##### Table of Contents









UNITED STATES SECURITIES AND EXCHANGE
COMMISSION


Washington, D.C. 20549


Form 10-KSB



|  |                                                                                     
|- | ------------------------------------------------------------------------------------
|þ | ANNUAL REPORT UNDER SECTION 13 or 15(d) 
     OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31,
2003

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(b)
of the Exchange Act:

None.

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 þ  No o

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. þ

The issuers revenues for its most recent
fiscal year: $1,666,424.

The aggregate market value of the voting and
non-voting common equity held by non-affiliates, as of
April 9, 2004, was approximately $1,076,000 based upon the
last sale price reported for such date on the over-the-counter
market.

As of April 9, 2004 there were 1,681,806
shares of the issuers common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

None.

Transitional Small Business Disclosure
Format  Yeso  No þ









---










MICROHELIX, INC.

Annual Report on Form 10-KSB

Year Ended December 31, 2003


Table of Contents


|              |          |  |                                                                                                        |  |  |    | 
|------------- | -------- |  | ------------------------------------------------------------------------------------------------------ |  |  | -- | 
|PART I.      
|              | Item 1.  |  | Description of Business                                                                                |  |  | 1  | 
|              | Item 2.  |  | Description of Properties                                                                              |  |  | 8  | 
|              | Item 3.  |  | Legal Proceedings                                                                                      |  |  | 8  | 
|              | Item 4.  |  | Submission of Matters to a
    Vote of Security Holders                                                |  |  | 9  | 
|             
|PART II.     
|              | Item 5.  |  | Market for the
    Companys Common Equity and Related Stockholder Matters                             |  |  | 9  | 
|              | Item 6.  |  | Managements Discussion
    and Analysis or Plan of Operation                                          |  |  | 10 | 
|              | Item 7.  |  | Financial Statements                                                                                   |  |  | 17 | 
|              | Item 8.  |  | Changes in and Disagreements
    with Accountants on Accounting and Financial Disclosure               |  |  | 32 | 
|              | Item 8A. |  | Controls and Procedures                                                                                |  |  | 32 | 
|             
|PART III.    
|              | Item 9.  |  | Directors, Executive
    Officers, Promoters and Control Persons; Compliance With Section
    16(a)    |  |  | 32 | 
|              | Item 10. |  | Executive Compensation                                                                                 |  |  | 33 | 
|              | Item 11. |  | Security Ownership of
    Certain Beneficial Owners and Management and Related Stockholder
    Matters |  |  | 35 | 
|              | Item 12. |  | Certain Relationships and
    Related Transactions                                                     |  |  | 36 | 
|              | Item 13. |  | Exhibits and Reports on Form
    8-K                                                                   |  |  | 37 | 
|              | Item 14. |  | Principal Accountant Fees
    and Services                                                             |  |  | 39 | 
|EXHIBIT 10.22
|EXHIBIT 10.23
|EXHIBIT 10.24
|EXHIBIT 10.25
|EXHIBIT 10.26
|EXHIBIT 10.27
|EXHIBIT 10.28
|EXHIBIT 31.1 
|EXHIBIT 31.2 
|EXHIBIT 32.1 
|EXHIBIT 32.2 





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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. | Business

Overview

microHelix, Inc. (microHelix or the
Company) is a designer, manufacturer and marketer of
customized electronic interconnect systems for the medical and
commercial markets. We manufacture and market coated wire,
including ultra-thin wall pinhole-free wire and custom cable for
a number of applications. We also design and manufacture
specialty connectors and flex circuits and offer a range of
laser micro-machining services. During 2003, we began developing
a family of replacement ultrasound probes for the OEM,
distributor and end-user markets.

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 management, micro-interconnect
technology and micro-manufacturing. Building on this foundation,
our business has evolved into two informal 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 heads-up displays. In our wire
and cable division, we manufacture and market coated wire,
including ultra-thin wall pinhole-free wire and custom cable for
a number of applications. The cable and wire division also
designs and manufactures specialty connectors and flex circuits,
and offers a range of laser micro-machining services.

On March 8, 2004, we announced that we had
entered into an agreement to sell the assets associated with our
wire and cable division, located in Portland, Oregon, to
Advanced Neuromodulation Systems, Inc. (ANS). We
will retain our ultrasound division and reinvest a portion of
the proceeds from the sale of the wire and cable division in the
ultrasound business. The proposed sale is subject to the
approval of our shareholders and other conditions. As a result
of this transaction, if completed, the wire and cable division
will not be reflected in the continuing operations of microHelix.

Ultrasound Division

The total worldwide market for medical ultrasound
systems exceeded $3.0 billion in 2003, with the U.S. market
accounting for approximately 40% of this total. Demand has been
growing in excess of 5% compounded annually, and has been driven
by a combination of replacement/upgrading, increased use of
ultrasound systems for diagnosis, 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





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business as part of this process, creating
additional market opportunities for the remaining manufacturers
of cable assemblies for sale to OEM customers. Although
microHelix is a small competitor, we enjoy certain cost
advantages and a reputation for quality, on-time delivery and
responsiveness. Industry consolidation has also created new
opportunities for designers/manufacturers of U.S. Food and
Drug Administration-registered (referred to as
Section 510(k) registered) replacement probe assemblies and
transducers offered for sale to OEMs, distributors and
end-users. This is principally the result of OEM efforts to
rationalize and update their product offerings that has led to
the reduction or elimination of support for older systems. The
more limited availability of accessories such as replacement
probes has created new market opportunities for smaller
companies capable of refurbishing damaged probes or building
new replacement probes.


Principal Ultrasound Markets

Cable Assemblies

Diagnostic
Ultrasound.We design and manufacture
complex interconnect systems for ultrasound imaging systems. We
serve the OEM market. Our typical probe cable connects to a
transducer and an ultrasound imaging system, and 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.

Commercial and
Defense.We believe that our technical
expertise with medical products can be directly applied to
solving military, aerospace and security product interconnect
challenges. We currently serve customers in the security product
industry.

Special Application Connectors/ Molded
Parts.We have designed and developed
specialty connectors for medical and military applications using
both pin & socket and printed circuit boards. Most of these
connectors were developed because off-the-shelf connectors did
not meet design performance criteria as established by our OEM
customers.

PCB Design.We
design and source custom printed circuit boards to meet customer
specifications and have extensive experience in this area.

Test &
Measurement.We are developing plans
to enter the test and measurement market. We specialize in
working with 38 AWG to 4 AWG wire sizes and connectors for use
in logic analyzers, oscilloscopes and emulators.

Contract
Manufacturing.We offer our low-cost
manufacturing & assembly services to non-medical
manufacturers, specializing in sub-assemblies involving a wire
or cable, connectors, flex circuits and/or PCBs.

Ultrasound Probes

We are developing our own line of replacement
ultrasound probes for sale to OEMs, distributors and end-users.
These branded replacement ultrasound probe assemblies will be
manufactured either by us or a third party from new components.
We have initially identified several probes sold in higher
volumes in the replacement market and hope to introduce our
first branded products during the third quarter of 2004. Each
replacement probe we develop or purchase and market requires the
clearance of a 510(k) application with the U.S. Food and Drug
Administration (FDA).

We plan to market complete probe assemblies to
OEM manufacturers using transducers that may be supplied by
either our OEM customers or by approved component suppliers. We
do not believe that we will need to obtain the approval of a
510(k) application for these products.

Ultrasound 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

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supervises our Nogales-based manufacturing
engineering functions. We plan to utilize outside engineering
consultants and strategic partners to complete the development
of our initial replacement probes. Depending on the success of
this business, we will bring some of these resources into the
Company.


Ultrasound Manufacturing

We provide our OEM ultrasound customers with a
highly skilled work force, experienced management in Tucson and
Nogales and a low-cost production alternative.

We have approximately 4,500 square feet of office
and warehouse space in Tucson, Arizona. This facility provides
space for administration of the Nogales plant, ultrasound design
and manufacturing engineers, customer service personnel,
inventory storage and shipping and receiving. We also plan to
begin to do final assembly, testing, packing and shipping of
replacement ultrasound probes in our Tucson facility and will,
at that time, seek to register this facility with the Food and
Drug Administration.

We have approximately 15,000 square feet of
manufacturing, warehouse and office space in Nogales, Mexico
(acquired in December 1999). The facility is approximately
six years old. We assemble and test all of our ultrasound cable
assemblies in this facility.

We either manufacture the cable used in our
diagnostic ultrasound interconnect assemblies in Portland and
ship it to Tucson or secure cable from outside sources. In
either circumstance, cables are shipped to our office in Tucson,
Arizona where they are kitted with the necessary connector parts
and shipped to our Nogales, Mexico facility where the
interconnect systems are assembled. After testing and quality
review, the completed assemblies are returned to our facility in
Tucson for final inspection and shipment to our customers. After
the sale of our wire and cable assets, we will have to obtain
cable and other components required by our ultrasound business
from ANS and other third party vendors.

Ultrasound Government
Regulation

Certain aspects of our ultrasound division
operations and products are subject to regulation by the FDA. We
rely on an outside consultant, under the guidance of our
Director of Quality Assurance and Regulatory Affairs, to assist
us in meeting all regulatory requirements.

Principal Ultrasound
Customers

In 2002, sales to our two largest ultrasound
customers, GE Parallel Design and Philips Medical Systems,
accounted for 45% and 40%, respectively, of total ultrasound
sales. In 2003, sales to our largest customer, GE Parallel
Design, accounted for 69% of total ultrasound sales.

Ultrasound Sales and
Marketing

Our ultrasound sales and marketing efforts are
managed by the General Manager of our 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
ultrasound 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.

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 5-7 year
product life before next generation technology or new models
supplant the current version. Our objective in ultrasound is to
be working on next generation prototypes while providing
assemblies for the current device in commercial quantities.

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With respect to our proposed family of
replacement ultrasound probes, we expect to market these to
distributors, end-users and OEMs. Our initial sales efforts are
focused on distributors and hospital buying groups, both of
which are receptive to the price/performance benefits of new
replacement probes. We anticipate shipping our initial product
offering during the third quarter of 2004.

Ultrasound 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
enjoy 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. As a direct result, we are currently a
supplier to most of the competitors in the medical ultrasound
industry at some level. 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, test and measurement, specialty
connectors, PCB design and non-medical contract manufacturing.
In every case, we compete against larger and financially
stronger competitors.

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. As microHelix will now focus entirely on serving
the medical ultrasound market and will be financially more able
to compete, we believe that we should be able to build this
business despite the size and financial strength of our
principal competitors.

Discontinued Operations  Wire and
Cable Division

Principal Wire and Cable
Markets

We have agreed to sell the assets associated with
the wire and cable division, located in Portland, Oregon, to ANS
as announced publicly on March 8, 2004. This division
designs and develops components for complex medical devices,
principally for IVUS & EP mapping systems, pain management
systems and LVADs. Our products include complex geometry cables,
ultra thin-wall coated wire, connectors, flex circuits,
micro-coils and various micro-machining services.

IVUS & EP Mapping.The wire and cable division currently
manufactures sub-assemblies for IVUS catheters and is also
manufacturing certain components for EP cardiac mapping
catheters. As part of serving this market, we design and
manufacture specialty connectors and other molded parts that are
used in these assemblies. We are also working with certain
customers on navigational sensors and the flexible tips of EP
catheters that perform certain diagnostic and therapeutic
functions. Our systems and technologies also have potential
applications in the minimally invasive device market in devices
used in arthroscopy, interventional neuroradiology, EP cardiac
mapping and ablation, diagnostic ultrasound interventional
imaging, and atrial ablation.

Pain Management & LVADS.In recent years, major advances have
been made in all aspects of medical technology for implantable
devices that are capable of providing controlled electrical
stimulation of precise areas, thereby normalizing and
controlling heart and other organ functions and managing pain.
The ability to miniaturize these complex devices permits the
full implantation of the device in the body, replacing larger,
external devices and increasing patient mobility. Led by
microelectronic packaging advances, fully implantable left
ventricular assist devices, or LVADs, and neurostimulation
devices are promising developments for patients with cardiac
disease, chronic pain and neurological disorders such as
Parkinsons disease and epilepsy.

Other Commercial Business.Our commercial business within the
wire and cable division leverages our interconnect system design
and manufacturing capabilities with applications as diverse as
heads-up displays, submarine towed arrays, micro-cameras and
cables for guidance systems. Although accounting for a small

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portion of our wire and cable business, these
markets all require the ability to design and manufacture
durable and reliable micro-miniature cables that perform the
same functions as larger cables while taking up less space.


Wire and Cable Engineering

We have experienced engineering personnel in
Portland. In addition to overseeing the development of hundreds
of cable designs, the Portland engineering team is also able to
offer custom interconnect system solutions requiring unique
connector and cable assemblies to meet demanding customer
performance characteristics. We have extensive engineering
experience in the development of both minimally invasive and
implantable interconnect systems. Specialties includes the
design and development of custom coils, flex circuits,
fine-coated wire, micro-cable assemblies and the use of a wide
variety of materials. Most of our engineering team has had
advanced development experience, making the wire and cable
division an attractive partner for next-generation product
development.

Wire and Cable Manufacturing

We have 20,000 square feet of office and
manufacturing space in Portland, Oregon. Our facility is
equipped with a broad range of production equipment. Our cable
plant includes equipment used in the extrusion, braiding,
serving, cabling, and coating and assembly of interconnect
systems. Our custom-built, ultra-thin wall extrusion line can
provide wire insulation pinhole free below .001 inch. The
process is computer monitored and logged continuously, providing
capacitance, over-all thickness and quality information.

We have also assembled a carefully selected array
of equipment, including laser tools, for cutting very small and
very accurate patterns in a variety of media. Our lasers produce
an extremely precise, well-defined pattern on micro-miniature
geometries. We machine metal foils, piezo electric composites
and many polymers with precision accuracy.

In the developing area of high quality,
thin-film, custom flexible circuits, or micro-flex,
we offer custom coatings and patterned substrates for sensors,
biomedical devices and microelectronics.

Although we purchase our basic machinery or their
principal components from commercial sources, we have designed
and engineered a number of critical modifications that enable us
to meet the most demanding applications and customer
requirements. We maintain a fully equipped machine shop in the
Portland facility to support modifications to the equipment as
necessary. The machine shop also provides us with the ability to
do rapid prototyping, perform secondary operations on molded
parts, create custom tooling and manufacture fixtures.

Wire and Cable Sales and
Marketing

Our OEM sales cycle, depending on the type of
product, generally takes from six to eighteen months from the
initial discussion to the first shipment. Our sales process
frequently involves designing our systems into new medical
devices, so the sale of these systems in commercial quantities
may be preceded by a pre-production design phase in which we
produce (and are paid for) various prototypes based on the
combined input from our customers engineers and our staff.

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 4-5 year
product life before next generation technology supplants the
current version. Our objective is to be working on next
generation prototypes while providing components for the current
device in commercial quantities.

We focus our sales efforts in two principal
areas: (1) expanding relationships with current OEM
customers principally serving the minimally invasive and
implantable markets and (2) marketing our design and
manufacturing capabilities to OEM prospects which develop
devices that are most likely to benefit from our extensive
interconnect system experience. We work both with major medical
device manufacturers and

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emerging companies that rely more heavily on
outside component developers to supplement their inside
engineering teams.


Two experienced outside manufacturer
representative organizations have covered our major customers
and prospects on the West Coast and in the Northeast. These
representatives are supported by our Portland-based Technical
Sales Support group. Members of our Portland-based engineering
and manufacturing team travel regularly to visit customers and
prospects, bringing factory expertise and responsiveness into
the field. This strategy has worked well for the Company over
the past twelve months as we have expanded our relationship with
a number of current customers.

The success of our wire and cable business relies
on an active ongoing exchange between our customers and the
Company. Because of the specialized nature of our business, we
identify and qualify prospective customers that need the special
skills of this division and are willing to outsource this work
to a third party. Although the sales cycle is relatively slow,
we have been able to secure long-term manufacturing business
with some our customers with whom we have gone through a
multi-year development effort.

Principal Wire and Cable
Customers

In 2002, sales to our four largest wire and cable
customers, Volcano Therapeutics (formerly Jomed N.V.), GE
Parallel Design, World Heart and Philips Medical Systems,
accounted for 28%, 12%, 11% and 10%, respectively, of total wire
and cable sales. During 2002, we discontinued our relationship
with World Heart. In 2003, sales to our three largest wire and
cable customers, GE Parallel Design, Volcano Therapeutics and
Advanced Neuromodulation Systems accounted for 24%, 16% and 16%
respectively, of total wire and cable sales.

Wire and Cable Competition

Several companies, most of which are more
established and larger than we are, manufacture interconnect
systems that offer the customer a competitive alternative in
some applications. These companies include W.L. Gore, Precision
Interconnect (Tyco), Temp-Flex and Tensolite. While we believe
that some of our manufacturing techniques enable us to provide
more complex data transmission within a given space constraint
than products offered by some of these companies, other factors,
such as price and established relationships may influence
customer choice where our particular abilities are not critical.
Our principal competitive advantage is centered in our
experience working with catheter and implantable applications.
We are also able to compete successfully with our skilled low
cost ultrasound cable assembly facility in Nogales, Mexico

We believe that our most significant current
competition comes from our customers and potential customers
who, for a variety of reasons, may choose to produce
interconnect systems in-house, either by maintaining the
capability to produce fully integrated interconnect systems or
by purchasing components from other suppliers and assembling
them in-house. While we believe that the current trend among
OEMs is towards outsourcing the manufacture of product
components not within their core competency, our ability to
supply customers depends on our ability to propose and execute
on a program that is both technologically sound and cost
competitive.

Research and Development

Our research and development efforts are focused
on building our core competencies as a state-of-the-art
manufacturer of miniaturized, high capacity interconnect
systems. In the initial stages of the Companys
development, we received funding for a substantial portion of
our research and development efforts from government grants.
During 2002, government grants from the National Institutes of
Health accounted for 9% of our total revenues. In 2003, funding
from government grants declined to approximately 2% of our total
revenues. This reflects a strategic decision to focus Company
resources on customer-funded development efforts that produce
commercial revenues within 12-18 months.We are responsible
for reporting any inventions derived or reduced to practice in
the performance of work under the grants. In addition, the grant
contracts are subject to terms and conditions standard for
government research contracts.

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As a condition to the funding we receive from the
government, the government obtains royalty-free, nonexclusive
rights to the technology we develop using its grants. To date,
to our best knowledge, the government has not utilized any of
these licenses. For interconnect systems we develop for our
commercial customers, we do not grant rights of any kind to any
of our background technology used in the development and
production of the system. The customer, however, generally
obtains exclusive rights to the foreground technology specific
to the interconnect system created for their medical device. As
our business has matured, the focus of our efforts has shifted
from basic research and development to the development of
specific systems, either for our customers or in anticipation of
a particular market opportunity. Wherever possible, we seek to
fund these efforts through development contracts with our
customers.

The following table illustrates the sources and
amounts of research and development expenditures for microHelix
for the periods indicated:

|                  |  |                         |           |      |  |   |         | 
|----------------- |  | ----------------------- | --------- | ---- |  | - | ------- | 
|                  |  |                        
|                  |  | Year Ended December 31,
|                  |  |                        
|Source            |  | 2002                    |           | 2003
|                  |  |                         |           |     
|Government grants |  | $                       | 476,000   |      |  | $ | 94,000  | 
|Customer-funded   |  |                         | 559,000   |      |  |   | 157,000 | 
|Self-funded       |  |                         | 650,000   |      |  |   | 711,000 | 
|                  |  |                         |           |      |  |   |         | 
|Total             |  | $                       | 1,685,000 |      |  | $ | 962,000 | 
|                  |  |                         |           |      |  |   |         | 

Patents and Intellectual Property

We have patents, patent applications and trade
secrets and we use the method of protection that is most
appropriate for the particular circumstance. We file patent
applications and continuations to cover both new and improved
methods of manufacturing electronic interconnect systems and
technologies. Aspects of our technology are protected by 13 U.S.
patents. Additionally, 11 U.S. patent applications have been
filed with the United States Patent and Trademark Office. The
patent applications are in various stages of examination. Any
future patents may not be granted and if granted, may be
invalidated, circumvented, challenged, or licensed to others.
One of our patents has also been filed as a Patent Cooperation
Treaty International Application claiming priority from the U.S.
patent application. None of the other applications or patents is
the subject of an international or foreign national application
or patent, although some of the applications have been filed
recently enough that an international or foreign national
application could still be filed claiming priority from the U.S.
patent application. The 13 issued patents noted above will
expire between 2016 and 2021. We have agreed to sell our entire
patent portfolio to ANS in connection with the sale of our wire
and cable division. We also rely on trade secret law and
nondisclosure agreements to protect our intellectual property.

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.

We have not yet needed to enforce any of our
patent or other intellectual property rights. Any decision to do
so will depend on the particular facts and circumstances of the
matter compared to the cost and benefits from such an
enforcement effort. While we believe our patents afford some
competitive advantage, the resources available to us to identify
potential infringements and to defend our rights against
infringement limit such protection. The extent of the protection
offered by any patent is subject to determinations as to its
scope and validity that would be made only in litigation. We
cannot assure that our patents will afford meaningful protection
from competition.

We are subject to the risk that our designs or
processes may be found to infringe intellectual property rights
of others. If it is necessary or desirable, we may seek licenses
under those intellectual property rights. However, we cannot be
sure that licenses will be offered or that the terms of any
offered license would be acceptable to us. Any such challenges
could result in significant liability costs and defense costs
and could have a material adverse effect on product sales.

7



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Employees

We had 54 full-time employees in the United
States as of December 31, 2003. In our corporate offices
and manufacturing and engineering facilities in Portland,
Oregon, we had 49 full-time employees, in our office in Tucson,
Arizona, we had four full-time employees, and in our office in
State College, Pennsylvania, we had one full-time employee.
Additionally, we contract with a company in Mexico that employs
17 people who work at our factory in Nogales, Mexico. 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.

We completed our initial public offering in
November 2001. The offering proceeds have been invested in
expansion of our manufacturing and assembly capabilities. We
have also invested in the development of our line of replacement
ultrasound probes that we expect to introduce into the market
during 2004.






|        |           
|------- | ----------
|Item 2. | Properties

We lease 20,000 square feet of office and
manufacturing space at our headquarters in Portland, Oregon
under a lease that expires in November 2005. The space
includes three clean rooms suitable for our required
applications. Following the asset sale to ANS, we believe we
will continue to have approximately 5,000 square feet of office,
warehousing and manufacturing space in Portland, Oregon that we
will not utilize in our ultrasound business. We will attempt to
sublease all of such space following the asset sale, but there
is no assurance we will be able to do so on commercially
reasonable terms, if at all.

We lease approximately 4,500 square feet of
office and warehouse space in Tucson, Arizona. This facility
provides space for administration of the Nogales, Mexico plant,
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

We also lease approximately 500 square feet of
high-tech incubator office space in State College, Pennsylvania
for the development of replacement probes.

We intend to use our cash resources in the
development of our ultrasound and replacement probe business. We
do have an investment policy regarding the investment of any
excess cash. To the extent available, our cash reserves are
invested in interest-bearing accounts. 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.

8



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##### Table of Contents








|        |                  
|------- | -----------------
|Item 3. | Legal Proceedings

From time to time the Company may become involved
in ordinary, routine, or regulatory legal proceedings incidental
to the business of the Company. As of April 9, 2004, we
were not engaged in any legal proceedings nor are we aware of
any pending or threatened legal proceedings that, singly or in
the aggregate, will 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

A special shareholders meeting was held on
December 5, 2003 at which the following actions were taken:



| |    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | -- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1. | The shareholders approved an amendment to the
    Companys Amended and Restated Articles of Incorporation to
    effect a 1-for-3 reverse stock split of the Companys
    common stock. On a pre-split basis, this amendment was approved
    by a vote of 4,045,161 shares for and 54,700 shares against, and
    there were 500 broker non-votes.                                                                                                                                                                         
|
| | 2. | The shareholders approved the potential issuance
    of up to 2,780,498 shares of the Companys common stock
    (subject to proportional adjustment upon the effectiveness of
    the 1-for-3 reverse stock split) upon the exercise of
    outstanding Class B warrants by the directors and officers
    during a temporary warrant repricing period. On a pre-split
    basis, this proposal was approved by a vote of 2,149,918 shares
    for and 103,765 shares against, and there were 1,946,548 broker
    non-votes.
|
| | 3. | The shareholders approved the potential sale of
    up to $500,000 in value of the Companys common stock to
    our directors and officers, and the exercise of Class B
    warrants by the directors and officers during the temporary
    warrant repricing period. On a pre-split basis, this proposal
    was approved by a vote of 1,765,914 shares for and 466,969
    shares against, and there were 1,967,348 broker non-votes.                                                                                      

PART II






|        |                                                                           
|------- | --------------------------------------------------------------------------
|Item 5. | Market for the Companys Common Equity
    and Related Shareholder Matters

The table below sets forth, for the periods
indicated, the high and low bid prices for the Common Stock,
Class A Warrants and Class B Warrants, respectively,
as reported by the Nasdaq SmallCap Market. 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 shown for the Class A and Class B warrants. The
Class A warrants expired on November 16, 2003. As of
February 19, 2004 the common stock and the Class B
warrants began trading on the OTC Bulletin Board under the
symbols MHLX.BB and MHLZ.BB respectively.

Common Stock MHLX

|                     |  |      |      |     |  |   |      | 
|-------------------- |  | ---- | ---- | --- |  | - | ---- | 
|2003 Fiscal Quarters |  | High |      | Low
|                     |  |      |      |    
|First Quarter        |  | $    | 2.07 |     |  | $ | .90  | 
|Second Quarter       |  | $    | 2.28 |     |  | $ | .87  | 
|Third Quarter        |  | $    | 3.03 |     |  | $ | 1.47 | 
|Fourth Quarter       |  | $    | 2.40 |     |  | $ | 1.01 | 

Class A Warrant
MHLXW

|                     |  |      |     |     |  |   |     | 
|-------------------- |  | ---- | --- | --- |  | - | --- | 
|2003 Fiscal Quarters |  | High |     | Low
|                     |  |      |     |    
|First Quarter        |  | $    | .05 |     |  | $ | .02 | 
|Second Quarter       |  | $    | .08 |     |  | $ | .01 | 
|Third Quarter        |  | $    | .09 |     |  | $ | .03 | 
|Fourth Quarter       |  | $    | .07 |     |  | $ | .07 | 

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Class B Warrant
MHLXZ

|                     |  |      |     |     |  |   |     | 
|-------------------- |  | ---- | --- | --- |  | - | --- | 
|2003 Fiscal Quarters |  | High |     | Low
|                     |  |      |     |    
|First Quarter        |  | $    | .18 |     |  | $ | .02 | 
|Second Quarter       |  | $    | .40 |     |  | $ | .04 | 
|Third Quarter        |  | $    | .28 |     |  | $ | .14 | 
|Fourth 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
never paid any cash dividends. It is anticipated that all
earnings will be retained for working capital purposes. The
Company has no intention to declare cash dividends in the
foreseeable future. There is no restriction on the payment of
dividends under our revolving line of credit.

Shareholders of Record

As of February 26, 2004, there were
approximately 44 shareholders of record of the Companys
Common Stock and 16 Class B warrantholders of record.

Securities Authorized for Issuance Under
Equity Compensation Plans

Securities authorized for issuance under equity
compensation plans consists of the following:

|                                                               |       |                  |         |                  |  |                 |      |      |  |  |        |        | 
|-------------------------------------------------------------- | ----- | ---------------- | ------- | ---------------- |  | --------------- | ---- | ---- |  |  | ------ | ------ | 
|                                                               |       | (a)              |         | (b)              |  | (c)            
|                                                               |       |                  |         |                  |  |                
|                                                               |       |                  |         |                  |  | Number of      
|                                                               |       |                  |         |                  |  | securities     
|                                                               |       |                  |         |                  |  | remaining      
|                                                               |       |                  |         |                  |  | available for  
|                                                               |       | Number of        |         |                  |  | future issuance
|                                                               |       | securities to be |         | Weighted-        |  | under equity   
|                                                               |       | issued upon      |         | average exercise |  | compensation   
|                                                               |       | exercise of      |         | price of         |  | plans          
|                                                               |       | outstanding      |         | outstanding      |  | (excluding     
|                                                               |       | options,         |         | options,         |  | securities     
|                                                               |       | warrants and     |         | warrants and     |  | reflected in   
|                                                               |       | rights           |         | rights           |  | column (a)     
|                                                               |       |                  |         |                  |  |                
|Plan Category                                                  |       |                  |         |                  |  |                 |      |      |  |  |        |       
|Equity compensation plans approved by
    security holders     |       |                  | 203,563 |                  |  | $               | 4.72 |      |  |  | 47,492 |       
|Equity compensation plans not approved by
    security holders |       |                  | 6,295   |                  |  |                 | 1.02 |      |  |  | 13,705 |       
|                                                               |       |                  |         |                  |  |                 |      |      |  |  |        |       
|                                                               | Total |                  |         | 209,858          |  |                 | $    | 4.65 |  |  |        | 61,197 | 
|                                                               |       |                  |         |                  |  |                 |      |      |  |  |        |       

The Companys 2002 Non Qualified Stock
Option Plan was adopted by the board of directors in
October 2002 and has not been approved by the
Companys security holders. The 2002 Non Qualified Plan
provides for the issuance of options to purchase up to 60,000
shares of common stock to our employees and consultants. Options
are granted under various vesting arrangements, up to a maximum
of four years, expire after a maximum of 10 years, and are
subject to a stock transfer restriction agreement to be entered
into upon exercise.






|        |                                                                                          
|------- | -----------------------------------------------------------------------------------------
|Item 6. | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

Cautionary Statement

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

10



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##### Table of Contents



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 actual 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.


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 is 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 original equipment
manufacturers (OEMs) 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 sale is expected to close on April 21,
2004, subject to the approval of the microHelix shareholders.

We will continue to operate the wire and cable
division until the consummation of the asset sale. This
operation continues to result in negative cash flow, a trend
which we believe will continue for the foreseeable future. In
view of our nominal cash on hand, our likely inability to meet
our outstanding obligations in the near or long term and other
factors, our auditors have expressed substantial doubt about our
ability to continue as a going concern in their report issued in
connection with our 2003 financial statements. We believe that
the proceeds from the asset sale will enable us to meet our
short-term capital needs, pay off all our debt, pay down accrued
trade payables to customary terms and provide sufficient working
capital that will enable us to grow our ultrasound business.

Our continuing operations will be focused on our
ultrasound business that 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 security
products. We are also developing our own line of replacement
ultrasound probes.

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 most
of the industry players at some level. 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
industries including

11



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##### Table of Contents



patient monitoring, test and measurement,
specialty connectors, PCB design and non-medical contract
manufacturing.


As part of our efforts to diversify within our
principal core competency, we are actively working to introduce
our own branded replacement ultrasound probes that will be
manufactured either by us or a third party from new components
and sold to group purchasing organizations and distributors
beginning in the third quarter of 2004.

On December 5, 2003, we completed a 1-for-3
reverse split of our outstanding common stock, which was also
applied to any common stock options and warrants outstanding at
the time of the split.

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
require us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. We
evaluate our estimates on an on-going basis, including those
related to product returns, bad debts, inventories, prepaid
expenses, intangible assets, income taxes, warranty obligations,
and other contingencies. We base our estimates on historical
experience and on various other assumptions that are believed to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying value of
assets and liabilities that are not readily apparent from other
sources. Actual results may differ from these estimates under
different assumptions or conditions. We believe the following
critical accounting policies and related judgments and estimates
affect the preparation of our consolidated financial statements.

Revenue
Recognition The
Company recognizes revenue from commercial sales of micro
cables, connectors, ultra-thin film wire, 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 the Company or at
a vendor. Returns are limited to nonconforming products and the
volume of returns to the Company has been insignificant. The
Company does not establish reserves for returns because they are
minimal.

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, which is classified as deferred revenue until the
services are performed, at which time it is recognized as
revenue. As of December 31, 2003, the deferred revenue
account had a balance of $59,428 compared to $38,150, as of
December 31, 2002.

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 all government grants at the end of 2003.

12



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##### Table of Contents



Results of operations

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

|                         |                            |                                              |      |      |      |   |      |    |     |  
|------------------------ | -------------------------- | -------------------------------------------- | ---- | ---- | ---- | - | ---- | -- | --- | -
|                         |                            |                                             
|                         |                            | Year Ended                                  
|                         |                            | December 31,                                
|                         |                            |                                             
|                         |                            | 2002                                         |      | 2003
|                         |                            |                                              |      |     
|Sales                    |                            |                                              | 100  | %    |      |   | 100  | % 
|Cost of sales            |                            |                                              | 127  |      |      |   | 101  |   
|                         |                            |                                              |      |      |      |   |      |   
|Gross profit (loss)      |                            |                                              | (27  | )    |      |   | (1   | ) 
|                         |                            |                                              |      |      |      |   |      |   
|Operating expenses:      |                            |                                              |      |      |      |   |      |   
|                         | Research and development   |                                              |      |     |      |   |      | 12 |    
|                         | Sales and marketing        |                                              |      | 1    |      |   |      | 2  |    
|                         | General and administrative |                                              |      | 134  |      |   |      | 63 |    
|                         |                            |                                              |      |      |      |   |      |   
|                         |                            | Total operating expenses                     |      |      | 135  |   |      |    | 77  |  
|Loss from operations     |                            |                                              | (162 | )    |      |   | (78  | ) 
|Other income (expense)   |                            |                                              | 9    |      |      |   | (5   | ) 
|                         |                            |                                              |      |      |      |   |      |   
|                         |                            | Net loss from continuing operations          |      |      | (153 | ) |      |    | (83 | )
|                         |                            |                                              |      |      |      |   |      |   
|Discontinued operations: |                            |                                              |      |      |      |   |      |   
|                         |                            | Loss from operations wire and cable division |      |      | (413 | ) |      |    | (80 | )
|                         |                            |                                              |      |      |      |   |      |   
|Net loss                 |                            |                                              | (566 | )%   |      |   | (163 | )%
|                         |                            |                                              |      |      |      |   |      |   



| |                                                                            
| | ---------------------------------------------------------------------------
| | Year ended December 31, 2003 compared
    with year ended December 31, 2002

On March 8, 2004 we announced that we signed
an agreement with ANS, to sell the assets of our Portland wire
and cable division. The sale is expected to close on
April 21, 2004, subject to the approval of the microHelix
shareholders and fulfillment of certain other conditions. As a
result of this pending material transaction, we are required
under Generally Accepted Accounting Principles
(GAAP) 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 must classify 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, 2003
were $1,666,424, compared to $1,341,560, for the year ended
December 31, 2002, or an increase of 24%. This increase can
be attributed primarily to sales to the Parallel Design division
of General Electric and to contract manufacturing work. As a
result of this increase in manufacturing volume, gross margin
for the year ending December 31, 2003 was a negative
$18,197 compared with a negative $364,549 recorded in the year
ending December 31, 2002.

During the year ending December 31, 2003 we
began developing our own line of replacement ultrasound probes
for sale to OEMs, distributors and end-users. We view this
program as an extension of the business we have been in for the
past four years since we purchased the assets of the medical
ultrasound division of Alcatel NA Cable Systems, Inc., a
subsidiary of Alcatel S.A. in 1999. These branded replacement
probe assemblies will be either manufactured by us in Arizona or
by a third party using new components. To begin this effort, we
invested $192,720 in research and development for this program
in 2003.

Sales and marketing expenses for the year ending
December 31, 2003 were $41,183, compared to $22,038 for the
year ending December 31, 2002. This increase is primarily
related to an increase in shipments. Sales and marketing
expenses will increase in 2004 over the 2003 level primarily due
to the planned launch of the replacement probe program.

13



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##### Table of Contents



General and administrative expenses for the year
ending December 31, 2003 were $1,055,006 compared to
$1,791,723 for the year ending December 31, 2002, or a
reduction of $736,717. These savings were primarily realized
through reductions in personnel, travel expenses, legal
expenses, investor relations expenses and consulting fees.
General and administrative expenses should be even smaller in
2004 because corporate expenses to support only the ultrasound
operations should be significantly less due to the simplified
and smaller organization. It should be noted that these savings
will not be realized until after the transaction with ANS is
completed at the end of April 2004.

The loss from operations for the year ending
December 31, 2003 was $1,307,106, $871,204 less than the
operating loss of $2,178,310 that was recorded in the prior year
ending December 31, 2002. This reduction in operating
losses can be attributed to an improvement of $346,352 in gross
margin and a reduction in expenses of $524,852.

Other income (expense) for the year ending
December 31, 2003 reflected $80,592 other expense-net
compared to other income-net of $121,136 for the period ending
December 31, 2002. The increase in other expense-net in
2003 is primarily due to a reduction in interest income in 2003
compared to 2002 due to cash balances on average being lower in
2003 than in 2002 and a provision to write-off $57,940 of
shareholders notes in 2003. There were no similar
write-offs in 2002. In addition, in 2002 the president of the
Company at that time agreed to accept $75,000 less in salary
payments than what had been accrued in the prior year. This
reduction in expense was classified as other income in 2002.

The wire and cable division financial results
have been reported as discontinued operations. For the year
ending December 31, 2003, the net loss from operations for
this division was $1,336,357 compared to a net loss of
$5,542,534 for the period ending December 31, 2002. For the
years ending December 31, 2003 and 2002, the Company
determined that the value of certain patents used in the wire
and cable division were impaired and recorded losses of $149,242
and $3,811,767, respectively. This was the primary reason why
the loss recorded in 2003 was less than the loss recorded in
2002.

The net loss for the Company was $2,724,055 for
the year ending December 31, 2003 compared to a net loss for the
Company of $7,599,708 for the year ending December 31,
2002. This reduction in net loss in 2003 compared to 2002 can be
attributed to an improvement in gross margin, a reduction in
expenses and no asset impairment loss recorded in 2003. 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.

No provision for income taxes has been made due
to the Companys accumulated net operating losses.



| |                                    
| | -----------------------------------
| | Liquidity and Capital
    Resources

As of December 31, 2003, the Company had
$48,767 of cash and cash equivalents. Cash used in operating
activities in 2003 was $1,276,019 compared to $4,135,852 used in
2002. This decrease in the use of cash in operating activities
in 2003 can be attributed to three factors: first, a reduction
in net losses of $1,063,886 in 2003 compared to 2002 (excluding
from 2002 the $3,811,767 non-cash reduction in the value of
intangible assets), second, a reduction of $729,728 in accounts
receivable and third, a reduction of $530,546 in interest on a
note payable to a shareholder.

During 2003, the Company again recognized the
need to obtain additional permanent financing. The Company
acknowledged if this effort was not successful, then the Company
would be required to make even further reductions in expenses to
match the expected sales level. Although the Company was
successful in reducing operating expenses, the Company was not
successful in increasing sales to match the reduced operating
expense levels. As a result, in December 2003, the Company
expanded the scope of an existing engagement with an investment
banking firm to identify potential buyers of the Companys
wire and cable division based in Portland, Oregon, or the
possible sale of the entire Company to an organization with
sufficient capital resources. As a result of these efforts, the
Company announced on March 8, 2004 the sale of

14



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##### Table of Contents



the wire and cable division to Advanced
Neuromodulation Systems, Inc. of Dallas, Texas, for
approximately $2.0 million in cash and assumed liabilities.


Although we expect that the proceeds from the
asset sale will provide a portion of the resources we will need
to expand our ultrasound division as contemplated, we may need
additional capital that we have not yet secured and we cannot
assure that the proceeds of the asset sale, if realized, will be
sufficient to fund these plans. If the proceeds are not
sufficient, we may be required to seek additional financing.
Such financing could be dilutive to our existing shareholders or
may not be available on reasonable terms, or at all.

As of December 31, 2003, we had a $500,000
line of credit for working capital, secured by accounts
receivable and inventory. As of December 31, 2003, there
was $249,293 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, 2003, the Company had no
purchase orders outstanding for capital equipment that had not
been delivered.

The following table discloses the Companys
contractual cash obligations as of December 31, 2003:

|                                         |  |                        |         |           |  |           |         |           |  |   |         |  |  |   |   | 
|---------------------------------------- |  | ---------------------- | ------- | --------- |  | --------- | ------- | --------- |  | - | ------- |  |  | - | - | 
|                                         |  |                       
|                                         |  | Payments Due by Period
|                                         |  |                       
|                                         |  |                        |         | Less than |  |          
|Contractual Obligations                  |  | Total                  |         | 1 Year    |  | 1-3 Years |         | 4-5 Years
|                                         |  |                        |         |           |  |           |         |          
|Operating leases, net of sublease income |  | $                      | 506,486 |           |  | $         | 258,030 |           |  | $ | 248,456 |  |  | $ |  | 
|Line of credit                           |  |                        | 249,293 |           |  |           | 249,293 |           |  |   |        |  |  |   |  | 
|Short-term borrowing                     |  |                        | 100,000 |           |  |           | 100,000 |           |  |   |        |  |  |   |  | 
|                                         |  |                        |         |           |  |           |         |           |  |   |         |  |  |   |   | 
|Total contractual cash obligations       |  | $                      | 855,779 |           |  | $         | 607,323 |           |  | $ | 248,456 |  |  | $ |  | 
|                                         |  |                        |         |           |  |           |         |           |  |   |         |  |  |   |   | 

During 2003, the Company repaid $808,000 of notes
payable to a shareholder. In March 2003, the Company
borrowed $200,000 from an unrelated party and repaid $100,000 to
the lender during the year ending December 31, 2003.

Risk Factors

Following are the key risk factors that have
affected our financial condition, net sales and net income in
the past and could materially impact our future financial
condition, net sales and net income. In addition, if any of
these risks occur, the market price of shares of our Common
Stock could decline and investors could lose all or part of
their investment:

The proposed sale of our Portland,
Oregon-based wire and cable business will make us highly
dependent on our ability to compete successfully in the medical
ultrasound business.

The wire and cable business has historically
accounted for over 66% of our total annual revenues. These
revenues were derived from 10-12 significant customers, who
purchased coated wire, cable, cable assemblies, interconnect
systems, leads, connectors, coils, laser micro-machining
services and development services from us. We will now rely
entirely on 6-8 OEM customers that dominate the medical
ultrasound business or serve needs in specific specialty areas.
We will now 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.

Two key elements of our on-going business plan
involve (a) the expansion of our ultrasound cable assembly
capabilities and (b) the development and sale of a
replacement ultrasound probe product line. Both efforts are
planned 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 sure are
justified. If any

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of our key assumptions are incorrect, we could be
unable to expand our business as we currently anticipate and we
may make substantial investments in product development and/or
marketing efforts that do not result in new product sales. Our
assumptions include the following:




| |   |                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | demand for sophisticated next
    generation 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 outsource some or all of these cable assemblies; and                                                                        
|
| |  | other companies will not expand their cable
    assembly capabilities that offer technological or economic
    advantages over ours nor will other companies develop lower cost
    alternatives to our proposed line of replacement ultrasound
    probes that would preclude our success in this market.

The development of ultrasound imaging systems
by our OEM customers is usually subject to review by the U.S.
Food and Drug Administration and other regulatory agencies,
which means that new cable assemblies provided by us that are
designed as part of these systems may not be sold in commercial
quantities for a long time, if ever.

Our sales process involves designing our cable
assemblies into both existing and new OEM devices. The sale of
any new 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. Food and Drug Administration, or
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.

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

In 2002, sales to our two largest customers, GE
Parallel Design and Philips Medical Systems, accounted for 45%
and 40% respectively, of our ultrasound revenues. In 2003, sales
to our largest customer, GE Parallel Design, accounted for 69%
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 our sales and earnings. 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

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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. It is principally for this reason that we have elected to
enter the replacement ultrasound probe market, providing new
replacement probes that function on older generation imaging
systems. Although the installed base of these imaging systems is
large, OEMs remain more interested in new system sales, creating
an opportunity for lower cost competitors to serve this mature
replacement probe market.


As we enter the replacement ultrasound probe
market, we may not be able to develop and introduce probes that
achieve market acceptance, which could adversely affect our
ability to compete in this target market and cause us to incur
additional expense that is not supported by additional
revenues.

To compete successfully in the replacement
ultrasound probe market we will be required to do the following:



| |   |                                                                                                                                                                                                                         
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | correctly identify replacement probes that are
    most likely to be in demand in the replacement market;                                                                                                               
|
| |  | develop and secure regulatory clearance for our
    own replacement probes and/or purchase cleared probes from third
    parties that meet performance, price and quality expectations of
    our prospective customers;
|
| |  | successfully develop sales channels to
    distributors, buying groups and end-users, representing a
    business risk for us because we have focused to date entirely on
    selling to OEMs;                          
|
| |  | build long-term sources of supply of replacement
    probes to provide ongoing stability for our business (cost and
    availability) and to avoid potential business interruptions;                                    

We cannot assure you that we will be able to
achieve any of these objectives. Our inability to achieve these
objectives will have a direct and adverse impact on our sales.

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: (a) 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 October 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, which was adopted on January 1, 2002. SFAS
No. 144 addresses accounting and reporting of long-lived
assets, except goodwill, that are either held and used or
disposed of through sale or other means. As discussed elsewhere
in this Annual Report, the Company recorded an impairment loss
of $3,811,767 and $149,242 on certain patents during the years
ended December 31, 2002 and 2003, respectively.

In November 2002, the FASB issued FASB
Interpretation No. 45 (FIN No. 45),
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN No. 45 is an interpretation of FASB
Statements No. 5, 57 and 107 and rescinds FIN No. 35.
This

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interpretation elaborates on the disclosures to
be made by a guarantor in its interim and annual financial
statements about its obligations under certain guarantees that
it has issued. The disclosure requirements in FIN No. 45
were effective for the year ended December 31, 2002. The
adoption of this interpretation did not have a material effect
on the Companys financial statements.


In January 2003, the FASB issued FIN
No. 46, Consolidation of Variable Interest Entities(revised December 2003). FIN No. 46 addresses when
a company should include in its financial statements the assets,
liabilities and activities of a variable interest entity. FIN
No. 46 defines variable interest entities as those entities
with a business purpose that either do not have any equity
investors with voting rights or have equity investors that do
not provide sufficient financial resources for the entity to
support its activities. FIN No. 46 also requires
disclosures about variable interest entities that a company is
not required to consolidate, but in which it has a significant
variable interest. FIN No. 46 consolidation requirements
are effective for all variable interest entities created after
January 31, 2003, and to pre-existing entities in the first
fiscal year or interim period ending after December 15,
2003. Certain disclosure requirements are effective for
financial statements issued after January 31, 2003. The
adoption of FIN No. 46 has no effect on the Companys
financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS
No. 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 at the beginning
of the first interim period beginning after June 15, 2003.
The adoption of SFAS No. 150 has not had a material impact
on the Companys financial position, results of operations,
or cash flows.






|        |                     
|------- | --------------------
|Item 7. | Financial Statements

The Companys Financial Statements and the
Independent Auditors Report thereon are presented in the
following pages.

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INDEX TO FINANCIAL STATEMENTS

|                 |                                                                                                    |      |  |    | 
|---------------- | -------------------------------------------------------------------------------------------------- | ---- |  | -- | 
|                 |                                                                                                    | Page
|                 |                                                                                                    |     
|microHelix, Inc. |                                                                                                    |      |  |   
|                 | Independent Auditors Report                                                                       |      |  | 20 | 
|                 | Consolidated Balance Sheet as of
    December 31, 2003                                             |      |  | 21 | 
|                 | Consolidated Statements of Operations for the
    Years Ended December 31, 2002 and 2003           |      |  | 22 | 
|                 | Consolidated Statements of Shareholders
    Equity for the Years Ended December 31, 2002 and 2003 |      |  | 23 | 
|                 | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2002 and 2003           |      |  | 24 | 
|                 | Notes to Consolidated Financial Statements                                                         |      |  | 25 | 

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INDEPENDENT AUDITORS REPORT

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, 2003, and the related consolidated
statements of operations, shareholders equity, and cash
flows for each of the two years in the period 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 audits.

We conducted our audits 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 audits
provide a reasonable basis for our opinion.

In our opinion, such consolidated financial
statements present fairly, in all material respects, the
financial position of the Company at December 31, 2003, and
the results of their operations and their cash flows for each of
the two years in the period 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


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MICROHELIX, INC.

CONSOLIDATED BALANCE SHEET

December 31, 2003


|                                          |                                                                                                              |                                                |         |             |           | 
|----------------------------------------- | ------------------------------------------------------------------------------------------------------------ | ---------------------------------------------- | ------- | ----------- | --------- | 
|                                          |                                                                                                              | December 31,                                  
|                                          |                                                                                                              | 2003                                          
|                                          |                                                                                                              |                                               
|ASSETS                                   
|Current Assets:                           |                                                                                                              |                                                |         |            
|                                          | Cash                                                                                                         |                                                | $       | 48,767      |          
|                                          | Accounts receivable, net of allowance of $22,156                                                             |                                                |         | 425,326     |          
|                                          | Inventories (Note 2)                                                                                         |                                                |         | 343,537     |          
|                                          | Prepaid expenses                                                                                             |                                                |         | 70,085      |          
|                                          | Assets held for sale (Note 12)                                                                               |                                                |         | 2,402,479   |          
|                                          |                                                                                                              |                                                |         |            
|                                          |                                                                                                              | Total current assets                           |         |             | 3,290,194 | 
|Property and equipment  net
    (Note 3) |                                                                                                              |                                                | 116,536 |            
|Other assets                              |                                                                                                              |                                                | 9,516   |            
|                                          |                                                                                                              |                                                |         |            
|                                          |                                                                                                              | Total assets                                   |         | $           | 3,416,246 | 
|                                          |                                                                                                              |                                                |         |            
|LIABILITIES AND SHAREHOLDERS
    EQUITY 
|Current Liabilities:                      |                                                                                                              |                                                |         |            
|                                          | Accounts payable                                                                                             |                                                | $       | 497,470     |          
|                                          | Accrued liabilities                                                                                          |                                                |         | 274,665     |          
|                                          | Line of credit (Note 5)                                                                                      |                                                |         | 249,293     |          
|                                          | Short term borrowing                                                                                         |                                                |         | 100,000     |          
|                                          | Liabilities held for sale (Note 12)                                                                          |                                                |         | 598,191     |          
|                                          |                                                                                                              |                                                |         |            
|                                          |                                                                                                              | Total current liabilities                      |         |             | 1,719,619 | 
|Deferred gain on sale-leaseback           |                                                                                                              |                                                | 213,048 |            
|                                          |                                                                                                              |                                                |         |            
|                                          |                                                                                                              | Total liabilities                              |         |             | 1,932,667 | 
|                                          |                                                                                                              |                                                |         |            
|Shareholders Equity (Note 7):            |                                                                                                              |                                                |         |            
|                                          | Preferred stock, no par value, 5,000,000 shares
    authorized, zero issued and outstanding at December 31   |                                                |         |            |          
|                                          | Common stock, no par value, 8,333,333 shares
    authorized, 1,681,806 issued and outstanding at December 31 |                                                |         | 14,359,467  |          
|                                          | Additional paid-in capital                                                                                   |                                                |         | 6,487,417   |          
|                                          | Deferred compensation expense                                                                                |                                                |         | (27,185     | )        
|                                          | Accumulated deficit                                                                                          |                                                |         | (19,336,120 | )        
|                                          |                                                                                                              |                                                |         |            
|                                          |                                                                                                              | Total shareholders equity                     |         |             | 1,483,579 | 
|                                          |                                                                                                              |                                                |         |            
|                                          |                                                                                                              | Total liabilities and
    shareholders equity |         | $           | 3,416,246 | 
|                                          |                                                                                                              |                                                |         |            

See notes to consolidated financial statements.

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MICROHELIX, INC.

CONSOLIDATED STATEMENTS OF
OPERATIONS

Years Ended December 31, 2002 and
2003


|                                                             |                                                               |                                  |            |            |           |   |            |            |           |  
|------------------------------------------------------------ | ------------------------------------------------------------- | -------------------------------- | ---------- | ---------- | --------- | - | ---------- | ---------- | --------- | -
|                                                             |                                                               |                                 
|                                                             |                                                               | Year Ended December 31,         
|                                                             |                                                               |                                 
|                                                             |                                                               | 2002                             |            | 2003      
|                                                             |                                                               |                                  |            |           
|Sales                                                        |                                                               | $                                | 1,341,560  |            |           | $ | 1,666,424  |           
|Cost of Sales                                                |                                                               |                                  | 1,706,109  |            |           |   | 1,684,621  |           
|                                                             |                                                               |                                  |            |            |           |   |            |           
|                                                             |                                                               | Gross profit (loss)              |            |            | (364,549  | ) |            |            | (18,197   | )
|Operating Expenses:                                          |                                                               |                                  |            |            |           |   |            |           
|                                                             | Research and development                                      |                                  |            |           |           |   |            | 192,720    |          
|                                                             | Sales and marketing                                           |                                  |            | 22,038     |           |   |            | 41,183     |          
|                                                             | General and administrative                                    |                                  |            | 1,791,723  |           |   |            | 1,055,006  |          
|                                                             |                                                               |                                  |            |            |           |   |            |           
|                                                             |                                                               | Total operating expenses         |            |            | 1,813,761 |   |            |            | 1,288,909 |  
|                                                             |                                                               |                                  |            |            |           |   |            |           
|Loss from operations                                         |                                                               |                                  | (2,178,310 | )          |           |   | (1,307,106 | )         
|Other Income (Expense):                                      |                                                               |                                  |            |            |           |   |            |           
|                                                             | Other income                                                  |                                  |            | 75,000     |           |   |            |           |          
|                                                             | Interest income                                               |                                  |            | 68,783     |           |   |            | 10,731     |          
|                                                             | Other expense                                                 |                                  |            |           |           |   |            | (57,940    | )        
|                                                             | Interest expense                                              |                                  |            | (22,647    | )         |   |            | (33,383    | )        
|                                                             |                                                               |                                  |            |            |           |   |            |           
|                                                             |                                                               | Other income and (expense)  net |            |            | 121,136   |   |            |            | (80,592   | )
|                                                             |                                                               |                                  |            |            |           |   |            |           
|Net loss from continuing operations                          |                                                               |                                  | (2,057,174 | )          |           |   | (1,387,698 | )         
|Discontinued operations:                                     |                                                               |                                  |            |            |           |   |            |           
|                                                             | Loss from operations of wire and
    cable division (Note 12) |                                  |            | (5,542,534 | )         |   |            | (1,336,357 | )        
|                                                             |                                                               |                                  |            |            |           |   |            |           
|Net loss                                                     |                                                               | $                                | (7,599,708 | )          |           | $ | (2,724,055 | )         
|                                                             |                                                               |                                  |            |            |           |   |            |           
|Loss per common share  basic and diluted:                   |                                                               |                                  |            |            |           |   |            |           
|Net loss from continuing operations                          |                                                               | $                                | (1.32      | )          |           | $ | (.89       | )         
|Net loss from discontinued operations                        |                                                               |                                  | (3.57      | )          |           |   | (.86       | )         
|                                                             |                                                               |                                  |            |            |           |   |            |           
|                                                             |                                                               | Net loss                         |            | $          | (4.89     | ) |            | $          | (1.76     | )
|                                                             |                                                               |                                  |            |            |           |   |            |           
|Shares used in per share calculation 
    basic and diluted |                                                               |                                  | 1,553,295  |            |           |   | 1,550,886  |           
|                                                             |                                                               |                                  |            |            |           |   |            |           

See notes to consolidated financial statements.

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MICROHELIX, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

Years Ended December 31, 2002 and
2003


|                                                    |                    |              |           |            |  |         |            |            |  |              |           |         |  |       |         |   |  |   |         |   |  |   |             |   |  |   |            |         | 
|--------------------------------------------------- | ------------------ | ------------ | --------- | ---------- |  | ------- | ---------- | ---------- |  | ------------ | --------- | ------- |  | ----- | ------- | - |  | - | ------- | - |  | - | ----------- | - |  | - | ---------- | ------- | 
|                                                    |                    |              |           |            |  |         |            |            |  |              |           |        
|                                                    |                    | Common Stock |           | Additional |  |         |            |            |  |              |           |        
|                                                    |                    |              |           | Paid-In    |  | Notes   |            | Deferred   |  | Accumulated  |           |        
|                                                    |                    | Shares       |           | Amount     |  | Capital |            | Receivable |  | Compensation |           | Deficit |  | Total
|                                                    |                    |              |           |            |  |         |            |            |  |              |           |         |  |      
|Balance, January 1, 2002                            |                    |              | 1,553,295 |            |  | $       | 14,179,467 |            |  | $            | 6,485,312 |         |  | $     | (57,940 | ) |  | $ | (84,822 | ) |  | $ | (9,012,357  | ) |  | $ | 11,509,660 |        
|Grant of stock options                              |                    |              |           |            |  |         |            |            |  |              | 2,105     |         |  |       |         |   |  |   | (2,105  | ) |  |   |             |   |  |   |            |        
|Amortization of deferred compensation               |                    |              |           |            |  |         |            |            |  |              |           |         |  |       |         |   |  |   | 38,193  |   |  |   |             |   |  |   | 38,193     |        
|Net loss                                            |                    |              |           |            |  |         |            |            |  |              |           |         |  |       |         |   |  |   |         |   |  |   | (7,599,708  | ) |  |   | (7,599,708 | )      
|                                                    |                    |              |           |            |  |         |            |            |  |              |           |         |  |       |         |   |  |   |         |   |  |   |             |   |  |   |            |        
|Balance, December 31, 2002                          |                    |              | 1,553,295 |            |  | $       | 14,179,467 |            |  | $            | 6,487,417 |         |  | $     | (57,940 | ) |  | $ | (48,734 | ) |  | $ | (16,612,065 | ) |  | $ | 3,948,145  |        
|Repurchase of common stock                          |                    |              | (13,333   | )          |  |         | (20,000    | )          |  |              |           |         |  |       |         |   |  |   |         |   |  |   |             |   |  |   | (20,000    | )      
|                                                    | Conversion of debt |              |           | 141,844    |  |         |            | 200,000    |  |              |           |         |  |       |         |   |  |   |         |   |  |   |             |   |  |   |            | 200,000 | 
|Write-off of notes receivable
    from shareholders |                    |              |           |            |  |         |            |            |  |              |           |         |  |       | 57,940  |   |  |   |         |   |  |   |             |   |  |   | 57,940     |        
|Amortization of deferred compensation               |                    |              |           |            |  |         |            |            |  |              |           |         |  |       |         |   |  |   | 21,549  |   |  |   |             |   |  |   | 21,549     |        
|Net 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 | ) |  | $ | 1,483,579  |        
|                                                    |                    |              |           |            |  |         |            |            |  |              |           |         |  |       |         |   |  |   |         |   |  |   |             |   |  |   |            |        

See notes to consolidated financial statements.

23



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##### Table of Contents



MICROHELIX, INC.

CONSOLIDATED STATEMENTS OF CASH
FLOWS

Years Ended December 31, 2002 and
2003


|                                                                              |                                               |                                   |                                              |           |          |            |            |         |          |            |  
|----------------------------------------------------------------------------- | --------------------------------------------- | --------------------------------- | -------------------------------------------- | --------- | -------- | ---------- | ---------- | ------- | -------- | ---------- | -
|                                                                              |                                               |                                  
|                                                                              |                                               | Year Ended December 31,          
|                                                                              |                                               |                                  
|                                                                              |                                               | 2002                              |                                              | 2003     
|                                                                              |                                               |                                   |                                              |          
|Cash Flows from Operating
    Activities:                                     |                                               |                                   |                                              |           |          |            |            |        
|Net loss                                                                      |                                               | $                                 | (7,599,708                                   | )         |          | $          | (2,724,055 | )      
|Adjustments to reconcile net loss to cash used in
    operating activities:   |                                               |                                   |                                              |           |          |            |            |        
|                                                                              | Depreciation and amortization                 |                                   |                                              | 518,139   |          |            |            | 526,069 |         
|                                                                              | Stock compensation expense                    |                                   |                                              | 36,088    |          |            |            | 21,549  |         
|                                                                              | Amortization of deferred inventory charges    |                                   |                                              | 6,237     |          |            |            | 6,160   |         
|                                                                              | Write-off of notes receivable to shareholders |                                   |                                              |          |          |            |            | 57,940  |         
|                                                                              | Forgiveness of deferred compensation          |                                   |                                              | (75,000   | )        |            |            |        |         
|                                                                              | (Gain)/loss on sale of equipment              |                                   |                                              |          |          |            |            | (59,057 | )       
|                                                                              | Impairment loss on intangibles                |                                   |                                              | 3,811,767 |          |            |            |        |         
|                                                                              | Change in:                                    |                                   |                                              |           |          |            |            |         |         
|                                                                              |                                               | Accounts receivable, net          |                                              |           | (69,234  | )          |            |         | 729,728  |           
|                                                                              |                                               | Inventories                       |                                              |           | 168,878  |            |            |         | 92,133   |           
|                                                                              |                                               | Due from affiliates               |                                              |           | (37,247  | )          |            |         |         |           
|                                                                              |                                               | Prepaid expenses                  |                                              |           | 62,148   |            |            |         | 40,438   |           
|                                                                              |                                               | Intangible and other assets       |                                              |           | (4,280   | )          |            |         | 102,661  |           
|                                                                              |                                               | Accounts payable                  |                                              |           | (365,059 | )          |            |         | 100,563  |           
|                                                                              |                                               | Accrued interest to shareholder   |                                              |           | (530,546 | )          |            |         |         |           
|                                                                              |                                               | Deferred shareholder compensation |                                              |           | (125,000 | )          |            |         |         |           
|                                                                              |                                               | Accrued liabilities               |                                              |           | 66,965   |            |            |         | (170,148 | )         
|                                                                              |                                               |                                   |                                              |           |          |            |            |        
|                                                                              |                                               |                                   | Cash used in operating activities            |           |          | (4,135,852 | )          |         |          | (1,276,019 | )
|                                                                              |                                               |                                   |                                              |           |          |            |            |        
|Cash Flows from Investing
    Activities:                                     |                                               |                                   |                                              |           |          |            |            |        
|Capital expenditures                                                          |                                               |                                   | (173,196                                     | )         |          |            | (36,143    | )      
|Proceeds from the sale of equipment                                           |                                               |                                   |                                             |           |          |            | 469,000    |        
|                                                                              |                                               |                                   |                                              |           |          |            |            |        
|                                                                              |                                               |                                   | Cash used in investing activities            |           |          | (173,196   | )          |         |          | 432,857    |  
|                                                                              |                                               |                                   |                                              |           |          |            |            |        
|Cash Flows from Financing
    Activities:                                     |                                               |                                   |                                              |           |          |            |            |        
|Proceeds from borrowings against notes payable
    and line of credit         |                                               |                                   | 1,070,020                                    |           |          |            | 4,873,363  |        
|Principal payments on notes payable and lines
    of credit                   |                                               |                                   | (1,982,739                                   | )         |          |            | (5,971,181 | )      
|Principal payments on lease obligation                                        |                                               |                                   |                                             |           |          |            | (121,802   | )      
|Repurchase of common stock                                                    |                                               |                                   |                                             |           |          |            | (20,000    | )      
|                                                                              |                                               |                                   |                                              |           |          |            |            |        
|                                                                              |                                               |                                   | Cash provided/(used) by financing activities |           |          | (912,719   | )          |         |          | (1,239,620 | )
|                                                                              |                                               |                                   |                                              |           |          |            |            |        
|Change in cash                                                                |                                               |                                   | (5,221,767                                   | )         |          |            | (2,082,782 | )      
|Cash, beginning of period                                                     |                                               |                                   | 7,353,316                                    |           |          |            | 2,131,549  |        
|                                                                              |                                               |                                   |                                              |           |          |            |            |        
|Cash, end of period                                                           |                                               | $                                 | 2,131,549                                    |           |          | $          | 48,767     |        
|                                                                              |                                               |                                   |                                              |           |          |            |            |        
|Supplemental disclosure of cash flow information
     Cash paid for interest |                                               | $                                 | 710,123                                      |           |          | $          | 140,892    |        
|                                                                              |                                               |                                   |                                              |           |          |            |            |        

See notes to consolidated financial statements.

24



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##### Table of Contents



MICROHELIX, INC.

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

Years Ended December 31, 2002 and
2003




|   |                                                              
|-- | -------------------------------------------------------------
|1. | Summary of Significant Policies and Basis of
    Presentation

Nature of
Operations microHelix,
Inc. and its wholly owned subsidiary, BioElectric Corporation
(collectively, the Company), is primarily engaged in
the design, manufacture, and sale of micro cables, connectors,
and assemblies for use in medical devices.

Basis of
Presentation In
December 2003, the Company completed a 1-for-3 reverse
split of its common stock, the effects of which have been
retroactively 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.

The consolidated financial statements include the
accounts of microHelix, Inc. and its wholly owned subsidiary,
BioElectric Corporation (BioElectric). All
significant inter-company balances and transactions are
eliminated upon consolidation.

Going
Concern These 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, 2003 had an accumulated deficit of
$19,336,120. This indicates that the Company may be unable to
continue as a going concern for a reasonable period of time.
These financial statements do not include any adjustments
relating to the recoverability and classification of recorded
asset amounts or the amounts and classification of liabilities
that may be necessary should the Company be unable to continue
as a going concern. The Companys continuation as a going
concern is contingent upon its ability to obtain additional
financing, and to generate revenue and cash flow to meet its
obligations on a timely basis.

In 2003, the Company significantly cut operating
expenses in an effort to reduce the cash burn rate. Although
this was somewhat effective, sales did not increase sufficiently
to curtail the operating losses and the cash position of the
Company continued to deteriorate throughout the year. During
2003, the Company was not successful in raising additional
capital and in view of the continued weakening cash position the
board of directors concluded that only a sale of existing assets
or a business combination with a financially strong company
would enable the Company to continue to operate. The board of
directors believed that the assets of the wire and cable
division could possibly represent an attractive acquisition
opportunity and in so doing provide an infusion of capital that
would enable the Company to concentrate on the opportunities in
the ultrasound market. On March 8, 2004, the Company
announced an agreement to sell its Portland, Oregon wire and
cable division to Advanced Neuromodulation Systems, Inc. of
Dallas, Texas. The sale is expected to close on April 21,
2004, subject to the approval of the microHelix shareholders.
Refer to note 12, Discontinued Operations, for additional
information.

Credit and
Collection The Company
extends credit to its customers based on an assessment of a
customers financial circumstances, generally without
requiring collateral. Some of our significant customers have
experienced financial difficulties in the past, and future
financial difficulties of customers could have a material
adverse effect on the Companys business.

Inventories
are stated at the lower of cost (first-in, first-out) or market.

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.

25



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##### Table of Contents



MICROHELIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)





Revenue
Recognition The Company
recognizes revenue from commercial sales of micro cables,
connectors, 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.

Development contracts are structured on a cost or
cost plus basis. Revenue from development contracts for
non-recurring engineering is recognized 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. Prototypes are tested at the Companys facility
for customer specifications prior to shipment.

Revenue on government grants is 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.

As of December 31, 2002 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, 2002 and 2003.

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.

Income
Taxes The liability method
is used to account for income taxes. Deferred income taxes are
provided for the temporary effects of differences in the
recognition of revenues and expenses for financial statement and
income tax reporting purposes. Valuation allowances reduce
deferred tax assets to an amount more likely than not to be
realized.

Stock-Based
Compensation The Company
continues to measure compensation expense for its stock-based
employee compensation plans using the method prescribed by
Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees.
The Company provides pro forma disclosures of net income and
earnings per share as if the method prescribed by Statement of
Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation,had been applied
in measuring compensation expense.

If compensation cost on stock options granted
under these plans had been determined based on the fair value of
the options consistent with that described in SFAS No. 123,
the Companys net loss and net loss per common share would
have been adjusted to the following pro forma amounts:

|                                             |             |                         |   |            |   |  |   |            |  
|-------------------------------------------- | ----------- | ----------------------- | - | ---------- | - |  | - | ---------- | -
|                                             |             |                        
|                                             |             | Year Ended December 31,
|                                             |             |                        
|                                             |             | 2002                    |   | 2003      
|                                             |             |                         |   |           
|Net loss:                                    |             |                         |   |            |   |  |   |           
|                                             | As reported |                         | $ | (7,599,708 | ) |  | $ | (2,724,055 | )
|                                             | Pro forma   |                         |   | (7,842,835 | ) |  |   | (2,833,956 | )
|Basic and diluted net loss per common share: |             |                         |   |            |   |  |   |           
|                                             | As reported |                         |   | (4.89      | ) |  |   | (1.76      | )
|                                             | Pro forma   |                         |   | (5.04      | ) |  |   | (1.83      | )

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.

26



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##### Table of Contents



MICROHELIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)





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,
|                                                             |  |                        
|                                                             |  | 2002                    |            | 2003
|                                                             |  |                         |            |     
|Dividend yield                                               |  |                         | None       |      |  |   | None       | 
|Risk-free interest rate                                      |  |                         | 2.630%     |      |  |   | 4.000%     | 
|Expected volatility                                          |  |                         | 98%        |      |  |   | 99%        | 
|Expected option lives                                        |  |                         | 4.02 years |      |  |   | 4.00 years | 
|Weighted-average fair value of options granted
    per share |  | $                       | .49        |      |  | $ | 1.09       | 

Refer to Note 6 for further information regarding
the Companys stock option plan.

Financial
Instruments The carrying
value of the Companys cash, accounts receivable, accounts
payable, other accrued liabilities, and line of credit
approximate their estimated fair values due to the short
maturities of those instruments. At December 31, 2003, the
estimated fair value of notes payable to shareholder was
$227,000, which equals the carrying value of $227,000. Estimated
rates currently available to the Company for debt with similar
terms are used to estimate the fair value of notes payable to
shareholder.

Comprehensive
Loss Comprehensive loss
for the years ended December 31, 2002 and 2003 was the same
as the reported net loss.

Net Loss Per
Share Basic net loss per
share has been computed by dividing net loss by the weighted
average number of shares outstanding during each period. Diluted
loss per share has been computed by dividing net loss adjusted
for interest on convertible bridge loans and notes payable by
the weighted average common stock and common stock equivalent
shares outstanding during each period using the treasury stock
method for employee stock option plans and warrants, and the
if-converted method for redeemable preferred stock and
convertible bridge loans and notes payable, if the common
equivalent shares were not anti-dilutive. Common stock
equivalents were anti-dilutive for all periods presented.

Options to purchase 402,179 and
209,858 shares of common stock were outstanding as of
December 31, 2002 and 2003, respectively, but were not
included in the computation of diluted net loss per share for
the years then ended because the options were anti-dilutive.
These options expire on dates beginning June 2008 through
December 2012.

Reclassifications
Certain amounts from 2002 have been reclassified to conform to
the 2003 presentation with no effect on previously reported
consolidated net income or stockholders equity.



| |                                     
| | ------------------------------------
| | Recent Accounting
    Pronouncements

In October 2001, the Financial Accounting
Standards Board (FASB) issued Statement of Financial
Accounting Standard (SFAS) No. 144,
Accounting for the Impairment or Disposal of Long-Lived
Assets, which was adopted on January 1, 2002. SFAS
No. 144 addresses accounting and reporting of long-lived
assets, except goodwill, that are either held and used or
disposed of through sale or other means. As discussed elsewhere
in this Annual Report, the Company recorded an impairment loss
of $3,811,767 and $149,242 on certain patents during the years
ended December 31, 2002 and 2003, respectively.

In November 2002, the FASB issued FASB
Interpretation No. 45 (FIN No. 45),
Guarantors Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness of
Others. FIN No. 45 is an interpretation of FASB
Statements No. 5, 57 and 107 and rescinds FIN No. 35.
This interpretation elaborates on the disclosures to be made by
a guarantor in its interim and annual financial statements about
its obligations under certain guarantees that it has issued. The
disclosure requirements in

27



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##### Table of Contents



MICROHELIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)





FIN No. 45 were effective for the year ended
December 31, 2002. The adoption of this interpretation did
not have a material effect on the Companys financial
statements.


In January 2003, the FASB issued FIN
No. 46, Consolidation of Variable Interest Entities(revised December 2003). FIN No. 46 addresses when
a company should include in its financial statements the assets,
liabilities and activities of a variable interest entity. FIN
No. 46 defines variable interest entities as those entities
with a business purpose that either do not have any equity
investors with voting rights or have equity investors that do
not provide sufficient financial resources for the entity to
support its activities. FIN No. 46 also requires
disclosures about variable interest entities that a company is
not required to consolidate, but in which it has a significant
variable interest. FIN No. 46 consolidation requirements
are effective for all variable interest entities created after
January 31, 2003, and to pre-existing entities in the first
fiscal year or interim period ending after December 15,
2003. Certain disclosure requirements are effective for
financial statements issued after January 31, 2003. The
adoption of FIN No. 46 has no effect on the Companys
financial position, results of operations or cash flows.

In May 2003, the FASB issued SFAS
No. 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 at the
beginning of the first interim period beginning after
June 15, 2003. The adoption of SFAS No. 150 has not
had a material impact on the Companys financial position,
results of operations, or cash flows.



|   |            
|-- | -----------
|2. | Inventories

Inventories are as follows:

|              |  |              |         | 
|------------- |  | ------------ | ------- | 
|              |  | December 31,
|              |  | 2003        
|              |  |             
|Raw materials |  | $            | 343,537 | 
|              |  |              |         | 



|   |                       
|-- | ----------------------
|3. | Property and Equipment

Property and equipment are as follows:

|                               |                              |              |          |         | 
|------------------------------ | ---------------------------- | ------------ | -------- | ------- | 
|                               |                              | December 31,
|                               |                              | 2003        
|                               |                              |             
|Machinery and equipment        |                              | $            | 191,801  |        
|Leasehold improvements         |                              |              | 11,950   |        
|Office furniture and equipment |                              |              | 39,108   |        
|Automobiles                    |                              |              | 20,000   |        
|Software                       |                              |              | 6,542    |        
|                               |                              |              |          |        
|                               |                              |              | 269,401  |        
|Accumulated depreciation       |                              |              | (152,865 | )      
|                               |                              |              |          |        
|                               | Property and equipment  net |              | $        | 116,536 | 
|                               |                              |              |          |        



|   |                                 
|-- | --------------------------------
|4. | Line of Credit and Notes Payable

In December 2002, the Company entered into a
revolving line of credit with an asset-based lender. The line of
credit is secured by accounts receivable and inventory. The line
of credit bears interest at the prime rate plus 6.25% (13.00% at
December 31, 2003) and allows the Company to borrow up to
$500,000. At December 31, 2003, $249,293 was outstanding on
the line of credit.

As of December 31, 2003, the Company was in
compliance with the terms of the line of credit.

28



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##### Table of Contents



MICROHELIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)





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
current balance as of December 31, 2003 was $100,000.



|   |             
|-- | ------------
|5. | 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:

|                                           |                    |              |            |           |   | 
|------------------------------------------ | ------------------ | ------------ | ---------- | --------- | - | 
|                                           |                    | December 31,
|                                           |                    | 2003        
|                                           |                    |             
|Federal net operating loss carryforwards   |                    | $            | 5,010,409  |          
|State net operating loss carryforwards     |                    |              | 714,433    |          
|Deferred compensation                      |                    |              | 161,140    |          
|Basis difference in property and equipment |                    |              | (124,800   | )        
|Basis difference in intangible assets      |                    |              | (364,514   | )        
|Other                                      |                    |              | 166,480    |          
|                                           |                    |              |            |          
|                                           | Deferred tax asset |              |            | 5,563,148 |  
|Valuation allowance                        |                    |              | (5,563,148 | )        
|                                           |                    |              |            |          
|                                           |                    | Net          |            | $         |  | 
|                                           |                    |              |            |          

As of December 31, 2003, the Company had
federal and state net operating loss carryforwards of
$14,315,454 and $10,824,741, respectively, expiring during the
years 2013 through 2023. No provision for income taxes has been
recorded due to the Companys net losses.

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.



|   |                     
|-- | --------------------
|6. | Shareholders Equity

Common
Stock As discussed in Note
1, in December 2003, the Company completed a 1-for-3
reverse split of its common stock. The effects of the reverse
split have been retroactively applied to the Companys
financial statements for all periods presented.

Preferred
Stock The Company is
authorized to issue $5,000,000 shares of preferred stock. As of
December 31, 2003, there were zero shares issued and
outstanding.

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 60,000 shares of common
stock to its employees and consultants. Options are granted
under various vesting arrangements, up to a maximum of four
years, 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

29



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##### Table of Contents



MICROHELIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)





for the issuance of options to purchase up to
600,000 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 153,164 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:

|                                           |  |                     |         |           |  |   |      | 
|------------------------------------------ |  | ------------------- | ------- | --------- |  | - | ---- | 
|                                           |  |                    
|                                           |  | Outstanding Options
|                                           |  |                    
|                                           |  |                     |         | Weighted 
|                                           |  |                     |         | Average  
|                                           |  |                     |         | Exercise 
|                                           |  | Number              |         | Price Per
|                                           |  | of Shares           |         | Share    
|                                           |  |                     |         |          
|Balance at December 31, 2001               |  |                     | 78,536  |           |  | $ | 5.54 | 
|Options granted, less than market price    |  |                     | 20,173  |           |  |   | 3.10 | 
|Options granted at market price            |  |                     | 58,686  |           |  |   | .97  | 
|Options granted, greater than market price |  |                     | 1,167   |           |  |   | 1.28 | 
|Options cancelled                          |  |                     | (24,503 | )         |  |   | 3.28 | 
|                                           |  |                     |         |           |  |   |      | 
|Balance at December 31, 2002               |  |                     | 134,060 |           |  | $ | 2.60 | 
|Options granted at market price            |  |                     | 101,646 |           |  |   | 1.56 | 
|Options cancelled                          |  |                     | (25,848 | )         |  |   | 9.11 | 
|                                           |  |                     |         |           |  |   |      | 
|Balance at December 31, 2003               |  |                     | 209,858 |           |  | $ | 4.65 | 
|                                           |  |                     |         |           |  |   |      | 

The following table summarizes information about
stock options outstanding and exercisable under the 1998, 2001,
and 2002 Plans at December 31, 2003:

|                         |  |                     |         |                     |  |           |      |             |  |           |       |  |  |  |        |  |  |   |       | 
|------------------------ |  | ------------------- | ------- | ------------------- |  | --------- | ---- | ----------- |  | --------- | ----- |  |  |  | ------ |  |  | - | ----- | 
|                         |  |                     |         |                    
|                         |  | Options Outstanding |         | Options Exercisable
|                         |  |                     |         |                    
|                         |  |                     |         | Weighted-           |  |           |      |            
|                         |  |                     |         | Average             |  | Weighted- |      |             |  | Weighted-
|                         |  |                     |         | Remaining           |  | Average   |      | Number      |  | Average  
|                         |  | Number              |         | Contractual         |  | Exercise  |      | of Options  |  | Exercise 
|Range of Exercise Prices |  | of Options          |         | Life (yrs)          |  | Price     |      | Exercisable |  | Price    
|                         |  |                     |         |                     |  |           |      |             |  |          
|$  .00  $ 2.72          |  |                     | 121,501 |                     |  |           | 8.60 |             |  | $         | 1.51  |  |  |  | 14,631 |  |  | $ | 1.17  | 
|$ 2.72  $ 5.44          |  |                     | 43,104  |                     |  |           | 7.70 |             |  |           | 3.91  |  |  |  | 20,649 |  |  |   | 3.92  | 
|$ 8.15  $10.87          |  |                     | 32,109  |                     |  |           | 6.10 |             |  |           | 8.28  |  |  |  | 23,048 |  |  |   | 8.24  | 
|$24.46  $27.18          |  |                     | 13,144  |                     |  |           | 7.10 |             |  |           | 27.18 |  |  |  | 6,276  |  |  |   | 27.18 | 
|                         |  |                     |         |                     |  |           |      |             |  |           |       |  |  |  |        |  |  |   |       | 
|                         |  |                     | 209,858 |                     |  |           | 7.90 |             |  | $         | 4.65  |  |  |  | 64,604 |  |  | $ | 7.10  | 
|                         |  |                     |         |                     |  |           |      |             |  |           |       |  |  |  |        |  |  |   |       | 

Refer to Note 1 for disclosure of pro forma
results assuming the Company determined compensation cost on
stock options granted under these plans based on the fair value
of the options consistent with that described in SFAS No. 123.

Stock
Warrants In connection
with bridge loans issued in June 2001, the Company granted
warrants to purchase 156,000 units at 90% of the initial public
offering price. 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.
Interest expense of $162,963 was recorded during 2001, based on
the fair value of the

30



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##### Table of Contents



MICROHELIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)





warrants that was calculated using the
Black-Scholes pricing model and the following assumptions:
risk-free interest rate of 4.58%, no expected dividend yield,
30% volatility, and an expected life of 3.75 years.


In connection with a credit facility agreement
entered into in January 2001, the Company granted 4,416 common
stock warrants at an exercise price of $9.0588 per share. The
warrants expire in January 2008.

In connection with the engagement of the
investment banking firm of Christman, Peters & Madden, on
October 1, 2003, the Company granted warrants to purchase
33,333 shares of common stock. The exercise price will be
determined by the average closing price for a selected period of
10 consecutive trading days during the term of the warrant. The
warrant holder must notify the Company of its intention to
exercise the warrants and identify the 10 consecutive trading
day period. In lieu of exercising this warrant for cash, the
warrant holder may elect to receive common shares equal to the
value of the warrant at the time of exercise. The warrant will
expire on September 30, 2006.

Deferred
Compensation In connection
with stock option grants issued to employees and consultants of
the Company, there was no deferred compensation recorded during
2002 and 2003, respectively. Deferred compensation related to
stock options granted to employees in prior years is calculated
as the difference between the exercise price of the options and
the estimated fair value of the Companys common stock and
is being amortized on a straight-line basis over the vesting
period of the options. Deferred compensation to consultants is
being amortized on a straight-line basis over the related
service periods.



|   |                           
|-- | --------------------------
|7. | Related-Party Transactions

During 2003, the Company wrote-off $44,941 of
doubtful receivables from related parties controlled by a
shareholder. In addition the Company also wrote-off $57,940 of
notes receivable from shareholders that it believed to be
questionable. As of December 31, 2003, a government grant
payment of $4,359 had been incorrectly routed to one of the
parties controlled by a shareholder. Upon notification, these
funds were returned to the Company.

There are no transactions with the affiliates or
related parties that impact sales or expenses.

Significant transactions and balances with
shareholders are summarized below:

|                             |  |              |         | 
|---------------------------- |  | ------------ | ------- | 
|                             |  | December 31,
|                             |  | 2002        
|                             |  |             
|Notes payable to shareholder |  | $            | 227,000 | 
|                             |  |              |         | 

|                                |  |              |        |      |  |   |        | 
|------------------------------- |  | ------------ | ------ | ---- |  | - | ------ | 
|                                |  |             
|                                |  | Year Ended  
|                                |  | December 31,
|                                |  |             
|                                |  | 2002         |        | 2003
|                                |  |              |        |     
|Interest expense to shareholder |  | $            | 92,281 |      |  | $ | 42,869 | 

In January, March and July 2003, the Company
repaid $135,000, $500,000 and $173,000, respectively, of the
note payable to shareholder.

31



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##### Table of Contents



MICROHELIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)







|   |                              
|-- | -----------------------------
|8. | Commitments and Contingencies

Operating
Leases The Company leases
certain office space and equipment. The operating leases expire
at various dates through November 2006. Future minimum
rental commitments under noncancelable operating leases are as
follows:

|                         |                                 |   |         |         | 
|------------------------ | ------------------------------- | - | ------- | ------- | 
|Year Ending December 31, |                                 |  
|                         |                                 |  
|2004                     |                                 | $ | 258,030 |        
|2005                     |                                 |   | 243,191 |        
|2006                     |                                 |   | 5,266   |        
|                         |                                 |   |         |        
|                         | Net operating lease commitments |   | $       | 506,487 | 
|                         |                                 |   |         |        

Rent expense, including amounts in discontinued
operations, was $282,272 and $290,443 (net of sublease income of
$108,028 and $57,485) for the years ended December 31, 2002
and 2003, respectively.

Government
grants The Company enters
into government grants, in which it may commit to certain
equipment purchases. However, the contracting party is obligated
to reimburse the Company for all such purchases. As of
December 31, 2003 all government grants had been fulfilled.

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.



|   |                
|-- | ---------------
|9. | Major Customers

In 2002, sales from four customers represented
$1,428,867 or 28%, $637,047 or 12%, $558,946 or 11%, and
$538,454 or 10%, respectively, of the Companys sales. In
2003, sales from three customers represented $1,153,434 or 24%,
$843,735 or 17%, and $771,352 or 16%, respectively, of the
Companys sales. Sales from governmental grants were from
the same customer for all periods presented.



|    |                
|--- | ---------------
|10. | 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, 2002 and 2003.



|    |                  
|--- | -----------------
|11. | Subsequent Events

On March 8, 2004, the Company announced an
agreement to sell its Portland, Oregon wire and cable division
to Advanced Neuromodulation Systems, Inc. of Dallas, Texas. The
sale is expected to close on April 21, 2004, subject to the
approval of the microHelix shareholders and the fulfillment of
certain other obligations.



|    |                        
|--- | -----------------------
|12. | Discontinued Operations

On March 8, 2004 we announced that we signed
an agreement with Advanced Neuromodulation Systems, Inc.
(ANS), based in Dallas, Texas , to sell the assets
of our Portland wire and cable division. In exchange for these
assets, ANS will pay us $1.5 million in cash and assume
certain liabilities. The details of the transaction are outlined
below in this footnote. The sale is expected to close on April
21, 2004 subject to the approval of the microHelix shareholders.
We will continue to operate the wire and cable division until
the transaction is approved. If we are unsuccessful in closing
the transaction, financial results may be restated as part of
continuing operations in future periods.

32



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##### Table of Contents



MICROHELIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)





Summarized results relating to discontinued
operations are reflected as follows for the years ended
December 31:

|                         |                                |      |            |           |   |   |            |         |  
|------------------------ | ------------------------------ | ---- | ---------- | --------- | - | - | ---------- | ------- | -
|                         |                                | 2002 |            | 2003     
|                         |                                |      |            |          
|Sales                    |                                | $    | 3,829,771  |           |   | $ | 3,226,649  |        
|Cost of Sales            |                                |      | 3,462,592  |           |   |   | 3,147,100  |        
|                         |                                |      |            |           |   |   |            |        
|                         | Gross Profit                   |      |            | 367,179   |   |   |            | 79,549  |  
|Operating Expenses:      |                                |      |            |           |   |   |            |        
|                         | Research and development       |      |            | 649,538   |   |   |            | 517,910 |  
|                         | Sales and marketing            |      |            | 1,026,114 |   |   |            | 502,332 |  
|                         | General and administrative     |      |            | 265,364   |   |   |            | 197,970 |  
|                         | Impairment loss on intangibles |      |            | 3,811,767 |   |   |            | 149,242 |  
|                         |                                |      |            |           |   |   |            |        
|Total Operating Expenses |                                |      | 5,752,783  |           |   |   | 1,367,454  |        
|                         | Total Other Expensenet        |      |            | (156,930  | ) |   |            | (48,452 | )
|                         |                                |      |            |           |   |   |            |        
|Net Loss                 |                                | $    | (5,542,534 | )         |   | $ | (1,336,357 | )      
|                         |                                |      |            |           |   |   |            |        

The following assets were classified as
discontinued operations as of December 31, 2003:

|                                |                               |   |           |           | 
|------------------------------- | ----------------------------- | - | --------- | --------- | 
|Assets Held For Sale:           |                               |   |           |          
|                                | Inventories                   |   | $         | 263,332   | 
|                                | Property, Plant and Equipment |   |           | 1,174,044 | 
|                                | Intangible Assets             |   |           | 965,103   | 
|                                |                               |   |           |          
|Total Assets Held for Sale      |                               | $ | 2,402,479 |          
|                                |                               |   |           |          
|Liabilities Held For Sale:      |                               |   |           |          
|                                | Accounts Payable              |   | $         | 79,805    | 
|                                | Capital Lease Obligation      |   |           | 291,386   | 
|                                | Note Payable to Shareholder   |   |           | 227,000   | 
|                                |                               |   |           |          
|Total Liabilities Held for Sale |                               | $ | 598,191   |          
|                                |                               |   |           |          

In exchange for the purchased assets from
microHelix ANS will pay us an amount equal to the following:



| |     |                                                
| | --- | -----------------------------------------------
| | (1) | $1.5 million in cash;                          
|
| | (2) | $227,000 note payable to a shareholder;        
|
| | (3) | $291,386 to pay off an equipment capital lease;
|
| | (4) | $79,805 assumption of trade payables.          

Assets Held for Sale:

Inventories represent all the raw materials and
work-in-process inventories held at the Portland, Oregon
facility.

Property, Plant and equipment represent all
machinery and equipment, leased equipment, building leasehold
improvements, office equipment, computer equipment and software
located at the Portland, Oregon facility.

33



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##### Table of Contents



MICROHELIX, INC.


NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS  (Continued)





Intangible Assets represent the assigned value of
patents and trade secrets. During the year ended
December 31, 2002, as a result of recurring losses and a
change in the direction of the Company to focus on short-term
activities, the Company tested certain patents in the wire and
cable segment for impairment. As a result of the Companys
tests, $3,811,767 was recorded as an impairment loss on
intangibles in the consolidated statements of operations. The
Company developed a net cash flow forecast specifically related
to the patents in question, applied a royalty stream to the
forecast, and discounted the resulting stream in order to
determine the estimated fair value of the patents. The estimated
fair value was then compared to the carrying value of the
related patents, which resulted in the impairment loss of
$3,811,767. Based on the ANS asset purchase agreement the
Company determined that the value of the inventory and the
property and equipment was fully reflected in the purchase price
offered by ANS. Based on this assumption and the fact that all
patents will be transferred to ANS as part of the purchase
agreement then it was determined that there was an impairment
loss of $149,242 on the intangibles in the consolidated
statement of operations for the year ended December 31,
2003.

Liabilities Held for Sale:

Accounts Payable primarily represents trade
payables incurred in the ordinary course of business by the wire
and cable division. It should be noted that the exact amount of
these trade payables to be assumed will be determined at the
time of closing but under no circumstances can the amount exceed
$100,000.

Capital Lease Obligation covers four laser
machines and selected cabling equipment that was used as
collateral under a sale leaseback arrangement signed in June
2003.

Notes Payable to Shareholder represents the
principal value of a note that is due on December 31, 2004.

*     *     *     *     *

34



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##### Table of Contents








|        |                                                                                         
|------- | ----------------------------------------------------------------------------------------
|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 and
Chief Financial Officer have reviewed the disclosure controls
and procedures relating to the Company at December 31, 2003
and concluded that such controls and procedures were effective
to provide reasonable assurance that all material information
about the financial and operational activities of the Company
was made know to them. There were no changes in the
Companys internal control over financial reporting during
the quarter ended December 31, 2003 that materially
affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.

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 certain
information about our directors and executive officers.

|                    |  |     |    |          |  |                                                                                      
|------------------- |  | --- | -- | -------- |  | -------------------------------------------------------------------------------------
|Name                |  | Age |    | Position
|                    |  |     |    |         
|James M. Williams   |  |     | 60 |          |  | Chairman of the Board, Director                                                      
|Tyram H. Pettit     |  |     | 53 |          |  | President and Chief Executive Officer, Director                                      
|Terrence A. Rixford |  |     | 68 |          |  | Senior Vice President Finance and Chief Financial
    Officer, Director and Secretary
|Richard G. Sass     |  |     | 61 |          |  | Director                                                                             
|John L. Crary       |  |     | 50 |          |  | Director                                                                             
|Ky Huynh            |  |     | 47 |          |  | Vice President  Operations                                                          

James M. Williamshas been a director of microHelix
since 1998 and was elected Chairman of the Board in
June 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. Pettitwas
named President and Chief Executive Officer of microHelix, Inc.
in August 2002. Mr. Pettit previously served as Chief
Operating Officer beginning in December 2001.
Mr. Pettit joined the Company in June 2001 as Director
of Business Development, and has been a director of microHelix
since 1998. Mr. Pettit has over 28 years finance and
management experience in commercial and investment banking with
Bank of America, Union Bank and Glen Eden Capital, and 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.
Mr. Pettit has served as a director of microHelix since
1998.

Terrence A. Rixfordbecame our Chief Financial Officer and
a director in September 2001 and was appointed Senior
Vice-President-Finance and Secretary in August 2002. 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 their initial public offering. Mr. Rixford
has more than 30 years of experience in senior financial
positions in the high technology industry. Mr. Rixford

35



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##### Table of Contents



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.


Richard G. Sassis
the founder of microHelix and has been a director since the
Companys inception in 1997. Mr. Sass served as
President and Chief Executive Officer of microHelix from 1997
until August 2002 and as Chairman of the Board from 1997
until April 2003. In 1972, Mr. Sass founded Precision
Interconnect Corporation, which sells interconnect systems. In
1991, Precision Interconnect Corporation was sold to AMP, Inc.
Mr. Sass has been involved with a number of start-up
companies, primarily in the medical electronics markets.
Mr. Sass is also Chairman of the Board and President of
iSense Corporation, a start-up company focused on continuous
glucose monitoring. Mr. Sass holds a B.A. in Business from
Michigan State University.

John L. Crarybecame
a director of microHelix in June 2001. Since 1999,
Mr. Crary has served as a managing member of Juniper
Capital LLC, a private investment company. From
October 1999 until May 2000, Mr. Crary also
served as the Secretary and Treasurer of ANTs Software, Inc., a
software development company. Prior to this time, Mr. Crary
worked as an independent corporate financial advisor to various
biotechnology, software and other ventures and as an investment
banker with EF Hutton & Company. 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.

Ky Huynhwas
appointed Vice-President, Operations in October 2002. Prior
to his appointment he was the director of manufacturing for the
Company. Mr. Huynh was President of Key Tech, a contract
manufacturing company that was purchased by microHelix in 1999.
Mr. Huynh has over 20 years of manufacturing and
engineering experience in the medical and defense industries.
Mr. Huynh has been named as an inventor on several of the
Companys patents and he currently holds two patents and
has two patent applications pending. Mr. Huynh received his
B.S. degree in mechanical engineering and a B.S. degree in
business management from Viet Nam University and holds a B.S.
degree in mechanical engineering from Portland State University.

Audit Committee

The current members of the Audit Committee are
James M. Williams and John L. Crary. Mr. Williams is acting
chairman of the Audit Committee. Members of our Audit Committee
are able to read and understand financial statements and have
experience in finance and accounting that provide them with
financial sophistication. In view of the general financial
experience of the members of the Audit Committee, the size of
the Company and the straightforward nature of the Companys
financial statements and accounting policies, the Board of
Directors has not designated any one member of the Audit
Committee as the audit Committee financial expert.

Section 16(a) Beneficial Ownership
Reporting Compliance

Section 16(a) of the Securities Exchange Act
of 1934 requires the Companys officers and directors, and
persons who own more than ten percent of a registered class of
the Companys equity securities, to file reports of
ownership and changes in ownership with the Securities and
Exchange Commission (the Commission). Officers,
directors and greater than ten percent beneficial owners are
required by Commission regulations to furnish the Company with
copies of all forms they file pursuant to Section 16(a).

Based solely on the Companys review of the
copies of such forms it received and written representations
from reporting persons required to file reports under
Section 16(a), to the Companys knowledge all of the
Section 16(a) filing requirements applicable to such persons
with respect to 2003 were complied with.

36



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##### Table of Contents








|         |                       
|-------- | ----------------------
|Item 10. | Executive Compensation

The following table sets forth certain
information regarding compensation paid during the last three
fiscal years to our Chairman, President and Chief Executive
Officer. No other executive officer received compensation in
excess of $100,000 in 2003.

Summary Compensation Table

|                            |  |                     |      |        |  |   |         |    
|--------------------------- |  | ------------------- | ---- | ------ |  | - | ------- | ---
|                            |  |                    
|                            |  | Annual Compensation
|                            |  |                    
|Name and Principal Position |  | Year                |      | Salary
|                            |  |                     |      |       
|Tyram H. Pettit(1)          |  |                     | 2003 |        |  | $ | 87,077  |    
|                            |  |                     | 2002 |        |  | $ | 98,000  |    
|Richard G. Sass(2)          |  |                     | 2003 |        |  | $ | 0     |    
|                            |  |                     | 2002 |        |  | $ | 289,600 | (3)
|                            |  |                     | 2001 |        |  | $ | 180,000 |    



---



|    |                                                                                                                                                                                                                                                          
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Mr. Pettit served as Chief Operating Officer
    from January through August 2002 and was appointed President and
    Chief Executive Officer at that time.                                                                                              
|   
|(2) | Mr. Sass served as President and Chief
    Executive Officer until August 2002 and continued in his role as
    Chairman for the balance of the year. Mr. Sass resigned as
    Chairman of the Board and as an employee of the Company in
    April 2003.
|   
|(3) | Included in this salary amount is $125,000 for
    wages that Mr. Sass was due from 1999.                                                                                                                                                                

The following table contains information
concerning the grant of stock options under our 2001 Stock
Incentive Plan to the named executive officer in 2003.

Option Grants in Last Fiscal Year

|                |  |            |        |                    |  |                |      |                 |  |   |      |  |  |  |                | 
|--------------- |  | ---------- | ------ | ------------------ |  | -------------- | ---- | --------------- |  | - | ---- |  |  |  | -------------- | 
|                |  | Number of  |        |                    |  |                |      |                
|                |  | Securities |        | % of Total Options |  |                |      |                
|                |  | Underlying |        | Granted to         |  | Exercise Price |      |                
|                |  | Options    |        | Employees in       |  | in Dollars     |      |                
|Name            |  | Granted    |        | Fiscal Year        |  | Per Share      |      | Expiration Date
|                |  |            |        |                    |  |                |      |                
|Tyram H. Pettit |  |            | 16,667 |                    |  |                | 16.6 | %               |  | $ | 1.05 |  |  |  | April 14, 2013 | 

The following table sets forth for the named
executive officer the number and value of unexercised options as
of December 31, 2003. No stock options were exercised by
the named executive officer during 2003.

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

|                |  |                 |     |              |  |                        |     |                        |  |             |       |               |  |  |        |  |  |  |     |  |  |  |     | 
|--------------- |  | --------------- | --- | ------------ |  | ---------------------- | --- | ---------------------- |  | ----------- | ----- | ------------- |  |  | ------ |  |  |  | --- |  |  |  | --- | 
|                |  |                 |     |              |  |                        |     |                        |  |            
|                |  |                 |     |              |  | Number of Securities   |     |                       
|                |  |                 |     |              |  | Underlying Unexercised |     | Value of Unexercisable
|                |  |                 |     |              |  | Options                |     | In-the-Money Options  
|                |  |                 |     |              |  | December 31, 2003      |     | At December 31, 2003  
|                |  | Shares Acquired |     | Value        |  |                        |     |                       
|Name            |  | on Exercise (#) |     | Realized ($) |  | Exercisable            |     | Unexercisable          |  | Exercisable |       | Unexercisable
|                |  |                 |     |              |  |                        |     |                        |  |             |       |              
|Tyram H. Pettit |  |                 | 0 |              |  |                        | 0 |                        |  |             | 7,596 |               |  |  | 33,648 |  |  |  | 0 |  |  |  | 0 | 

Director Compensation

A non-employee director compensation and
incentive plan was approved at the June 6, 2002 Board
meeting. During 2003, 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, Mr. Crary, received an
additional $1,000 retainer and the Acting Audit Committee Chair,
Mr. Williams received an additional $1,000 retainer. In
addition, each non-employee director is granted an option to
purchase 3.334 shares of common stock on the first trading day
following the annual shareholder meeting. The non-employee
directors were also reimbursed for their expenses incurred in
attending the Board meetings. Employee directors do not receive
any fees for serving on the Board.

37



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##### Table of Contents








|         |                                                                                                        
|-------- | -------------------------------------------------------------------------------------------------------
|Item 11. | Security Ownership of Certain Beneficial
    Owners and Management and Related Shareholders
    Matters

The following table sets forth information, as of
February 26, 2004, with respect to the beneficial ownership
of common stock by: (1) each of our directors; (2) our
Chief Executive Officer; (3) all officers; and (4) all
officers and directors 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 February 26, 2004 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.

|                                                                |  |                           |         |         |  |  |      |  
|--------------------------------------------------------------- |  | ------------------------- | ------- | ------- |  |  | ---- | -
|                                                                |  |                          
|                                                                |  | Shares Beneficially Owned
|                                                                |  |                          
|Name of Beneficial Owner                                        |  | Number                    |         | Percent
|                                                                |  |                           |         |        
|James M. Williams                                               |  |                           | 62,566  | (1)     |  |  | 2.4  | %
|Tyram H. Pettit                                                 |  |                           | 14,774  | (2)     |  |  | *    |  
|Terrence A. Rixford                                             |  |                           | 22,716  | (3)     |  |  | *    |  
|Ky Huynh                                                        |  |                           | 16,430  | (4)     |  |  | *    |  
|Richard G. Sass                                                 |  |                           | 607,116 | (5)     |  |  | 23.2 | %
|John L. Crary                                                   |  |                           | 119,910 | (6)     |  |  | 4.6  | %
|All executive officers and directors as a group
    (6 persons) |  |                           | 843,512 | (7)(8)  |  |  | 31.8 | %



---



| |   |                       
| | - | ----------------------
| | * | Less than one percent.



|    |                                                                                                                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Includes 9,199 shares of common stock owned by a
    corporation controlled by Mr. Williams and members of his
    family, options exercisable for 5,174 shares of common stock and
    Class B warrants exercisable for 4,700 shares of common
    stock.                                                                                          
|   
|(2) | Includes options exercisable for 7,627 shares of
    common stock.                                                                                                                                                                                                                                                                                  
|   
|(3) | Includes options exercisable for 18,049 shares of
    common stock and Class B warrants exercisable for 667
    shares of common stock.                                                                                                                                                                                                             
|   
|(4) | Includes options exercisable for 2,876 shares of
    common stock.                                                                                                                                                                                                                                                                                  
|   
|(5) | Includes options exercisable for 9,725 shares of
    common stock and Class B warrants exercisable for 133,045
    shares of common stock. Also includes 14,416 shares of common
    stock and Class B warrants exercisable for 14,416 shares of
    common stock held by the J.M. Ek Living Trust, of which
    Mr. Sass is the trustee.           
|   
|(6) | Includes options exercisable for 4,070 shares of
    common stock and Class B warrants exercisable for 21,674
    shares of common stock. Also includes 70,750 shares of common
    stock and Class B warrants exercisable for 36,090 shares of
    common stock held by two trusts, of which Mr. Crary is both
    the trustee and the beneficiary.
|   
|(7) | Includes options exercisable for 47,521 shares of
    common stock.                                                                                                                                                                                                                                                                                 
|   
|(8) | Includes Class B warrants exercisable for
    174,502 shares of common stock.                                                                                                                                                                                                                                                                       

Stock Ownership of Certain Beneficial
Owners

As of February 26, 2004, the persons named
below were, to our knowledge, the only beneficial owners of more
than five percent of our outstanding common stock, determined in
accordance with Rule 13d-3 of the

38



---



##### Table of Contents



Securities Exchange Act of 1934, other than
Richard G. Sass, whose beneficial ownership of common stock is
described above.


|                                                                                                               |  |                     |         |         |  |  |      |  
|-------------------------------------------------------------------------------------------------------------- |  | ------------------- | ------- | ------- |  |  | ---- | -
|                                                                                                               |  |                    
|                                                                                                               |  | Shares Beneficially
|                                                                                                               |  | Owned              
|                                                                                                               |  |                    
|Name of Beneficial Owner                                                                                       |  | Number              |         | Percent
|                                                                                                               |  |                     |         |        
|Paulson Investment Company, Inc. and Chester L.
    F. Paulson
    and Jacqueline M. Paulson, as joint tenants |  |                     | 438,628 | (1)     |  |  | 21.9 | %
|St. John Medical Center Foundation
    P.O. Box 3002
    Longview, Washington 98632                            |  |                     | 120,975 |         |  |  | 7.2  | %



---



|    |                                                                                                                                                                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Based solely on information contained in a
    Schedule 13D filed by the indicated beneficial owners with
    the Securities and Exchange Commission on December 11,
    2003. Includes warrants exercisable for 321,962 shares of common
    stock.






|         |                                                   
|-------- | --------------------------------------------------
|Item 12. | Certain Relationships and Related
    Transactions

microHelix was founded by Richard G. Sass, a
current director. 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
Mr. 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. when it was merged with and into
microHelix on December 31, 2000. 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.

BioElectric Corporation, 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 loan to Mr. Sass. These loans accrued
interest at 6.2 percent per annum until December 30, 2000.

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.

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
Mr. Williams was the cancellation of a promissory note made
by the Company in an equivalent amount, and the consideration
paid by Mr. Crary was cash.

39



---



##### Table of Contents



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 are authorized to consult
with independent legal counsel at the Companys expense.

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.






|         |                                     
|-------- | ------------------------------------
|Item 13. | Exhibits and Reports on
    Form 8-K

(a) Exhibits

|        |    |             |  |                                                                                                                                                                                                              
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1(1)       |  | Amended and Restated Articles of Incorporation of
    microHelix, Inc.                                                                                                                                       
|        | 3  | .2(1)       |  | Bylaws of microHelix, Inc.                                                                                                                                                                                   
|        | 4  | .2(1)       |  | Form of Warrant Agreement among microHelix, Inc.
    and UMB Bank, n.a., as Warrant Agent, including the form of
    Class A Warrant and Class B Warrant                                                     
|        | 4  | .3(1)       |  | Form of Unit Certificate                                                                                                                                                                                     
|        | 4  | .4(1)       |  | Form of Warrant to Paulson Investment Company,
    Inc.                                                                                                                                                      
|        | 10 | .1(1)       |  | Agreement to Provide Registration and
    Subscription Rights dated July 1, 1999 between Richard G. Sass
    and The Polymer Technology Group                                                                
|        | 10 | .2(1)       |  | Warrant dated March 27, 2000 to The Polymer
    Technology Group                                                                                                                                             
|        | 10 | .3(1)       |  | Warrant Agreement dated January 5, 2001 with
    Imperial Bank, as predecessor-in-interest to Comerica Bank                                                                                                  
|        | 10 | .4(1)       |  | Amendment to Warrant Agreement dated May 31, 2001
    with Imperial Bank, as predecessor-in-interest to Comerica Bank                                                                                        
|        | 10 | .5(1)       |  | Antidilution Agreement dated January 5, 2001
    between microHelix, Inc. and Imperial Bank, as
    predecessor-in-interest to Comerica Bank                                                                 
|        | 10 | .6(1)       |  | Stock Transfer Restriction Agreement dated
    January 5, 2001 between microHelix, Inc. and Imperial Bank, as
    predecessor-in-interest to Comerica Bank                                                   
|        | 10 | .7(1)       |  | Standard Commercial-Industrial Lease Agreement
    dated August 1, 2000 between microHelix, Inc. and La Bajada Land
    Company LLC                                                                          
|        | 10 | .8(1)       |  | Addendum for Manufacturing Space Lease Agreement
    dated November 1, 2000 between microHelix, Inc. and Javid LLC                                                                                           
|        | 10 | .9(1)       |  | Addendum for Manufacturing Space Sub-Lease dated
    June 23, 2000 between microHelix, Inc. and Agave Wire                                                                                                   
|        | 10 | .10(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,
    1996 and July 3, 1997
|        | 10 | .11(1)*     |  | microHelix, Inc. 1998 Stock Incentive Plan                                                                                                                                                                   
|        | 10 | .12(1)*     |  | Form of Incentive Stock Option Agreement for 1998
    Stock Incentive Plan                                                                                                                                   
|        | 10 | .13(1)*     |  | Form of Non-Statutory Stock Option Agreement for
    1998 Stock Incentive Plan                                                                                                                               
|        | 10 | .14(1)*     |  | microHelix, Inc. 2001 Stock Incentive Plan                                                                                                                                                                   
|        | 10 | .15(1)*     |  | Form of Incentive Stock Option Agreement for 2001
    Stock Incentive Plan                                                                                                                                   
|        | 10 | .16(1)*     |  | Form of Non-Statutory Stock Option Agreement for
    2001 Stock Incentive Plan                                                                                                                               
|        | 10 | .17(1)      |  | Form of Warrant for Bridge Loan for Pre-IPO
    financing                                                                                                                                                    
|        | 10 | .18(3)      |  | Lease Amendment dated October 28, 2002 between
    microHelix, Inc. and Pacific Realty Associates, L.P.                                                                                                      

40



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##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                    
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .19(3)*     |  | microHelix, Inc. 2002 Nonqualified Stock Option
    Plan                                                                                                                                           
|        | 10 | .20(3)*     |  | Terms and Conditions of Option Grant and/or Stock
    Purchase Under microHelix, Inc. 2002 Nonqualified Stock Option
    Plan                                                                      
|        | 10 | .21(3)      |  | Loan and Security Agreement (Asset Based) dated
    December 10, 2002 between microHelix, Inc. and Access Business
    Finance, LLC                                                                
|        | 10 | .22(5)      |  | Lease Amendment dated April 8, 2003 between
    microHelix, Inc. and Pacific Realty Associates, L.P.                                                                                               
|        | 10 | .23(5)      |  | Cash Advance Agreement dated March 28, 2003
    between microHelix, Inc. and Paulson Investment Company and
    Amendment dated June 13, 2003                                                      
|        | 10 | .24(5)      |  | Lease Amendment dated May 27, 2003 between
    microHelix, Inc. and La Bajada Land Company, LLC                                                                                                    
|        | 10 | .25(5)      |  | 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. Sass
|        | 10 | .26(5)      |  | Lease Schedule 02 to Master Lease Agreement
    Number 2201 dated June 24, 2003, between microHelix, Inc. and
    Vencore Solutions, LLC                                                           
|        | 10 | .27(5)      |  | Revised Lease Schedule 01 to Master Lease
    Agreement Number 2201 dated June 26, 2003, between microHelix,
    Inc. and Vencore Solutions, LLC                                                   
|        | 10 | .28(5)      |  | Lease Schedule 03 to Master Lease Agreement
    Number 2201 dated August 5, 2003 between microHelix, Inc. and
    Vencore Solutions, LLC                                                           
|        | 10 | .29(4)      |  | Asset Purchase Agreement dated March 5, 2004
    between Advance Neuromodulation Systems, Inc. and microHelix,
    Inc.                                                                            
|        | 31 | .1(5)       |  | Certification of Chief Executive Officer Pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                          
|        | 31 | .2(5)       |  | Certification of Chief Financial Officer Pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                          
|        | 32 | .1(5)       |  | Certification of Chief Executive Officer Pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002                                          
|        | 32 | .2(5)       |  | Certification of 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, 2001.                                
|   
|(3) | Incorporated by reference to the Companys
    Annual Report on Form 10-KSB for the year ended
    December 31, 2002.                                
|   
|(4) | Incorporated by reference to the Companys
    Proxy Statement, dated March 22, 2004.                                                                
|   
|(5) | Filed herewith.                                                                                                                                      



|  |                                                             
|- | ------------------------------------------------------------
|* | Management contract or compensatory plan or
    arrangement.

(b) During the period October 1, 2003
through December 31, 2003, the Company filed the following
reports on Form 8-K:



| |     |                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | October 8, 2003, a press release announcing
    the retention of Christman, Peters & Madden to advise and
    assist the Company in evaluating options for long-term growth.
|
| | (b) | On October 27, 2003, a press release
    announcing financial results for the three and nine month
    periods ended September 30, 2003.                                    

41



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##### Table of Contents





| |     |                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (c) | On November 4, 2003, a press release
    announcing that Nasdaq granted the Companys request to
    extend decision on delisting effective November 6, 2003,
    and the change of the Companys stock and warrant symbols.






|         |                                           
|-------- | ------------------------------------------
|Item 14. | Principal Accountant Fees and
    Services

The following table shows the fees billed by the
Company for the audit and other services provided by Deloitte
& Touche LLP for fiscal years 2002 and 2003.

|                   |  |      |         |      |  |   |         | 
|------------------ |  | ---- | ------- | ---- |  | - | ------- | 
|                   |  | 2002 |         | 2003
|                   |  |      |         |     
|Audit Fees         |  | $    | 103,000 |      |  | $ | 122,240 | 
|Audit Related Fees |  |      |        |      |  |   |        | 
|Tax Fees           |  |      | 10,000  |      |  |   |        | 
|All Other Fees     |  |      |        |      |  |   |        | 
|                   |  |      |         |      |  |   |         | 
|Total Fees         |  | $    | 113,000 |      |  | $ | 122,240 | 
|                   |  |      |         |      |  |   |         | 

Audit services of Deloitte & Touche LLP for
fiscal 2002 and 2003 consisted of the examination of the
consolidated financial statements of the Company, quarterly
reviews of the financial statements and services related to the
filings made with the Securities and Exchange Commission. Tax
fees for 2002 includes charges primarily related to the
preparation of the federal and state tax returns. All of the
services described above were approved by the Audit Committee.

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.

42



---



##### Table of Contents



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 14, 2004.



| |                 
| | ----------------
| | MICROHELIX, INC.



| |     |                    
| | --- | -------------------
| | By: | /s/ TYRAM H. PETTIT

| |                                          
| | -----------------------------------------
| |                                          
| | Tyram H. Pettit                          
| | President and Chief Executive
    Officer

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

|                                           |  |                                                                                                                                |  |                |  | 
|------------------------------------------ |  | ------------------------------------------------------------------------------------------------------------------------------ |  | -------------- |  | 
|                                           |  |                                                                                                                                |  |               
|Signature                                  |  | Title                                                                                                                          |  | Date          
|                                           |  |                                                                                                                                |  |               
|                                          
|/s/ TYRAM H. PETTITTyram H. Pettit         |  | President, Chief Executive Officer and
    Director (Principal Executive Officer)                                              |  | April 14, 2004
|                                          
|/s/ TERRENCE A. RIXFORDTerrence A. Rixford |  | SR VP Finance, Chief Financial Officer,
    Treasurer, Secretary and Director (Principal Financial and
    Accounting Officer) |  | April 14, 2004
|                                          
|/s/ JAMES M. WILLIAMSJames M. Williams     |  | Chairman and Director                                                                                                          |  | April 14, 2004
|                                          
|/s/ RICHARD G. SASSRichard G. Sass         |  | Director                                                                                                                       |  | April 14, 2004
|                                          
|/s/ JOHN L. CRARYJohn L. Crary             |  | Director                                                                                                                       |  | April 14, 2004

43



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##### Table of Contents



EXHIBIT INDEX

|        |    |             |  |                                                                                                                                                                                                              
|------- | -- | ----------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 3  | .1(1)       |  | Amended and Restated Articles of Incorporation of
    microHelix, Inc.                                                                                                                                       
|        | 3  | .2(1)       |  | Bylaws of microHelix, Inc.                                                                                                                                                                                   
|        | 4  | .2(1)       |  | Form of Warrant Agreement among microHelix, Inc.
    and UMB Bank, n.a., as Warrant Agent, including the form of
    Class A Warrant and Class B Warrant                                                     
|        | 4  | .3(1)       |  | Form of Unit Certificate                                                                                                                                                                                     
|        | 4  | .4(1)       |  | Form of Warrant to Paulson Investment Company,
    Inc.                                                                                                                                                      
|        | 10 | .1(1)       |  | Agreement to Provide Registration and
    Subscription Rights dated July 1, 1999 between Richard G. Sass
    and The Polymer Technology Group                                                                
|        | 10 | .2(1)       |  | Warrant dated March 27, 2000 to The Polymer
    Technology Group                                                                                                                                             
|        | 10 | .3(1)       |  | Warrant Agreement dated January 5, 2001 with
    Imperial Bank, as predecessor-in-interest to Comerica Bank                                                                                                  
|        | 10 | .4(1)       |  | Amendment to Warrant Agreement dated May 31, 2001
    with Imperial Bank, as predecessor-in-interest to Comerica Bank                                                                                        
|        | 10 | .5(1)       |  | Antidilution Agreement dated January 5, 2001
    between microHelix, Inc. and Imperial Bank, as
    predecessor-in-interest to Comerica Bank                                                                 
|        | 10 | .6(1)       |  | Stock Transfer Restriction Agreement dated
    January 5, 2001 between microHelix, Inc. and Imperial Bank, as
    predecessor-in-interest to Comerica Bank                                                   
|        | 10 | .7(1)       |  | Standard Commercial-Industrial Lease Agreement
    dated August 1, 2000 between microHelix, Inc. and La Bajada Land
    Company LLC                                                                          
|        | 10 | .8(1)       |  | Addendum for Manufacturing Space Lease Agreement
    dated November 1, 2000 between microHelix, Inc. and Javid LLC                                                                                           
|        | 10 | .9(1)       |  | Addendum for Manufacturing Space Sub-Lease dated
    June 23, 2000 between microHelix, Inc. and Agave Wire                                                                                                   
|        | 10 | .10(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,
    1996 and July 3, 1997
|        | 10 | .11(1)*     |  | microHelix, Inc. 1998 Stock Incentive Plan                                                                                                                                                                   
|        | 10 | .12(1)*     |  | Form of Incentive Stock Option Agreement for 1998
    Stock Incentive Plan                                                                                                                                   
|        | 10 | .13(1)*     |  | Form of Non-Statutory Stock Option Agreement for
    1998 Stock Incentive Plan                                                                                                                               
|        | 10 | .14(1)*     |  | microHelix, Inc. 2001 Stock Incentive Plan                                                                                                                                                                   
|        | 10 | .15(1)*     |  | Form of Incentive Stock Option Agreement for 2001
    Stock Incentive Plan                                                                                                                                   
|        | 10 | .16(1)*     |  | Form of Non-Statutory Stock Option Agreement for
    2001 Stock Incentive Plan                                                                                                                               
|        | 10 | .17(1)      |  | Form of Warrant for Bridge Loan for Pre-IPO
    financing                                                                                                                                                    
|        | 10 | .18(3)      |  | Lease Amendment dated October 28, 2002 between
    microHelix, Inc. and Pacific Realty Associates, L.P.                                                                                                      
|        | 10 | .19(3)*     |  | microHelix, Inc. 2002 Nonqualified Stock Option
    Plan                                                                                                                                                     
|        | 10 | .20(3)*     |  | Terms and Conditions of Option Grant and/or Stock
    Purchase Under microHelix, Inc. 2002 Nonqualified Stock Option
    Plan                                                                                
|        | 10 | .21(3)      |  | Loan and Security Agreement (Asset Based) dated
    December 10, 2002 between microHelix, Inc. and Access Business
    Finance, LLC                                                                          
|        | 10 | .22(5)      |  | Lease Amendment dated April 8, 2003 between
    microHelix, Inc. and Pacific Realty Associates, L.P.                                                                                                         
|        | 10 | .23(5)      |  | Cash Advance Agreement dated March 28, 2003
    between microHelix, Inc. and Paulson Investment Company and
    Amendment dated June 13, 2003                                                                
|        | 10 | .24(5)      |  | Lease Amendment dated May 27, 2003 between
    microHelix, Inc. and La Bajada Land Company, LLC                                                                                                              



---



##### Table of Contents



|        |    |             |  |                                                                                                                                                                                                    
|------- | -- | ----------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |    |            
|Number  |    | Description
|        |    |            
|        | 10 | .25(5)      |  | 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. Sass
|        | 10 | .26(5)      |  | Lease Schedule 02 to Master Lease Agreement
    Number 2201 dated June 24, 2003, between microHelix, Inc. and
    Vencore Solutions, LLC                                                           
|        | 10 | .27(5)      |  | Revised Lease Schedule 01 to Master Lease
    Agreement Number 2201 dated June 26, 2003, between microHelix,
    Inc. and Vencore Solutions, LLC                                                   
|        | 10 | .28(5)      |  | Lease Schedule 03 to Master Lease Agreement
    Number 2201 dated August 5, 2003 between microHelix, Inc. and
    Vencore Solutions, LLC                                                           
|        | 10 | .29(4)      |  | Asset Purchase Agreement dated March 5, 2004
    between Advance Neuromodulation Systems, Inc. and microHelix,
    Inc.                                                                            
|        | 31 | .1(5)       |  | Certification of Chief Executive Officer Pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                          
|        | 31 | .2(5)       |  | Certification of Chief Financial Officer Pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of
    the Sarbanes-Oxley Act of 2002                                          
|        | 32 | .1(5)       |  | Certification of Chief Executive Officer Pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002                                          
|        | 32 | .2(5)       |  | Certification of Chief Financial Officer Pursuant
    to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
    the Sarbanes-Oxley Act of 2002                                          



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|    |                                                                                                                                                      
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------
|(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, 2001.                                
|   
|(6) | Incorporated by reference to the Companys
    Annual Report on Form 10-KSB for the year ended
    December 31, 2002.                                
|   
|(7) | Incorporated by reference to the Companys
    Proxy Statement, dated March 22, 2004                                                                 
|   
|(8) | Filed herewith.                                                                                                                                      



| |   |                                                             
| | - | ------------------------------------------------------------
| | * | Management contract or compensatory plan or
    arrangement.

(b) During the period October 1, 2003
through December 31, 2003, the Company filed the following
reports on Form 8-K:



| |     |                                                                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (a) | October 8, 2003, a press release announcing
    the retention of Christman, Peters & Madden to advise and
    assist the Company in evaluating options for long-term growth.                                                
|
| | (b) | On October 27, 2003, a press release
    announcing financial results for the three and nine month
    periods ended September 30, 2003.                                                                                    
|
| | (c) | On November 4, 2003, a press release
    announcing that Nasdaq granted the Companys request to
    extend decision on delisting effective November 6, 2003,
    and the change of the Companys stock and warrant symbols.