****


**UNITED STATES**


**SECURITIES AND EXCHANGE COMMISSION**


**Washington, D.C. 20549**


**FORM 10-QSB/A****(Amendment No. 1)**


****


(Mark One)


x
**QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**For the quarterly period ended March 31, 2004oro
**TRANSITION REPORT UNDER SECTION 13 OR 15(d) of the SECURITIES EXCHANGE ACT OF 1934**For the Transition Period from _______________ to _______________


**Commission File No. 001-16781****MICROHELIX, INC.**(Name of small business issuer in its charter)








**Oregon**

**91-175821**(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)**16125 SW 72ndAvenue**

**97224****Portland, Oregon**

(Zip Code)(Address of principal executive offices)**(503) 968-1600**(Issuer's telephone number)


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 report(s), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o




As of February 1, 2005, there were 1,959,746 shares of the issuer's common stock outstanding.




Transitional Small Business Disclosure Format: Yes oNo x













****


****


**EXPLANATORY NOTE**





On April 29, 2004 we filed with the Securities and Exchange Commission our quarterly report on Form 10-QSB for the period ended March 31, 2004. That quarterly report included interim financial statements and notes prepared by us that were not reviewed by an independent public accountant as required by Rule 10-01(d) of Regulation S-X, and that fact was disclosed in that Form 10-QSB. This Form 10-QSB/A for the period ended March 31, 2004 is being filed to provide interim financial statements that comply with Rule 10-01(d) of Regulation S-X, and to provide new officer certifications. Revised interim financial statements are included in this Form 10-QSB/A, and reflect changes from the interim financial statements filed with the Form 10-QSB on April 29, 2004.





THIS AMENDED QUARTERLY REPORT REFLECTS CHANGES FROM THE QUARTERLY REPORT FILED ON APRIL 29, 2004 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2004.




The information in this Amendment is as of the date of the original Form 10-QSB filing on April 29, 2004 for the quarterly period ended March 31, 2004, and does not reflect any subsequent information or events other than the changes to the interim financial statements referred to above. All information contained in this Form 10-QSB/A and in the original Form 10-QSB is subject to updated information contained in filings made with the Securities and Exchange Commission subsequent to April 29, 2004.


2


**MICROHELIX, INC.**





**Quarterly Report on Form 10-QSB/A**


**Quarterly Period Ended March 31, 2004**


**Table of Contents**




**PART I-FINANCIAL INFORMATION**
**Page****ITEM 1. FINANCIAL STATEMENTS - UNAUDITED**Consolidated balance sheets as of December 31, 2003 and March 31, 2004
4Consolidated statements of operations for the three months ended March 31, 2004 and 2003
5Consolidated statements of cash flows for the three months ended March 31, 2004 and 2003
6Notes to consolidated financial statements
7**ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION**
14**ITEM 3.CONTROLS AND PROCEDURES**
16**PART II -OTHER INFORMATION****ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K**
16**SIGNATURES**
17**CERTIFICATIONS**EXHIBIT 31.1
18EXHIBIT 31.2
19EXHIBIT 32
20


****


3


**PART I  FINANCIAL INFORMATION**





**ITEM 1. FINANCIAL STATEMENTS**


**MICROHELIX, INC.**





**CONSOLIDATED BALANCE SHEETS**


**December 31, 2003**

**March 31, 2004****(unaudited)****Assets**



**(restated)**Current Assets:Cash

$
48,767

$
107,833Accounts receivable, net of allowance of $22,156 and $20,363


425,326


386,894Inventories, net of reserves


308,868


215,244Prepaid expenses


70,085


55,197Assets held for sale


2,437,148


2,236,418Total current assets


3,290,194


3,001,586Property and equipment  net


116,536


105,735Other assets  net


9,516


9,516Total assets

$
3,416,246

$
3,116,837**Liabilities and Shareholders Equity**Current Liabilities:Accounts payable

$
497,470

$
704,828Accrued liabilities


274,665


487,684Line of credit


249,293


298,007Short-term borrowing


100,000


100,000Liabilities held for sale


811,239


716,706Total liabilities


1,932,667


2,307,225Shareholders Equity:Preferred Stock, no par value, 5,000,000 shares authorized, zeroissued and outstanding at December 31, 2003 andMarch 31, 2004, respectively





Common stock, no par value,25,000,000 shares authorized,1,681,806 issued and outstanding at December 31, 2003and March 31, 2004


14,359,467


14,359,467Additional paid-in capital


6,487,417


6,487,417Deferred compensation expense


(27,185
)

(21,798
)Accumulated deficit


(19,336,120
)

(20,015,474
)Total shareholders equity


1,483,579


809,612Total liability and shareholders equity

$
3,416,246

$
3,116,837


*See notes to consolidated financial statements.*





4








**MICROHELIX, INC.**





**CONSOLIDATED STATEMENTS OF OPERATIONS**


**(UNAUDITED)**





****
****

**Three Months Ended****March 31,******

**2003**

**2004****(restated)**Sales

$
480,395

$
279,797Cost of Sales


452,351


459,519Gross profit (loss)


28,044


(179,722
)Operating Expenses:Research and development


30,426


54,585Sales and marketing


9,430


3,145General and administrative


253,150


321,279Total operating expenses


293,006


379,009Loss from operations


(264,962
)

(558,731
)Other Income (Expense):Interest income


4,992


369Interest expense


(9,995
)

(3,981
)Other expense  net


(5,003
)

(3,612
)Net loss from continuing operations


(269,965
)

(562,343
)Discontinued operations:Loss from operations of wire and cable division


(567,586
)

(129,214
)Net loss

$
(837,551
)
$
(691,557
)Loss per common share - basic and dilutedNet loss from continuing operations

$
(.18
)
$
(.33
)Net loss from discontinued operations


(.37
)

(.08
)Net loss

$
(.55
)
$
(.41
)Weighted average number of shares outstanding  basic and diluted


1,539,962


1,681,806


*See notes to consolidated financial statements.*








5








**MICROHELIX, INC.**





**CONSOLIDATED STATEMENTS OF CASH FLOWS**


**(UNAUDITED)**





****
****

**Three Months Ended**
**March 31,******

**2003**

**2004****Cash Flows from Operating Activities:**



**(restated)**Net loss from continuing operations

$
(269,965
)
$
(562,343
)Adjustments to reconcile net loss to cash provided by (used in)operating activities:Depreciation and amortization


136,349


122,757Inventory reserves





73,518Stock compensation expense


5,387


5,387Amortization of deferred inventory charges


1,540Loss from operations of wire and cable division


(567,586
)

(129,214
)Change in:Accounts receivable, net


200,337


38,432Due from affiliates


(4,132
)

Inventories


(96,005
)

20,106Prepaid expenses


1,621


14,888Intangible and other assets


(22,753
)

9,986Accounts payable


(185,583
)

266,074Accrued liabilities


(100,017
)

213,019Net cash provided by (used in) operating activities


(900,807
)

72,610**Cash Flows from Investing Activities:**Capital expenditures


(12,234
)

(4,789
)Net cash used in investing activities


(12,234
)

(4,789
)**Cash Flows from Financing Activities:**Proceeds from borrowings against notes payableand lines of credit


207,694


874,285Principal payments on notes payable and lines of credit


(1,169,944
)

(825,571
)Principal payments on capital lease obligations





(57,469
)Repurchase of common stock


(20,000
)

Net cash used in financing activities


(982,250
)

(8,755
)Change in cash


(1,895,291
)

59,066Cash, beginning of period


2,131,549


48,767Cash, end of period

$
236,258

$
107,833Supplemental disclosure of cash flow information Cash paid for interest

$
39,533

$
16,854


*See notes to consolidated financial statements.*








6








**MICROHELIX, INC.**





**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**





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





The accompanying unaudited consolidated financial statements of microHelix, Inc. (the Company) include all adjustments (consisting only of normal recurring accruals) that management considers necessary for fair presentation of financial position as of March 31, 2004 and operating results and cash flows for the three month periods ended March 31, 2004 and March 31, 2003.





The accompanying quarterly consolidated financial statements of microHelix, Inc. and its wholly owned subsidiary, BioElectric Corporation (collectively, the Company) have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) for interim financial information and are unaudited. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. They 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.





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 March 31, 2004 had an accumulated deficit of $20,015,474. 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.








The results of operations for the three month period ended March 31,2004 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 year ended December 31, 2003.





***Use of Estimates***  The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the 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.




***Stock Based Compensation***  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 loss and pro forma loss per share would have been as follows:





7







****
****

**Three Months Ended**
**March 31,******

**2003**

**2004****(restated)**Net loss, as reported

$
(837,551
)
$
(691,557
)Deduct: Total stock-based employeecompensation expense determined underfair value based method for all awards,net of tax

$
(94,517
)
$
(60,782
)Net loss, pro forma

$
(932,068
)
$
(752,339
)Net loss per common share  basicand diluted

$
(0.55
)
$
(0.41
)Net loss per common share  basicand diluted, pro forma

$
(0.61
)
$
(0.45
)


Pro forma information regarding net loss and loss per share is required by SFAS No. 123 *Accounting for Stock-base Compensation,* and has been determined as if the Company had accounted for its employee stock options under the fair value method of that Statement. The fair value of these options was estimated at the date of grant using the Black-Scholes option valuation model with the following weighted-average assumptions for the three months ended March 31, 2004 and March 31, 2003.


2004

2003Risk free interest rates


4.0
%

4.0
%Dividend yields


0.0
%

0.0
%Volatility


99.0
%

99.0
%Weighted average expected life


4 years


4 years


The pro forma amounts may not be indicative of the effects on reported net loss 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 or granted during the three months ended March 31, 2004.





***Recent Accounting Pronouncements***





In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin (ARB) No. 51". This interpretation clarifies the application of ARB No. 51, "Consolidated Financial Statements", to certain entities in which equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. In December 2003, the FASB revised FASB Interpretation No. 46 (FIN 46R) which allowed companies with certain types of variable interest entities to defer implementation until March 31, 2004.





During April 2003, the FASB issued SFAS 149 - Amendment of Statement 133 on Derivative Instruments and Hedging Activities, effective for contracts entered into or modified after June 30, 2003, except as stated below and for hedging relationships designated after June 30, 2003. In addition, except as stated below, all provisions of this Statement should be applied prospectively. The provisions of this Statement that relate to Statement 133 Implementation Issues that have been effective for fiscal quarters that began prior to June 15, 2003, should continue to be applied in accordance with their respective effective dates. In addition, paragraphs 7(a) and 23(a), which relate to forward purchases or sales of *when-issued* securities or other securities that do not yet exist, should be applied to both existing contracts and new contracts entered into after June 30, 2003. The Company does not participate in such transactions. However, the Company is evaluating the effect of this new pronouncement, if any, and will adopt FASB 149 within the prescribed time.





8


During May 2003, the FASB issued SFAS 150 - "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity", effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective for public entities at the beginning of the first interim period beginning after June 15, 2003. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. It requires that an issuer classify a freestanding financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. Some of the provisions of this Statement are consistent with the current definition of liabilities
in FASB Concepts Statement No. 6, Elements of Financial Statements. The Company is evaluating the effect of this new pronouncement and will adopt FASB 150 within the prescribed time.





In March 2004, the Financial Accounting Standards Board (FASB) approved the consensus reached on the Emerging Issues Task Force (EITF) Issue No. 03-1, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments." The objective of this Issue is to provide guidance for identifying impaired investments. EITF 03-1 also provides new disclosure requirements for investments that are deemed to be temporarily impaired. The accounting provisions of EITF 03-1 are effective for all reporting periods beginning after June 15, 2004, while the disclosure requirements for certain investments are effective for annual periods ending after December 15, 2003, and for other investments such disclosure requirements are effective for annual periods ending after June 15, 2004.





In November 2004, the FASB issued SFAS No. 151 Inventory Costs, an amendment of ARB No. 43, Chapter 4. The amendments made by Statement 151 clarify that abnormal amounts of idle facility expense, freight, handling costs, and wasted materials (spoilage) should be recognized as current-period charges and require the allocation of fixed production overheads to inventory based on the normal capacity of the production facilities. The guidance is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Earlier application is permitted for inventory costs incurred during fiscal years beginning after November 23, 2004. . The Company has evaluated the impact of the adoption of SFAS 151, and does not believe the impact will be significant to the Company's overall results of
operations or financial position.





In December 2004, the FASB issued SFAS No.152, Accounting for Real Estate Time-Sharing Transactionsan amendment of FASB Statements No. 66 and 67 (SFAS 152) The amendments made by Statement 152 This Statement amends FASB Statement No. 66, Accounting for Sales of Real Estate, to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, Accounting for Real Estate Time-Sharing Transactions. This Statement also amends FASB Statement No. 67, Accounting for Costs and Initial Rental Operations of Real Estate Projects, to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting
for those operations and costs is subject to the guidance in SOP 04-2. This Statement is effective for financial statements for fiscal years beginning after June 15, 2005. with earlier application encouraged The Company has evaluated the impact of the adoption of SFAS 152, and does not believe the impact will be significant to the Company's overall results of operations or financial position.





In December 2004, the FASB issued SFAS No.153, Exchanges of Non-monetary Assets, an amendment of APB Opinion No. 29, Accounting for Non-monetary Transactions. The amendments made by Statement 153 are based on the principle that exchanges of non-monetary assets should be measured based on the fair value of the assets exchanged. Further, the amendments eliminate the narrow exception for non-monetary exchanges of similar productive assets and replace it with a broader exception for exchanges of non-monetary assets that do not have commercial substance. Previously, Opinion 29 required that the accounting for an exchange of a productive asset for a similar productive asset or an equivalent interest in the same or similar productive asset should be based on the recorded amount of the asset relinquished.
Opinion 29 provided an exception to its basic measurement principle (fair value) for exchanges of similar productive assets. The Board believes that exception required that some non-monetary exchanges, although commercially substantive, be recorded on a carryover basis. By focusing the exception on exchanges that lack commercial substance, the Board believes this Statement produces financial reporting that more faithfully represents the economics of the transactions. The Statement is effective for non-monetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. Earlier application is permitted for non-monetary asset exchanges occurring in fiscal periods beginning after the date of issuance. The provisions of this Statement shall be applied prospectively. The Company has evaluated the impact of the adoption of SFAS 152, and does not believe the impact will be significant to the Company's overall results of operations or financial position.





9


In December 2004, the FASB issued SFAS No.123 (revised 2004), Share-Based Payment. Statement 123(R) will provide investors and other users of financial statements with more complete and neutral financial information by requiring that the compensation cost relating to share-based payment transactions be recognized in financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. Statement 123(R) covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance-based awards, share appreciation rights, and employee share purchase plans. Statement 123(R) replaces FASB Statement No. 123, Accounting for Stock-Based Compensation, and supersedes APB Opinion No. 25, Accounting for Stock Issued to
Employees. Statement 123, as originally issued in 1995, established as preferable a fair-value-based method of accounting for share-based payment transactions with employees. However, that Statement permitted entities the option of continuing to apply the guidance in Opinion 25, as long as the footnotes to financial statements disclosed what net income would have been had the preferable fair-value-based method been used. Public entities (other than those filing as small business issuers) will be required to apply Statement 123(R) as of the first interim or annual reporting period that begins after June 15, 2005. The Company has not yet determined which transition method they will adopt for the recognition of the stock based compensatory expense previously reported in pro-forma format as the options vest. The Company has determined not to early adopt and will recognize the fair value of all newly issued share-based payments to employees in the proscribed period.




***Reclassifications***  Certain reclassifications have been made to the 2003 financial statements to conform to the 2004 financial statement presentation.





**2.     Inventories (restated)**





Inventories are as follows:





****
****Raw materials

$
317,189Less: Reserves


(101,945
)Net Inventory

$
215,244





**3.    Line of Credit and Note Payable to Shareholder**





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 March 31, 2004) and allows the Company to borrow up to $500,000. At March 31, 2004, $298,007 was outstanding on the line of credit.





10


As of March 31, 2004, the Company was in compliance with the terms of the line of credit.





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 March 31, 2004 was $100,000.





**4.    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, which are included in Liabilities Held for Sale, (See Note 6) on the accompanying financial statements are summarized below:





****
****

**December 31,**
**2003**

**March 31,**
**2004**Note payable to shareholder

$
227,000

$
227,000






****
****

**Three Month Period Ended**
**March 31,******


**2003**


**2004**Interest expense to shareholder

$
18,493

$
5,094




Subsequent to the end of the period, the note payable to shareholder was repaid as part of the sale of the Companys wire and cable division.





**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 would be 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. Diluted and basic earnings per share are the same as there are no outstanding common stock equivalents.





6 **.     Discontinued Operations**





On April 21, 2004 the Company announced the completion of the sale of the wire and cable division assets to ANS. In accordance with SAS 144, the transaction meets the requirements for classification as discontinued operations. Following this reporting format, the results of operations for the wire and cable division for all periods presented are reported as a single line item on the statement of operations under the heading discontinued operations. As of March 31, 2004, the estimated sales price exceeded the net book value and, therefore, no loss on sale was recognized as of March 31, 2004. The details relating to this transaction are outlined in the footnote below.





11


Summarized results relating to discontinued operations are reflected as follows for the quarters ended March 31:





2003

2004Sales

$
530,823

$
560,212Cost of Sales


617,645


478,537Gross Profit (Loss)


(86,822
)

81,675Operating Expenses:Research and development


273,198


94,924Sales and marketing


147,464


68,952General and administrative


30,567


33,947Total Operating Expenses


451,229


197,823Total Other Expense-net


(29,535
)

(13,066
)Net Loss

$
(567,586
)
$
(129,214
)


The following assets and liabilities were classified as held for sale as of December 31, 2003 and March 31, 2004:




**December 31,**
**2003**

**March 31,**
**2004**Assets Held For Sale:Inventories

$
298,001

$
232,900Property, Plant and Equipment


1,174,044


1,030,811Intangible Assets


965,103


972,707Total Assets Held for Sale

$
2,437,148

$
2,236,418Liabilities Held For Sale:Accounts Payable

$
79,805

$
73,420Capital Lease Obligation


291,386


233,917Note Payable to Shareholder


227,000


227,000Deferred gain on Sale Leaseback


213,048


182,369Total Liabilities Held for Sale

$
811,239

$
716,706




As of March 31, 2004, in exchange for the purchased assets from microHelix, ANS will pay the Company an amount equal to the following:





(1)
$1.5 million in cash;


(2)
$227,000 note payable to a shareholder


(3)
$233,917 assumption of a capital lease


(4)
$73,420 assumption of trade payables.





**Assets Held for Sale:**





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





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





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. Based on this assumption and the fact that all patents will be transferred to ANS as part of the purchase agreement, it was then 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.





12


**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 on April 21, 2004, but under no circumstances can the amount exceed $100,000.





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





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





**7.     Restatement**





The Company had a change in the inventory reserves for the quarter ending March 31, 2004 due to a correction of an error. The financial statements in this report have been restated to reflect an increase of $73,500 for additional inventory reserves. The inventory reserve was originally stated at $28,000 for the quarter ending March 31, 2004 and the reserve has been restated to approximately $101,000. As a result of this change, the net loss increased from approximately $618,000 to $692,000 for the quarter ending March 31, 2004.


****


**8.     Subsequent Events**





On April 22, 2004 the Company announced that it had completed the previously announced sale of its Wire and Cable Division, located in Portland, Oregon, to Advanced Neuromodulation Systems, headquartered in Dallas, Texas, for approximately $2 million in cash and assumed liabilities.





On August 2, 2004, the Company issued a press release announcing that the Company had signed a three year agreement with MAGNET, one of the nations leading healthcare group purchasing organizations (GPO) , to provide its line of microHelix branded ultrasound probes to the more than 850 MAGNET acute care members.





On September 28, 2004, Paulson Investment Company converted a $100,000 note plus accrued interest of $13,942 to microHelix, Inc common stock at $.41 per share. As a result of this conversion the note was considered paid in full upon the issuance of 299,907 shares of common stock.





On October 1, 2004, microHelix signed a three -year agreement with AMERINET to provide its line of new microHelix branded ultrasound probes to AMERINETs more than 1,800 acute care members. The contract extends through November 30, 2007.





On October 7, 2004, microHelix established a new line of credit with a maximum line of $200,000 at 6% over the prime interest rate.


*** * * * * ***





13








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





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





**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. Words such as may, should, expects, plans, anticipates, believes, estimates, predicts, intends, potential, continue, 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 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 our ability to compete successfully in the medical ultrasound business; our ability to execute our business plan; the delay in the sale of commercial quantities of our products caused by regulatory review of our customers products into which they are incorporated; the concentrated nature of our customer base which causes fluctuations in our revenue and earnings and adds unpredictability of our quarterly sales and earnings; the uncertain market acceptance of our new ultrasound products; and competition form larger competitors with more financial resources; 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, 2003. 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.





**Sale of Wire and Cable Division**





Subsequent to the end of the first quarter, on April 21, 2004 we announced the completion of the sale of the wire and cable division assets to ANS of Dallas, Texas for approximately $2.0 million in cash and assumed liabilities. We initially announced a signed agreement with ANS on March 8, 2004, subject to the approval of the microHelix shareholders and fulfillment of certain other conditions. Since this transaction was completed on April 21, 2004, it will be recorded in our second fiscal quarter ending on June 30, 2004. As of March 31, 2004, the proposed sale of the cable and wire division met the guidelines to be classified as a discontinued operation in accordance with SFAS 144. For the quarter ended March 31, 2004, the Statement of Operations will be presented in the format that will provide details
concerning the continuing ultrasound operations and the related microHelix corporate functions.





**Critical Accounting Policies and Estimates**





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





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*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.





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.





**RESULTS OF OPERATIONS**





**THREE MONTH PERIODS ENDED MARCH 31, 2003 AND MARCH 31, 2004**





The discussion that follows relates primarily to the activities of the Companys ultrasound division as all activity for the wire and cable division must be classified for reporting purposes as discontinued operations. Sales for the first quarter of 2004 were $279,797 compared to sales of $480,395 recorded in the first quarter a year ago, or a decrease of $200,598 or 42% that can be attributed to a single customer adjusting their finished goods inventory levels during the quarter. We anticipate demand from this major customer to resume in the second quarter, but can offer no assurances or guarantees that this will occur. As a result of this significant drop in shipments, gross profit for the first quarter of 2004 was a negative $179,722 compared to a positive gross profit of $28,044 earned in the same
quarter a year ago.





Total operating expenses for the first quarter of 2004 were $379,009 compared to a total of $293,006 incurred during the first quarter of 2003. Research and development expense for the first quarter of 2004 was $54,585 compared to $30,426 for the same quarter a year ago. This increase can be entirely attributed to the development of our own line of replacement ultrasound probes for sale to OEMs, distributors and end-users. We view this program as an extension of the ultrasound cable business that we have been operating in Tucson, Arizona and Nogales, Mexico for the past four years.





General and administrative expenses were $321,279 for the first quarter of 2004 compared to $253,150 incurred during the first quarter of 2003. This increase in expense can be entirely attributed to the additional cost related to accounting and legal fees, printing expenses and investment banking fees associated with the sale of the wire and cable division to ANS. After the completion of the ANS transaction in the second fiscal quarter of this year, these expenses should be significantly reduced.





The loss from continuing operations for the first quarter of 2004 was $562,343 compared to a loss from operations of $269,965 for the same quarter a year earlier. This change resulted primarily from an increased loss in gross margin of $207,766 plus an increase in expenses of $86,003, primarily related to costs associated with the sale of the wire and cable division to ANS.





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The wire and cable division financial results have been reported as discontinued operations. For the first quarter of 2004, the net loss for this division was $129,214 compared to a net loss of $567,586 for the first quarter of 2003. This improvement resulted from an improvement in gross margin and a reduction in operating expenses in the first quarter of 2004 compared to the same quarter a year earlier.





The net loss for the Company was $691,557 for the first quarter of 2004 compared with a net loss of $837,551 for the same quarter a year ago. This reduction in losses for the Company can be attributed to an improvement of $438,372 in the operations of the wire and cable division in the quarter compared to the same quarter last year offset by an increase in the loss of the ultrasound division of $292,378 in the first quarter of 2004 compared to this same quarter last year.





**LIQUIDITY AND CAPITAL RESOURCES**





As of March 31, 2004, the Company had $107,833 of cash compared to a cash balance as of December 31, 2003 of $48,767. This increase in cash was due entirely to extending payments to vendors and service providers pending the completion of the ANS transaction in the next quarter. Accounts payable and accrued liabilities increased by $420,377 in the quarter over the December 31, 2003 balance.





Subsequent to the end of the period, the shareholders of the Company approved and the Company completed the sale of its wire and cable division to ANS. As a result of this transaction, the Company was able to pay down debt, including a note payable to a shareholder, pay down trade receivables to customary terms, and provide approximately $600,000 in working capital to fund the growth of the former ultrasound division, which is now the Company's principal business. 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 you that the proceeds of the asset sale 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.





**ITEM 3.** **CONTROLS AND PROCEDURES**





The Company's Chief Executive Officer/Principal Financial Officer evaluated the effectiveness of the design and operation of the Company's disclosure controls and procedures as of March 31, 2004. Based on that evaluation, the Company's Chief Executive Officer/Principal Financial Officer concluded that, notwithstanding the changes to the financial statements presented above and material weakness discussed in the following paragraph, as of the evaluation date the Company's disclosure controls and procedures are designed to and are effective to give reasonable assurance that the information the Company must disclose in reports filed with the Securities and Exchange Commission is properly recorded, processed, summarized, and reported as required.
 
 As originally reported in the previously filed 10QSBs, there were no changes in the Company's internal control over financial reporting during the quarter ended March 31, 2004 that materially affected, or were reasonably likely to materially affect the Company's internal control over financial reporting. However, in January 2005, our management and our newly appointed independent public accountants reported to our Audit Committee two matters with regard to the interim financial statements prepared for the periods ending March 31, 2004 and June 30, 2004 that should be changed. Management believes these recommended adjustments to the interim financial statements reflect a material weakness under standards established by the Public Company Accounting Oversight Board ("PCAOB"). The Company has had to restate the
previously filed 10QSBs due to a correction of an error for inventory reserves during the quarterly period ending March 31, 2004, and a reclassification of a one-time entry that recorded the sale of assets that occurred during the quarterly period ending June 30, 2004. These material weakness issues have been discussed in detail among management, our Audit Committee, and our independent registered public accountants. The Company has determined to hire additional financial personnel, and we will continue to evaluate our internal controls and procedures to identify any needed improvements.


**PART II. OTHER INFORMATION**





**ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K**





| | (a) | The following exhibits are filed as part of this report:
| | --- | --------------------------------------------------------




| | Exhibit 31.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| | ------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 
| |  | 

| | Exhibit 31.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
| | ------------ | -----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | 
| |  | 

| | Exhibit 32 | Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of theSarbanes-Oxley Act of 2002
| | ---------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




(b)
Reports on Form 8-K:





In the period extending from January 1, 2004 through March 31, 2004 the following Form 8-Ks have been filed.





(1)
On February 17, 2004 the Company issued a press release announcing that their securities will be quoted on the OTC Bulletin Board under the trading symbol MHLX .OB for common stock and MHLXZ for the Class B warrants.





(2)
On March 8, 2004 the Company issued a joint press release with Advanced Neuromodulation Systems, Inc. (ANS) announcing that the Company and ANS had entered into an agreement whereby ANS would purchase the assets of the microHelix wire and cable division located in Portland, Oregon.




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****


**SIGNATURES**





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





**MICROHELIX, INC.**Date: February 6, 2005
By:
/s/ Tyram H. PettitTyram H. PettitPresident, Chief Executive Officer, and Vice President  Finance of MicroHelix, Inc. (Principal Executive Officer and Principal Financial Officer)17