass
      02000
      SW Palatine Hill Road
      Portland,
      OR 97219
    605,543(1)
    27.23%Common
    John
      L. Crary
      c/o
      microHelix, Inc.
      16125
      SW 72ndAvenue
      Portland,
      OR 97224
    570,907(2)
    22.40%Common
    Paulson
      Group(3)
      811
      SW Naito Parkway
      Portland,
      OR 97204
    2,171,791(4)
    56.26%Common
    Trust
      Company of America FBO Yee Ling Hayden
      7103
      S. Revere Pkwy
      Englewood,
      CO 88112
    2,100,000(5)
    50.21%Common
    Daniel
      E. Kern
      1027
      Goldenrod Ave
      Corona
      Del Mar, CA 92625
    600,000(6)
    22.37%Common
    SCG
      Capital, LLC
      19495
      Biscayne Blvd, #608
      Aventura,
      FL 33100
    600,000(7)
    22.37%Common
    James
      M. Williams and
      CTK
      Capital Corporation
      c/o
      microHelix, Inc.
      16125
      SW 72nd Avenue
      Portland,
      Oregon 97224
    675,901(8)
    25.07%Common
    Southfield
      Communications LLC
      485
      Underhill Boulevard, Suite 205
      Syosset,
      NY 11791
    400,000(9)
    16.11%Common
    Kleeman
      Family Trust
      526
      Via Sinosa
      Santa
      Barbara, CA 93110
    400,000(10)
    16.11%Common
    Terrence
      A. Rixford and
      Terrence
      and Elizabeth Rixford
      Revocable
      Living Trust dtd 9/9/94
      c/o
      microHelix, Inc.
      16125
      SW 72nd Avenue
      Portland,
      Oregon 97224
    248,485(11)
    10.79%
   40
 Common
    Tyram
      H. Pettit
      c/o
      microHelix, Inc.
      16125
      SW 72nd Avenue
      Portland,
      Oregon 97224
    138,136(12)
    6.37%Common
    Marti
      D. Lundy
      c/o
      microHelix, Inc.
      19500
      SW 90thCt
      Tualatin,
      OR 97062
    1,000,000(13)
    32.44%Common
    Windstone
      Capital Partners
      6232
      North 32ndStreet
      Phoenix,
      AZ 85018
    220,848(14)
    9.59%Common
    Tonkon
      Torp LLP Illiquid Trust fbo Kurt W. Ruttum
      888
      SW Fifth Avenue
      1600
      Pioneer Tower
      Portland,
      OR 97204
    200,000(15)
    8.76%Common
    Gustav
      Treske and E. L. Treske
      3860
      Rosepark Drive
      West
      Linn, OR 97068
    145,500(16)
    6.53%Common
    Theo
      Treske and Sara J. Treske
      14335
      Fosberg Road
      Lake
      Oswego, OR 97035
    145,500(17)
    6.53%Common
    Triangle
      Holdings LLC
      3121
      SW Moody Avenue
      Portland,
      OR 97239
    200,000(18)
    8.76%
 
  (1)
    Includes
      14,417 shares of Common Stock held by the J.M. Ek Living Trust, of which
      Mr. Sass is a trustee, options to purchase 8,148 shares of Common Stock,
      and Class B warrants to purchase 133,045 shares of Common Stock, of which
      warrants to purchase 14,417 shares of Common Stock are held by the J.M. Ek
      Living Trust.
  (2)
    Includes
      95,377 shares of Common Stock held in a trust of which Mr. Crary is both
      the trustee and the beneficiary, Class B warrants held by the trust to
      purchase 14,424 shares of Common Stock, options to purchase 7,772 shares
      of Common Stock, warrants to purchase units consisting of 21,667 shares of
      Common Stock and Class B warrants to purchase 21,667 shares of Common
      Stock, and 400,000 shares of Common Stock issuable upon conversion of
      Series B Preferred Stock owned by three trusts for which Mr. Crary is the
      trustee.
  (3)
    Common
      Stock and Class B warrants to purchase Common Stock and Series B Preferred
      Stock (see note 4) are held by Paulson Investment Company, Inc. and
      Chester L. F. Paulson. Paulson Investment Company, Inc. is a registered
      broker/dealer and a wholly owned subsidiary of Paulson Capital Corp.
      Chester L. F. Paulson and Jacqueline M. Paulson are controlling managers
      of Paulson Family LLC, which is a controlling shareholder of Paulson
      Capital Corp. Mr. and Ms. Paulson and Paulson Family LLC disclaim any
      beneficial ownership of securities held in the names of Paulson Investment
      Company, Inc. or Paulson Capital Corp.
  (4)
    Includes
      Class B warrants to purchase 83,334 shares of Common Stock, held by
      Paulson Investment Company, Inc., and a warrant to purchase 46,942 Units,
      each Unit consisting of one share of Common Stock and one Class B warrant,
      of which the right to purchase 42,487 Units is held by Paulson Investment
      Company, Inc. and the right to purchase 4,455 Units is held by Chester L.
      F. Paulson. Also includes 1,600,000 shares of Common Stock issuable upon
      conversion of Series B Preferred Stock owned by Paulson Investment
      Company, Inc.
  41
 (5)
    Includes
      2,000,000 shares of Common Stock issuable upon conversion of Series B
      Preferred Stock and a warrant to purchase 100,000 shares of Common Stock,
      both owned by Trust Company of America FBO Yee Ling
  Hayden.
  (6)
    Includes
      600,000 shares of Common Stock issuable upon conversion of Series B
      Preferred Stock.
  (7)
    Includes
      600,000 shares of Common Stock issuable upon conversion of Series B
      Preferred Stock.
  (8)
    Includes
      52,693 shares held by CTK Capital Corporation, a corporation controlled by
      Mr. Williams and his family, Class B warrants to purchase 4,700 shares of
      Common Stock, options to purchase 8,508 shares of Common Stock, and
      600,000 shares of Common Stock issuable upon conversion of Series B
      Preferred Stock.
  (9)
    Includes
      400,000 shares of Common Stock issuable upon conversion of Series B
      Preferred Stock.
  (10)
    Includes
      400,000 shares of Common Stock issuable upon conversion of Series B
      Preferred Stock.
  (11)
    Includes
      29,000 shares of Common Stock held by the Terrence and Elizabeth Rixford
      Revocable Living Trust dtd 9/9/94 of which Mr. Rixford is a trustee and a
      beneficiary, options to purchase 18,819 shares of Common Stock, Class B
      warrants to purchase 666 shares of Common Stock, and 200,000 shares
      issuable upon conversion of Series B Preferred
Stock.
  (12)
    Includes
      options to purchase 25,989 shares of Common Stock and 60,000 shares of
      Common Stock issuable upon conversion of Series B Preferred
      Stock.
  (13)
    Includes
      1,000,000 shares of Common Stock issuable upon conversion of Series B
      Preferred Stock.
  (14)
    Includes
      warrants to purchase 220,848 shares of Common
Stock.
  (15)
    Includes
      200,000 shares of Common Stock issuable upon conversion of Series B
      Preferred Stock.
  (16)
    Includes
      145,500 shares of Common Stock issuable upon conversion of Series B
      Preferred Stock.
  (17)
    Includes
      145,500 shares of Common Stock issuable upon conversion of Series B
      Preferred Stock.
  (18)
    Includes
      200,000 shares of Common Stock issuable upon conversion of Series B
      Preferred Stock.
  **Common
Stock Ownership of Management**
  The
following table sets forth information, as of April 8, 2005, with respect to the
beneficial ownership of the Common Stock by (1) each of our directors; (2) our
Chief Executive Officer; and (3) all directors and named executive officers as a
group. The address of each person listed below is: c/o microHelix, Inc., 16125
SW 72nd Avenue, Portland, Oregon 97224. Beneficial ownership is determined in
accordance with the rules of the SEC and generally includes voting or investment
power with respect to securities. Shares of Common Stock issuable on exercise of
currently exercisable or convertible securities or securities exercisable or
convertible within 60 days of April 8, 2005 are deemed beneficially owned and
outstanding for computing the percentage owned by the person holding such
securities, but are not considered outstanding for computing the percentage of
any other person. Unless otherwise noted, each shareholder named in the table
has sole voting and investment power with respect to the shares set forth
opposite that shareholder's name.
 
 **Class**
    **Name
      and Address**
      **of
      Beneficial Owner**
    **Number
      of Shares Beneficially Owned**
    **Percent
      of Class**Common
    James
      M. Williams
    675,901(1)
    
    25.07%Common
    Tyram
      H. Pettit
    138,136(2)
    
    6.37%Common
    John
      L. Crary
    570,907(3)
    
    22.40%Common
    Terrence
      A. Rixford
    248,485(4)
    
    10.79%Common
    All
      executive officers and directors as a group (4 persons)
    1,633,429(5)
    
    47.11%
  (1)
    Includes
      52,693 shares held by CTK Capital Corporation, a corporation controlled by
      Mr. Williams and his family, Class B warrants to purchase 4,700 shares of
      Common Stock, options to purchase 8,508 shares of Common Stock, and
      600,000 shares of Common Stock issuable upon conversion of Series B
      Preferred Stock.
  42
  (2)
    Includes
      options to purchase 25,989 shares of Common Stock and 60,000 shares of
      Common Stock issuable upon conversion of Series B Preferred
      Stock.
  (3)
    Includes
      95,377 shares of Common Stock held in a trust of which Mr. Crary is both
      the trustee and the beneficiary, Class B warrants held by the trust to
      purchase 14,424 shares of Common Stock, options to purchase 7,772 shares
      of Common Stock, warrants to purchase units consisting of 21,667 shares of
      Common Stock and Class B warrants to purchase 21,667 shares of Common
      Stock, and 400,000 shares of Common Stock issuable upon conversion of
      Series B Preferred Stock owned by three trusts for which Mr. Crary is the
      trustee.
  (4)
    Includes
      29,000 shares of Common Stock held by the Terrence and Elizabeth Rixford
      Revocable Living Trust dtd 9/9/94 of which Mr. Rixford is a trustee and a
      beneficiary, options to purchase 18,819 shares of Common Stock, Class B
      warrants to purchase 666 shares of Common Stock, and 200,000 shares
      issuable upon conversion of Series B Preferred
Stock.
  (5)
    Includes
      options to purchase a total of 61,088 shares of Common Stock, Class B
      warrants to purchase a total of 63,124 shares of Common Stock, and a total
      of 1,260,000 issuable upon conversion of Series B Preferred
      Stock.
  **Series
B Preferred Stock Ownership of Certain Beneficial Owners**
 
 The
following table sets forth information, as of April 8, 2005, with respect to the
beneficial ownership of the Series B Preferred Stock by each shareholder known
by us to be the beneficial owner of more than five percent of the Series B
Preferred Stock. Beneficial ownership is determined in accordance with the rules
of the SEC and generally includes voting or investment power with respect to
securities. Unless otherwise noted, each shareholder named in the table has sole
voting and investment power with respect to the shares set forth opposite that
shareholder's name.
 
 **Class**
    **Name
      and Address**
      **Of
      Beneficial Owner**
    **Number
      of Shares Beneficially Owned**
    **Percent
      of Class**Series
      B Preferred Stock
    Trust
      Company of America FBO Yee Ling Hayden
      7103
      S. Revere Pkwy
      Englewood,
      CO 88112
    500,000(1)
    22.22%Series
      B Preferred Stock
    Marti
      D. Lundy
      c/o
      microHelix, Inc.
      19500
      SW 90thCt
      Tualatin,
      OR 97062
    250,000
    11.11%Series
      B Preferred Stock
    Paulson
      Group(2)
      811
      SW Naito Parkway
      Portland,
      OR 97204
    400,000(3)
    17.78%Series
      B Preferred Stock
    Daniel
      E. Kern
      1027
      Goldenrod Ave
      Corona
      Del Mar, CA 92625
    150,000
    6.67%Series
      B Preferred Stock
    SCG
      Capital, LLC
      19495
      Biscayne Blvd, #608
      Aventura,
      FL 33100
    150,000
    6.67%Series
      B Preferred Stock
    James
      M. Williams and
      CTK
      Capital Corporation
      c/o
      microHelix, Inc.
      16125
      SW 72nd Avenue
      Portland,
      Oregon 97224
    150,000(4)
    6.67%
 
 43
 (1)
    Includes
      500,000 shares of Series B Preferred Stock held by Trust Company of
      America FBO Yee Ling Hayden
  (2)
    Series
      B Preferred Stock (see note 3) held by Paulson Investment Company, Inc.
      Paulson Investment Company, Inc. is a registered broker/dealer and a
      wholly owned subsidiary of Paulson Capital Corp. Chester L. F. Paulson and
      Jacqueline M. Paulson are controlling managers of Paulson Family LLC,
      which is a controlling shareholder of Paulson Capital Corp. Mr. and Ms.
      Paulson and Paulson Family LLC disclaim any beneficial ownership of
      securities held in the names of Paulson Investment Company, Inc. or
      Paulson Capital Corp.
  (3)
    Includes
      400,000 shares of Series B Preferred Stock held by Paulson Investment
      Company, Inc.
  (4)
    Includes
      150,000 shares held by CTK Capital Corporation, a corporation controlled
      by Mr. Williams and members of his family
  **Series
B Preferred Stock Ownership of Management**
  The
following table sets forth information, as of April 8, 2005, with respect to the
beneficial ownership of the Series B Preferred Stock by (1) each of our
directors; (2) our Chief Executive Officer; and (3) all directors and named
executive officers as a group. The address of each person listed below is: c/o
microHelix, Inc., 16125 SW 72nd Avenue, Portland, Oregon 97224. Beneficial
ownership is determined in accordance with the rules of the SEC and generally
includes voting or investment power with respect to securities. Unless otherwise
noted, each shareholder named in the table has sole voting and investment power
with respect to the shares set forth opposite that shareholder's name.
 
 **Class**
    
    **Name
      and Address**
      **of
      Beneficial Owner**
    
    **Number
      of Shares Beneficially Owned**
    
    **Percent
      of Class**Series
      B Preferred Stock
    
    
    James
      M. Williams
    
    
    150,000
    (1)
    
    
    6.67
    %Series
      B Preferred Stock
    
    
    Tyram
      H. Pettit
    
    
    15,000
    
    
    
    *Series
      B Preferred Stock
    
    
    John
      L. Crary
    
    
    100,000
    (2)
    
    
    4.44
    %Series
      B Preferred Stock
    
    
    Terrence
      A. Rixford
    
    
    50,000
    (3)
    
    
    2.22
    %Series
      B Preferred Stock
    
    
    All
      executive officers and directors as a group (4 persons)
    
    
    315,000
    
    
    
    14.00
    %
 * Less
than one percent.
  (1)
    Includes
      150,000 shares of Series B Preferred Stock owned by CTK Capital
      Corporation, a corporation controlled by Mr. Williams and members of his
      family.
  (2)
    Includes
      60,000 shares of Series B Preferred Stock held in a trust of which Mr.
      Crary is both the trustee and the beneficiary, and 40,000 shares of Series
      B Preferred Stock held in two trusts for which Mr. Crary is the
      trustee.
  (3)
    Includes
      50,000 shares of Series B Preferred Stock held in a trust of which Mr.
      Rixford is both a trustee and a
beneficiary.
  **Item
12.** ***Certain
Relationships and Related Transactions***
 
 microHelix
was founded by Richard G. Sass, who beneficially owns more than five percent of
microHelix Common Stock. microHelix Labs, Inc., a wholly owned subsidiary of
microHelix that was merged into it in December 2000, borrowed a net amount of
$1,093,312 from Richard G. Sass through a revolving line of credit. The loans
accrued interest at 12 percent per annum until the merger on December 31, 2000.
microHelix Labs, Inc. also borrowed $235,000 at 15 percent interest from the
Sass Living Trust, of which Mr. Sass is a beneficiary. microHelix assumed the
debt of microHelix Labs, Inc. in the merger. In February 2002 the Company agreed
to make a payment of $100,000 in principal and $72,000 in accrued interest on
the Sass Living Trust loan in exchange for a reduction of the interest rate to
7.5%. In January 2003 the Company paid the remaining $135,000 principal on the
Sass Living Trust loan. All amounts due to Mr. Sass were paid in full in April
2004.
 
 44
 BioElectric
Corporation, ("BioElectric") a subsidiary of microHelix also founded by Mr.
Sass, borrowed a net amount of $1,042,003 from him through a revolving line of
credit. On December 31, 2000, microHelix purchased substantially all of the
assets and assumed all of the liabilities of BioElectric, including the loans by
Mr. Sass. All loan amounts payable to Mr. Sass were paid in full in April 2004.
BioElectric was dissolved in October 2004.
 
 Mr. Sass
also loaned microHelix $160,000 for the purchase of the assets of BioElectric on
February 4, 2000 at 12 percent interest, and $383,885 for the purchase of the
assets of the Alcatel ultrasound cable division at 12 percent interest on
December 15, 1999. In addition, Mr. Sass loaned $546,945 to microHelix at 12
percent interest during 2000. In February 2002, the Company agreed to pay Mr.
Sass $460,000 in accrued interest due on these loans in exchange for a reduction
of the interest rate to 7.5 percent. In January 2003 the Company repaid a
$135,000 note payable to Mr. Sass. In March 2003 the Company made a principal
payment of $500,000 and $4,293 of interest due to Mr. Sass per the terms of the
renegotiated loan agreements. As of April 1, 2003 the Company owed Mr. Sass
$500,000. In July 2003 the Company repaid $173,000 to Mr. Sass and consolidated
all outstanding notes payable to Mr. Sass in the amount of $337,000 in exchange
for the release of a security interest in certain equipment. In December 2003 an
additional $100,000 owed to Mr. Sass was converted to Common Stock at $1.41 per
share. The Company paid interest to Mr. Sass or affiliates on these various
borrowings of $92,281 and $42,869 in 2002 and 2003, respectively. At December
31, 2003, the Company owed Mr. Sass $227,000 pursuant to a promissory note
bearing interest at a rate of 7.5% and maturing on December 31, 2004. This loan
was paid in full in April 2004.
 
 In
addition, during 2003, the Company wrote off an aggregate of $44,941 of
receivables from three corporations with which it conducted business that were
controlled by Mr. Sass.
 
 In
December 2003, Mr. James A. Williams, Chairman of the Board, and Mr. John L.
Crary, a director, each purchased $50,000 of Common Stock of the Company at a
market price determined pursuant to a formula based on recent trading prices.
The consideration paid by each of Mr. Williams and Mr. Crary was the
cancellation of a promissory note made by the Company in an equivalent amount.
 
 On March
28, 2003, the Company borrowed $200,000 from Paulson Investment Company, Inc.
under a Cash Advance Agreement. On September 28, 2004, the outstanding balance
payable to Paulson Investment Company, Inc., $113,941.55 including all accrued
but unpaid interest, was converted into 277,907 shares of Common Stock at a
conversion rate equal to the then-current market price of Common Stock of $0.41
per share.
 
 The terms
of the above transactions were as favorable to us or our affiliates as those
generally available from unaffiliated third parties. Each transaction was
ratified by a majority of our independent directors who did not have an interest
in the transactions and who had access, at our expense, to our legal counsel or
independent legal counsel.
 
 All
future transactions between microHelix and our officers, directors or five
percent shareholders, and respective affiliates will be on terms no less
favorable than could be obtained from unaffiliated third parties and will be
approved by a majority of our independent directors who do not have an interest
in the transactions and who are authorized to consult with independent legal
counsel at the Company's expense.
 
 45
 **Item
13.** ***Exhibits***
 
 **Exhibit**
      **Number**
    **Description**3.1(6)
    Amended
      and Restated Articles of Incorporation of microHelix, Inc., as amended
      November 16, 2001, December 5, 2003, and April 8, 20053.2(1)
    Bylaws
      of microHelix, Inc.4.1(1)
    Form
      of Warrant Agreement among microHelix, Inc. and UMB Bank, n.a., as Warrant
      Agent,including
      the form of Class B Warrant4.2(1)
    Form
      of Unit Certificate4.3(1)
    Form
      of Warrant to Paulson Investment Company, Inc.10.1(1)
    Agreement
      to Provide Registration and Subscription Rights dated July 1, 1999
      betweenRichard
      G. Sass and The Polymer Technology Group10.2(1)
    Warrant
      dated March 27, 2000 to The Polymer Technology Group10.3(1)
    Warrant
      Agreement dated January 5, 2001 with Imperial Bank, as
      predecessor-in-interestto
      Comerica Bank10.4(1)
    Amendment
      to Warrant Agreement dated May 31, 2001 with Imperial Bank,
    aspredecessor-in-interest
      to Comerica Bank10.5(1)
    Antidilution
      Agreement dated January 5, 2001 between microHelix, Inc. and Imperial
      Bank, aspredecessor-in-interest
      to Comerica Bank10.6(1)
    Stock
      Transfer Restriction Agreement dated January 5, 2001 between microHelix,
      Inc. andImperial
      Bank, as predecessor-in-interest to Comerica Bank10.7(1)
    Form
      of Warrant for Bridge Loan for Pre-IPO Financing10.8(1)
    Standard
      Commercial-Industrial Lease Agreement dated August 1, 2000 between
      microHelix, Inc.and
      La Bajada Land Company LLC10.9(3)
    Lease
      Amendment dated May 27, 2003 between microHelix, Inc. and La Bajada Land
      Company, LLC10.10(1)
    Addendum
      for Manufacturing Space Lease Agreement dated November 1, 2000
      betweenmicroHelix,
      Inc. and Javid LLC10.11(1)
    Addendum
      for Manufacturing Space Sub-Lease dated June 23, 2000 between microHelix,
      Inc.And
      Agave Wire10.12(1)
    Lease
      Agreement dated April 20, 1992 between microHelix, Inc. and Pacific Realty
      Associates,L.P.,
      and lease amendments dated August 12, 1992, February 16, 1995, April 26,
      1996And
      July 3, 199710.13(2)
    Lease
      Amendment dated October 28, 2002 between microHelix, Inc. and Pacific
      RealtyAssociates,
      L.P.10.14(3)
    Lease
      Amendment dated April 8, 2003 between microHelix, Inc. and Pacific Realty
      Associates, L.P.10.15(1)*
    microHelix,
      Inc. 1998 Stock Incentive Plan10.16(1)*
    Form
      of Incentive Stock Option Agreement for 1998 Stock Incentive
      Plan10.17(1)*
    Form
      of Non-Statutory Stock Option Agreement for 1998 Stock Incentive
      Plan10.18(1)*
    microHelix,
      Inc. 2001 Stock Incentive Plan10.19(1)*
    Form
      of Incentive Stock Option Agreement for 2001 Stock Incentive
      Plan10.20(1)*
    Form
      of Non-Statutory Stock Option Agreement for 2001 Stock Incentive
      Plan10.21(2)*
    microHelix,
      Inc. 2002 Nonqualified Stock Option Plan10.22(2)*
    Terms
      and Conditions of Option Grant and/or Stock Purchase Under microHelix,
      Inc. 2002Nonqualified
      Stock Option Plan10.23(3)
    Cash
      Advance Agreement dated March 28, 2003 between microHelix, Inc. and
      Paulson Investment Company, Inc. and Amendment dated June 13,
      200310.24(6)
    Agreement
      to Convert Loan to Stock dated September 28, 2004 between microHelix, Inc.
      and Paulson Investment Company, Inc.10.25(4)
    Asset
      Purchase Agreement dated March 5, 2004 between Advanced Neuromodulation
      Systems, Inc. and microHelix, Inc.10.26(6)
    Sublease
      dated April 21, 2004 between microHelix, Inc. as Sublandlord and Advanced
      Neuromodulation Systems, Inc. as Subtenant, and Amended and Restated
      Sublease between microHelix, Inc. as Sublandlord and Advanced
      Neuromodulation Systems, Inc. as subtenant dated effective April 21, 2005,
      with Consent to Amended and Restated Sublease among Pacific Realty
      Associates, L.P. as Landlord, microHelix, Inc. as Tenant, and Advanced
      Neuromodulation Systems, Inc. as Subtenant granted effective April 21,
      2005
  46
 10.27(6)
    Contractual
      Guideline for Shelter Program Relationships dated December 28, 1999
      between Javid LLC and GrayScale, Inc. (which merged into microHelix, Inc.
      on December 31, 2000), and Lease Contract entered into through Javid LLC's
      subsidiary Camex de Nogales, S.A. de C.V. on behalf of microHelix, Inc.
      dated effective November 1, 200310.28(6)
    Lease
      Agreement between microHelix, Inc. as Landlord, ADM De Mexico, Inc. as
      Tenant.10.29(6)
    Group
      Purchasing Agreement between microHelix, Inc. and Amerinet, Inc. dated
      September 24, 200410.30(6)
    Agreement
      dated June 30, 2004 between microHelix, Inc. and MAGNET,
    Inc.10.31(6)
    Private
      Labeling and Supply Agreement dated May 1, 2004 between microHelix, Inc.
      and Tetrad Corporation10.32(5)
    Form
      of Warrant dated April 8, 2005 issued by microHelix, Inc. to financial
      advisors10.33(6)
    Loan
      and Security Agreement dated October 7, 2004 and Intellectual Property
      Security Agreement dated October 7, 2004, both between microHelix, Inc.
      and BFI Business Finance10.34(3)
    Promissory
      Note, Waiver to Amended and Restated Security Agreement, and Second
      Amended and Restated Security Agreement dated June 24, 2003 between
      microHelix, Inc. and Richard G. Sass10.35(5)
    Merger
      Agreement dated April 8, 2005 among microHelix, Inc., microHelix
      Acquisition Corp., Moore Electronics, Inc., Lawrence T. Moore and Marti D.
      Lundy10.36(5)
    Promissory
      Note dated April 8, 2005 made by microHelix, Inc. in favor of Marti D.
      Lundy10.37(5)
    Security
      Agreement dated April 8, 2005 among microHelix, Inc., Moore Electronics,
      Inc. and
      Marti
      D. Lundy10.38(5)
    Form
      of Series B Preferred Stock Purchase Agreement dated April 8, 2005 between
      microHelix, Inc. and purchasers of Series B Preferred Stock of microHelix,
      Inc.10.39(5)
    Form
      of Registration Rights Agreement dated April 8, 2005 between microHelix,
      Inc. and holders of
      Series
      B Preferred Stock of microHelix, Inc.10.40(5)
    Amended
      and Restated Loan and Security Agreement dated as of April 5, 2005 among
      microHelix, Inc., Moore Electronics, Inc. and BFI Business
      Finance10.41(5)
    Stock
      Pledge Agreement dated as of April 5, 2005 between microHelix, Inc. and
      BFI Business Finance10.42(5)*
    Employment
      Agreement dated April 8, 2005 between Marti D. Lundy and Moore
      Electronics, Inc.10.43(5)
    Lease
      dated August 15, 1999 between Sylvia B. Giustina and Moore Electronics,
      Inc. ("Tenant"), as modified and amended by a Memorandum of Understanding
      effective January 1, 2001, a First Addendum to Lease effective August 15,
      2002, a Second Addendum to Lease effective August 15, 2002 and a Third
      Addendum to Lease effective April 7, 200514.1(6)
    Policy
      on Business Ethics for Directors, Officers and
Employees21.1(6)
    Subsidiaries31.1(6)
    Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200231.2(6)
    Certification
      of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200232(6)
    Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
 
 __________
 
 (1)
Incorporated by reference to the Company’s Registration Statement on Form SB-2
(Reg. No. 333-65872), declared effective on November 16, 2001.
 (2)
Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the
year ended December 31, 2002.
 (3)
Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the
year ended December 31, 2003.
 (4)
Incorporated by reference to the Company's Proxy Statement filed on March 23,
2004.
 (5)
Incorporated by reference to the Company's Form 8-K filed on April 14,
2005.
 (6) Filed
herewith.
 
 *
Management contract or compensatory plan or arrangement.
 
 47
 **Item
14.** ***Principal
Accountant Fees and Services***
 
 The
following table shows the fees for the services provided by Deloitte &
Touche LLP and Stonefield Josephson, Inc. Deloitte & Touche provided audit
services in 2003 and 2004. In 2003 Deloitte & Touche billed the Company
$122,240 and in 2004 Deloitte & Touche billed the Company $89,599 covering
the audit for the fiscal year ended December 31, 2003. In January 2005, the
Company engaged Stonefield Josephson, Inc. to conduct the audit for fiscal year
ended December 31, 2004 and to perform SAS 100 reviews of the Company’s Form
10-QSB filings. The Company as of December 31, 2004 accrued $78,500 relating to
services to be provided by Stonefield Josephson, Inc. relating to 2004. Tax fees
included in 2004 relate to filing the required tax reports for the fiscal year
ended December 31, 2003 and an accrual for tax preparation fees for the 2004
returns.
 
 
 2003
    
    2004Audit
      Fees
    
    $
    122,240
    
    $
    168,099Audit
      Related Fees
    
    
    0
    
    
    0Tax
      Fees
    
    
    0
    
    
    17,500All
      Other Fees
    
    
    0
    
    
    0Total
      Fees
    
    $
    122,240
    
    $
    185,599
  The Audit
Committee of the Board of Directors has not adopted formal pre-approval
policies, but has the sole authority to engage the Company's outside auditing
and tax preparation firms and must approve all tax consulting and auditing
arrangements with the independent accounting firms prior to the performance of
any services. Approval for such services is evaluated during the Audit Committee
meetings and must be documented by signature of an Audit Committee member on the
engagement letter of the independent accounting firm. All of the services in the
chart above were approved by the Audit Committee.
 
 48
 **SIGNATURES**
  In
accordance with the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
this behalf by the undersigned, thereunto duly authorized, on **** April 21,
2005.
 
 MICROHELIX,
    INC.By:
    /s/ TYRAM H.
  PETTITTyram H. Pettit*President, Chief Executive
      Officer and Vice President - Finance*
 
 In
accordance with the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
 
 **Signature**
    **Title**
    **Date**/s/
      TYRAM H. PETTIT
    President,
      Chief Executive Officer,
    April
      21, 2005Tyram
      H. Pettit
    Vice
      President - Financeand
      Director (Principal Executive, Financial and Accounting
      Officer)/s/
      TERRENCE A. RIXFORD
    Secretary
      and Director
    April
      21, 2005Terrence
      A. Rixford/s/
      JAMES M. WILLIAMS
    Chairman
      and Director
    April
      21, 2005James
      M. Williams/s/
      JOHN L. CRARY
    Director
    April
      21, 2005John
      L. Crary
 
 49
   **EXHIBIT
INDEX**
 
 **Exhibit**
      **Number**
    ****
      **Description**3.1(6)
    Amended
      and Restated Articles of Incorporation of microHelix, Inc., as amended
      November 16, 2001, December 5, 2003, and April 8, 20053.2(1)
    Bylaws
      of microHelix, Inc.4.1(1)
    Form
      of Warrant Agreement among microHelix, Inc. and UMB Bank, n.a., as Warrant
      Agent,including
      the form of Class B Warrant4.2(1)
    Form
      of Unit Certificate4.3(1)
    Form
      of Warrant to Paulson Investment Company, Inc.10.1(1)
    Agreement
      to Provide Registration and Subscription Rights dated July 1, 1999
      betweenRichard
      G. Sass and The Polymer Technology Group10.2(1)
    Warrant
      dated March 27, 2000 to The Polymer Technology Group10.3(1)
    Warrant
      Agreement dated January 5, 2001 with Imperial Bank, as
      predecessor-in-interestto
      Comerica Bank10.4(1)
    Amendment
      to Warrant Agreement dated May 31, 2001 with Imperial Bank,
    aspredecessor-in-interest
      to Comerica Bank10.5(1)
    Antidilution
      Agreement dated January 5, 2001 between microHelix, Inc. and Imperial
      Bank, aspredecessor-in-interest
      to Comerica Bank10.6(1)
    Stock
      Transfer Restriction Agreement dated January 5, 2001 between microHelix,
      Inc. andImperial
      Bank, as predecessor-in-interest to Comerica Bank10.7(1)
    Form
      of Warrant for Bridge Loan for Pre-IPO Financing10.8(1)
    Standard
      Commercial-Industrial Lease Agreement dated August 1, 2000 between
      microHelix, Inc.and
      La Bajada Land Company LLC10.9(3)
    Lease
      Amendment dated May 27, 2003 between microHelix, Inc. and La Bajada Land
      Company, LLC10.10(1)
    Addendum
      for Manufacturing Space Lease Agreement dated November 1, 2000
      betweenmicroHelix,
      Inc. and Javid LLC10.11(1)
    Addendum
      for Manufacturing Space Sub-Lease dated June 23, 2000 between microHelix,
      Inc.And
      Agave Wire10.12(1)
    Lease
      Agreement dated April 20, 1992 between microHelix, Inc. and Pacific Realty
      Associates,L.P.,
      and lease amendments dated August 12, 1992, February 16, 1995, April 26,
      1996And
      July 3, 199710.13(2)
    Lease
      Amendment dated October 28, 2002 between microHelix, Inc. and Pacific
      RealtyAssociates,
      L.P.10.14(3)
    Lease
      Amendment dated April 8, 2003 between microHelix, Inc. and Pacific Realty
      Associates, L.P.10.15(1)*
    microHelix,
      Inc. 1998 Stock Incentive Plan10.16(1)*
    Form
      of Incentive Stock Option Agreement for 1998 Stock Incentive
      Plan10.17(1)*
    Form
      of Non-Statutory Stock Option Agreement for 1998 Stock Incentive
      Plan10.18(1)*
    microHelix,
      Inc. 2001 Stock Incentive Plan10.19(1)*
    Form
      of Incentive Stock Option Agreement for 2001 Stock Incentive
      Plan10.20(1)*
    Form
      of Non-Statutory Stock Option Agreement for 2001 Stock Incentive
      Plan10.21(2)*
    microHelix,
      Inc. 2002 Nonqualified Stock Option Plan10.22(2)*
    Terms
      and Conditions of Option Grant and/or Stock Purchase Under microHelix,
      Inc. 2002Nonqualified
      Stock Option Plan10.23(3)
    Cash
      Advance Agreement dated March 28, 2003 between microHelix, Inc. and
      Paulson Investment Company, Inc. and Amendment dated June 13,
      200310.24(6)
    Agreement
      to Convert Loan to Stock dated September 28, 2004 between microHelix, Inc.
      and Paulson Investment Company, Inc.10.25(4)
    Asset
      Purchase Agreement dated March 5, 2004 between Advanced Neuromodulation
      Systems, Inc. and microHelix, Inc.10.26(6)
    Sublease
      dated April 21, 2004 between microHelix, Inc. as Sublandlord and Advanced
      Neuromodulation Systems, Inc. as Subtenant, and Amended and Restated
      Sublease between microHelix, Inc. as Sublandlord and Advanced
      Neuromodulation Systems, Inc. as subtenant dated effective April 21, 2005,
      with Consent to Amended and Restated Sublease among Pacific Realty
      Associates, L.P. as Landlord, microHelix, Inc. as Tenant, and Advanced
      Neuromodulation Systems, Inc. as Subtenant granted effective April 21,
      200510.27(6)
    Contractual
      Guideline for Shelter Program Relationships dated December 28, 1999
      between Javid LLC and GrayScale, Inc. (which merged into microHelix, Inc.
      on December 31, 2000), and Lease Contract entered into through Javid LLC's
      subsidiary Camex de Nogales, S.A. de C.V. on behalf of microHelix, Inc.
      dated effective November 1, 200310.28(6)
    Lease
      Agreement between microHelix, Inc. as Landlord, ADM De Mexico, Inc. as
      Tenant.10.29(6)
    Group
      Purchasing Agreement between microHelix, Inc. and Amerinet, Inc. dated
      September 24, 2004
  
 10.30(6)
    Agreement
      dated June 30, 2004 between microHelix, Inc. and MAGNET,
    Inc.10.31(6)
    Private
      Labeling and Supply Agreement dated May 1, 2004 between microHelix, Inc.
      and Tetrad Corporation10.32(5)
    Form
      of Warrant dated April 8, 2005 issued by microHelix, Inc. to financial
      advisors10.33(6)
    Loan
      and Security Agreement dated October 7, 2004 and Intellectual Property
      Security Agreement dated October 7, 2004, both between microHelix, Inc.
      and BFI Business Finance10.34(3)
    Promissory
      Note, Waiver to Amended and Restated Security Agreement, and Second
      Amended and Restated Security Agreement dated June 24, 2003 between
      microHelix, Inc. and Richard G. Sass10.35(5)
    Merger
      Agreement dated April 8, 2005 among microHelix, Inc., microHelix
      Acquisition Corp., Moore Electronics, Inc., Lawrence T. Moore and Marti D.
      Lundy10.36(5)
    Promissory
      Note dated April 8, 2005 made by microHelix, Inc. in favor of Marti D.
      Lundy10.37(5)
    Security
      Agreement dated April 8, 2005 among microHelix, Inc., Moore Electronics,
      Inc. and
      Marti
      D. Lundy10.38(5)
    Form
      of Series B Preferred Stock Purchase Agreement dated April 8, 2005 between
      microHelix, Inc. and purchasers of Series B Preferred Stock of microHelix,
      Inc.10.39(5)
    Form
      of Registration Rights Agreement dated April 8, 2005 between microHelix,
      Inc. and holders of
      Series
      B Preferred Stock of microHelix, Inc.10.40(5)
    Amended
      and Restated Loan and Security Agreement dated as of April 5, 2005 among
      microHelix, Inc., Moore Electronics, Inc. and BFI Business
      Finance10.41(5)
    Stock
      Pledge Agreement dated as of April 5, 2005 between microHelix, Inc. and
      BFI Business Finance10.42(5)*
    Employment
      Agreement dated April 8, 2005 between Marti D. Lundy and Moore
      Electronics, Inc.10.43(5)
    Lease
      dated August 15, 1999 between Sylvia B. Giustina and Moore Electronics,
      Inc. ("Tenant"), as modified and amended by a Memorandum of Understanding
      effective January 1, 2001, a First Addendum to Lease effective August 15,
      2002, a Second Addendum to Lease effective August 15, 2002 and a Third
      Addendum to Lease effective April 7, 200514.1(6)
    Policy
      on Business Ethics for Directors, Officers and
Employees21.1(6)
    Subsidiaries31.1(6)
    Certification
      of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200231.2(6)
    Certification
      of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted
      pursuant to Section 302 of the Sarbanes-Oxley Act of
  200232(6)
    Certification
      of Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350, as adopted pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
 
 __________
 
 (1)  Incorporated
by reference to the Company’s Registration Statement on Form SB-2 (Reg. No.
333-65872), declared effective on November 16, 2001.
 
 (2)  Incorporated
by reference to the Company’s Annual Report on Form 10-KSB for the year ended
December 31, 2002.
 
 (3)
Incorporated by reference to the Company’s Annual Report on Form 10-KSB for the
year ended December 31, 2003.
 
 (4)
Incorporated by reference to the Company's Proxy Statement filed on March 23,
2004.
 
 (5)
Incorporated by reference to the Company's Form 8-K filed on April 14,
2005.
 
 (6) Filed
herewith.
 
 *
Management contract or compensatory plan or arrangement.