UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] Quarterly Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the period ended: May 31, 2002
[ ] Transition Report Pursuant to section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the transition period from ____ to ____
Commission File No. 0-26057
BIOPHAN TECHNOLOGIES, INC.
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(Exact name of registrant as specified in its charter)
Nevada 82-0507874
--------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
150 Lucius Gordon Drive, Suite 215
West Henrietta, New York 14586
--------------------------------- ---------
(Address of principal executive offices) (Zip code)
(716) 214-2441
-----------------------
Issuer's telephone number
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 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.
[ X ] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding as of June 30, 2002
Common Stock, $.005 par value 29,549,439
Transitional small Business Disclosure Format (Check One): Yes[ ] No[x]
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
ITEM I. Financial Statements
Independent Accountant's Report 3
Consolidated Balance Sheets, May 31, 2002 (Unaudited)
and February 28, 2002 4
Consolidated Statements of Operations, Three Months Ended
May 31, 2002 and 2001 (Unaudited), and from August 1,
1968 (Date of Inception) through May 31, 2002 (Unaudited) 5
Consolidated Statements of Cash Flows, Three Months Ended
May 31, 2002 and 2001 (Unaudited) and from August 1, 1968
(Date of Inception) through May 31, 2002 (Unaudited) 6
Notes to Consolidated Financial Statements 7
ITEM 2. Plan of Operation 8
PART II. OTHER INFORMATION 9
ITEM 1. Legal Proceedings 9
ITEM 2. Changes in Securities and Use of Proceeds 9
ITEM 3. Defaults Upon Senior Securities 9
ITEM 4. Submission of Matters to a Vote of Security Holders 9
ITEM 5. Other Information 9
ITEM 6. Exhibits and Reports on Form 8-K 9
a. Exhibits 9
b. Reports on Form 8-K 10
SIGNATURES 10
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENT ACCOUNTANT'S REPORT
-------------------------------
To the Board of Directors
Biophan Technologies, Inc.
We have reviewed the accompanying consolidated balance sheet of Biophan
Technologies, Inc. and Subsidiaries as of May 31, 2002, and the related
consolidated statements of operations and cash flows for the three-month
periods ended May 31, 2002 and 2001. These financial statements are the
responsibility of the Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the consolidated
financial statements taken as a whole. Accordingly, we do not express such
an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying consolidated financial statements for them
to be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
February 28, 2002, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the year then ended (not presented
herein); and in our report dated April 5, 2002, except for Note 10 therein, as
to which the date was June 7, 2002, we expressed an unqualified opinion on
those consolidated financial statements. In our opinion, the information set
forth in the accompanying condensed consolidated balance sheet as of February
28, 2002, is fairly stated, in all material respects, in relation to the
consolidated balance sheet from which it has been derived.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
July 1, 2002
BIOPHAN TECHNOLOGIES, INC. (FORMERLY GREATBIO TECHNOLOGIES, INC.)
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
May 31, 2002
(Unaudited) February 28, 2002
---------------------------------------
ASSETS
Current Assets:
Cash $ 61,845 $ 12,199
Investments in marketable securities - 568,805
Prepaid expenses and other current assets 30,236 91,819
--------------------------------
Total Current Assets 92,081 672,823
--------------------------------
Fixed Assets, at cost, net 82,180 80,882
Other Assets:
Intellectual property rights 110,000 110,000
Security deposit 2,933 2,933
Deferred private equity placement costs 45,000 -
Deferred tax asset, net of valuation
allowance of $1,979,000 and $1,305,000
respectively - -
--------------------------------
157,933 112,933
--------------------------------
$ 332,194 $866,638
================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable and accrued expenses $ 259,831 $129,040
Payables to related party 700,000 500,000
Due to related parties 38,943 16,349
--------------------------------
Total Current Liabilities 998,774 645,389
--------------------------------
Stockholders' Equity (Deficiency):
Common stock, $.005 par value
Authorized, 60,000,000 shares
Issued and outstanding,
29,549,439 shares 147,747 147,747
Additional paid-in capital 4,658,407 4,608,407
Deficit accumulated during the
development stage (5,472,734) (4,534,905)
--------------------------------
(666,580) 221,249
--------------------------------
$ 332,194 $866,638
================================
See Notes to Consolidated Financial Statements.
BIOPHAN TECHNOLOGIES, INC. (FORMERLY GREATBIO TECHNOLOGIES, INC.)
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
Period from August
Three Months Ended 1, 1968 (date of
May 31, inception) to
2002 2001 May 31, 2002
------------------------------------------------
Operating expenses:
Salaries and related $ 171,213 $ 73,873 $ 692,703
Research and development 451,815 125,099 1,514,083
Professional fees 140,493 13,658 1,490,094
Write-down of intellectual property - - 490,000
General and administrative 165,309 22,391 667,389
------------------------------------------------
Operating loss (928,830) (235,021) (4,854,269)
Other income(expense):
Interest income 16,608 1,037 44,288
Interest expense (10,300) (18,713) (563,843)
Other income 13,498 - 55,533
Other expense (28,805) - (65,086)
------------------------------------------------
(8,999) (17,676) (529,108)
------------------------------------------------
Loss from continuing operations (937,829) (252,697) (5,383,377)
Loss from discontinued operations - - (89,357)
------------------------------------------------
Net loss $ (937,829) $ (252,697) $ (5,472,734)
================================================
Loss per common share
-basic and diluted $ (0.03) $ (0.01)
==============================
Weighted average shares outstanding 29,549,439 25,565,532
==============================
See Notes to Consolidated Financial Statements.
BIOPHAN TECHNOLOGIES, INC. (FORMERLY GREATBIO TECHNOLOGIES, INC.)
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Period from August
Three Months Ended 1, 1968 (date of
May 31, inception) to
2002 2001 May 31, 2002
-----------------------------------------
Cash flows used for operating activities:
Net loss $ (937,829) $ (252,697) $ (5,472,734)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 6,376 250 21,305
Losses on marketable securities 28,805 - 66,948
Write-down of intellectual property rights - - 490,000
Amortization of discount on payable to
related party - 15,500 75,000
Issuance of common stock for services - - 101,108
Issuance of common stock for interest - - 468,823
Grant of stock options for services 50,000 - 752,800
Expenses paid by stockholder - - 2,640
Changes in operating assets and liabilities:
(Increase) decrease in prepaid expenses 61,583 - (30,236)
Increase in security deposits - - (2,933)
Increase(decrease) in accounts payable and
accrued expenses 130,791 34,842 246,500
Increase(decrease) in due to related parties 222,594 40,562 195,447
---------------------------------------
(437,680) (161,543) (3,085,332)
Cash flows used for investing activities:
Purchases of fixed assets (7,674) - (103,485)
Sales of marketable securities 540,000 917,270
Purchases of marketable securities - - (984,218)
---------------------------------------
532,326 - (170,433)
Cash flows provided by financing activities:
Proceeds of bridge loans - - 986,500
Net proceeds from sales of capital stock - - 2,376,110
Payments for deferred private equity
placement costs 45,000 45,000
---------------------------------------
45,000 - 3,362,610
---------------------------------------
Net increase(decrease) in cash and equivalents 49,646 (161,543) 61,845
Cash and cash equivalents, beginning 12,199 172,092 -
---------------------------------------
Cash and cash equivalents, ending $ 61,845 $ 10,549 $ 61,845
=======================================
Supplemental schedule of noncash investing
and financing activities:
Intellectual property acquired through
issuance of capital stock and
assumption of related party payable $ - $ - $ 175,000
=======================================
Acquisition of intellectual property $ - $ - $ 425,000
=======================================
See Notes to Consolidated Financial Statements.
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
May 31, 2002
INTERIM FINANCIAL STATEMENTS:
The consolidated financial statements as of May 31, 2002 and for the three
months ended May 31, 2002 and 2001 are unaudited. However, in the opinion of
management of the Company, these financial statements reflect all adjustments,
consisting solely of normal recurring adjustments, necessary to present
fairly the financial position and results of operations for such interim
periods. The results of operations for the interim periods presented are not
necessarily indicative of the results to be obtained for a full year.
PRINCIPAL BUSINESS ACTIVITIES:
The consolidated financial statements include the accounts of Biophan
Technologies, Inc. ("Biophan") (formerly GreatBio Technologies, Inc.) and its
wholly owned subsidiaries, LTR Antisense Technology, Inc. ("Antisense") and
MRIC Drug Delivery Systems, LLC (MRIC) (collectively referred to as the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
The Company was incorporated under the laws of the State of Idaho on
August 1, 1968. On January 12, 2000, the Company changed its domicile to
Nevada by merging into a Nevada corporation, and on July 19, 2001, changed
its name to Biophan Technologies, Inc. The Company's stock currently trades
over the counter under the symbol BIPH.OB. Our corporate headquarters are
located at 150 Lucius Gordon Drive, Suite 215, West Henrietta, New York
14586; Tel. (585) 214-2441; website: www.biophan.com.
On December 1, 2000, the Company acquired LTR Antisense Technology,
Inc., a New York corporation ("LTR"), from Biomed Solutions, LLC (formerly
Biophan, LLC), a New York limited liability company ("Biomed"), in a share
for share exchange. As a result of the exchange, LTR became a wholly owned
subsidiary of the Company. The exchange was consummated pursuant to and in
accordance with an Exchange Agreement, dated December 1, 2000 and amended as
of June 8, 2001, by and among the Company, LTR and Biomed. LTR owns multiple
patents for proprietary HIV antisense gene therapy technology.
In connection with the exchange, the Company (i) issued an aggregate of
10,759,101 shares of common stock to Biomed in exchange for all the issued
shares of LTR and (ii) issued an aggregate of 10,759,101 shares of common
stock to a group of investors for $175,000.
Also on December 1, 2000, the Company acquired intellectual property
rights, including a pending patent to the MRI-compatible pacemaker technology
from Biomed (the "Assignment"), for future consideration of $500,000. The
Assignment was consummated pursuant to, and in accordance with, an Assignment
and Security Agreement, dated December 1, 2000 and amended as of June 8,
2001 by and between the Company and Biomed.
In June 2001, the Company entered into bridge loan agreements providing gross
proceeds of $986,500. Loans of $400,000 from one lender provided for a
maturity date of December 15, 2001 and interest payable by issuance of
100,000 shares of stock on the due date. As additional consideration, the
noteholder received 100,000 shares of stock and warrants to purchase an
additional 100,000 shares at $1.00 per share. The noteholder had the right
to convert the principal amounts into stock at $.75 per share at any time
prior to maturity. The Company also received proceeds from a series of
bridge loans aggregating $586,500 upon the same general terms as above except
that interest was payable by issuance of 73,324 shares of stock at the
maturity date of October 29, 2001 (extended to November 29, 2001). All bridge
lenders exercised their conversion options on November 29, 2001, at which time
the Company issued 1,315,334 shares of common stock to convert the loans to
equity.
In accordance with a Private Placement Memorandum dated July 2, 2001, the
Company offered to sell 3,000,000 shares of common stock, par value $.005 per
share, at $1.00 per share. Gross proceeds of $2,399,750(net proceeds of
$2,188,332) were received.
Also, from July 2 through November 30, 2001, the Company issued 469,759 shares
of common stock to bridge lenders as additional consideration. The shares
were valued at $1.00 per share, treated as interest expense for accounting
purposes, and resulted in adding $2,349 to capital stock and $467,410 to
additional paid-in capital.
The principal business activity of the Company is enabling implantable and
interventional medical devices to operate safely and compatibly with MRI
(Magnetic Resonance Imaging) diagnostic equipment.
The Company is in the development stage and is expected to remain so for at
least the next twelve months. The Company has not generated any operating
revenue to date.
DEFERRED PRIVATE EQUITY PLACEMENT COSTS:
In connection with proposed private equity placements, the Company has
incurred costs of $45,000 as of May 31, 2002. These costs will be netted
against the expected proceeds from the placements.
LINE OF CREDIT AGREEMENT:
In May, 2002, the Company initiated a line-of-credit agreement with Biomed
that provides for borrowings up to $250,000 with interest at 8% per annum and
warrants to purchase 125,000 shares of common stock at $1.00 per share. This
agreement also extended the due date of the $500,000 due to Biomed under the
Transfer Agreement by which certain technology was transferred to the Company,
to September 1, 2002 and, at the option of Biomed, may be further extended to
December 1, 2002. In consideration of this, Biomed received 250,000 warrants
exercisable at $1.00 per share. At May 31, 2002, $200,000 had been borrowed
under the line of credit and currently, borrowings are $250,000.
SUBSEQUENT EVENTS:
During June 2002, the Company entered into a Stock Purchase Agreement with an
institutional investor whereby the Company agreed to sell up to $2,400,000 of
the Company's common stock. The minimum monthly sale of common stock under
the Agreement shall be $250,000. The agreement requires the Company to file
with the Securities and Exchange Commission ("SEC") a Registration Statement
covering the shares issuable under this agreement. The Company can begin
selling shares to the purchaser 20 days after the SEC declares the above-
mentioned Registration Statement effective.
Also in June 2002, the Company signed a Loan Agreement with a shareholder
providing for borrowings of up to $400,000 with interest payable at 8% per
annum. Principal and accrued interest become due and payable on December 31,
2003.
On July 1, 2002, the Company entered into a finder's agreement with a Malaysian
corporation providing for the sale of up to 1,000,000 restricted shares of
common stock to foreign investors. The shares may be purchased at the closing
bid price on the previous day. Finder's fees are payable at 35% of the
proceeds in cash and 10% in restricted shares. Shares sold and issued in
connection with this agreement will be pursuant to the exemption from
registration provided in Regulation S of the 1933 Securities Act.
Item 2. PLAN OF OPERATION
The following information should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-
QSB. This Quarterly Report on Form 10-QSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. Actual events or
results may differ materially from those projected in the forward-looking
statements as a result of a number of factors including those identified
herein and in the Company's Annual report on Form 10-KSB and other periodic
reports and filings with the Securities and Exchange Commission.
Overview
The Company continues in the development stage of its operations and is
expected to be in that mode for the foreseeable future. The Company's primary
mission is to develop and commercially exploit potentially significant
technologies for enabling cardiac pacemakers and other life sustaining medical
devices to be safe and compatible with magnetic resonance imaging (MRI) and
other equipment that generates powerful magnetic and radio frequency signals.
Results of Operations
During the year-ago quarter ended May 31, 2001, the Company pursued the
development of its proprietary technology, realized no revenues and incurred
research and development expenses of $125,099 and other general and
administrative expenses of $109,922 plus interest expense of $18,713. The net
loss for the quarter was $252,697. The Company has remained in the
development stage from that time through the quarter ended May 31, 2002 and
realized no operating revenues. During the quarter ended May 31, 2002, the
Company pursued the development of its proprietary technology, incurring
research and product development expenses of $451,815 and other general and
administrative expenses of $477,015. Interest expense of $10,300 was incurred
in connection with short-term borrowings from an affiliated company, Biomed
Solutions, LLC (Biomed)(formerly Biophan, LLC).
Liquidity and Capital Resources
In May 2002, the Company initiated a line-of-credit agreement with Biomed
that provides for borrowings up to $250,000 with interest at 8% per annum and
warrants to purchase 125,000 shares of common stock at $1.00 per share. This
agreement also extended the due date of the $500,000 due to Biomed under the
Transfer Agreement by which certain technology was transferred to the Company,
to September 1, 2002 and, at the option of Biomed, may be further extended to
December 1, 2002. In consideration of this, Biomed received 250,000 warrants
exercisable at $1.00 per share. At May 31, 2002, $200,000 had been borrowed
under the line of credit and currently, borrowings are $250,000.
During June 2002, the Company entered into a Stock Purchase Agreement with an
institutional investor whereby the Company agreed to sell up to $2,400,000 of
the Company's common stock. The minimum monthly sale of common stock under
the Agreement shall be $250,000. The agreement requires the Company to file
with the Securities and Exchange Commission ("SEC") a Registration Statement
covering the shares issuable under this agreement. The Company can begin
selling shares to the purchaser 20 days after the SEC declares the above-
mentioned Registration Statement effective.
Also in June 2002, the Company signed a Loan Agreement with a shareholder
providing for borrowings of up to $400,000 with interest payable at 8% per
annum. Principal and accrued interest become due and payable on December 31,
2003.
On July 1, 2002, the Company entered into a finder's agreement with a Malaysian
corporation providing for the sale of up to 1,000,000 restricted shares of
common stock to foreign investors. The shares may be purchased at the closing
bid price on the previous day. Finder's fees are payable at 35% of the
proceeds in cash and 10% in restricted shares.
Management believes that the above-described new financing arrangements will
be sufficient to fund the next twelve months of operations and beyond. The
proceeds will be applied to the R&D program for achieving MRI-safe implantable
cardiac pacemakers and other devices as well as to administrative expenses.
Currently, the Company does not have a need for material capital expenditures
in the conduct of its research and product development activities.
At May 31, 2002, the Company employed 11 individuals.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
There are presently no material pending legal proceedings to which the Company
is a party or to which any of its property is subject and, to the best of its
knowledge, no such actions against the Company are contemplated or threatened.
Item 2. Changes in Securities and Use of Proceeds
This Item is not applicable to the Company.
Item 3. Defaults Upon Senior Securities
This Item is not applicable to the Company.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable to the Company.
Item 5. Other Information
This Item is not applicable to the Company.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
4.1 Stock Purchase Warrant between the Company and
Biomed Solutions, LLC dated June 4, 2002
4.2 Stock Purchase Warrant between the Company and Bonanza
Capital Masterfund LTD
10.1 Line of Credit Agreement between the Company and
Biomed Solutions, LLC dated June 4, 2002
10.2 Convertible Promissory Note between the Company
and Biomed Solutions, LLC dated June 4, 2002
10.3 Loan Agreement between the Company and H. Deworth
Williams dated June 18, 2002.
10.4 Stock Purchase Agreement between the Company and
Bonanza Capital Masterfund LTD
10.5 Escrow Agreement between the Company, Bonanza
Capital Masterfund LTD and Boylan, Brown, Code,
Vigdor & Wilson LLP
10.6 Registration Rights Agreement between the Company
and Bonanza Capital Masterfund LTD
10.7 Executive Employment Agreement between the Company
and Michael L. Weiner dated December 1, 2000
10.8 Executive Employment Agreement between the Company
and Jeffrey L. Helfer dated June 6, 2002
10.9 Executive Employment Agreement between the Company
and Stuart G. MacDonald dated June 6, 2002
10.10 Executive Employment Agreement between the Company
and Robert J. Wood dated June 6, 2002
10.11 Financial Accommodations Agreement between the
Company and Bellador (Labuan) Ltd dated July 1,
2002
(b) Reports on Form 8-K
There were no reports filed on Form 8-K during the period ended
May 31, 2002.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BIOPHAN TECHNOLOGIES,INC.
(Registrant)
Date: July 15, 2002
By: /s/ Michael L. Weiner
------------------------------
Name: Michael L. Weiner,
Title: Chief Executive Officer
By: \s\ Robert J. Wood
------------------------------
Name: Robert J. Wood
Title: Chief Financial Officer