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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-QSB

|  |  |                                                                                                                                
|- |  | -------------------------------------------------------------------------------------------------------------------------------
|x |  | QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the quarterly period ended March 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.

---

(Exact Name of Small Business Issuer as Specified in its Charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Oregon                                                         |  | 91-1758621                          
|                                                               |  |                                     
|(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

Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports, and (2) has been
subject to such filing requirements for the past 90 days. Yes x; No o

The number of shares outstanding of each of the issuers classes of common
equity, as of March 31, 2003, was 4,619,886 shares of Common Stock, 2,780,498
Class A Warrants, and 2,780,498 Class B Warrants.

Transitional Small Business Disclosure Format (Check One): Yes o; No x





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TABLE OF CONTENTS



|                               |                                                                                                |                                            |  |  |  |  |  | 
|------------------------------ | ---------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | ITEM 1. FINANCIAL STATEMENTS                                                                  
|                               |                                                                                                | CONSOLIDATED BALANCE SHEETS               
|                               |                                                                                                | CONSOLIDATED STATEMENTS OF OPERATIONS     
|                               |                                                                                                | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                               |                                                                                                | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                               | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|                               | ITEM 3. CONTROLS AND PROCEDURES                                                               
|PART II  OTHER INFORMATION   
|                               | ITEM 5. OTHER INFORMATION                                                                     
|                               | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                      
|SIGNATURES                    
|CERTIFICATIONS                
|CERTIFICATIONS                
|EX-99.1                       
|EX-99.2                       



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TABLE OF CONTENTS

|                                                                                              |  |      |    | 
|--------------------------------------------------------------------------------------------- |  | ---- | -- | 
|                                                                                              |  | Page
|                                                                                              |  |     
|PART I  FINANCIAL INFORMATION                                                                |  |      | 1  | 
|ITEM
1. FINANCIAL STATEMENTS  UNAUDITED                                                      |  |      |    | 
|Consolidated balance sheets as of December 31, 2002 and March 31, 2003                        |  |      | 2  | 
|Consolidated statements of operations for the three
months ended March 31, 2003 and 2002      |  |      | 3  | 
|Consolidated statements of cash flows for the three
months ended March 31, 2003 and 2002      |  |      | 4  | 
|Notes to consolidated financial statements                                                    |  |      | 5  | 
|ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS |  |      | 9  | 
|ITEM 3. CONTROLS AND PROCEDURES                                                               |  |      | 12 | 
|PART II  OTHER INFORMATION                                                                   |  |      |    | 
|ITEM 5. OTHER INFORMATION                                                                     |  |      | 13 | 
|ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K                                                      |  |      | 13 | 
|SIGNATURES                                                                                    |  |      | 14 | 
|CERTIFICATIONS                                                                                |  |      | 15 | 





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PART I  FINANCIAL INFORMATION




ITEM 1. FINANCIAL STATEMENTS

The accompanying unaudited consolidated financial statements of microHelix,
Inc. (the Company) include all adjustments (consisting only of normal
recurring accruals) which management considers necessary for fair presentation
of financial position as of March 31, 2003
and of operating results and cash flows for the three month periods ended March 31, 2002 and 2003.

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MICROHELIX, INC.

CONSOLIDATED BALANCE SHEETS

|                                     |                                                                                                                                                               |                             |           |                   |           |                |           |             |           | 
|------------------------------------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | --------------------------- | --------- | ----------------- | --------- | -------------- | --------- | ----------- | --------- | 
|                                     |                                                                                                                                                               |                             |           | December 31, 2002 |           | March 31, 2003
|                                     |                                                                                                                                                               |                             |           |                   |           |               
|Assets                               |                                                                                                                                                               |                             |           |                   |           |                |           |            
|                                     | Current Assets:                                                                                                                                               |                             |           |                   |           |                |           |             |          
|                                     | Cash                                                                                                                                                          |                             | $         | 2,131,549         |           |                | $         | 236,258     |          
|                                     | Accounts receivable, net of
allowance of $19,517 and $49,577                                                                                                  |                             |           | 1,117,807         |           |                |           | 917,470     |          
|                                     | Due from affiliates                                                                                                                                           |                             |           | 37,247            |           |                |           | 41,379      |          
|                                     | Inventories (Note 2)                                                                                                                                          |                             |           | 705,162           |           |                |           | 799,627     |          
|                                     | Prepaid expenses                                                                                                                                              |                             |           | 110,523           |           |                |           | 108,902     |          
|                                     |                                                                                                                                                               |                             |           |                   |           |                |           |            
|                                     |                                                                                                                                                               | Total current assets        |           |                   | 4,102,288 |                |           |             | 2,103,636 | 
|Property and equipment  net         |                                                                                                                                                               |                             | 1,546,453 |                   |           |                | 1,438,623 |            
|Intangible and other assets  net    |                                                                                                                                                               |                             | 1,094,983 |                   |           |                | 1,101,508 |            
|                                     |                                                                                                                                                               |                             |           |                   |           |                |           |            
|                                     |                                                                                                                                                               | Total                       |           | $                 | 6,743,724 |                |           | $           | 4,643,767 | 
|                                     |                                                                                                                                                               |                             |           |                   |           |                |           |            
|Liabilities and Shareholders Equity |                                                                                                                                                               |                             |           |                   |           |                |           |            
|                                     | Current Liabilities:                                                                                                                                          |                             |           |                   |           |                |           |             |          
|                                     | Accounts payable                                                                                                                                              |                             | $         | 476,712           |           |                | $         | 291,129     |          
|                                     | Accrued liabilities                                                                                                                                           |                             |           | 444,813           |           |                |           | 344,796     |          
|                                     | Line of credit                                                                                                                                                |                             |           | 739,111           |           |                |           | 211,861     |          
|                                     | Short-term borrowing                                                                                                                                          |                             |           |                  |           |                |           | 200,000     |          
|                                     | Current portion of notes payable to shareholder                                                                                                               |                             |           | 535,000           |           |                |           |            |          
|                                     |                                                                                                                                                               |                             |           |                   |           |                |           |            
|                                     |                                                                                                                                                               | Total current liabilities   |           |                   | 2,195,636 |                |           |             | 1,047,786 | 
|                                     |                                                                                                                                                               |                             |           |                   |           |                |           |            
|Long-Term Liabilities:               |                                                                                                                                                               |                             |           |                   |           |                |           |            
|                                     | Long-term portion of notes payable
to shareholder                                                                                                             |                             |           | 600,000           |           |                |           | 500,000     |          
|                                     |                                                                                                                                                               |                             |           |                   |           |                |           |            
|                                     |                                                                                                                                                               | Total long-term liabilities |           |                   | 600,000   |                |           |             | 500,000   | 
|                                     |                                                                                                                                                               |                             |           |                   |           |                |           |            
|                                     |                                                                                                                                                               | Total liabilities           |           |                   | 2,795,636 |                |           |             | 1,547,786 | 
|                                     |                                                                                                                                                               |                             |           |                   |           |                |           |            
|Shareholders Equity:                |                                                                                                                                                               |                             |           |                   |           |                |           |            
|                                     | Common stock, no par value, 5,519,495 shares
authorized, 4,659,886 and 4,619,886
issued and outstanding at December 31, 2002
and March 31, 2003, respectively |                             |           | 14,179,467        |           |                |           | 14,159,467  |          
|                                     | Preferred Stock, no par value, 5,000,000 shares
authorized, zero issued and outstanding at
December 31, 2002 and March 31, 2003, respectively                 |                             |           |                  |           |                |           |            |          
|                                     | Additional paid-in capital                                                                                                                                    |                             |           | 6,487,417         |           |                |           | 6,487,417   |          
|                                     | Notes receivable from shareholders
for common stock                                                                                                           |                             |           | (57,940           | )         |                |           | (57,940     | )        
|                                     | Deferred compensation expense                                                                                                                                 |                             |           | (48,734           | )         |                |           | (43,347     | )        
|                                     | Accumulated deficit                                                                                                                                           |                             |           | (16,612,122       | )         |                |           | (17,449,616 | )        
|                                     |                                                                                                                                                               |                             |           |                   |           |                |           |            
|                                     |                                                                                                                                                               | Total shareholders equity  |           |                   | 3,948,088 |                |           |             | 3,095,981 | 
|                                     |                                                                                                                                                               |                             |           |                   |           |                |           |            
|                                     |                                                                                                                                                               | Total                       |           | $                 | 6,743,724 |                |           | $           | 4,643,767 | 
|                                     |                                                                                                                                                               |                             |           |                   |           |                |           |            

See notes to consolidated financial statements.

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MICROHELIX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

|                                              |                                 |                          |           |                    |         |      |           |           |         |  
|--------------------------------------------- | ------------------------------- | ------------------------ | --------- | ------------------ | ------- | ---- | --------- | --------- | ------- | -
|                                              |                                 |                          |           | Three Months Ended
|                                              |                                 |                          |           | March 31,         
|                                              |                                 |                          |           |                   
|                                              |                                 |                          |           | 2002               |         | 2003
|                                              |                                 |                          |           |                    |         |     
|Sales                                         |                                 | $                        | 1,291,967 |                    |         | $    | 1,011,218 |          
|Cost of Sales                                 |                                 |                          | 1,101,978 |                    |         |      | 1,069,993 |          
|                                              |                                 |                          |           |                    |         |      |           |          
|                                              |                                 | Gross profit (loss)      |           |                    | 189,989 |      |           |           | (58,775 | )
|                                              |                                 |                          |           |                    |         |      |           |          
|Operating Expenses:                           |                                 |                          |           |                    |         |      |           |          
|                                              | Research and development        |                          |           | 129,639            |         |      |           | 303,624   |        
|                                              | Sales and marketing             |                          |           | 193,963            |         |      |           | 156,894   |        
|                                              | General and administrative      |                          |           | 548,178            |         |      |           | 283,717   |        
|                                              |                                 |                          |           |                    |         |      |           |          
|                                              |                                 | Total operating expenses |           |                    | 871,780 |      |           |           | 744,235 |  
|                                              |                                 |                          |           |                    |         |      |           |          
|Loss from operations                          |                                 |                          | (681,791  | )                  |         |      | (803,010  | )        
|                                              |                                 |                          |           |                    |         |      |           |          
|Other Expense:                                |                                 |                          |           |                    |         |      |           |          
|                                              | Interest income                 |                          |           | 26,539             |         |      |           | 4,992     |        
|                                              | Interest expense                |                          |           | (17,784            | )       |      |           | (21,040   | )      
|                                              | Interest expense to shareholder |                          |           | (28,146            | )       |      |           | (18,493   | )      
|                                              |                                 |                          |           |                    |         |      |           |          
|                                              |                                 | Other expense  net      |           |                    | (19,391 | )    |           |           | (34,541 | )
|                                              |                                 |                          |           |                    |         |      |           |          
|Net loss                                      |                                 | $                        | (701,182  | )                  |         | $    | (837,551  | )        
|                                              |                                 |                          |           |                    |         |      |           |          
|Net loss per common share  basic and diluted |                                 | $                        | (0.15     | )                  |         | $    | (0.18     | )        
|                                              |                                 |                          |           |                    |         |      |           |          
|Shares used in per share calculation          |                                 |                          |           |                    |         |      |           |          
|                                              |  basic and diluted             |                          |           | 4,659,886          |         |      |           | 4,619,886 |        
|                                              |                                 |                          |           |                    |         |      |           |          

See notes to consolidated financial statements.

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MICROHELIX, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

|                                                   |                                                                         |                                            |                                 |                                   |         |                    |            |            |         |          |          |  
|-------------------------------------------------- | ----------------------------------------------------------------------- | ------------------------------------------ | ------------------------------- | --------------------------------- | ------- | ------------------ | ---------- | ---------- | ------- | -------- | -------- | -
|                                                   |                                                                         |                                            |                                 |                                   |         | Three Months Ended
|                                                   |                                                                         |                                            |                                 |                                   |         | March 31,         
|                                                   |                                                                         |                                            |                                 |                                   |         |                   
|                                                   |                                                                         |                                            |                                 |                                   |         | 2002               |            | 2003      
|                                                   |                                                                         |                                            |                                 |                                   |         |                    |            |           
|Cash Flows from Operating Activities:              |                                                                         |                                            |                                 |                                   |         |                    |            |           
|                                                   | Net loss                                                                |                                            | $                               | (701,182                          | )       |                    | $          | (837,551   | )      
|                                                   | Adjustments to reconcile net loss to cash used in operating
activities: |                                            |                                 |                                   |         |                    |            |            |        
|                                                   |                                                                         | Depreciation and amortization              |                                 |                                   | 132,272 |                    |            |            | 136,349 |         
|                                                   |                                                                         | Stock compensation expense                 |                                 |                                   | 9,141   |                    |            |            | 5,387   |         
|                                                   |                                                                         | Amortization of deferred inventory charges |                                 |                                   | 1,540   |                    |            |            | 1,540   |         
|                                                   |                                                                         | Change in:                                 |                                 |                                   |         |                    |            |            |         |         
|                                                   |                                                                         |                                            | Accounts receivable, net        |                                   |         | 155,469            |            |            |         | 200,337  |         
|                                                   |                                                                         |                                            | Due from affiliates             |                                   |         |                   |            |            |         | (4,132   | )       
|                                                   |                                                                         |                                            | Inventories                     |                                   |         | 10,844             |            |            |         | (96,005  | )       
|                                                   |                                                                         |                                            | Prepaid expenses                |                                   |         | (41,943            | )          |            |         | 1,621    |         
|                                                   |                                                                         |                                            | Intangible and other assets     |                                   |         | (9,145             | )          |            |         | 22,753   |         
|                                                   |                                                                         |                                            | Accounts payable                |                                   |         | (364,291           | )          |            |         | (185,583 | )       
|                                                   |                                                                         |                                            | Accrued interest to shareholder |                                   |         | (530,546           | )          |            |         |         |         
|                                                   |                                                                         |                                            | Accrued liabilities             |                                   |         | (212,099           | )          |            |         | (100,017 | )       
|                                                   |                                                                         |                                            |                                 |                                   |         |                    |            |           
|                                                   |                                                                         |                                            |                                 | Cash used in operating activities |         |                    | (1,549,940 | )          |         |          | (900,807 | )
|                                                   |                                                                         |                                            |                                 |                                   |         |                    |            |           
|Cash Flows from Investing Activities:              |                                                                         |                                            |                                 |                                   |         |                    |            |           
|                                                   | Capital expenditures                                                    |                                            |                                 | (102,244                          | )       |                    |            | (12,234    | )      
|                                                   |                                                                         |                                            |                                 |                                   |         |                    |            |           
|                                                   |                                                                         |                                            |                                 | Cash used in investing activities |         |                    | (102,244   | )          |         |          | (12,234  | )
|                                                   |                                                                         |                                            |                                 |                                   |         |                    |            |           
|Cash Flows from Financing Activities:              |                                                                         |                                            |                                 |                                   |         |                    |            |           
|                                                   | Proceeds from borrowings against notes payable
and line of credit       |                                            |                                 |                                  |         |                    |            | 207,694    |        
|                                                   | Principal payments on notes payable and lines of credit                 |                                            |                                 | (249,434                          | )       |                    |            | (1,169,944 | )      
|                                                   | Repurchase of common stock                                              |                                            |                                 |                                  |         |                    |            | (20,000    | )      
|                                                   |                                                                         |                                            |                                 |                                   |         |                    |            |           
|                                                   |                                                                         |                                            |                                 | Cash used in financing activities |         |                    | (249,434   | )          |         |          | (982,250 | )
|                                                   |                                                                         |                                            |                                 |                                   |         |                    |            |           
|Change in cash                                     |                                                                         |                                            | (1,901,618                      | )                                 |         |                    | (1,895,291 | )         
|Cash, beginning of period                          |                                                                         |                                            | 7,353,316                       |                                   |         |                    | 2,131,549  |           
|                                                   |                                                                         |                                            |                                 |                                   |         |                    |            |           
|Cash, end of period                                |                                                                         | $                                          | 5,451,698                       |                                   |         | $                  | 236,258    |           
|                                                   |                                                                         |                                            |                                 |                                   |         |                    |            |           
|Supplemental disclosure of cash flow information  |                                                                         |                                            |                                 |                                   |         |                    |            |           
|                                                   | Cash paid for interest                                                  |                                            | $                               | 576,476                           |         |                    | $          | 39,533     |        
|                                                   |                                                                         |                                            |                                 |                                   |         |                    |            |           

See notes to consolidated financial statements.

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MICROHELIX, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. General

The accompanying quarterly consolidated financial statements of
microHelix, Inc. and its wholly owned subsidiary, BioElectric Corporation
(collectively, the Company) are unaudited and include all adjustments
(consisting only of normal recurring accruals) considered necessary by
management to present a fair statement of the results of operations, financial
position and cash flows. They have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB of Regulation S-B. Accordingly, they do not include
all the information and footnotes required by generally accepted accounting
principles for complete financial statements.

The results of operations for the three month period ended March 31, 2003
are not necessarily indicative of the results to be expected for the full year.
For further information, refer to the financial statements and footnotes
thereto included in the Companys Form 10-KSB for the fiscal year ended
December 31, 2002.

Use of Estimates The preparation of financial statements in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts
reported in the consolidated financial statements and accompanying notes. This
includes, among other things, evaluation of the remaining life and
recoverability of long-lived assets. Actual results could differ from those
estimates.

In August 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations.SFAS No. 143 requires the fair value of a liability
for an asset retirement obligation to be recognized in the period in which it
is incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
long-lived asset. SFAS No. 143 was adopted by the Company on
January 1, 2003, and had no material impact on its financial statements.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB No. 4, 44,
and 64, Amendment of FASB No. 13, and Technical Corrections. SFAS No. 145
rescinds FASB No. 4, Reporting Gains and Losses from Extinguishments of Debt
Made to Satisfy Sinking-Fund Requirements, rescinds SFAS No. 44, Accounting for
Intangible Assets of Motor Carriers,and amends SFAS No. 13, Accounting for
Leases. This statement also amends other existing authoritative pronouncements
to make various technical corrections, clarify meanings, or describe their
applicability under changed conditions. This statement was adopted by
the Company on January 1, 2003, and had no material
effect on the Companys financial statements.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This statement requires companies
to recognize costs associated with exit or disposal activities when they are
incurred rather than at the date of a commitment to an exit or disposal plan,
and nullifies Emerging Issues Task Force Issue No. 94-3, Liability Recognition
for Certain Employee Termination Benefits and Other Costs to Exit an Activity.
Costs covered by the standard include lease termination costs and

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certain employee severance costs that are associated with a restructuring,
discontinued operation, plant closing, or other exit or disposal activity.
This statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The adoption of this statement did not have
a material effect on the Companys financial statements.

In
December 2002, the FASB issued SFAS No. 148, Accounting for
Stock-Based Compensation  Transition and Disclosure. SFAS
No. 148 amends SFAS No. 123, Accounting for Stock-Based
Compensation, to provide alternative methods of transition for an
entity that voluntarily changes to the fair value based method of
accounting for stock-based employee compensation. It also amends the
disclosure provisions of SFAS No. 123 to require prominent
disclosure about the effects on reported net income of an
entitys accounting policy decisions with respect to stock-based
employee compensation. Finally, this statement amends APB Opinion
No. 28, Interim Financial Reporting, to require
disclosure about those effects in interim financial information. The
Company adopted SFAS No. 148 in the fourth quarter of 2002.
Since the Company has not changed to a fair value method of
stock-based compensation, the applicable portion of this statement
only affects our disclosures.

The
Company generally does not recognize compensation expense relating to
employee stock options because it generally grants options with an
exercise price equal to the fair value of the stock on the effective
date of grant. If the Company had elected to recognize compensation
expense using a fair value approach, and therefore determined the
compensation based on the value as determined by the Black-Scholes
option pricing model, the pro forma net income and earnings per share
would have been as follows:

|                                                                                                                            |  |   |                             |   |      |   |          |   | 
|--------------------------------------------------------------------------------------------------------------------------- |  | - | --------------------------- | - | ---- | - | -------- | - | 
|                                                                                                                            |  |   | Three
Months EndedMarch 31,
|                                                                                                                            |  |   |                            
|                                                                                                                            |  |   | 2002                        |   | 2003
|                                                                                                                            |  |   |                             |   |     
|Net
loss as reported                                                                                                        |  | $ | (701,182                    | ) |      | $ | (837,551 | )
|Deduct:
Total stock-based employee compensation expense determined under fair
value based method for all awards, net of tax |  |   | (56,352                     | ) |      |   | (94,517  | )
|                                                                                                                            |  |   |                             |   |      |   |          |  
|Net
loss pro forma                                                                                                          |  | $ | (757,534                    | ) |      | $ | (932,068 | )
|                                                                                                                            |  |   |                             |   |      |   |          |  
|Net
loss per common share  basic and diluted                                                                               |  | $ | (0.15                       | ) |      | $ | (0.18    | )
|Net
loss per common share  basic and diluted, pro forma                                                                    |  | $ | (0.16                       | ) |      | $ | (0.20    | )

The pro
forma amounts may not be indicative of the effects on reported net
income for future periods due to the effect of options vesting over a
period of years and the granting of stock compensation awards in
future years.

There
were no options exercised during the three months ended
March 31, 2003. There were 1,000 new options granted at an
exercise price of $0.35 per share during that period. There were 14,802
options canceled at prices ranging from $0.34 to $9.06 per share
during the three months ended March 31, 2003.

2. Inventories

Inventories are as follows:

|                   |       |   |              |         |           |   |         |         | 
|------------------ | ----- | - | ------------ | ------- | --------- | - | ------- | ------- | 
|                   |       |   | December 31, |         | March 31,
|                   |       |   | 2002         |         | 2003     
|                   |       |   |              |         |          
|Raw materials, net |       | $ | 606,969      |         |           | $ | 730,578 |        
|Work-in-process    |       |   | 98,193       |         |           |   | 69,049  |        
|                   |       |   |              |         |           |   |         |        
|                   | Total |   | $            | 705,162 |           |   | $       | 799,627 | 
|                   |       |   |              |         |           |   |         |        

3. 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.
The line of credit bears interest at the prime rate plus 6.25% (10.25% at March
31, 2003) and allows the Company to borrow up to $1,500,000. At March 31, 2003,
$211,861 was outstanding on the line of credit. As of March 31, 2003, the Company was in compliance with the terms of the
line of credit.

Notes payable consist of the following:

|                                                                                                                                                                                                   |                                    |  |              |           |           |  |         |         | 
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ---------------------------------- |  | ------------ | --------- | --------- |  | ------- | ------- | 
|                                                                                                                                                                                                   |                                    |  | December 31, |           | March 31,
|                                                                                                                                                                                                   |                                    |  | 2002         |           | 2003     
|                                                                                                                                                                                                   |                                    |  |              |           |          
|Note payable to shareholder, interest at 7.5% at December 31,
2002, interest payable monthly and principal payment due
March
2003, secured by certain assets                                       |                                    |  | 456,115      |           |           |  |        |        
|Note payable to shareholder, interest at 7.5% at December 31,
2002 and March 31, 2003, interest payable monthly and
principal
payments due March 2003 and December 2004, secured by
certain assets |                                    |  | 383,885      |           |           |  | 340,000 |        
|Note payable to shareholder, interest at 7.5% at December 31,
2002, interest payable monthly and principal payment due
December 2002, secured by certain assets                                    |                                    |  | 135,000      |           |           |  |        |        
|Note payable to shareholder, interest at 7.5% at December 31,
2002 and March 31, 2003, interest payable monthly and
principal
payments due March 2003 and December 2004, secured by
certain assets |                                    |  | 160,000      |           |           |  | 160,000 |        
|                                                                                                                                                                                                   |                                    |  |              |           |           |  |         |        
|                                                                                                                                                                                                   | Total notes payable                |  |              | 1,135,000 |           |  |         | 500,000 | 
|Less current portion                                                                                                                                                                               |                                    |  | (535,000     | )         |           |  |        |        
|                                                                                                                                                                                                   |                                    |  |              |           |           |  |         |        
|                                                                                                                                                                                                   | Long-term portion of notes payable |  | $            | 600,000   |           |  | $       | 500,000 | 
|                                                                                                                                                                                                   |                                    |  |              |           |           |  |         |        

6



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All notes payable outstanding at March 31, 2003 are payable to
shareholder, with the balance of $500,000 due December 31, 2004.

In January 2003, the Company repaid the $135,000 note payable to
shareholder. Additionally, in March 2003, the Company repaid $500,000 of
principal and $4,293 of accrued interest on the remaining notes payable to
shareholder. In March 2003, the Company borrowed $200,000 on a short-term
unsecured note at a 12% interest rate, to finance short-term working capital
requirements. There was $200,000 outstanding on the short-term unsecured note
at March 31, 2003.

4. Related-Party Transactions

Significant transactions and balances with shareholders are summarized
below:

|                                                    |  |              |           |           |  |   |         | 
|--------------------------------------------------- |  | ------------ | --------- | --------- |  | - | ------- | 
|                                                    |  | December 31, |           | March 31,
|                                                    |  | 2002         |           | 2003     
|                                                    |  |              |           |          
|Due from affiliates                                 |  | $            | 37,247    |           |  | $ | 41,379  | 
|                                                    |  |              |           |           |  |   |         | 
|Notes receivable from shareholders for
common stock |  | $            | 57,940    |           |  | $ | 57,940  | 
|                                                    |  |              |           |           |  |   |         | 
|Notes payable to shareholder                        |  | $            | 1,135,000 |           |  | $ | 500,000 | 
|                                                    |  |              |           |           |  |   |         | 

|                                |  |                          |        |      |  |   |        | 
|------------------------------- |  | ------------------------ | ------ | ---- |  | - | ------ | 
|                                |  | Three Month Period Ended
|                                |  | March 31,               
|                                |  |                         
|                                |  | 2002                     |        | 2003
|                                |  |                          |        |     
|Interest expense to
shareholder |  | $                        | 28,146 |      |  | $ | 18,493 | 
|                                |  |                          |        |      |  |   |        | 

During 1999, the shareholder agreed to defer his annual compensation of
$200,000 to future periods in order to improve the Companys cash flow. In
February 2002, the Company agreed to pay $125,000 of the deferred compensation
and the shareholder agreed to forgive the remaining $75,000. In January 2003
and March 2003, the Company repaid $135,000 and $500,000 notes payable to
shareholder.

5. 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 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, if the
common equivalent shares were not anti-dilutive. Common stock equivalents were
anti-dilutive for all periods presented.

* * * * * *

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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion provides information which management believes is
relevant to an assessment and understanding of the Companys operations and
financial condition. This discussion should be read in conjunction with the
unaudited consolidated financial statements and accompanying notes.

Forward-Looking Statements

Statements in this filing which are not historical facts are
forward-looking statements under the provisions of the Private Securities
Litigation Reform Act of 1995. Such statements reflect managements current
views and estimates of future economic and market circumstances, industry
conditions, company performance, and financial results. You can identify
forward-looking statements by the use of words such as may, will, should,
expects, plans, anticipates, believes, estimates, predicts,
intends, potential, continue, or the negatives of such terms or other
comparable terminology. Forward-looking statements also include the
assumptions underlying or relating to any of the foregoing matters. All
forward-looking statements are subject to risks and uncertainties that could
cause the Companys actual future results to differ materially from the results
discussed herein. Factors that could adversely affect future events,
transactions or results include, but are not limited to, unfavorable economic
conditions, disruptions or other effects related to terrorism and acts of war,
the existence of demand for, and acceptance of, the Companys products and
services, regulatory approvals and developments, economic conditions, the
impact of competition and pricing, new product offerings by competitors,
successful completion of special engineering projects, successful completion of
long-term production contracts, and other risks and factors as are described
from time to time in the Companys Securities and Exchange Commission filings,
including but not limited to, the risks detailed in the Risk Factors section
of the Companys Annual Report on Form 10-KSB for the year ended December 31,
2002. The forward-looking statements contained in this Form 10-QSB speak only
as of the date on which they are made, and the Company undertakes no obligation
and does not intend to update or revise these forward-looking statements to
reflect events or circumstances that occur after the date of this filing. If
the Company does update or correct one or more forward-looking statements,
investors and others should not conclude that the Company will make additional
updates or corrections with respect thereto or with respect to other
forward-looking statements.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of
operations are based upon our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires us to
make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues, and expenses, and related disclosure of contingent
assets and liabilities. We evaluate our estimates on an on-going basis,
including those related to product returns, bad debts, inventories, prepaid
expenses, intangible assets, income taxes, warranty obligations, litigation,
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 estimated 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, 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 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. Prototypes are tested at the Companys
facility for customer specifications prior to shipment.

Revenue on government contracts and grants is recognized as time and
material costs are incurred using the percentage of completion method. The
government generally provides grants to perform specific research and is not
the ultimate customer.

Intangible and Other Assetsprimarily represent patent costs that are
amortized using the straight-line method over their estimated useful lives or
15 years, whichever is shorter, once the technology is completed and in use.
Management periodically evaluates the

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recoverability of intangibles based on current and anticipated income and
undiscounted future cash flows. The recoverability of our intangible asset
costs depends in part on the development of additional commercial products from
those technologies, the acceptance of such products in the marketplace, and our
ability to generate significant revenues and cash flows from these products.

RESULTS OF OPERATIONS

THREE MONTH PERIODS ENDED MARCH 31, 2002 AND MARCH 31, 2003

Total sales for the first quarter of 2003 were $1,011,000 compared to
total sales of $1,292,000 recorded in the first quarter a year ago, or a
decrease of $281,000. This decrease in sales is attributable entirely to a
reduction in shipments to Jomed, Inc. Jomed, Inc. is the U.S. subsidiary of
Jomed N.V., a Dutch corporation. Jomed N.V. recently completed a debt
restructuring that affected our shipments to Jomed Inc. The circumstances
relating to this customer have improved and we resumed shipping products to
Jomed, Inc. on a regular basis beginning April 1, 2003.

The gross profit for the first quarter of 2003 was a negative
$59,000 compared to a positive gross profit for the first quarter of
2002 of $190,000. The relatively sudden decrease in shipments to Jomed, Inc.
in the first quarter caused significant short-term manufacturing inefficiencies
in the Portland plant that adversely impacted gross margin. The unfavorable
gross profit margin related to the inefficiencies in the Portland plant was
partially offset by the improved margins generated by increased shipments of
ultrasound products from our Mexican plant during the first quarter of 2003,
compared to such shipments during the first quarter of 2002.

Total operating expenses for the first quarter of 2003 were $744,000
compared to a total of $872,000 incurred during the same quarter in 2002.
Research and engineering expenses were $304,000 for the first quarter of 2003
compared to $130,000 incurred during the same quarter a year earlier. This
increase in research and development expenses in 2003 compared to 2002 is
primarily attributable to two factors. First, during the first quarter of 2002
the Company had a major implantable billable contract that was terminated in
October 2002. Under this contract engineering expense was reduced in 2002 and
product cost was charged to match with the billable revenue. We have no such
contract in place in the first quarter of 2003 so there are no expense offsets
credited to the engineering department. Second, the number of employees
working in the engineering research and development department has increased in
the first quarter of 2003, compared to the same quarter a year ago. Sales and
marketing expenses were $157,000 in the first quarter of 2003, compared to
$194,000 incurred in the same quarter in 2002. The decrease in sales and
marketing expenses is primarily due to changing from exclusively a direct sales
organization to using a combination of direct sales and manufacturing
representatives that is more cost effective. General and administrative
expenses were $284,000 in the first quarter of 2003, compared to $548,000
recorded during the first quarter of 2002. This decrease of $264,000 is
attributable to the cost reduction program the Company implemented in October
2002, including cutbacks in personnel and a reduction in legal, investor
relations and travel expenses.

Other expense was $35,000 in the first quarter of 2003 compared to $19,000
in the first quarter of 2002. This increase in other expense is primarily
attributable to a $21,000 reduction in interest income due to the decrease in
cash available during the first quarter of 2003 compared to the first quarter
of the preceding year.

LIQUIDITY AND CAPITAL RESOURCES

THREE MONTH PERIODS ENDED MARCH 31, 2002 AND MARCH 31, 2003

During the three month period ended March 31, 2003, the Companys cash
used in operations was $901,000 compared to $1,550,000 for the same period in
2002. This decrease in cash usage of $649,000 is primarily attributable to a
reduction of $531,000 in shareholder interest expense.

During the three month period ended March 31, 2003 total cash balance
decreased from $2,132,000 to $236,000, a reduction of $1,896,000. During the
quarter the Company made $635,000 of principal loan payments to a shareholder
and reduced the line of credit by $528,000, which was partially offset by
$200,000 of short term borrowings. The balance of the cash reduction was used
to finance the operating loss of $837,000 incurred during the quarter ended
March 31, 2003.

As of March 31, 2003 the Company had a cash balance of $236,000. The
Company is in the process of exploring several additional sources of permanent
capital. The Company cannot predict the success, nor can it guarantee the
success of these efforts. However, the Company believes that current
operations can continue with the financial arrangements it currently has in
place.

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##### Table of Contents



Specifically, the Company has a $1,500,000 line of credit for working
capital that is secured by inventory and accounts receivable. In addition, the
Company has a lease arrangement in place that the Company believes will be
adequate to finance any capital equipment that the Company may need in 2003.
For the balance of the fiscal year 2003 the Company is not required to make any
additional principal payments on any of its shareholder loans. The Company is
keenly aware that the success of its ability to rely on its current financial
resources to continue its operations requires the Company to materially reduce
its quarterly operating losses.

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

|                                         |  |                        |           |                  |  |           |         |  |  |   |         | 
|---------------------------------------- |  | ---------------------- | --------- | ---------------- |  | --------- | ------- |  |  | - | ------- | 
|                                         |  | Payments Due by Period
|                                         |  |                       
|Contractual Obligations                  |  | Total                  |           | Less than 1 year |  | 1-3 years
|                                         |  |                        |           |                  |  |          
|Operating leases, net of
sublease income |  | $                      | 596,093   |                  |  | $         | 194,952 |  |  | $ | 401,141 | 
|Long-term debt to
shareholder            |  |                        | 500,000   |                  |  |           |        |  |  |   | 500,000 | 
|                                         |  |                        |           |                  |  |           |         |  |  |   |         | 
|Total contractual cash
obligations       |  | $                      | 1,096,093 |                  |  | $         | 194,952 |  |  | $ | 901,141 | 
|                                         |  |                        |           |                  |  |           |         |  |  |   |         | 




ITEM 3. CONTROLS AND PROCEDURES

Within the 90-day period prior to the filing of this report, an evaluation was
carried out under the supervision and with the participation of the Companys
management, including the Chief Executive Officer (CEO) and Chief Financial
Officer (CFO), of the effectiveness of our disclosure controls and
procedures. Based on that evaluation, the CEO and CFO have concluded that the
Companys disclosure controls and procedures are effective to ensure that
information required to be disclosed by the Company in reports that it files or
submits under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. Subsequent to the date of their
evaluation, there were no significant changes in the Companys internal
controls or in other factors that could significantly affect the disclosure
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.

10



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##### Table of Contents






PART II  OTHER INFORMATION




ITEM 5. OTHER INFORMATION

On September 9, 2002, the Company was notified by NASDAQ that it was not in
compliance with Marketplace Rule 4310(c)(8)(D) (the Rule) of the NASDAQ
listing requirements because during the 30 consecutive trading days preceding
notification, the Companys common stock closed under the minimum $1.00 per
share bid price requirement. The Company was given 180 days, or until March 10,
2003, to regain compliance with the Rule. If, at anytime before March 10, 2003,
the bid price of the Companys common stock had closed at $1.00 per share or
more for a minimum of 10 consecutive trading days, the Company would generally
have been considered to be in compliance with the Rule. If the Company was
unable to comply with the Rule within the 180 day period, the Company would be
granted an additional 180 days, or until September 5, 2003 to comply provided
that the Company met one of three NASDAQ Small Cap Market listing requirements (the
Requirements). On March 18, 2003, NASDAQ notified the Company that it would
be given another 180 days to comply with Rule. If, at anytime before September
4, 2003, the bid price of the Companys common stock closes at $1.00 per share
or more for a minimum of 10 consecutive trading days, NASDAQ will notify the
Company in writing that the Company is in compliance with the Rule. If the
Company is unable to comply with the Rule by September 4, 2003, NASDAQ will
determine whether the Company then meets any of the Requirements. If NASDAQ
determines that the Company then meets any of the Requirements, NASDAQ will
notify the Company that it has been granted an additional 90 days to
demonstrate compliance with the Rule, otherwise NASDAQ will notify the Company that its
securities will be delisted. The Company would then have the right to appeal
the delisting of its securities to a Listing Qualifications Panel.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a)  Exhibits:

|             |  |                                                                                                                       
|------------ |  | ----------------------------------------------------------------------------------------------------------------------
|Exhibit 99.1 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002
|Exhibit 99.2 |  | Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 Of The Sarbanes-Oxley Act of 2002

(b)  Reports on Form 8-K:

During the three months ended March 31, 2003, the Company filed one report
on Form 8-K on March 20, 2003 with respect to a press release announcing the
Companys financial results for the year and the quarter ended December 31,
2002.

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##### Table of Contents






SIGNATURES

In accordance with the requirements of the Securities Exchange Act of
1934, the registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.

|                                            |  |                                                                     |  |             
|------------------------------------------- |  | ------------------------------------------------------------------- |  | ------------
|Signature                                   |  | Title                                                               |  | Date        
|                                            |  |                                                                     |  |             
|                                            |  |                                                                     |  |             
|/s/ Tyram H. Pettit
Tyram H. Pettit         |  | President,
Chief Executive Officer and
Director                     |  | May 14, 2003
|                                            |  |                                                                     |  |             
|/s/ Terrence A. Rixford
Terrence A. Rixford |  | Senior Vice President-Finance,
Chief Financial Officer and
Director |  | May 14, 2003

12



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##### Table of Contents






CERTIFICATIONS

I, Tyram H. Pettit, certify that:

1.     I have reviewed this quarterly report on Form 10-QSB of microHelix,
Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
the Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                   |  |                                                      
|------------------ |  | -----------------------------------------------------
|Date: May 14, 2003 |  | /s/Tyram H. Pettit                                   
|                   |  |                                                      
|                   |  | Tyram H. Pettit
President
and Chief Executive Officer

13



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##### Table of Contents






CERTIFICATIONS

I, Terrence A. Rixford, certify that:

1.     I have reviewed this quarterly report on Form 10-QSB of microHelix,
Inc.;

2.     Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by this
quarterly report;

3.     Based on my knowledge, the financial statements and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;

4.     The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
the Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:



| |                                                                                                                                                                                                                                                                                                   
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;



| |                                                                                                                                                                                                 
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of this
quarterly report (the Evaluation Date); and



| |                                                                                                                                                                           
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5.     The registrants other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrants auditors and the audit
committee of the registrants board of directors (or persons performing the
equivalent function):



| |                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | a. all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to record,
process, summarize and report financial data and have identified for the
registrants auditors any material weaknesses in internal controls; and



| |                                                                                                                                                          
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------
| | b. any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrants internal controls;
and

6.     The registrants other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.

|                   |  |                                                                              
|------------------ |  | -----------------------------------------------------------------------------
|Date: May 14, 2003 |  |                                                                              
|                   |  | /s/ Terrence A.
Rixford                                                      
|                   |  | Terrence A. Rixford
Senior Vice President-Finance
and Chief Financial Officer

14