U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-KSB/A
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(Mark One)
[X] Annual Report Under Section 13 or 15(d) of The Securities Exchange
Act of 1934
For the fiscal year ended February 28, 2003.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of The Securities
Exchange Act of 1934
For the transition period from ____ to ____.
Commission File Number 0-26057
BIOPHAN TECHNOLOGIES, INC.
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(Name of small business issuer in its charter)
Nevada 82-0507874
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(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
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(Address of principal executive offices) (Zip code)
(585) 214-2441
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Issuer's telephone number
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act: Common
Stock, $.005 par value
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 [ ]
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB/A or any amendment to this Form 10-KSB/A. [ ]
The issuer had $-0- revenues for its most recent fiscal year ended
February 28, 2003.
The aggregate market value of the voting equity held by non-affiliates
computed by reference to the average bid and asked prices of such common
equity as of May 23, 2003 was $8,054,873.
The number of shares outstanding of the issuer's Common Stock, $.005 par
value, as of May 27, 2003 was 37,634,693 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Not applicable.
Transitional Small Business Disclosure Format: Yes [ ] No [X]
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TABLE OF CONTENTS
Page
PART I
Item 1. Description of Business 5
Item 2. Description of Property 30
Item 3. Legal Proceedings 30
Item 4. Submission of Matters to a Vote of Security Holders 31
PART II
Item 5. Market for Common Equity and Related Stockholder Matters 31
Item 6. Plan of Operation 36
Item 7. Financial Statements 40
Item 8. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 60
PART III
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance with Section 16(a) of the Exchange
Act 60
Item 10. Executive Compensation 66
Item 11. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters 68
Item 12. Certain Relationships and Related Transactions 70
PART IV
Item 13. Exhibits and Reports on Form 8-K 72
Item 14. Controls and Procedures 77
SIGNATURES 78
CERTIFICATIONS 79
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PART I
Item 1. Description of Business
Forward Looking Statements
This annual report contains forward-looking statements that involve risks and
uncertainties. These include statements about our expectations, plans,
objectives, assumptions or future events. In some cases, you can identify
forward-looking statements by terminology such as "anticipate," "estimate,"
"plans," "potential," "projects," "continuing," "ongoing," "expects,"
"management believes," "we believe," "we intend" and similar expressions.
These statements involve estimates, assumptions and uncertainties that could
cause actual results to differ materially from those expressed for the
reasons described in this report. You should not place undue reliance on
these forward-looking statements.
You should be aware that our actual results could differ materially from
those contained in the forward-looking statements due to a number of factors:
* continued development of our technology
* dependence on key personnel
* competitive factors
* the operation of our business
* general economic conditions
The forward-looking statements speak only as of the date on which they are
made, and, except to the extent required by federal securities laws, we
undertake no obligation to update any forward-looking statement to reflect
events or circumstances after the date on which the statement is made or to
reflect the occurrence of unanticipated events. In addition, we cannot assess
the impact of each factor on our business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statements.
Company History
We incorporated in the State of Idaho on August 1, 1968 under the name
Idaho Copper and Gold, Inc. On February 9, 1999 we amended our Articles of
Incorporation to change our name from Idaho Copper and Gold, Inc. to Idaho
Technical, Inc. On January 12, 2000 we formed a corporation in Nevada with
the intent to move our domicile to Nevada. On January 24, 2000 we implemented
the change of domicile to Nevada by filing Articles of Merger between the
Idaho and Nevada Corporations. On December 1, 2000 we amended our Articles
of Incorporation to change our name from Idaho Technical, Inc. to GreatBio
Technologies, Inc. and on July 19, 2001 we amended our Articles of
Incorporation to change our name from GreatBio Technologies, Inc. to Biophan
Technologies, Inc.
On December 1, 2000, we acquired LTR Antisense Technology, Inc., a New
York corporation, from Biomed Solutions, LLC (formerly Biophan, LLC), a New
York limited liability company, in a share for share exchange. As a result of
the exchange, LTR became a wholly owned subsidiary. 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 our company,
LTR and Biomed. LTR owns several patents for proprietary HIV antisense gene
therapy technology.
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Just prior to the acquisition of LTR Antisense, our Board of Directors
consisted of Geoff Williams (President), David A. Miller (Vice
President/Secretary/Treasurer), Dale F. Miller and Ed Cowle. There were
4,047,330 shares of stock outstanding including shares owned by the following
control persons. Geoff Williams owned 351,000 shares (8.7%), David A. Miller
owned 90,500 shares (2.2%), Dale F. Miller owned 91,500 shares (2.2%), Ed
Cowle owned 851,000 shares (21%), H. Deworth Williams owned 1,398,200 shares
34.5%) and Biomed owned 718,000 shares (17.7%). There were no other control
persons prior to the acquisition. The terms of the transaction were
established by arms-length negotiation between Messrs. Cowle and Miller and
H. Deworth Williams on behalf of our company, and Michael Weiner on behalf of
Biomed, and approved by our Board of Directors and the Board of Members of
Biomed. In connection with the transaction, 250,000 shares were issued to
Walter Keay, an individual who acted as a finder for us in connection with the
transaction.
Immediately following the acquisition, the same control persons owned
collectively 97.9% of Biophan.
In connection with the exchange, we:
* issued 10,759,101 shares of common stock to Biomed in exchange for all
the issued shares of LTR and
* issued an additional 10,759,101 shares of common stock to a group of
investors, consisting of Ed Cowle, H. Deworth Williams and Geoff
Williams, for cash of $175,000 in order to provide initial working
capital.
Also on December 1, 2000, we acquired intellectual property rights,
including a pending patent to the MRI-compatible pacemaker technology from
Biomed, for future consideration of $500,000. The assignment was consummated
pursuant to, and in accordance with, the Transfer Agreement, and the related
Assignment and Security Agreement, dated December 1, 2000 and subsequently
amended by and between us and Biomed. The due date of this payment has been
extended to be payable in twelve equal monthly installments commencing on
June 1, 2004. The obligation bears interest at 8% per annum from February 28,
2002.
The Assignment and Security Agreement (i) assigns the rights to the
transferred MRI patents and subsequent improvements, and (ii) provides the
same as collateral for the payment of the $500,000 liability under the
Transfer Agreement. Both the Exchange Agreement and the Assignment and
Security Agreement contain provisions for the reversion of the technology to
Biomed if
* we become bankrupt or otherwise seek protection from creditors; or
* in the case of the MRI-compatible technology, we fail to pay the
consideration therefor when due.
During 2001, we entered into a Commercial Research and Development
Agreement (CRADA) with the National Institutes of Health and the University of
Rochester Cancer Center, wherein these organizations conduct research and
development associated with the antisense technology. This allowed us to put
our full resources into the development of the MRI safety improvements to
biomedical products. In 2002, we decided to discontinue research and
development of the HIV antisense technology and the CRADA was terminated.
While the technology holds promise and has issued patents, we feel our most
promising opportunity is in the MRI safe solutions we have developed and we
intend to focus our research and development activities on that technology.
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We may sell the HIV antisense patents if an appropriate buyer can be identified.
Equity Line of Credit
Effective November 22, 2002, we entered into a restated common stock purchase
agreement with Spectrum Advisors, Ltd. for the potential future issuance and
sale of up to $3,000,000 of our common stock. This agreement restated and
superseded a common stock purchase agreement entered into with Bonanza Capital
Masterfund, Ltd. as of June 6, 2002, on essentially the same terms and
conditions. Pursuant to the common stock purchase agreement we, at our sole
discretion and from time to time over a period of 24 months, may draw down on
this facility, sometimes termed an equity line, and Spectrum is obligated to
purchase shares of our common stock. The purchase price of the common stock
purchased as to any draw down will be equal to 80% of the average daily volume
weighted average price of our common stock for the five trading days preceding
the applicable date. The minimum draw down which Spectrum is obligated to
honor for any trading day is $12,500. Under certain circumstances, we may
increase Spectrum's obligation under the equity line to $10,000,000. As a
condition of the agreement, we have filed with the SEC a registration
statement for 8,960,000 shares for sale under the equity line. Based on the
closing price of $.38 of our common stock on June 11, 2003, we would only be
able to draw down approximately $2,688,000 on the equity line of credit.
The common stock purchase agreement provides that we may not sell shares of
our common stock pursuant to our draw down right under such agreement if sale
would cause Spectrum to beneficially own more than 9.9% of our issued and
outstanding common stock at any one time. Currently, 9.9% of our outstanding
common stock would be 4,135,221 shares. At a price of $.38 per share, for
example, we would only be able to draw down approximately $1,241,000 under the
equity line. Of course, any resale of our common stock by Spectrum would
reduce their beneficial ownership, reducing the effect of the 9.9% provision
on our ability to exercise draw downs.
Also, under the Spectrum equity line of credit, we are permitted to draw up to
$3,000,000 and, under certain circumstances, to increase this commitment up to
$10,000,000. To draw down $3,000,000 at a market price of $.38 per share, for
example, would require us to issue approximately 10,000,0000 shares to
Spectrum. We currently have available for issuance only 9,628,365 common
shares, so we are registering 8,960,000 shares for issuance to Spectrum.
Company Business
Our core business is providing technology that will enable both
implantable medical devices such as pacemakers, and interventional devices
such as tools used inside the body during surgery, to be used safely and
effectively in conjunction with MRI diagnosis, and will enable surgical
procedures to be performed under real-time MRI guidance.
Background Terms, Facts, and Assumptions:
* MRI is widely considered to be the premiere non-invasive imaging
method due to the following capabilities:
* Superb soft tissue contrast
* No ionizing (x-ray) radiation that can cause cancer.
* No toxic contrast agents such as those used in some x-ray procedures to
highlight specific tissues, that can cause allergic or other reactions.
* Images are not obstructed by bone
* Multi-plane images can be obtained without repositioning the patient
* The ability to use MRI to guide surgical procedures.
Due to these advantages, we believe the use of MRI will continue to
increase. As the technology continues to evolve, MRI systems using higher
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power levels will provide better image quality. However, these advances may
create greater risks to more patients and institutions that use MRI, exposing
pacemaker patients to MRI creates risks and liabilities that are likely to
endure for some time. We believe that a solution that can be shown to
substantially reduce these risks would be readily accepted by the market.
Such a solution may provide prospective licensees with the opportunity to
increase their market share by offering safer devices, as well as reduce
potential liabilities. Biophan's MRI-safe technology platforms could make
this possible in a way that requires no changes to existing product designs,
and requires very minor modifications to existing product manufacturing
processes. Due to these advantages, we believe that the technologies will be
attractive to commercial partners.
FDA regulations and manufacturer labeling for pacemaker devices include
strict contraindications against use in an MRI environment(See Achenbach S, et
al Am Heart J 1997;134:467-473; ECRI, Health Devices Alert, May 27,1988, pp.1;
Shellock FG, Reference Manual for Magnetic Resonance Safety: 2002 edition,
Amirsys, Inc., Salt Lake City, 2001; Zaremba L. FDA guidance for MR system
safety and patient exposures: current status and future considerations /
Magnetic resonance procedures: health effects and safety. CRC Press, Boca
Raton Fl, pp.183-196, 2001). Contraindication means that a particular action
or procedure, in this case, use in an MRI environment, is inadvisable. This
pacemaker contraindication is based on evidence that induced electrical
currents in the pacemaker lead can falsely pace the heart rapidly, can damage
the device itself, and can create localized heating that causes tissue damage
that may degrade the effectiveness of the pacing system. Independent
description of these problems can be found in the following references:
1. Experimental studies showing that pacemaker electrodes could heat up
to 100 C (increase of 63.1 C) within 90 seconds of MRI scanning.
S. Achenbach, et.al. "Effects of MRI on Cardiac Pacemakers and Electrodes,
American Heart Journal, 1997, 134, 467-473.
2. Professional opinion that "In practice, it is not possible to design a
device for use in an MR environment, incorporating long metallic parts such as
guide wires, mechanical cables, or electrical leads, and be completely sure of
safety." Conclusions from experimental studies showing 74 C (and higher)
temperature increases in guide wires after 30 seconds of MR scanning
M. Konings, et.al. MEDICA MUNDI, 45/1, March 2001, page 35
3. Experimental data indicating a maximum temperature of almost 90 C and
myocardial necrosis (that) could be demonstrated in histological studies.
F. Duru, et.al. Pacing in MRI environment: Clinical and technical
considerations on compatibility. Eur Heart J, 2001, 22: 113-124.
Various references lead to an estimate of current pacemaker population
worldwide at 3.0 million (See Barbaro, V.; Bartolini, P., and Bernarducci, R.
Biomedical Engineering Laboratory, Istituto Superiore di Sanita, Rome, Italy.
ingbio:net.iss.it {2.5 million in 1997 and growing annually; see also
http://biomed.brown.edu/Courses/BI108/BI108_1999_Groups/Cardiapacing_Team/
economics.html{3.0 million in 1999}). Another reference ("Interference in
Implanted Cardiac Devices, Part II" by Sergio L. Pinski and Richard G.
Trohman, October 2002, PACE, Vol. 25, No. 10.) cites a Japanese survey in
which "17% of Japanese pacemaker patients stated that they presented
conditions for which MRI would have been recommended if the device (pacemaker)
had not been present". Since the practice of medicine in Japan reflects
standards of care in the US and other countries where the use of pacemakers is
widespread, it is reasonable to use the 17% figure across the worldwide
population of pacemaker patients (3,000,000) to reach a number of 510,000
people who have at some time in the past been denied access to MRI diagnosis
as a result of their pacemaker implant. Biophan has taken a conservative
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approach to these numbers and estimated at least 300,000 pacemaker patients
have been denied an MRI. However, currently no pacemaker patient can safely
undergo an MRI and FDA regulations and manufacturer labeling for pacemaker
devices include strict contraindication against use in an MRI environment.
Our shielding technology is intended for use on the lead that connects the
implanted pulse generator to the electrodes that are placed in the internal
heart wall. In order to eliminate risk associated with MRI for current
pacemaker patients, the existing lead would need to be removed. This removal
procedure is typically not done due to associated risks to the patient. As a
result of this our shielding technology is intended only for future products,
not previously implanted pacemakers. 600,000 people receive a pacemaker
implant annually, and our technology could potentially be applied to all of
these devices if it were adopted by all pacemaker and lead manufacturers
worldwide. See http://biomed.brown.edu/Courses/BI108/BI108_1999_Groups/
Cardiapacing_Team/economics.html. In addition, the shielding technology, if
successfully developed, could be used as an alternative to our photonic
technology for use in temporary pacing for patients with existing implanted
pacemakers who need an MRI procedure.
Other medical devices also contraindicated for use with MRI could be made
safe with Biophan's technologies. (See "The Reference Manual for Magnetic
Resonance Safety, by Dr. Frank G. Shellock, 2002 edition, Amirsys Inc., ISBN
1-931-884-00-5.). Technologies currently under development by us for MRI
safety and compatibility, provide the following advantages to devices that use
them:
* Reduction of heating to long metallic components resulting from radio
frequency energy and pulsed magnetic fields used in MRI;
* Reduction of electrical currents induced in metallic components
resulting from radio frequency energy used in MRI; and
* Reduction of MR image distortion resulting from metallic or other
conductive components in or near the body area being imaged.
Pacemakers are one example of implanted devices used to control organ
function. Other cardiac-related devices, such as implantable cardioverter
defibrillators, are used to not only pace, but to help the heart recover from
episodes of dangerously high pulse rate (cardioversion) and from random
chaotic behavior (defibrillation). Other stimulation devices are used to help
organize the contraction of the four heart chambers to reverse the effects of
congestive heart failure (CHF). Neurostimulators are being used to stimulate
brain tissue and eliminate symptoms of Parkinson's disease. Electrical
stimulators are also being used for bladder dysfunction. All of these devices
use electrical leads similar to those in pacemakers. These devices are
subject to the same heating and electrical currents and can benefit from the
technologies being developed by Biophan.
Surgical placement of leads used with pacemakers and other implantable
devices, placement of catheters for short-term use, and placement of more
permanent devices such as stents within the circulatory system, is done by use
of guidewires. These guidewires typically use long metal wires for reasons
of strength, flexibility, and reliability. The use of guidewires benefits
from direct, real-time visualization. MRI is preferred in many cases due in
part to the fact that x-ray imaging exposes patients and physicians to
radiation, and due to the improved soft-tissue imaging available with MRI.
However, guidewires and long wire components in catheters are subject to the
same problems associated with pacemaker leads when used in MRI. Thus, our
technologies being developed can also provide benefits to these devices.
We are presently in the process of establishing one or more partnerships
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to complete the development process for our technologies. These partnerships
may be with one or more companies involved in the manufacture and sale of:
* components such as pacemaker leads,
* active devices such as pacemakers that make active use of wires to
conduct data and stimulating pulses,
* passive devices such as guidewires that only make use of the physical
properties of the wire elements in them, and
* MRI diagnostics systems.
All of these potential business relationships are being pursued with the
interest of funding the remaining development work, supporting necessary
clinical trials and approvals, and ultimately resulting in a license for
manufactured products with royalties coming to Biophan. We have received
several term sheets from interested biomedical device manufacturers, but we
have not accepted any of the offers at this time. However, our negotiations
with these entities and our evaluation of their proposals is continuing. If we
do not enter into a development or licensing arrangement with any third party
then we will need to obtain additional financing to continue our development
efforts. In this situation, if we are unable to obtain additional financing or
sell or license our technology we would have to discontinue our development
efforts which may force a dissolution of the business. We do not have plans
to create separate business units to pursue these opportunities.
An MRI procedure may be crucial to diagnosing colon cancer, a brain tumor,
or a host of other serious, life threatening problems. The existence of a
medical device that is not MRI safe and compatible requires physicians and
patients to make a very difficult decision to either forego the MRI, or risk
serious injury and potential death from undergoing MRI with a pacemaker,
neurostimulator, or other implantable device installed. See the following
references for information relating to patient deaths:
1. FDA Medical Device Report (MDR) records of pacemaker patient deaths
during or shortly after an MR exam. FDA Medical Device Records (MDRs)
# 351516, 748838, 175218, and 1259381:
2. Pacemaker patient who died 15 minutes after MRI scan of the brain.
"Fiber Optics "Fiber Optics May Allow Pacemaker Users To Undergo MRIs Without
Health Threat." The Wall Street Journal, Feb 22, 2002. D. Pennell, M.D.
Imperial College, London.
3. Pacemaker patient who suffered severe brain damage and death following
an MRI exam. Loss prevention case of the month. "Not my responsibility!"
Journal of the Tennessee Medical Association. 1988;81(8): 523, J. K. Avery,
M.D. St. Thomas Hospital, Nashville, TN.
Technology
A brief description of the terms used to describe our technologies may be
helpful and is presented below.
* The term 'MRI safe' refers to a situation in which MRI testing will
cause no harm to the patient or to any implantable or interventional
device within them.
* The term 'MRI compatible' refers to a situation in which image
interference is minor, and the resulting MRI image is useful in
diagnosing the patient's state of health.
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* The term 'active' refers to an implantable device or surgical
implement that uses optical, electrical, and/or other energy to sense
or transmit information, and/or modify or treat diseased tissue.
Examples include pacemakers and related devices, catheter imaging
devices, and drug pumps, all of which may be affected during MRI.
* The term 'passive' refers to an implantable device or surgical
implement that does not transmit information but serves to move,
secure or modify tissue or another device, and does so via its
mechanical action or presence only.
* Carbon Composite materials consist of ultra-fine whiskers of carbon
dispersed in a plastic material. The resulting material has the
ability to absorb and/or reflect electromagnetic energy at frequencies
that relate to the size of the whiskers. This material can be extruded
and molded to make components.
* Nanomagnetic materials consist of ultra-fine particles of magnetic
material (such as iron) embedded in a ceramic material. These
particles are so small that they behave differently than they would in
a continuous layer or solid. The choice of magnetic and ceramic
materials, particle sizes, and layer thickness permit 'tuning' the
nanomagnetic layer to reflect and/or absorb specific frequencies of
energy. They are also so thin that they can flex without breaking and
are extremely tough.
* Filtering technology that essentially blocks unwanted induced currents
at both ends of a catheter or other device.
* Photonic technology that uses miniature diode lasers and photocells at
each end of a catheter or pacemaker lead or surgical device to
transmit energy and information without any electrical conductors.
Diode lasers are semiconductor devices that can be as small as the size
of a grain of salt that convert an electrical pulse to light at a
single frequency or color. Photocells reverse this process and can
also be very small. By integrating these elements carefully at each
end of an optical fiber, we can send power and information without the
use of wires. This technology has been made very reliable and cost
effective by development in support of the telecommunications industry.
* A further application of photonics is in intraluminal imaging. This is
an extension of MRI imaging where the MRI receiver coil that is
traditionally outside the body, is reduced to a very small size
(microcoil) so that it can be placed inside (intra) a body cavity or
blood vessel (lumen). This can provide significant improvements in
resolution. We believe the performance and safety of these microcoils
can be greatly improved by using our photonic technology to replace the
wires currently being used by researchers to connect them to the
external MRI system.
Research and Product Development Activities
We are developing technology that will enable patients with implanted
biomedical devices to safely undergo MRI. We remain committed to the
development of MRI-safe solutions for pacemakers and other biomedical devices.
Specifically, we have been developing an MRI safe temporary pacemaker and
recently conducted animal tests demonstrating this temporary pacemaker can
safely pace an animal's heart. The details of this testing are discussed
below. The current design of the temporary pacemaker utilizes a photonic, or
fiber-optic based catheter which could be inserted into a patient prior to an
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MRI procedure to ensure that if their implanted device fails or malfunctions,
the temporary device will keep their heart safely paced. Based on our testing
and research we believe the technical and clinical feasibility of a photonic
approach has already been demonstrated.
Initially we planned to develop the photonic temporary pacemaker
ourselves through clinical trials, FDA approval and into commercial use.
However, we do not intend to take the device through FDA approval on our own.
Instead we are offering the temporary pacemaker, along with our other MRI safe
solutions, to prospective licensees for licensing and further development. To
date we have received licensing interest for the pacing solution, and for
utilization in developing a fiber-optic catheter for an imaging application
using MRI scans, called "intraluminal imaging" however, we have not yet
entered any licensing or development contracts for the technology.
Our current research efforts are focused on demonstrating the feasibility
of our coating and filtering solutions that we intend to license to medical
device manufacturers. Initial tests of these solutions have been promising
enabling us to have preliminary discussions with several companies regarding
potential development arrangements. We have entered into mutual
confidentiality agreements with these prospective partners although, to date,
we have not executed any final agreements. Management continues to negotiate
with these companies and strives to agree to definitive terms in the near
future.
The results of these tests are discussed below. Until these tests were
recently completed it was not clear if these solutions could solve the MRI
safety issues of pacemakers and other devices. With the initial results we
have achieved, it appears that these solutions can significantly reduce the
heating and other problems that have caused the MRI contraindications. Our
discussions with major manufacturers of pacemakers and other devices has
indicated a strong preference for coating/filtering solutions versus photonic
solutions for several reasons including battery life and ease of engineering
redesign. To date we have received licensing interest in our technology from
pacemaker, guide wire and neurological device companies but we have not yet
entered into any licenses for the technology.
Our original focus was solely on pacing technology. However, following
the testing of our coating and filtering technologies and the corresponding
positive feedback from medical device manufactures, both inside and outside
the pacing industry, we believe our potential market has been significantly
increased. This increase is a result of developing technology that could be
utilized by medical devices, including guide wire and neurological devices in
addition to the pacemakers. As the coating/filtering technology does not
require a complete product redesign and manufacturers have indicated a
preference for this technology, we believe the time to commercialize our
technology has been reduced. Further, we anticipate that one or more
manufacturers will partner with us in developing the technology, thereby
reducing our capital requirements. If we do not enter into a development or
licensing arrangement with a third party for our coating/filtering
technologies then we will have to obtain additional third party financing to
fund these development efforts or discontinue further development of our
coating/filtering technologies.
We have completed two evaluations of the fiber-optic based temporary
pacemaker. Tests conducted in an active MRI environment conducted in a
'phantom' (a plastic box with gel material that mimics the body) proved
operability of the device and lack of heating. An animal study demonstrated
that the device can effectively pace the heart. No clinical tests on humans
have been conducted and there are currently no plans to do so unless a
development partner is identified and unless they assume responsibility for
conducting these tests. However, animal studies such as those conducted
have a good correlation to human clinical trials, since the cardiac pacing
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mechanisms and their similarities across species are well understood.
We believe that the combination of these tests demonstrates that a photonic
pacemaker can effectively pace a heart, while eliminating the serious problems
related to induced electrical currents and heating of the lead/tissue
interface. In the test, the photonic catheter and pacemaker provided cardiac
stimulation equivalent to that of a traditional electronic pacemaker. The
in vitro test demonstrated that this stimulation is safely provided in the
presence of electromagnetic fields associated with MRI. Additionally, the
photonic catheter was found to have handling characteristics similar to
traditional catheters.
The fiber-optic lead has been tested in an MRI machine and does not heat
up as do existing catheters that contain metal wires. We are exploring the
use of this technology with third parties, under license, for use in deep
brain stimulation applications, such as treating movement related disorders
like Parkinson's disease and epilepsy. We have also received OEM licensing
interest from several companies wishing to use the fiber-optic lead to power
intraluminal coils. We are anticipating one or more R&D contracts to help
finance the development of this product that is based upon Biophan's photonic
technology platform.
We have licensed, on an exclusive basis, issued patents for shielding and
electromagnetic interference (EMI) filtering technologies that include the use
of carbon composite and nanomagnetic particle technologies.
We have obtained a license from Johns Hopkins University for an issued
patent for an MRI-safe electrocardiogram and pacemaker lead. The license is
exclusive to us for implantable devices and also covers other market segments.
This technology provides a low-pass radio frequency ("RF") filter at the
electrode tip in the heart that permits conduction of pacemaker signals but
blocks high-frequency MRI electromagnetic signals that cause problems in
implanted devices.
Two tests of our technologies were recently conducted in active MRI
imaging systems at imaging centers located in Western New York. The first
test, showed a reduction of thermal heating caused by an MRI machine on a
metal wire similar to a pacing lead that is protected by one of our MRI
technologies. The control sample heated over 22 degrees Centigrade in less
than one minute. With the Biophan technology added, the heating was reduced
to about 1 degree Centigrade, below the level that can cause tissue damage
and well within FDA safety guidelines. The second test showed a reduction of
89% in the electrical energy induced in a metal object by the MRI radio
frequency field after our MRI safety technology is added to the sample.
The two tests of Biophan's coating and filtering technology were conducted
on November 11, 2003 and February 13, 2003. These tests were performed in an
actual magnetic resonance imaging chamber at the University Medical Imaging
Center ("UMI"), located at 4901 Lac de Ville Boulevard, Rochester, New York.
Both tests were run by Biophan and UMI personnel.
We have also filed patents for reducing the energy output of an MRI
machine in order to minimize the energy that causes lead heating. The
combination of shielding, filtering, and MRI output reduction could possibly
result in solving the MRI heating problem in both active medical devices (e.g.
pacemakers, defibrillators), and passive medical devices (e.g. catheters,
guide wires).
We conduct our R&D and prototype development through sub-contract
arrangements with third parties. Greatbatch Enterprises Corporation, a company
in Clarence, New York founded and managed by Wilson Greatbatch, has developed
13
the fiber-optic prototype temporary pacemaker for us under contract, and has
assigned the related patent applications to Biophan. Any future prototype
work on the photonic catheter will be conducted with FDA approved
manufacturers. Biophan has entered into R&D agreements with Alfred University
to develop nanomagnetic shield technology, and with the University of Buffalo
for carbon composite polymers (extremely fine carbon fibers in a polymer, or
plastic base material). These arrangements are discussed in more detail
below.
Biophan has entered into a development agreement with the UB Business
Alliance (at University of Buffalo). The objective of the first phase of this
collaboration focused on developing the means to shield implanted medical
devices, such as a catheter, from the harmful effects of magnetic resonance
imaging. The second phase of this collaboration is focusing on improving the
shielding technology developed in phase one by optimizing the formulation
through the use of a magnetic additive. The technology being developed by
this collaboration consists of small carbon materials manufactured in a
flexible polymer support. Major activities include development of optimally
performing mixtures of carbon and polymer materials, the application of these
optimal formulations to medical devices, and the testing of these devices in a
magnetic resonance imaging system. Under the terms of the agreement< for phase
one of the collaboration, we paid $23,375 toward the total project cost of
$42,994. All aspects and obligations of phase one have been completed and
satisfied. Biophan will pay $31,922 toward the total phase two project cost
of $50,539 in four equal installments of $7,980.50. The installments are due
and payable as follows: (1) upon receipt of the invoice from the UB Business
Alliance (expected within the next 30 days) (2) August 29, 2003 (3) November
28, 2003 (4) within 30 days of the receipt of the final project report. Phase
two of this collaboration is expected to be completed in August of 2004.
Biophan has also entered into agreements with Alfred University. The
objective of this collaboration is to develop the means to shield implanted
medical devices, such as pacemaker leads, from the harmful effects of magnetic
resonance imaging (MRI). The technology being developed by this collaboration
consists of nano-magnetic materials and the processes used to apply these
materials as uniform, thin-film coatings. Major activities include the
development of optimal nano-magnetic coating formulations, delivery of three
coated pacemaker leads, the delivery of three coated guidewires suitable for
testing, processes for applying these formulations to medical devices,
and the testing of these devices in a magnetic resonance imaging system.
This collaboration also provides Biophan with access to expensive, thin-film
coating equipment considered essential to the development of effective nano-
magnetic MRI shielding materials. Biophan has paid Alfred University $118,000
for these services. The research and development efforts under our agreements
with Alfred University will be completed as soon as the data is compiled and a
final project report issued. This is expected to occur on or before July 1,
2003. In addition, the parties are discussing entering into another research
and development agreement to evaluate the feasibility of applying our
technology to other product applications. However, at this time no definitive
agreement has been reached on collaborating on additional research projects.
While the objectives of the two collaborations are similar (i.e. the
development and evaluation of MRI shielding materials), it should be
understood that each collaboration is developing a different technology.
The success of these collaborations would provide Biophan with multiple
solutions to the MRI safety problem. Biophan considers this to be very
important, since the MRI shielding requirements differ by product type, and
having multiple solutions would enable us to apply our technologies to a
broader range of products. Specific product technology development activities
along with timelines and estimated costs, can be found in the section
"Products and Markets" below in this document.
Patents and Intellectual Property
We have been aggressive in filing patent applications on these
technologies. Due to the importance of our patent portfolio it may be
helpful to provide more detail regarding the patent process:
* Once a patent is filed, the United States Patent & Trademark Office
(USPTO) examines it over a period that may range from a year to two or
more. USPTO action is a challenge to the content or scope of the
patent, and may require one or more iterative responses to the
Examiner's questions or challenges. During this process, typically
after eighteen months from filing, the USPTO will publish the
application, making it available on the USPTO database so that it is
publicly available. Once negotiation over the office action is
complete the Patent office may allow the patent, essentially informing
the inventor(s) that they may pay fees and the patent will then issue,
14
or become a formal patent.
* As previously discussed, we have exclusive licenses, in medical device
applications, to three issued patents; one each in the areas of carbon
composite shielding, nanomagnetic shielding, and RF (radio frequency)
filtering. RF filters are commonly used in communications equipment to
block unwanted signals.
* We have filed (42) US patent applications covering various aspects of
photonic and other technologies providing improvements in MRI safety
and compatibility, as well as other aspects of implantable device
performance. None of these applications have yet been allowed,
approximately 60% of these have been published by the USPTO, and we
anticipate initial Office Actions in the near future.
* The inventor of the nanomagnetic shield technology, Dr. Xingwu Wang, at
Alfred University, New York, has applied for an additional (9) US
patent applications covering further improvements extensions to that
technology; these will also be licensed exclusively to Biophan for
medical markets.
* Additional patent filings in nanomagnetic materials, and in MRI
microcoil designs, are in process or contemplated.
The issued patents have remaining lifetimes, as follows:
* U.S. 6,506,972; Magnetically Shielded Conductor; 19 years
* U.S. 5.827,997; Metal Filaments for Electromagnetic Interference
Shielding; 12 years
* U.S. 5,217,010; ECG Amplifier and Cardiac Pacemaker for Use During
Magnetic Resonance Imaging; 7 years
Lifetimes for any additional patent applications that are granted as
patents by the USPTO will be the greater of:
* 17 years from the date of issue, or
* 20 years from the date of filing
* The patent strategy being pursued by us is based on both broad
coverage at the system level and focused coverage at the component
level.
* This strategy is being applied to active medical devices such as cardiac
assist devices (pacemakers and defibrillators), intraluminal imaging
coils, patient monitoring instrumentation, neurostimulators, drug pumps,
endoscopes; and to passive medical devices such as biopsy needles,
guidewires, and to other medical devices that need to be made safe and
effective in an MRI environment.
Michael L. Weiner, our President and CEO, has participated as inventor or
co-inventor in a number of the patent applications currently being pursued by
Biophan, each of which has been assigned to us. Throughout his employment, Mr.
Weiner has, and will continue to, assign to us rights to patents that deal
with MRI safety, image compatibility and HIV antisense. Biophan does not have
proprietary rights in six unrelated patents in areas of technology outside of
Biophan's business interests, of which Mr. Weiner is the inventor or co-
inventor. One of the six patents is currently the basis for an infringement
suit against LeapFrog Enterprises. This infringement suit is unrelated to
the business of Biophan as is the patent upon which it is based. Of the
patents assigned to entities other than Biophan for which Mr. Weiner is an
inventor of co-inventor, none will be directly or indirectly competitive with
Biophan. All material assignment of patent applications from Mr. Weiner to
15
Biophan have been filed as exhibits to our registration statement.
Products and Markets
We are addressing three basic areas of technology and product
development that apply across several market segments:
* MRI shielding for active medical devices.
* MRI shielding for passive medical devices, such as guidewires and
biopsy needles, enabling surgery be done under MRI guidance.
* Photonic and shielding solutions for MRI imaging
We do not intend to produce by ourselves a product for sale, but rather
to make our technologies available to other companies or partners that would
like to include in their own product portfolio a new product(s) containing a
our technology. We anticipate that any such product would be developed
through collaboration with external companies or partners. Most likely, we
would enter into licensing and R&D agreements with these partners, which
ultimately could be potential sources of funding. Although we would consider
lump-sum license payments, if offered, we anticipate licensing income in
advance of product sales to tie up rights for each market segment, and then
ongoing royalties once these products are in the market. Potential revenue
streams above any negotiated minimum license payments would likely commence
six to nine months following approval by the FDA for product shipments.
Following are brief descriptions of the planned development activities,
each with a set of milestones with timeline and estimated Biophan cost net
of any revenues. In each case, we are assuming that a commercialization
partner will be identified and provide revenues, in the form of development
payments, to assist us in the further development of the particular
technology. The milestone projections comprehend receiving such development
revenues, in each case, at the milestone/activity stage denoted as "3.
Complete a Detailed Product Design", generally, during the fourth calendar
quarter of 2003.
MRI shielding for active medical devices
We have licensed, developed, and patented technology in both carbon
composite shielding and nanomagnetic shielding. For certain devices, this
approach has the potential to provide a more cost-effective path to MRI safety
and compatibility than the photonic approach. Results of direct testing in an
MRI device to date have been quite promising, and further work is under way
to refine the designs of materials and coating methods. This MRI shielding
technology may be applied to active medical devices such as pacemakers and
related devices, drug pumps, and the like. We are currently having
discussions, under confidentiality agreements, with manufacturers of primary
device components such as pacemaker leads, as well as manufacturers of
complete systems, concerning their use of this technology. On-going research,
test, and evaluation activities in nanomagnetic shielding are being done
internally, and in conjunction with Dr. Wang (the inventor of the technology)
at Alfred University, and Dr. Chung at the University of Buffalo. The
material terms of these contracts are discussed under the heading "Research
and Product Development Activities."
16
Milestones / Activities - MRI Shielding for Active Devices:
MILESTONE/ACTIVITY TIME PERIOD REQUIRED
FUNDING
(000s)
-------------------------------------------------------------------------------
1. Demonstrate Technical Feasibility March to June 2003 $147
a. Demonstrate the ability to minimize or
eliminate device heating and electrical
problems caused by MRI
b. Demonstrate the ability to meet
secondary product performance
requirements (e.g. biocompatibility,
flexibility, etc)
c. Demonstrate that the technology can be
manufactured at acceptable costs and
quality
d. Continue to file related patent
applications
2. Identify a commercialization March to June 2003 $ 33
partner(s)
3. Complete a Detailed Product Design July to December $130
2003
a. Further optimize the technology's
performance and manufacturability
b. Develop detailed Product Design and
Manufacturing Process Specifications
4. Complete Design Verification October 2003 to $170
March 2004
a. Demonstrate that a product
manufactured to the Product Design
Specifications will satisfy the
Product Performance Requirements
b. Develop documentation required to
initiate clinical testing
5. Complete Design Validation April 2004 to $150
December 2004
a. Demonstrate that a product
manufactured to the Product Design
Specifications is clinically effective
and safe when used as intended
b. Develop documentation required for
regulatory body approval to distribute
and sell the product
-------------------------
TOTAL $630
=========================
17
Biophan intends to identify a
commercialization partner(s) to help
prioritize and financially support
activities (3), (4), and (5).
MRI shielding for passive medical devices
The same MRI shielding technology may be applied to a wide variety of
passive devices that are used in implantable medical devices and in surgery,
such as biopsy needles, guidewires, endoscopes, etc. We believe that our MRI
shielding will eliminate the problems of patient risks and image degradation
for passive devices and surgical implements which incorporate the technology.
We are currently having discussions with a variety of manufacturers of passive
devices, and involving them in test procedures we are conducting. On-going
research, testing, and evaluation of this technology is also being done with
Dr. Wang (the inventor of the technology) at Alfred University, and Dr. Chung
at the University of Buffalo.
Milestones / Activities - MRI Shielding for Passive Devices
MILESTONE/ACTIVITY TIME PERIOD REQUIRED
FUNDING
(000s)
-------------------------------------------------------------------------------
1. Demonstrate Technical Feasibility March to June 2003 $ 90
a. Demonstrate the ability to minimize or
eliminate device heating and electrical
problems caused by MRI
b. Demonstrate the ability to meet
secondary product performance
requirements (e.g. biocompatibility,
flexibility, etc)
c. Demonstrate that the technology can be
manufactured at acceptable costs and
quality
d. Continue to file related patent
applications
2. Identify a commercialization March to June 2003 $ 33
partner(s)
3. Complete a Detailed Product Design July to December $ 95
2003
a. Further optimize the technology's
performance and manufacturability
b. Develop detailed Product Design and
Manufacturing Process Specifications
18
4. Complete Design Verification October 2003 to $170
March 2004
a. Demonstrate that a product
manufactured to the Product Design
Specifications will satisfy the
Product Performance Requirements
b. Develop documentation required to
initiate clinical testing
5. Complete Design Validation April 2004 to $150
December 2004
a. Demonstrate that a product
manufactured to the Product Design
Specifications is clinically effective
and safe when used as intended
b. Develop documentation required for
regulatory body approval to distribute
and sell the product
-------------------------
TOTAL $538
=========================
Once again, Biophan intends to
identify a commercialization
partner(s) to help prioritize and
financially support activities (3),
(4), and (5).
Photonic technology applied to a temporary pacemaker
We subcontracted the development and testing of a photonic temporary
pacemaker device to Greatbatch Enterprises. This phase of the development
work has been completed. The photonic temporary pacemaker is intended as a
backup for patients who need MRI diagnosis but who already have an implanted
pacemaker or implantable cardioverter defibrillator (ICD). This device
consists of:
* An external handheld controller that is MRI safe.
* A fiber optic lead that is biocompatible and physically similar to
typical electrical pacemaker leads. This lead is temporarily inserted
through a puncture and run through blood vessels to the heart.
* The photonic electrodes at the end of the lead reconvert light to
electrical signals that pace the heart in the same manner as
traditional pacemakers.
* The controller is designed to be reusable, and the lead/electrode are
single use. The temporary pacemaker is available if the implanted
device encounters any type of malfunction during or after the MRI
procedure.
As previously noted, while the technical and clinical feasibility of a
19
photonic approach to cardiac pacing has already been demonstrated, the
results of recent Biophan R&D activities in shielding and filtering
technologies has enabled a change in direction of product development. A
coated temporary pacing lead is anticipated to be considerably less expensive
than a photonically powered temporary pacing device. Now that we have
demonstrated the feasibility of shielding and filtering of metal wire leads,
the photonically based temporary pacing program has been put on hold pending
interest from a corporate partner. It should, however, be noted that
additional attributes of photonic technology relating to information bandwidth
are applicable to the emerging market of internally-placed micro-sized MRI
receiver coils (intraluminal MRI microcoils). The project is described in the
next section of this document.
The initial prototype of an externally powered photonic pacemaker being
developed by us was recently tested in an MRI system. The test used a
"phantom" or plastic and liquid model of a human torso to permit tests for
displacement due to the magnetic field, and for heating due to the RF energy.
The results of this test, conducted by Dr. Frank Shellock, concluded that "the
lead of the Photonic Temporary Pacemaker will not present an additional hazard
or risk to a patient undergoing an MRI procedure using an MR system operating
with a static magnetic field of 1.5 Tesla or less (The term static magnetic
field refers to a field similar to one from a permanent magnet or the Earth's
natural field. A 1.5 Tesla field is approximately 30,000 times as powerful
as the Earth's field.) As such the lead of the Photonic Temporary Pacemaker
that underwent evaluation should be considered "MR safe" according to the
specific conditions used for testing." Shellock, F. G. "Magnetic Resonance
Safety Testing of a Fiber-Optic Lead Used for the Photonic Temporary
Pacemaker."
Photonic technology for intraluminal MR imaging
Our patent coverage includes the use of photonics in medical devices
unrelated to implants or to cardiac pacing. One example is in a relatively
new branch of MRI referred to as intraluminal MRI. Image quality and
resolution are directly related to proximity of the MRI receiver coil to
tissue being diagnosed. Traditional full-body receiver coils are large enough
for the patient and support device to pass through. Smaller coils placed on
the patient, near the area of interest, can provide improved images.
Intraluminal (within a body opening or vessel) and intraparenchymal (within
tissue e.g. brain) MRI microcoils provide performance advantages that include
improved image quality, reduced scan time, and the ability to utilize lower
strength MRI coils. However, current MRI microcoil techniques are limited by
problems similar to those that exist for pacemakers. A photonic coil interface
and use of optical fiber transmission eliminate these problems, provide for
other optical tissue measurements, and provide the ability to handle huge
amounts of data easily. One very exciting opportunity is in the area of
'vulnerable plaque'. It is believed that up to 85% of heart attacks and
strokes may be caused by rapid formation of clots at places in the artery
walls that are missed by other diagnostic methods. A feature article from
Scientific American, May 2002; vol.286; no.5 by Peter Libby, entitled
"Atherosclerosis: The New View", describes in detail the new thinking
regarding the genesis of the vast majority of heart attacks and strokes. We
are currently seeking a licensee interested in developing and marketing the
photonic MRI and microcoil markets. The following cost projections are only
to be expended in the event of a licensee willing to fund a portion of these
phases and agree to take the product to market.
We are not currently conducting, directly or indirectly, any research or
development of our photonic technology and have no plans to further such
efforts until an agreement is reached with a development partner. The
necessary future product research, testing, and evaluation of these
improvements will be done as a part of a development partnership with this
20
partner, if and when such an agreement is reached.
Milestones / Activities - Photonic Technology for Intraluminal MR Imaging
MILESTONE/ACTIVITY TIME PERIOD REQUIRED
FUNDING
(000s)
1. Demonstrate Technical Feasibility April to June 2003 $ 50
a. Demonstrate the ability to minimize or
eliminate device heating and electrical
problems caused by MRI
b. Demonstrate the ability to meet
secondary product performance
requirements (e.g. biocompatibility,
flexibility, etc)
c. Demonstrate that the technology can be
manufactured at acceptable costs and
quality
d. Continue to file related patent
applications
2. Identify a commercialization April to September $250
partner(s) 2003
3. Complete a Detailed Product Design October 2003 to $410
June 2004
a. Further optimize the technology's
performance and manufacturability
b. Develop detailed Product Design and
Manufacturing Process Specifications
4. Complete Design Verification July 2004 to $160
September 2004
a. Demonstrate that a product
manufactured to the Product Design
Specifications will satisfy the
Product Performance Requirements
b. Develop documentation required to
initiate clinical testing
5. Complete Design Validation October 2004 to $500
September 2005
a. Demonstrate that a product
manufactured to the Product Design
Specifications is clinically effective
and safe when used as intended
b. Develop documentation required for
regulatory body approval to distribute
and sell the product
21
-------------------------
TOTAL $1,370
=========================
Once again, Biophan intends to
identify a commercialization
partner(s) to help prioritize and
financially support activities (3),
(4), and (5).
The research and development expenses incurred by us were $113,144 for
the fiscal year ended February 28, 2001, $949,124 for the fiscal year ended
February 28, 2002, and $1,373,124 for the year ended February 28,2003.
Markets
The global market for medical devices that could benefit from technology
that will enable those devices to operate safely and effectively in an MRI
environment was approximately $5 billion in the year 2002 and is growing by
15% annually. (See Wedbush Morgan Securities' Equity Research Report 13 Mar.
2002 on NYSE-GB.
We anticipate that we will license our technology to one or more
development partners who would be responsible to develop commercial products,
obtain necessary approvals, manufacture, market and distribute the products.
We expect our search for development partners will be global, although our
current efforts are focused on the U.S. operations of certain multi-national
companies. However, we can not presently identify or predict the precise
target markets, distribution methods or other marketing efforts of our
potential development partners.
Competition
There are a number of major companies engaged in the development of
medical devices some of which may be investigating MRI safe options. However,
to the best of our knowledge none of these companies, nor other companies that
serve as their suppliers, have successfully developed technology enabling
implantable medical devices to be operated in the presence of MRI equipment.
We believe that in order to commercialize our technologies we will have to
enter into a development or licensing agreement with one or more of the
companies engaged in the development of medical devices. Currently, the major
providers of active medical devices contraindicated for MRI include the
following companies:
Medtronic Incorporated is a leading manufacturer of cardiac rhythm
management, cardiovascular and other medical devices. The company
has a dominant position in cardiac pacemakers, is the leading
manufacturer of implantable cardiac defibrillators, and is a major
player in most other device markets in which it competes.
Guidant Corporation is also a leading manufacturer of cardiac rhythm
management devices such as cardiac pacemakers, implantable cardiac
defibrillators, interventional cardiology devices (including coronary
stents), and other cardiac and vascular surgery devices and instruments.
St. Jude Medical, Inc. is a global developer, manufacturer, and
distributor of medical device products for cardiac rhythm management,
22
cardiology and vascular access. Other products include mechanical and
tissue heart valves and vascular closure devices.
Boston Scientific Corporation is the world's largest medical device
company dedicated to less-invasive therapies. The Company's products and
technologies are designed to improve surgical procedures and improve
patient response, and involve a range of interventional tools and
procedures.
Johnson & Johnson is the world's largest healthcare company; in addition
to OTC and home healthcare products, they provide a wide variety of
pharmaceutical, diagnostic, and surgical products.
We do not consider the above companies to be direct competitors, although
they may possibly be developing MRI safe solutions for their own product
lines. Rather they may have interest in adopting one or more of our
technologies into their products. Various first and second tier suppliers to
these companies may be directly affected by either the photonic or shielding
technologies we plan to commercialize, and since to the best of our knowledge
none of them have satisfactory solutions to MRI issues, they are potential
additional or alternative prospects for commercializing our technology.
Manufacturing and Component Strategy
We are developing technology for MRI safety which will be licensed to
leading biomedical device manufacturers. We do not plan to manufacture any
product or component on our own. We may provide critical components and
coating devices sourced from third parties and resold to our customers.
Regulatory Approval
We believe that our technology will be incorporated into various medical
devices by major manufacturers and that these manufacturers will be
responsible for obtaining FDA and other regulatory approvals required for
clinical studies and marketing of their products. The time and cost of these
activities can be substantial, especially for Class III implantable products,
and could delay the introduction to the marketplace of products utilizing our
technology.
Currently, the FDA, specifically The Center for Drug Evaluation and
Research (CDER), is responsible for the approval to market products resulting
from the technology currently being developed by Biophan. Approval to market
may take the form of a New Drug Application (NDA). An NDA is sought by a
company prior to the commencement of clinical testing in humans. Before
approving an NDA, the FDA will seek substantial documentation demonstrating
that the product candidate technology is safe and effective. Once the NDA
has been approved, clinical trials are conducted in three sequential phases
which may overlap. Phase I clinical trials are performed in healthy human
subjects to establish initial data about the safety and efficacy of the
product. In Phase II clinical trials, in addition to accumulating safety and
efficacy data, the product is evaluated in a limited number of patients with
the targeted disease condition. Phase III clinical trials typically involve
continued testing for safety and efficacy, as well as other criteria, in
expanded, large-scale, multi-center studies of patients with the targeted
disease condition.
We do not intend to produce by ourself a product for sale, rather we
intend to make our technologies available to other companies or partners that
would like to include the technology in their own product. We believe that
these companies will be willing to share a portion of the costs required to
obtain FDA approval. In certain instances, the FDA may require a partner's
participation if approval is being sought for modification of a partner's
23
existing product to include our technology, a product that uses the partner's
existing manufacturing processes, or a situation where a partner requires that
Biophan use the partner's quality system.
We believe that the time-frame for FDA approval of our photonic technology
for intra-luminal MR imaging, enabling us to make, use, and sell the product,
will depend upon the following factors:
* the FDA's classification of the photonic intra-luminal MR imaging
catheter;
* the specific ways in which a partner plans to use the product, such as
the specific parts of the body they would like to image with the
product (e.g. cardiovascular system, brain, etc.); and
* the level of urgency placed on the activities required to obtain
product regulatory approval
The FDA has already approved for sale intra-luminal imaging catheters that
utilize electrical leads to provide power to the microcoil and to carry
received signals back to the MRI system. Biophan is in discussions with one
company that has such a product, and we believe that our photonic technology
will permit improvements in performance due to its inherent immunity to
electromagnetic noise created by the MRI environment. We are under a non-
disclosure agreement with this other company and it is our expectation that if
we move forward to develop a photonic intraluminal imaging catheter, they will
be responsible for regulatory approval and for marketing and sale of the
product. There will be no competition between Biophan and any other company
based on an intraluminal imaging catheter. We plan to provide technology that
improves the market position of another company already in the marketplace and
not to develop a Biophan stand-alone product. In the event that this program
moves forward, our plans provide for a contribution of $500,000 toward
regulatory approval efforts costing approximately $1,500,000. However, the
partner company will be responsible for oversight and conduct of clinical
trials, and for applying to the FDA for approval.
Because sufficient information exists from already-approved products to
assure the safety and efficacy of these devices in the applications we
envision, we anticipate, but cannot guarantee, that the FDA will require a
Pre-Market Notification, or 510(k) approval. This would be in place of a Pre-
Market Approval, a more involved process usually reserved for devices that
sustain human life and for which there is insufficient information to assure
patient safety. A 510(k) approval will require that we demonstrate to the FDA
data that the product design and intended uses of the product are
substantially equivalent to a product(s) already approved by the FDA for
commercial distribution in the U.S.
In the event the FDA considers the Biophan product to be a Class II
Medical Device subject to 510(k) approval, we would work with a partner to
collect or develop the product performance data the FDA requires to prove that
the our product is substantially equivalent to intra-luminal catheters already
on the market. We anticipate that collecting or developing this data would be
at least a moderately high priority by a partner, and would take approximately
3-6 months to complete. Biophan and its partner would include this data in an
application to the FDA for 510(k) approval, 90 days before selling the device.
The FDA can refuse to allow this approval to be granted by responding with
questions during the 90 day review period. Based upon this possibility, we
estimate that the approval process will require a total of 180 days.
Accordingly, the total time for product regulatory approval would be
approximately 12 months.
The FDA has also previously approved for sale the types of active devices
24
(pacemaker leads) and passive devices (guide wires and catheters) that we
would like to improve by the addition of our magnetic resonance imaging (MRI)
shielding technologies. We believe that the technology would improve the
performance of these existing products during MRI examinations. The FDA
considers these devices to be Class II Medical Devices, and historically they
have been subject to Pre-Market Notification or 510(k) approval requirements.
We anticipate working with a partner to collect or develop the product
performance data required for FDA approval of our shielding technologies.
This data will include proof of the following:
* that the product modified to include Biophan's shielding technology is
still substantially equivalent to products already approved for sale by
the FDA; and
* that the addition of Biophan's shielding technology actually does
improve the performance of the existing product during MRI examinations.
The addition of Biophan's shielding technology to an existing product
requires that we apply a proprietary coating to the product. Because the
coating process does not require any significant changes to the product design
or to its manufacturing process and therefore little risk to the safety of its
operation, we anticipate that a minimal amount of data will be required.
We feel that it is reasonable to expect that the FDA will consider
the 510(k) approval process they required to approve the original device,
as sufficient to approve the minor modifications to a partner's device
required to integrate Biophan's technology. We anticipate that collecting or
developing this data would be at least a moderately high priority by a
partner, and would take approximately 3-6 months to complete. Biophan and
its partner would include this data in an application to the FDA for 510(k)
approval, 90 days before selling the device, as is required by the 510(k)
approval process. The FDA can refuse to grant 510(k) approval by responding
with questions during the stipulated 90 day review period. Based upon this
possibility, we conservatively estimate that the approval process will require
a total of 180 days. Accordingly, the total time for product regulatory
approval for planning purposes is 12 months for both active and passive
devices. During the 510(k) approval process it will be necessary to collect
biocompatibility and toxicity data, to establish that the modified product is
safe. The FDA provides specific guidelines for evaluating the biocompatibility
and toxicity risk associated with medical devices in their document entitled
"Guidance for the Submission of Research and Marketing Applications for
Permanent Pacemaker Leads and for Pacemaker Lead Adapter 510(k) Submissions,"
issued on 1 November 2000. This guidance document clearly states (Attachment
C - Biocompatibility Flow Chart for the Selection of Toxicity Tests for
510(k)s") that device materials that do not contain toxic substances (as is
the case with Biophan's shielding material) satisfy biocompatibility
requirements. Biophan can collect this toxicity data from available
toxicology literature without the need for human studies. We believe that
the FDA will support this procedure and not require human studies to
demonstrate biocompatibility and the absence of any toxicity risk. However if
this proves not to be the case, then we expect the FDA would follow the
guidelines it recommends for determining the biocompatibility and toxicity of
unknown substances. These are also outlined in their guidance document
entitled "Guidance for the Submission of Research and Marketing Applications
for Permanent Pacemaker Leads and for Pacemaker Lead Adapter 510(k)
Submissions," issued on 1 November 2000. These guidelines stipulate the use
of in-vitro (out of the body) extraction methods. This testing is relatively
minor in nature, and has already been included in the proposed regulatory
approval timeline and budget requirements.
Demonstrating that Biophan's shielding technologies improve the products
25
performance during MRI examinations will require evaluating the performance of
the product in an MRI coil. Given the perceived low level of patient risk
associated with our shielding technologies, we anticipate that these data can
be obtained through testing that also does not involve human subjects and only
a limited number of animals.
We anticipate that the collection and development of these data will
require $450,000 for each of the limited number of active device applications
and passive device applications initially envisioned, and $1,500,000 for the
intra-luminal imaging catheter. We also anticipate that a partner or licensee
would fund at lease 67% of these expenses. We anticipate our contribution to
come from the Spectrum equity line of credit and, if necessary, other equity
investors. If we are unable to establish the partnerships or licenses that
would provide a portion of the funds necessary to pursue regulatory approval
then our submission of applications for regulatory approval to the FDA would
be delayed, in whole or part, and our development efforts may also have to be
delayed, in whole or part, until alternative funding was obtained.
Licenses
We have entered into licenses for issued, allowed and pending patents.
These licenses require annual minimum royalties up to $10,000 each, some of
which escalate in future years, and provide for ongoing royalties of 4-5% of
product sales. Each license is for the life of the patent(s) and each is
exclusive for the medical market or segments thereof, and permit sub-
licensing:
* a license from Johns Hopkins University for an issued patent for an
MRI safe electrocardiogram and pacemaker lead. This agreement provides
for an initial licensing fee of $10,000 and a running royalty of 4% on
product sales. This agreement remains in effect for the life of the
patents underlying the license. The license may be terminated earlier,
at Biophan's election, upon 60 days written notice to Johns Hopkins.
Johns Hopkins may only terminate the agreement early if there is a
breach by Biophan which is not cured within 30 days following written
notice of such breach or default.
* a license agreement for additional shielding technologies from Nanoset,
LLC. This license agreement provides for a one time licensing fee of
$10,000, which is nonrefundable, and an additional payment of $5,000
upon the issuance of the patent application(s). The seven patent
applications covered by this license agreement have been assigned the
following numbers by the U.S. Patent and Trademark Office:
- 10/090,553 Magnetically Shielded Conductor
- 10/229,183 Magnetically Shielded Conductor
- 10/242,969 Magnetically Shielded Conductor
- 10/260,247 Magnetically Shielded Assembly
- 10/303,264 Magnetically Shielded Assembly
- 10/313,738 Magnetically Shielded Assembly
- 10/273,847 Magnetically Shielded Medical Device
The term of the license for each of the seven covered patent
applications is for the life of the applicable patent. There are no
termination provisions contained in the license. However, the
prevailing legal case law supports the following conclusions (i)
Nanoset could not terminate the license unless Biophan failed to pay
the required consideration; and (ii) Biophan could not terminate the
license unless it provided reasonable prior notice to Nanoset. Biophan
and Nanoset are discussing granting additional technology rights to
Biophan under an expanded agreement, but to date no definitive
agreement has been reached.
* a license from Deborah D. L. Chung for an issued patent entitled Metal
Filament for Electromagnetic Shielding. This agreement provides for an
initial licensing fee of $10,000 and a running royalty of 5% on product
sales. This agreement remains in effect for the life of the patents
underlying the license. The license may be terminated earlier, at
Biophan's election, upon 60 days written notice to Chung. Chung may
only terminate the agreement early if there is a breach by Biophan
which is not cured within 60 days following notice of such breach or
default.
Employees
As of February 28, 2003, we had ten full-time employees.
26
Factors That Could Affect Our Business
You should carefully consider the factors described below and other
information in this report. If any of the following risks or uncertainties
actually occur, our business, financial condition and operating results, would
likely suffer. Additional risks and uncertainties, including those that are
not yet identified or that we currently believe are immaterial, may also
adversely affect our business, financial condition or operating results.
We Are a New Business with a Limited Operating History and No Revenues to Date
and Are Not Likely to Succeed Unless We Can Overcome the Many Obstacles We
Face.
We are a development-stage company with limited prior business operations
and no revenues. We are presently engaged in the early stage development of
certain medical procedures and biomedical devices. Unless we are able to
secure adequate funding, we may not be able to successfully develop and market
our products and our business will most likely fail. Because of our limited
operating history, you may not have adequate information on which you can base
an evaluation of our business and prospects. To date, our efforts have been
allocated primarily to the following:
* aggressively patenting our technology
* acquiring licenses to complementary technology
* organizational activities;
* developing a business plan;
* obtaining interim funding;
* conducting research and working toward the ultimate successful
development of our products; and
* marketing to major biomedical manufacturers.
In order to establish ourselves in the medical device market, we are
dependent upon continued funding and the successful development and marketing
of our products. You should be aware of the increased risks, uncertainties,
difficulties and expenses we face as a research and development company and
that an investment in our common stock may be worthless if our business fails.
We Have Generated No Revenues and If We Are Unable to Generate Sufficient
Revenues in the Future, We May Not Be Able to Continue Our Business.
We are still in our formative and development stage. As an investor, you
should be aware of the difficulties, delays and expenses normally encountered
by an enterprise in its development stage, many of which are beyond our
control, including unanticipated research and developmental expenses,
employment costs, and administrative expenses. We cannot assure our
investors that our proposed business plans as described in this report
will materialize or prove successful, or that we will ever be able to finalize
development of our products or operate profitably. If we cannot operate
profitably, you could lose your entire investment. As a result of the start-up
nature of our business, initially we expect to sustain substantial operating
expenses without generating significant revenues.
We Have a History of Losses and a Large Accumulated Deficit and We Expect
Future Losses That May Cause Our Stock Price to Decline.
For the fiscal years ended February 28, 2003, 2002 and 2001, we incurred
net losses of $3,438,252, $3,705,917 and $729,130, respectively.
We expect to lose more money as we spend additional capital to develop and
market our technologies and establish our infrastructure and organization to
support anticipated operations. We cannot be certain whether we will ever
earn a significant amount of revenues or profit, or, if we do, that we will
27
be able to continue earning such revenues or profit. Also, the current
economic weakness may limit our ability to develop and ultimately market our
technologies. Any of these factors could cause our stock price to decline and
result in you losing a portion or all of your investment.
Our Inability to Retain and Attract Key Personnel Could Adversely Affect our
Business.
We believe that our future success will depend on the abilities and
continued service of certain of our senior management and executive officers,
particularly our president and CEO and those persons involved in the research
and development of our products. If we are unable to retain the services of
these persons, or if we are unable to attract additional qualified employees,
researchers and consultants, we may be unable to successfully finalize and
eventually market our medical devices and other products being developed,
which will have a material adverse effect on our business.
Our Research and Development Efforts May Not Result in Commercially Viable
Products Which Could Result in a Decline of Our Stock Price and a Loss of
Your Investment.
Our technologies are in the development stage. Further research and
development efforts will be required to develop these technologies to the
point where they can be incorporated into commercially viable or salable
products. We have set forth in this report our proposed research and
development program as it is currently conceived. We cannot assure you,
however, that this program will be accomplished in the order or in the time
frame set forth. We reserve the right to modify the research and development
program. We may not succeed in developing commercially viable products from
our technologies. If not, our ability to generate revenues from our
technologies will be severely limited. This would result in the loss of all
or part of your investment.
We May Not Have Opportunities To Enter Into Strategic Partnerships for the
Commercialization of our Technologies Which Could Have a Severe Negative
Impact on Our Ability to Market Our Products.
We intend to enter into strategic partnerships or other relationships
with established biomedical, pharmaceutical and bio-pharmaceutical companies
to obtain the necessary regulatory approvals and to undertake the
manufacturing and marketing efforts required to commercialize our products.
However, we do not have commitments at this time from any potential partners.
If we are unable to enter into any new partnerships, then we may be unable to
commence the commercialization of our products.
We May Not Be Able To Develop A Market For Our Technology Which Will Most
Likely Cause Our Stock Price to Decline.
The demand and price for our technology and related products will be
based upon the existence of markets for the technology and products and the
markets for products of others, which may utilize our technology. The extent
to which we may gain a share of our intended markets will depend, in part,
upon the cost effectiveness and performance of our technology and products
when compared to alternative technologies, which may be conventional or
heretofore unknown. If the technology or products of other companies provide
more cost-effective alternatives or otherwise outperform our technology or
products, the demand for our technology or products maybe adversely affected.
Our success will be dependent upon market acceptance of our technology and
related products. Failure of our technology to achieve and maintain
meaningful levels of market acceptance would materially and adversely affect
our business, financial condition, results of operations and market
penetration. This would likely cause our stock price to decline.
28
If We Are Not Able to Compete Effectively in the Competitive Medical Device
Industry, Our Future Growth and Operating Results Will Suffer.
Our future success depends on our ability to compete effectively with
other manufacturers of medical devices, including major manufacturers of
pacemakers and other implantable devices that may have internal development
programs. We are an early-stage research and development company engaged
exclusively in developing our initial products. We have not yet completed
our first product and have no revenue from operations. As a result, we may
have difficulty competing with larger, established medical device companies.
Most of our potential competitors will be established, well-known companies
that have:
* substantially greater financial, technical and marketing resources;
* larger customer bases;
* better name recognition;
* related product offerings; and
* larger marketing areas.
Companies such as Medtronic Incorporated, Guidant Corporation, St. Jude
Medical, Boston Scientific and Johnson & Johnson are major, international
providers of active medical devices currently contraindicated for MRI.
Because these companies may possibly develop MRI safe solutions for their
own product lines, they may ultimately be in competition with us. These
companies represent a wide array of medical devices and products,
technologies and approaches. Most of these companies have more resources
than we do and, therefore, a greater opportunity to develop comparable
products and bring those products to market more efficiently than us. If we
do not compete effectively with current and future competitors, our future
growth and operating results will be adversely affected.
We May Not Be Able To Obtain Necessary Government Approval To Market Our
Technology Which Will Most Likely Cause Our Stock Price to Decline and Our
Business to Fail.
Our marketing partners must obtain the approval of the U.S. Food
and Drug Administration in order to market our MRI-safe technology. If
these approvals are not obtained, or are significantly delayed, our ability
to generate revenues may be adversely affected and our development and
marketing efforts inhibited. This would most likely cause our stock price to
decline and result in the loss of all or part of your investment.
We May Not Be Able To Protect Our Proprietary Rights and We May Infringe the
Proprietary Rights of Others. Our Inability to Protect Our Rights Could
Impair Our Business and Cause us to Incur Substantial Expense to Enforce our
Rights.
Proprietary rights are critically important to us. Although we have
exclusive licenses to three issued U.S. patents for MRI safety-related
technology and we intend to aggressively pursue additional patent protection
for our technologies as we continue to develop them, we cannot assure you that
any additional patents will be issued. Although we will seek to defend our
patents and to protect our other proprietary rights, our actions may be
inadequate to protect our patents and other proprietary rights from
infringement by others, or to prevent others from claiming infringement of
their patents and other proprietary rights.
Policing unauthorized use of our technology is difficult and some foreign
laws do not provide the same level of protection as U.S. laws. Litigation
may be necessary in the future to enforce our intellectual property rights,
to protect our trade secrets or patents that we may obtain, or to determine
29
the validity and scope of the proprietary rights of others. Such litigation
could result in substantial costs and diversion of resources and have a
material adverse effect on our future operating results.
Because Two Of Our Directors Are Equity Owners And Managers Of Biomed
Solutions, LLC, A Creditor And Shareholder Of Biophan, There May Be Conflicts
Of Interest.
Michael L. Weiner, our President, CEO and director, is the Manager and a
24.3% beneficial equity member of Biomed. Mr. Weiner, and Ross Kenzie, also
a director of Biophan, make up the Biomed Board of Members. Biomed and its
members own a significant amount of our outstanding common stock and we owe
Biomed $500,000 plus interest for the transfer to us of its MRI-compatible
pacemaker patents pending. We have also executed a line of credit with Biomed
pursuant to which we owe Biomed $300,000 plus accrued interest as of the date
hereof. We have issued to Biomed 1,180,000 warrants for the purchase of our
common stock. Mr. Weiner is also the Manager and 42.3% equity member of
Technology Innovations, LLC, which is a 57% equity member of Biomed. Further,
Mr. Weiner is on the board of Nanoset, LLC, an entity owned in part by Biomed
and with which we have negotiated a technology license agreement and are
exploring acquiring additional rights to Nanoset's technology.
Because of their relationships with these other entities, Messrs. Weiner
and Kenzie may have conflicts of interest with respect to certain matters
affecting us. Biomed is a creditor of Biophan and has the right to reacquire
the MRI-compatible technology that it sold to us if payments are not made on a
timely basis. Thus, a potential conflict could arise as to the enforcement of
Biomed's rights to the MRI-compatible technology under its agreement with us.
Also, a conflict could arise among the entities in the determination of which
entity might acquire a particular technology. All potential conflicts may not
be resolved in a manner that is favorable to us. We believe it is impossible
to predict the precise circumstances under which future potential conflicts
may arise and therefore intend to address potential conflicts on a case-by-
case basis. Under Nevada law, directors have a fiduciary duty to act in good
faith and with a view to the interests of the corporation.
If We Fail To Pay The Purchase Price For Our Technology, That Technology Will
Revert To Biomed, Which Will Significantly And Negatively Impact Our Business
And Your Investment.
Under the Transfer Agreement with Biomed in connection with our
acquisition of the MRI intellectual property rights, Biomed maintains a
security interest in the underlying patents until the amount of $500,000, plus
interest at 8% per annum, is paid to Biomed. Biomed has the right to take
back these intellectual property rights if we do not satisfy the liability
which is payable in 12 equal installments commencing June 1, 2004. In the
event we are unable to satisfy this condition, and we lose our rights to the
technology, we will suffer significant harm to our business and financial
condition which would most likely cause the price of our stock to decline.
Item 2. Description of Property
Our headquarters are located at 150 Lucius Gordon Drive, Suite 215, West
Henrietta, NY 14586, in 4,000 square feet of office space leased from an
unrelated party. Current rentals are $4,475 per month and the lease expires
in September 2004. The coordination of our research and development projects
and the administration of our two wholly owned subsidiary companies, currently
inactive, are directed from this location.
Item 3. Legal Proceedings
We are not a party to any material legal proceedings and there are no
30
material legal proceedings pending with respect to our property. We are not
aware of any legal proceedings contemplated by any governmental authorities
involving either us or our property. None of our directors, officers or
affiliates is an adverse party in any legal proceedings involving us or our
subsidiaries, or has an interest in any proceeding which is adverse to us or
our subsidiaries.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
Market Information
Our common stock is listed on the OTC Bulletin Board under the symbol BIPH.
The stock was not actively traded until October 2001 and the following table
sets forth, for the fiscal quarters indicated, the high and low bid prices.
These quotations reflect inter-dealer prices, without mark-up, mark-down or
commission, and may not represent actual transactions.
Quarter Ended High Low
November 30, 2001 $6.50 $5.50
February 28, 2002 $7.25 $2.37
May 31, 2002 $2.65 $ .75
August 31, 2002 $1.13 $ .30
November 30, 2002 $ .38 $ .18
February 28, 2003 $1.15 $ .29
We currently have outstanding 37,634,693 shares held by approximately 400
shareholders.
Recent Sales of Unregistered Securities
The securities of Biophan that were issued or sold by Biophan within the
past three years and were not registered with the SEC are described below.
(a) On December 1, 2000, we acquired LTR Antisense Technology, Inc., a New
York corporation, from Biomed Solutions, LLC (formerly Biophan, LLC), a New
York limited liability company in a share for share exchange. As a result
of the exchange, LTR became a wholly owned subsidiary. 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 Biophan, LTR
and Biomed.
In connection with the exchange, we (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 an investor group consisting solely of three accredited investors
for $175,000 in cash and the undertaking to assist us in additional capital
31
raising.
In transaction (i), the value of the consideration received (the LTR
shares) was established at $175,000 in arms-length negotiation and approved
by Biophan's board of directors. In transaction (ii), the value of the
consideration received ($175,000) was established in arms-length negotiations
and approved by Biophan's Board of Directors.
The transactions were exempt from registration under Section 4(2) of the
Securities Act of 1933 because the shares were issued to a limited number of
accredited investors in a private, negotiated transaction in which the issuer
gave full representations and warranties and the recipients of the securities
did extensive due diligence and had access to all relevant information about
Biophan, including annual and periodic filings with the SEC, necessary to
evaluate their investment. The shares were all issued with restrictive
legends. The shares issued to Biomed in exchange for the shares of LTR were
issued to Biomed for its own account, for investment, and not with a view to
distribution, and were received pursuant to the Exchange Agreement
wherein the issuer provided full representations and warranties, various
documents and other information about the issuer, including financial
statements and SEC filings, and Biomed did extensive due diligence. A
restrictive legend was placed on the certificate issued to Biomed. There was
no solicitation involved in this issuance of securities, rather the securities
were issued pursuant to a contractual relationship.
In September 2001, the bulk of the shares received by Biomed were then
distributed to its members and the members of its members (the "ultimate
investors"). No consideration was provided by the members or the ultimate
investors for the redistributed shares; the shares were distributed pro rata
to the members and ultimate investors; the members and ultimate investors
received information about the ratio used to calculate their distribution and
the expected tax consequences of the transaction; the members and ultimate
investors were accredited investors; and all the redistributed shares were
issued with a restrictive legend.
(b) Between January 1, 2001 and February 1, 2003, Biophan issued options to
purchase a total of 2,489,995 options under its 2001 Stock Option Plan to
directors, officers, key employees and consultants. These include the
following:
* On January 1, 2001, Wilson Greatbatch was granted 250,000 options for
his consulting services to us, and 8,333 options as former Chairman of
the Scientific Advisory Board. The board of directors determined that
the value of the consulting services was fair and adequate
consideration for the options issued and Biophan recorded compensation
expense of $9,200 with respect to those options.
* On March 1, 2002, Dr. Guenter H. Jaensch was granted options to
purchase 250,000 shares and on 7/16/02 was granted an additional
100,000 options, for his consulting services to us. The board of
directors determined that the value of the consulting services was
fair and adequate consideration for the options issued; Biophan valued
the options at $592,500 and $36,900, respectively.
* On January 1, 2001, Biophan issued to Boylan, Brown, Code, Vigdor &
Wilson, LLP options to purchase 40,000 shares of common stock at an
32
exercise price of $.50 per share, in consideration of the firm's
agreement to defer payment of legal fees incurred in the transaction
of the Exchange Agreement and Transfer Agreement dated December 1,
2000. Biophan recorded an expense of $1,600 with respect to the
issuance of these options.
The issuances of the above options were exempt under Section 4(2) of the
Securities Act as the options were offered and issued to three persons that
were knowledgeable of Biophan's business; were either an accredited or
sophisticated investor; and had access to all relevant information about
Biophan, including annual and periodic filings with the SEC, necessary to
evaluate their investment. Each recipient represented to Biophan that the
options were being acquired for investment purposes without a view to
distribution. There was no solicitation involved in this issuance of
securities, rather the securities were issued pursuant to a contractual
relationship for which the recipient of the securities provided services.
(c) In June 2001, we 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. We also received proceeds from a series of bridge loans
to 15 accredited investors 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). Warrants to purchase 146,627 at $1.00 per share were issued to these
lenders. 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 in the aggregate amount of $986,500 to equity.
These transactions were exempt from registration under Regulation D, Rule
506 under the Securities Act of 1933 because the securities were offered and
sold only to accredited investors and/or persons with knowledge of business,
there was no general solicitation or general advertising related to the
transactions, purchasers represented that they were acquiring securities for
their own account and for investment, and the securities were issued with
restrictive legends.
(d) Pursuant to a Private Placement Memorandum dated July 2, 2001, we offered
to sell 3,000,000 shares of common stock at $1.00 per share, solely to
accredited investors. The offering was concluded in January 2002. Gross
proceeds of $2,399,750 were received, less offering costs of $254,467. The
private offering was made pursuant to Regulation D, Rule 506 under the
Securities Act. In accordance with Rule 506, (i) no general solicitation or
general advertising was conducted in connection with the offering of the
shares, (ii) all of the purchasers in the offering represented to Biophan that
they were accredited investors, (iii) each purchaser was given the opportunity
to ask questions and receive answers concerning the terms and conditions of
the offering and to obtain additional information, (iv) each purchaser
represented that he had purchased the shares for his own account, for
investment, and (v) the shares were issued with restrictive legends. In
connection with this offering, we issued a total of 99,667 warrants at an
exercise price of $1.00 per share, to three individuals for their services
valued nominally at $10,000 in placing a portion of the offering.
Prospective investors were identified and contacted through existing
relationships and personal contacts of Biophan's directors, officers and
consultants. A total of 43 accredited investors purchased securities in the
private placement. Prospective investors were provided with a private
33
placement memorandum, subscription agreement and detailed investor
questionnaire. Also, Biophan's annual, quarterly and other periodic reports
filed with the SEC were made available to prospective investors. An
individual's status as an accredited investor was determined by
representations made in the subscription agreement and responses to the
questionnaire regarding the person's income and net worth.
(e) Biomed has received a total of 1,180,000 warrants to purchase shares of
Biophan common stock as follows:
(i) On March 1, 2001, it received options to purchase 200,000 shares at
an exercise price of $1.00, in consideration of management effort
and expense, with an estimated fair value of $47,000, incurred on
behalf of Biophan.
(ii) On June 4, 2002, it received 100,000 warrants at an exercise price
of $1.00 in consideration of the extension of the due date for the
Transfer Agreement payment (for which Biophan recorded an expense
of $72,000) and 75,000 warrants with an exercise price of $1.00 for
the grant of the line of credit (for which Biophan recorded an
expense of $54,000).
(iii) On August 19, 2002, Biomed received 30,000 warrants in
consideration of the increase in the line of credit commitment, and
275,000 warrants for additional extensions of the payment terms of
the Transfer Agreement payment, together valued at $71,500. On that
date, the exercise price for all 680,000 warrants then outstanding
to Biomed was set at the lowest of (x) the closing bid price on
June 4, 2002; (y) the closing bid price on the date of exercise; or
(z) the lowest per share purchase price paid by any third party
between June 4, 2002 and the exercise date.
(iv) On November 7, 2002, Biomed received warrants to purchase an
additional 500,000 shares at an exercise price of $.50 per share,
in consideration of the final extension of the Transfer Agreement
payment, with an estimated fair value of $117,000, approved that
day.
The number of warrants will be reduced by 16,667 for each month prior to
June 1, 2005 that the Transfer Agreement obligation is paid in full. Each
extension of the Transfer Agreement payment enabled us to retain the
MRI-compatible technology that we acquired under the Transfer Agreement. In
each forgoing case, the Board of directors determined, without the vote of Mr.
Weiner, that the consideration received by the company was fair and adequate
consideration for the warrants issued.
These warrant issuances were exempt from registration under Section 4(2)
of the Securities Act. The warrants were issued in private transactions to
one accredited investor that had access to all relevant information about
Biophan, including annual and periodic filings with the SEC, necessary to
evaluate its investment and who represented that it acquired the warrants
without a view to distribution. There was no solicitation involved in this
issuance of securities, rather the securities were issued pursuant to a
contractual relationship.
(f) On June 4, 2002, Wilson Greatbatch received 150,000 warrants with an
exercise price of $1.00 in consideration of the extension of the payment due
under the Transfer Agreement(for which Biophan recorded an expense of
$108,000). This issuance was exempt from registration under Section 4(2) of
the Securities Act as it was made in a private transaction to one accredited
investor who had access to all relevant information about Biophan, including
annual and periodic filings with the SEC, necessary to evaluate his
34
investment, and who acquired the warrants without a view to distribution.
There was no solicitation involved in this issuance of securities, rather the
securities were issued pursuant to a contractual relationship.
(g) Also in July, 2002, we issued warrants to purchase a total of 50,000
shares at an exercise price of $.39 per share to four individuals in
consideration of certain investment banking services with an estimated fair
value of $2,000. In November 2002, we issued an additional 71,572 warrants
at $.16 to $.41 per share to three of those four individuals in consideration
of services, with an estimated fair value of $18,000, in the nature of a
finder in connection with a portion of the Regulation S offering and other
loans to us. We relied on exemptions from registration under Section 4(2) of
the Securities Act of 1933 because the issuances were in private transactions
to a limited number of accredited or sophisticated persons who had access to
all relevant information about Biophan, including annual and periodic filings
with the SEC, necessary to evaluate their investment, and who represented they
acquired the warrants without a view to distribution. There was no
solicitation involved in this issuance of securities, rather the securities
were issued pursuant to a contractual relationship for which the recipient of
the securities provided services.
(h) During August and September 2002, we issued a total of 2,186,760 shares of
common stock for gross cash proceeds of $515,397, less commissions and
offering costs of $11,985. In connection with these transactions, we also
issued 99,388 shares of common stock as additional commission with a value of
$34,243. These shares were issued solely to nonaffiliated, non U.S. persons in
offshore transactions exempt from registration under the Securities Act of
1933 pursuant to Regulation S.
(i) From September 2002 through January 6, 2003, we raised $1,385,275 by
selling 5,541,100 shares at a per share price of $.25 to 117 accredited
investors. Those investors also received warrants to purchase an additional
2,770,550 shares, half at an exercise price of $.25 per share and half at
$.50 per share. In connection with this offering, we paid cash commissions
of $107,503 and issued 258,006 shares, valued at $.25 per share, to
finders in consideration of their placement of shares. This offering was
exempt from registration under Regulation D, Rule 506 of the Securities Act
of 1933, based upon the following facts:
(i) the shares and warrants were sold only to accredited investors with
whom Biophan or Westbay, its finder, had a pre-existing
relationship;
(ii) neither Biophan nor Westbay offered to sell the securities by any
form of general solicitation or general advertising;
(iii) no Regulation D offering took place within the six months prior to
the commencement of the offering;
(iv) each purchaser represented that he had purchased the securities for
his own account, for investment; and
(v) the securities were issued with restrictive legends.
(j) On January 7, 2003, Biophan issued warrants to purchase 161,290 shares at
$.31 per share to Boylan, Brown, Code, Vigdor & Wilson LLP, in consideration
of the firm reducing its fees billed to Biophan for the preparation of this
registration statement by $25,000. The board of directors determined that
this was fair and adequate consideration. We relied on an exemption under
Section 4(2) of the Securities Act for this issuance as it did not constitute
a public offering and because there was only one offeree; there was no general
solicitation or advertising; the firm is considered a sophisticated investor
35
and had access to the same kind of information about Biophan normally found in
a prospectus or in annual and periodic filings with the SEC; the firm had a
prior business relationship with Biophan and its officers and directors; the
firm agreed to and received the options with the intent to hold the options
and the shares underlying the options for investment and not with a view to
distribution; and the options contained a restrictive legend.
(k) On December 18, 2002, we issued warrants to purchase 2,000,000 shares at
$1.00 per share and 1,000,000 shares at $1.50 per share, to SBI USA, LLC as
consideration for the execution of an agreement to provide financial advisory
services with an estimated fair value of $20,000. We relied on an exemption
from registration under Section 4(2) of the Securities Act. SBI was the only
offeree; the terms of the issuance were negotiated at arms length; SBI is the
U.S. investment banking arm of Softbank Investment Group, Japan, and as such,
is a sophisticated investor; SBI was provided with Biophan's public filings,
including its most recent 10K and 10Q. There was no solicitation involved in
this issuance of securities, rather the securities were issued pursuant to a
contractual relationship for which the recipient of the securities provided
services. On April 25, 2003, Biophan and SBI terminated the financial
advisory agreement, and SBI surrendered the warrants to Biophan without
additional consideration.
Dividend Policy
We have never paid cash dividends and have no plans to do so in the
foreseeable future. Our future dividend policy will be determined by our
Board of Directors and will depend upon a number of factors, including our
financial condition and performance, our cash needs and expansion plans,
income tax consequences, and the restrictions that applicable laws and our
credit arrangements then impose.
Item 6. 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-KSB/A. This Annual Report on Form 10-KSB/A 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 the factors described in Item of this
annual report.
We are currently in the development stage of operations and expect to be
in that mode for the foreseeable future. Our primary mission is to develop
and commercially exploit 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.
We have filed a registration statement with the SEC that has not as yet become
effective. The principal purpose of this filing is to register 8,960,000
shares of our common stock to be sold to Spectrum Advisors under an equity line
of credit agreement. We will receive proceeds only from draw-downs under the
equity line of credit. We estimate that proceeds from potential sales of our
stock to Spectrum Advisors under the equity line of approximately $2,688,000
will be sufficient to satisfy our cash requirements over the ensuing twelve
months. If we are limited to the condition that Spectrum may not own more
than 9.9% of the outstanding shares at any one time, we would be able to draw
down only approximately $1,241,000 under the equity line. Accordingly, we
36
would have to curtail some of our programs, reduce our expenses and renegotiate
loans based on the available funds. Our estimate of the use of proceeds given
each situation is as follows:
Proceeds from 9.9%
Spectrum Limitation
---------- ----------
Research and product development $ 970,000 $ 526,000
Operating expenses, including
administrative salaries and benefits,
office expenses, rent expense, legal
and accounting,publicity, investor
relations 899,200 365,900
Repay related party loans plus interest 475,000 150,000
Commission on draw downs under equity line
of credit 268,800 124,100
Costs of registration 75,000 75,000
---------- ----------
$2,688,000 $1,241,000
========== ==========
The above table takes into consideration the cost of filing the aforementioned
registration statement and includes legal, accounting and printing expenses
and filing fees. Operating expenses are an estimate of expenditures we
anticipate in operating our business, based on the level of funds realized
from the line of credit.
We intend to pursue our research and product development activities,
concentrating the major portion of our available resources on the shielding
and filtering technologies for achieving MRI safe solutions. We have
identified a core group of potential customers/development partners for our
technology and continue to meet with these companies on a regular basis. We
are obligated by confidentiality and nondisclosure agreements with the
companies we are speaking with concerning potential relationships. We have
received several term sheets from interested biomedical device manufacturers
but have not accepted any of the offers at this time. However, our
negotiations with these entities and our evaluation of their proposals is
continuing.
Our goal is to enter into a development arrangement with one or more of
these entities whereby the entity would provide financial and research support
to further the commercialization of our technologies. In addition to seeking
development arrangements with potential partners, we will continue to expand
our technology portfolio by seeking to acquire complementary technologies
through licensing arrangements with other third parties. Key members of our
management team have and will continue to attend and present technical papers
at industry trade conferences and to leaders in the pacing and medical device
arena.
We estimate that our research and development plan will require
approximately $970,000 of our funds over the next twelve months, or $526,000
if we are subject to the 9.9% limitation, dedicated to the following
activities:
Proceeds from 9.9%
Spectrum Limitation
---------- ----------
MRI Shielding for Active Medical Devices $ 344,000 $ 311,000
MRI Shielding for Passive Medical Devices 238,000 215,000
Photonic Technology for Intraluminal MR Imaging 388,000 -0-
---------- ----------
$ 970,000 $ 526,000
========== ==========
37
The MRI Shielding project entails the development of technology that may
be applied to active medical devices such as pacemakers, drug pumps and others,
and to passive medical devices such as biopsy needles, guidewires and others,
to allow patients to undergo MRI diagnostics. The Intraluminal project
involves the use of our photonic technology to develop products that improve
the image quality and reduce the scan time of MRI diagnostic procedures.
Our photonic technology uses miniature electronic components to convert
both power and data signals from electicity to light, thus eliminating the
need for long wires inside the body. These wires are the source of unwanted
heating and electrical charges that result from the magnetic and radio
frequency fields used in MRI. Replacing wires with optical fibers eliminates
these problems. Microcoils are a miniature version of MRI receiver coils
that, rather than being external to the body as in traditional MRI, can be
incorporated into a catheter and inserted inside the opening (or lumen) inside
the body (thus "intraluminal microcoil"). The projects will be conducted in
orderly phases, first demonstrating technical feasibility, then completing
detailed product designs, verifying and validating the designs. A
commercialization partner will be able to intersect at any stage of
development of a project.
The related party loans include a $350,000 line of credit agreement with
Biomed Solutions, LLC, which is a shareholder of Biophan and of which Michael
L. Weiner, our CEO, is a manager and part owner. Currently, $350,000 is
outstanding under this agreement. The loan bears interest at 8% per annum and
is due and payable in 10 equal consecutive monthly installments commencing
upon the effectiveness of our current registration statement. Related party
loans also include a loan of $143,570 from H. Deworth Williams, a less than 5%
stockholder. This loan also bears interest at 8% per annum and is due on
December 31, 2003.
Our current strategic plan does not indicate a need for material capital
expenditures in the conduct of research and development activities, nor does
the plan contemplate any significant change in the number of employees. We
currently employ ten full-time individuals.
New Accounting Standards
In August 2001, the Financial Accounting Standards Board (FASB) issued
Statement No. 143 "Accounting for Asset Retirement Obligations" (SFAS 143).
SFAS 143 addresses financial accounting and reporting for obligations
associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. It applies to legal obligations associated
with the retirement of long-lived assets that result from the acquisition,
construction, development and/or the normal operation of a long-lived asset,
except for certain obligations of lessees. SFAS 143 is effective for
financial statements issued for fiscal years beginning after June 15, 2002.
We currently are reviewing SFAS 143 and intend to implement it, if applicable,
as of March 1, 2003.
In August 2001, the FASB issued Statement No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supersedes
FASB Statement No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" (SFAS 121); however it retains the
fundamental provisions of that statement related to the recognition and
measurement of the impairment of long-lived assets to be "held and used". In
addition, SFAS 144 provides more guidance on estimating cash flows when
performing a recoverability test, requires that a long-lived asset (group) to
be disposed of other than by sale (e.g., abandoned) be classified as "held and
used" until it is disposed of, and establishes more restrictive criteria to
classify an asset (group) as "held for sale". SFAS 144 is effective for
38
fiscal years beginning After December 15, 2001. The adoption of SFAS 144 did
not have a material impact on our consolidated financial condition or results
of operations.
In April 2002, the FASB issued Statement No. 145 "Rescission of FASB
Statements No. 4, 44 and 62, Amendment of FASB Statement No. 13, and Technical
Corrections" (SFAS 145). SFAS 145 will require gains and losses on
extinguishments of debt to be classified as income or loss from continuing
operations rather than as extraordinary items as previously required under
Statement of Financial Accounting Standards No. 4 (SFAS 4). Extraordinary
treatment will be required for certain extinguishments as provided in APB
Opinion No. 30. SFAS 145 also amends Statement of Financial Accounting
Standards No. 13 and requires that certain modifications to capital leases be
treated in the same manner as sale-leaseback transactions. SFAS 145 is
effective for financial statements issued after May 15, 2002, and with respect
to the impact of the reporting requirements of changes made to SFAS 4 for
fiscal years beginning after May 15, 2002. The adoption of the applicable
provisions of SFAS 145 did not have an effect on our financial statements.
In June 2002, the FASB issued Statement No. 146, "Accounting for Costs
Associated with Exit or Disposal Activities" (SFAS 146). SFAS 146 nullifies
Emerging Issues Task Force Issue No. 94-3 "Liability Recognition for Certain
Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in Restructuring)". SFAS 146 applies to costs
associated with an exit activity that does not involve an entity newly
acquired in a business combination or with a disposal activity covered by SFAS
144. SFAS 146 is effective for exit or disposal activities that are initiated
after December 31, 2002, with earlier application encouraged. We will
implement SFAS 146 as of March 1, 2003.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation -- Transition and Disclosure"(SFAS 148"). SFAS 148 amends SFAS
No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123"), to provide
alternative methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee compensation. In addition,
SFAS 148 amends the disclosure requirements of SFAS 123 to require prominent
disclosures in both annual and interim financial statements about the method
of accounting for stock-based employee compensation and the effect of the
method used on reported results. The disclosure provisions of SFAS 148 were
applied as of February 28, 2003.
Application of Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and revenues and expenses
during the period reported. The following accounting policies involve a
"critical accounting estimate" because they are particularly dependent on
estimates and assumptions made by management about matters that are highly
uncertain at the time the accounting estimates are made. In addition, while we
have used our best estimates based on facts and circumstances available to us
at the time, different estimates reasonably could have been used in the
current period, or changes in the accounting estimates we used are reasonably
likely to occur from period to period which may have a material impact on the
presentation of our financial condition and results of operations. We review
these estimates and assumptions periodically and reflect the effects of
revisions in the period that they are determined to be necessary.
39
Acquired Intangibles
Acquired intangibles are reviewed for impairment whenever events such as a
significant industry downturn, product discontinuance, product disposition,
technology obsolescence or other changes in circumstances indicate that the
carrying amount may not be recoverable. When such events occur, we compare the
carrying amount of these assets to their undiscounted expected future cash
flows. If this comparison indicates that there is an impairment, the amount of
the impairment is calculated using discounted expected future cash flows. Our
estimates of undiscounted and discounted future cash flows are dependent upon
many factors, including general economic trends, industry trends, and
technological developments. It is reasonably likely that future cash flows
associated with these assets may exceed or fall short of our current
estimates, in which case a different amount for our intangible assets and the
related impairment charge would have resulted. If our actual cash flows exceed
our estimates of future cash flows, there would be no change to our previously
recognized impairment charge although, it may indicate that the amount of the
impairment was greater than needed. If our actual cash flows are less than our
estimates of future cash flows, we may need to recognize an additional
impairment in future periods, which would be limited to the current carrying
value of our acquired intangible assets.
Tax Valuation Allowance
A tax valuation allowance is established, as needed, to reduce net deferred
tax assets to the amount for which recovery is probable. We have established a
full valuation allowance against our net deferred tax assets because our lack
of revenues and our recurring losses as a development stage company cause our
long term financial forecast to have enough uncertainty that we do not meet
the standard of "more likely than not" that is required for measuring the
likelihood of realization of net deferred tax assets. In the event it becomes
more likely than not that some or all of the deferred tax assets will be
realized, our valuation allowance will be adjusted. Depending on the amount
and timing of taxable income we ultimately generate in the future, as well as
other factors, we could recognize no benefit from our deferred tax assets, in
accordance with our current estimate, or we could recognize their full value.
Item 7. Financial Statements
FINANCIAL STATEMENTS
BIOPHAN TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 2003
40
BIOPHAN TECHNOLOGIES, INC.AND SUBSIDIARIES
(A Development Stage Company)
CONTENTS
FEBRUARY 28, 2003
-----------------------------------------------------------------------------
Independent Auditor's Report F-1
Consolidated Financial Statements:
Balance Sheet F-2
Statement of Operations F-3
Statement of Stockholders' Deficiency F-4
Statement of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-10
INDEPENDENT AUDITOR'S REPORT
------------------------------
To the Board of Directors
Biophan Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Biophan
Technologies, Inc. and Subsidiaries (a development stage company) as of
February 28, 2003, and the related consolidated statements of operations,
stockholders' deficiency, and cash flows for each of the two years in the
period then ended, and the amounts in the cumulative column in the
consolidated statements of operations, stockholders' deficiency, and cash
flows for the period from August 1, 1968 (date of inception) to February 28,
2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Biophan
Technologies, Inc. and Subsidiaries as of February 28, 2003 and the results of
their operations and their cash flows for each of the two years in the period
then ended and the amounts included in the cumulative column in the
consolidated statements of operations and cash flows for the period from
August 1, 1968 to February 28, 2003 in conformity with accounting principles
generally accepted in the United States of America.
/s/GOLDSTEIN GOLUB KESSLER LLP
New York, New York
April 10, 2003
Pg. F-1
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
------------------------------------------------------------------------------
February 28, 2003
------------------------------------------------------------------------------
ASSETS
Current assets:
Cash $ 48,935
Investments in marketable securities 302,000
Advances receivable 10,127
Due from related party 24,368
Prepaid expenses 90,923
------------------------------------------------------------------------------
Total current assets 476,353
------------------------------------------------------------------------------
Fixed assets - at cost, net 63,232
------------------------------------------------------------------------------
Other assets:
Intellectual property rights 70,000
Security deposit 2,933
Deferred equity placement costs 70,538
Deferred tax asset, net of valuation allowance of $2,120,000 -
------------------------------------------------------------------------------
143,471
------------------------------------------------------------------------------
$ 683,056
==============================================================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current liabilities:
Accounts payable and accrued expenses $ 343,216
Loan payable to stockholder 143,570
Payable to related party 300,000
Due to related party 9,401
------------------------------------------------------------------------------
Total current liabilities 796,187
------------------------------------------------------------------------------
Long-term payable to related party, less discount 83,333
------------------------------------------------------------------------------
Stockholders' deficiency:
Common stock - $.005 par value:
Authorized, 60,000,000 shares
Issued and outstanding, 37,634,693 shares 188,173
Additional paid-in capital 7,588,520
Deficit accumulated during the development stage (7,973,157)
------------------------------------------------------------------------------
(196,464)
------------------------------------------------------------------------------
$ 683,056
==============================================================================
See notes to consolidated financial statements
Pg. F-2
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
----------------------------------------------------------------------------------------
Period from
August 1,
1968 (date of
Year ended Year ended inception) to
February 28, February 28, February 28,
2003 2002 2003
----------------------------------------------------------------------------------------
Operating expenses:
Salaries and related $ 648,304 $ 461,629 $ 1,169,794
Research and development 1,373,124 949,124 2,435,292
Professional fees 522,115 1,310,916 1,871,716
Write-down of intellectual property rights 40,000 530,000
General and administrative 582,174 475,520 1,084,254
----------------------------------------------------------------------------------------
Operating loss (3,165,717) (3,197,189) (7,091,156)
----------------------------------------------------------------------------------------
Other income (expense):
Interest expense (447,853) (540,543) (1,001,396)
Interest income 17,083 26,061 44,763
Other income 187,040 42,035 229,075
Other expense (28,805) (36,281) (65,086)
----------------------------------------------------------------------------------------
Total other expenses, net (272,535) (508,728) (792,644)
----------------------------------------------------------------------------------------
Loss from continuing operations (3,438,252) (3,705,917) (7,883,800)
Loss from discontinued operations (89,357)
----------------------------------------------------------------------------------------
Net loss $ (3,438,252) $ (3,705,917) $ (7,973,157)
========================================================================================
Loss per common share - basic and diluted $ (0.11) $ (0.14)
========================================================================================
Weighted average shares outstanding 31,731,051 27,000,962
========================================================================================
See notes to consolidated financial statements
Pg. F-3
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
-------------------------------------------------------------------------------------------------
Period from August 1, 1968 (date of inception) to February 28, 2003
-------------------------------------------------------------------------------------------------
Deficit
Accumulated
Additional During the Stockholders'
Number Common Paid-in Development Equity
of Shares Stock Capital Stage (Deficiency)
-------------------------------------------------------------------------------------------------
1969 - 14,130 shares issued for services
for $.05 per share 14,130 $ 70 $ 637 $ 707
1970 - 1,405,000 shares issued for mining
rights for $.05 per share 1,405,000 7,025 63,225 70,250
1970 - 55,500 shares issued for services
for $.05 per share 55,500 278 2,497 2,775
1973 - 10,000 shares issued for services
for $.05 per share
10,000 50 450 500
1976 - 500 shares issued for services
for $.05 per share
500 3 22 25
1978 - 12,000 shares issued for services
for $.05 per share
12,000 60 540 600
1980 - 225,000 shares issued for services
for $.05 per share
225,000 1,125 10,125 11,250
1984 - 20,000 shares issued for services
for $.05 per share
20,000 100 900 1,000
1986 - 10,000 shares issued for services
for $.05 per share
10,000 50 450 500
1990 - 10,000 shares issued for services
for $.05 per share 10,000 50 450 500
1993 - 25,000 shares issued for services
for $.05 per share
25,000 125 1,125 1,250
Net loss from inception through
February 28, 1998 (89,357) (89,357)
-------------------------------------------------------------------------------------------------
Balance at February 28, 1998 1,787,130 8,936 80,421 (89,357) -
1999 - 10,000 shares issued for services
for $.05 per share 10,000 50 450 $ 500
1999 - 1,000,000 shares issued for services
for $.005 per share
1,000,000 5,000 5,000
Net loss for the year ended
February 28, 1999 (5,500) (5,500)
-------------------------------------------------------------------------------------------------
Balance at February 28, 1999 2,797,130 13,986 80,871 (94,857) -
2000 - 1,000,200 shares issued
for services for $.005 per share
1,000,200 5,001 5,001
See notes to consolidated financial statements
Pg. F-4
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
-------------------------------------------------------------------------------------------------
Period from August 1, 1968 (date of inception) to February 28, 2003
-------------------------------------------------------------------------------------------------
Deficit
Accumulated
Additional During the Stockholders'
Number Common Paid-in Development Equity
of Shares Stock Capital Stage (Deficiency)
-------------------------------------------------------------------------------------------------
Net loss for the year ended
February 29, 2000 (5,001) (5,001)
-------------------------------------------------------------------------------------------------
Balance at February 29, 2000 3,797,330 18,987 80,871 (99,858) -
2000 - 250,000 shares issued for services
for $.005 per share
250,000 1,250 1,250
2000 - Expenses paid by stockholder 2,640 2,640
2000 - 10,759,101 shares issued for
acquisition of Antisense Technology,
Inc. 10,759,101 53,795 121,205 175,000
2000 - 10,759,101 shares issued for cash
for $.005 per share 10,759,101 53,796 121,204 175,000
Net loss for the year ended
February 28, 2001 (729,130) (729,130)
-------------------------------------------------------------------------------------------------
Balance at February 28, 2001 25,565,532 127,828 325,920 (828,988) (375,240)
2001 - 2,399,750 shares issued for cash
for $1.00 per share 2,399,750 11,999 2,387,751 2,399,750
2001 - 468,823 shares issued for interest 468,823 2,344 466,479 468,823
2001 - Redemption of 200,000 shares (200,000) (1,000) (1,000)
2001 - 1,315,334 shares issued upon
conversion of bridge loans at $.75
per share 1,315,334 6,576 979,924 986,500
2001 - Offering costs associated with
share issuances for cash (254,467) (254,467)
2002 - Grant of stock options for services 702,800 702,800
Net loss for the year ended
February 28, 2002 (3,705,917)(3,705,917)
-------------------------------------------------------------------------------------------------
Balance at February 28, 2002 29,549,439 147,747 4,608,407 (4,534,905) 221,249
2002 - Shares issued for cash for
$.34 per share 993,886 4,969 337,461 342,430
2002 - Shares issued for cash for
$.15 per share 1,192,874 5,964 167,002 172,966
2002 to 2003 - Shares issued for cash for
$.25 per share 5,541,100 27,706 1,357,569 1,385,275
2002 to 2003 - Shares issued as commissions
on offerings 357,394 1,787 (1,787) -
2002 to 2003 Cash commissions on offerings (119,488) (119,488)
Offering costs (45,644) (45,644)
Grant of stock options for services 485,000 485,000
Intrinsic value of beneficial conversion feature
of note payable and MRI liability 800,000 800,000
Net loss for the year ended
February 28,2003 (3,438,252)(3,438,252)
------------------------------------------------------------------------------------------------
Balance at February 28, 2003 37,634,693 $ 188,173 $7,588,520 $(7,973,157) $(196,464)
=================================================================================================
See notes to consolidated financial statements
Pg. F-5
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------------------------------------------------
Period from
August 1,
1968 (date of
Year ended Year ended inception) to
February 28, February 28, February 28,
2003 2002 2003
-------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(3,438,252) $(3,705,917) $(7,973,157)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 25,601 14,762 40,530
Realized and unrealized losses on marketable securities 28,805 38,143 66,948
Amortization of interest on convertible notes payable 383,333 - 383,333
Write-down of intellectual property rights 40,000 - 530,000
Amortization of discount on payable to related party - 62,000 75,000
Issuance of common stock for services - 101,108
Issuance of common stock for interest 468,823 468,823
Grant of stock options for services 485,000 702,800 1,187,800
Expenses paid by stockholder - - 2,640
Changes in operating assets and liabilities:
Increase in advances receivable (10,127) - (10,127)
Increase in due from related parties (24,368) - (24,368)
(Increase) decrease in prepaid expenses 896 (91,819) (90,923)
Increase in security deposits - (2,933) (2,933)
Increase in accounts payable and accrued expenses 214,176 18,184 329,885
Decrease in due to related parties (6,948) (153,787) (34,095)
-------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,301,884) (2,649,744) (4,949,536)
-------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of fixed assets (7,951) (90,811) (103,762)
Sales of marketable securities 540,000 377,270 917,270
Purchases of marketable securities (302,000) (984,218) (1,286,218)
-------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 230,049 (697,759) (472,710)
-------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Proceeds of bridge loans - 986,500 986,500
Loan from stockholder 143,570 - 143,570
Line of credit borrowing from related party 300,000 300,000
Net proceeds from sales of capital stock 1,735,539 2,201,110 4,111,649
Deferred equity placement costs (70,538) - (70,538)
-------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,108,571 3,187,610 5,471,181
-------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 36,736 (159,893) 48,935
Cash and cash equivalents at beginning of period 12,199 172,092 -
-------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 48,935 $ 12,199 $ 48,935
=================================================================================================
Supplemental schedule of noncash investing and
financing activities:
Intellectual property acquired through issuance of common
stock and assumption of related party payable $ 175,000
=================================================================================================
Acquisition of intellectual property rights $ 425,000
=================================================================================================
Issuance of common stock upon conversion of bridge loans $ 986,500 $ 986,500
=================================================================================================
See notes to consolidated financial statements
Pg. F-6
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2003
-------------------------------------------------------------------------------
1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
The consolidated financial statements include the accounts of Biophan
Technologies, Inc. ("Biophan") 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 is in the development stage and is expected to remain so for at
least the next 12 months. The Company is developing technologies that make
biomedical devices safe for use in an MRI (Magnetic Resonance Imaging)
machine.
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 has not generated any revenue throughout its history. The
Company's ability to continue in business is dependent upon obtaining
sufficient financing or attaining future profitable operations.
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, originally dated December 1, 2000 and subsequently
amended, 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 ("MRI technology purchase liability payable")
The Assignment was consummated pursuant to, and in accordance with, an
Assignment and Security Agreement, originally dated December 1, 2000 and
subsequently amended, by and between the Company and Biomed.
Pg. F-7
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2003
-------------------------------------------------------------------------------
For purposes of the statement of cash flows, the Company considers all highly
liquid instruments with an original maturity of three months or less to be
cash equivalents.
The Company maintains cash in bank deposit accounts which, at times, exceed
federally insured limits. The Company has not experienced any losses on these
accounts.
Marketable securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities. Trading
securities are recorded at fair value, with the change in fair value during
the period included in operations.
Depreciation of fixed assets is provided by the straight- line method over the
estimated useful lives of the related assets. Amortization of acquired
intellectual property rights is provided by the straight-line method over 17
years. Costs for internally developed intellectual property rights with
indeterminate lives are expensed as incurred.
At each balance sheet date, the Company evaluates the period of amortization
of intangible assets. The factors used in evaluating the period of
amortization include: (i) current operating results, (ii) projected future
operating results, and (iii) any other material factors that affect continuity
of the business.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted rates
expected to apply when the differences are expected to be realized. A
valuation allowance is recognized if it is anticipated that some or all of the
deferred tax asset may not be realized.
Basic loss per common share is computed by dividing net loss by the weighted-
average number of shares of common stock outstanding during the period.
Diluted loss per common share gives effect to dilutive options, warrants and
other potential common stock outstanding during the period. Potential common
stock has not been included in the computation of diluted loss per share, as
the effect would be antidilutive.
The Company has elected to apply Accounting Principles Board ("APB") Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations
in accounting for its stock options issued to employees (intrinsic value) and
has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation. Had the Company elected to recognize compensation cost based on
the fair value of the options granted at the grant date as prescribed by SFAS
No. 123, the Company's net loss and loss per common share would have been as
follows:
Year ended February 28, 2003 2002
-----------------------------------------------------------------------
Net loss - as reported $3,438,252 $3,705,917
Add: Stock-based employee compensation
Expense included in reported net loss,
net of related tax effects 458,000 268,000
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects 524,000 280,000
-----------------------------------------------------------------------
Net loss - pro forma $3,372,252 $3,693,917
=======================================================================
Basic and diluted loss
per share - as reported $ .11 $ .14
=======================================================================
Basic and diluted loss
per share - pro forma $ .11 $ .14
=======================================================================
The Company's assumptions used to calculate the fair values of options issued
during the year ended February 28, 2003 were (i) risk-free interest rates of
3.05% through 4.75%, (ii) expected lives of 5 to 10 years, (iii) expected
volatility of 90%, and (iv) expected dividends of zero.
The Company's assumptions used to calculate the fair values of options issued
during the year ended February 28, 2002 were (i) risk-free interest rates of
4.27% and 4.87%, (ii) expected life of nine years, (iii) expected volatility
of 90.%, and (iv) expected dividends of zero.
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates by management. Actual
results could differ from these estimates.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on
the accompanying financial statements.
Pg. F-8
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2003
-------------------------------------------------------------------------------
2. INVESTMENTS IN MARKETABLE SECURITIES:
Investments in trading securities are summarized as follows at February
28, 2003:
Gross
Unrealized Fair
Cost Gain/Loss Value
-------------------------------------------------------------------------
Corporate debt securities $302,000 $ - $302,000
==========================================================================
There were no unrealized holding losses on trading securities for the year
ended February 28, 2003.
3. PREPAID EXPENSES:
Prepaid expenses at February 28, 2003 consist of the following:
Prepaid consulting fees $ 53,933
Prepaid insurance 18,865
Prepaid supplies 18,125
--------
$ 90,923
========
4. FIXED ASSETS:
Fixed assets, at cost, consist of the following:
Depreciation/
Amortization
Period
-----------------------------------------------------------
Furniture & Equipment $39,320 5-7 years
Computers 10,283 5 years
Internet Web site 54,159 7 years
-----------------------------------------------------------
103,762
Less accumulated depreciation (40,530)
-----------------------------------------------------------
$63,232
===========================================================
Depreciation expense for the years ended February 28, 2003 and 2002 amounted
to $25,601 and $14,762, respectively. Depreciation expense for the period
from August 1, 1968 (Date of Inception) to February 28, 2003 was $40,530.
5. INTELLECTUAL PROPERTY RIGHTS:
Intellectual property rights were acquired on December 1, 2000 and encompass
two areas: (1) The utilization of new proprietary technology to prevent
implantable cardiac pacemakers and other critical and life-sustaining medical
devices from being affected by MRI and other equipment using magnetic fields,
radio waves and similar forms of electromagnetic interference ("EMI"), and (2)
the use of proprietary antisense gene therapy technology to inhibit the spread
of human immunodeficiency virus (HIV-1) infection in conjunction with the use
of lentiviral vectors. In the current year ended February 28, 2003, the
stated cost value of the gene technology rights in the amount of $40,000 was
written off. The Company has discontinued its development efforts in this
area.
6. LOAN AGREEMENTS:
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. At February 28, 2003, $143,570 had been borrowed under this Agreement.
In June 2002, the Company executed a line-of-credit agreement (the "Line")
with Biomed that provided for borrowings up to $250,000. Interest accrues at
8% per annum. Upon execution of the Line, Biomed received warrants to
purchase 325,000 shares of restricted common stock at $1.00 per share. The
warrants were valued at approximately $234,000 which was recorded as a
discount against the Convertible Promissory Note (the "Note") supporting the
Line. At issuance, the Note was convertible into shares of the Company's
common stock, at a price below the market value of such stock. The intrinsic
value of the beneficial conversion feature of the Note was recorded as an
additional discount, such that the full $250,000 issued was discounted, with
a corresponding increase to additional paid-in capital.
On August 19, 2002, the Line was increased by $100,000 and the expiration date
thereof was extended to August 19, 2003. The payment date of amounts borrowed
under the original Line was extended to December 1, 2002. In consideration
for the increase in the Line, Biomed received 30,000 additional warrants to
purchase shares of restricted common stock at a price dependent on the selling
price of the Company's stock, as defined. The exercise price of the warrants
issued to Biomed in exchange for the increase in the line of credit to
$350,000 and the extension of the payment date to December 1, 2002 is the
lowest of (i) the closing bid price on June 4, 2002; (ii) the closing bid
price on the date of exercise; or (iii) the lowest per share purchase price
paid by any third party between June 4, 2002 and the exercise date. The fair
value of the warrants - in accordance with guidance provided by Statement of
Financial Accounting Standards No. 123, Accounting for Stock-Based
Compensation - was estimated at the date of grant using the Black-Scholes
option pricing model with the following assumptions: risk-free interest rate
of 5.25; no dividend yield; volatility factor of the expected market price of
the company's common stock of 0.0%, and an expected life of 2.8 years. The
value attributed to the warrants was insignificant. As a result, these
warrants have been allocated no value. The Company has drawn an additional
$50,000 under the Line, which was also fully discounted as a result of the
beneficial conversion feature, which was recorded as additional paid-in
capital. At February 28,2003, the Company has borrowed $300,000 in aggregate
under the Line.
Under the Transfer Agreement dated December 1, 2000, the Company incurred a
liability ("MRI technology purchase liability payable") of $500,000 (including
interest of $75,000) to Biomed in connection with the acquisition of the MRI
intellectual property rights described in Note 4. Biomed maintains a security
interest in the underlying patents until the liability is satisfied. The
intellectual property rights will revert to Biomed if the Company does not
satisfy the liability by June 1, 2004. The stated liability bears interest at
an annual rate of 8%. The balance of the MRI technology purchase liability
payable at February 28, 2002 is $500,000.
At February 28, 2003, the principal amounts of the Company's obligations
approximated their estimated fair values based upon current borrowing rates
for similar issues.
In December 2002, in consideration for extending the maturity date to June 1,
2004 and for prior extensions, the Company and Biomed agreed to make the
$500,000 MRI technology purchase liability payable to Biomed convertible at
Biomed's election into shares of the Company's common stock at a price
dependent on the selling price of the Company's stock, as defined, but below
market. Consequently, the intrinsic value of the beneficial conversion
feature of the liability was recorded as a discount, such that the full
$500,000 was discounted, with a corresponding increase to additional paid-in
capital.
7. STOCKHOLDERS' EQUITY:
In July and August 2002, the Company entered into finder's agreements for the
sale of restricted common stock to foreign investors pursuant to the exemption
from registration provided in Regulation S of the 1933 Securities Act. The
Company issued a total of 2,186,760 shares of stock for aggregate net proceeds
of $491,034 under these agreements.
Effective August 22, 2002, the Company entered into a finder's agreement with
a domestic consulting firm providing for the sale of restricted shares of
common stock pursuant to Regulation D under the Securities Act. The finder
receives a cash fee of 10% plus stock. The Company issued a total of 5,541,100
shares of stock for aggregate net proceeds of $1,244,505.
During November 2002, the Company entered into a Stock Purchase Agreement with
an institutional investor whereby the Company agreed to sell up to $3,000,000
of the Company's common stock. 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 immediately after the SEC declares the above-
mentioned Registration Statement effective. The Company is in the process of
filing for registration.
8. COMMITMENTS:
The Company is obligated under an operating lease for office space expiring
September 30, 2004. The Company may terminate the lease upon ninety days prior
written notice to the landlord. The aggregate minimum future payments under
this lease are payable as follows:
Year ending February 28,
2004 $ 46,783
2005 25,083
--------------------------------------------------------
$ 71,866
========================================================
Rent expense charged to operations under this operating lease aggregated
$51,321 and $14,667 for the years ended February 28, 2003 and 2002,
respectively. Rent expense charged to operations for the period from August
1, 1968 (Date of Inception) to February 28,2003 was $65,988.
9. RELATED PARTY TRANSACTIONS:
Biomed and another related party paid expenses on behalf of the Company
aggregating $128,411 and $253,014 during the years ended February 28, 2003 and
2002, respectively, and $551,561 for the period August 1, 1968 through
February 28, 2003. At February 28, 2003, the balance due from a related party
is $24,368 and the balance due to a separate related party is $9,401. The
amounts due from and to the related parties do not bear interest, and the
Company expects to collect and repay these respective balances during the next
12 months.
10. STOCK-BASED COMPENSATION PLAN:
The Company has a stock option plan (the "Plan") which provides for the
granting of nonqualified or incentive stock options ("ISO") to officers, key
employees, non-employee directors and consultants. The Plan authorizes the
granting of options to acquire up to 2,500,000 common shares. ISO grants
under the Plan are exercisable at the market value of the Company's stock on
the date of such grant. Nonqualified option grants under the Plan are
exercisable at amounts determined by the board of directors. All options
under the Plan are exercisable at times as determined by the board of
directors, not to exceed 10 years from the date of grant. Additionally, the
Plan provides for the granting of restricted stock to officers and key
employees.
The following table summarizes activity in stock options:
Weighted-
average
Exercise
Options Price
-----------------------------------------------------------
Outstanding at March 1, 2001 - -
Granted 1,779,997 $ .51
Forfeited - -
Exercised - -
-----------------------------------------------------------
Outstanding at February 28, 2002 1,779,997 $ .51
Granted 739,998 .42
Forfeited 30,000 .50
Exercised - -
-----------------------------------------------------------
Outstanding at February 28, 2003 2,489,995 $ .48
===========================================================
Weighted-average fair value of
options granted during the year
ended February 28, 2003 and 2002,
respectively $ .33 $ .90
===========================================================
The following table summarizes information about stock
options outstanding and exercisable at February 28, 2003:
Options Outstanting Options Exercisable
----------------------------------- ----------------------
Weighted
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
----------------------------------------------------------------------------
$.10 - $.43 940,000 7.50 years $.33 546,666 $.27
$.50 - $1.00 1,549,995 7.64 years $.58 1,017,995 $.62
----------------------------------------------------------------------------
$.10 - $1.00 2,489,995 7.58 years $.48 1,564,661 $.50
Pg. F-9
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
February 28, 2003
-------------------------------------------------------------------------------
At February 28, 2003, 10,005 shares of common stock were reserved for future
issuance of stock options.
11. INCOME TAXES:
As of February 28, 2003, the Company had net operating loss carryforwards of
approximately $5,706,000 for federal income tax purposes, which expire through
2023.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is as follows:
Year Ended February 28, 2003 2002
-----------------------------------------------------------
Tax benefit at U.S. statutory rates 34 % 34 %
Increase in valuation allowance (34)% (34)%
-----------------------------------------------------------
-0-% -0-%
===========================================================
Deferred tax asset is comprised of the following:
February 28, 2003
-----------------------------------------------------------
Net operating loss carryforwards $1,940,000
Write-down of intellectual property rights 180,000
-----------------------------------------------------------
Total deferred tax asset 2,120,000
Valuation allowance (2,120,000)
-----------------------------------------------------------
Net deferred tax asset $ -0-
==========================================================
F-10
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act
The officers and directors of Biophan are as follows:
Name Age Title
Guenter H. Jaensch 64 Chairman of the Board
Michael L. Weiner 55 Director, Chief Executive Officer, President
Robert J. Wood 64 Vice-President, Treasurer, Chief Financial
Officer
David A. Miller 48 Secretary
Stuart G. MacDonald 54 Vice-President-Research and Development
Jeffrey L. Helfer 50 Vice-President-Engineering
Robert S. Bramson 64 Director
Steven Katz 55 Director
Ross B. Kenzie 71 Director
The above listed officers and directors will serve until the next annual
meeting of the shareholders or until their death, resignation, retirement,
removal, or disqualification, or until their successors have been duly
elected and qualified. Vacancies in the existing Board of Directors may be
filled by majority vote of the remaining Directors. Officers serve at the
will of the Board of Directors.
Guenter H. Jaensch, PhD is the former Chairman and CEO of Siemens Pacesetter,
Inc., a manufacturer of pacemakers. During his more than twenty-five years at
Siemens, Dr. Jaensch held various senior executive positions prior to running
Siemens Pacesetter, including President of Siemens Communications Systems,
Inc. from August 1983 to March 1985, Chairman and President of Siemens
Corporate Research and Support, Inc., from April 1982 to September 1991
and Chairman and CEO of Siemens Pacesetter, Inc. and Head of the Cardiac
Systems Division of Siemens AG Medical Engineering Group from October
1991 to September 1994. Dr. Jaensch holds a Masters Degree in Business
Administration and a Ph.D. in Business and Finance from the University of
Frankfurt and taught business and statistics at the University prior to
joining Siemens in 1969. In 1994, he joined St. Jude Medical as Chairman and
CEO of Pacesetter, Inc., a St. Jude Medical Company, and retired in 1995 to
manage his personal investments. Since December 1997 he has been a director
of MRV Communications, a publicly traded company which is a leading company
in the fiber optic technology business. Dr. Jaensch has been a director of
Biophan since March 2002.
Michael L. Weiner began his career at Xerox Corporation in 1975, where he
served in a variety of capacities in sales and marketing, including manager of
software market expansion and manager of sales compensation planning. In 1985,
after a ten year career at Xerox, Mr. Weiner founded Microlytics, a Xerox spin-
off company which developed technology from the Xerox Palo Alto Research
Center into a suite of products with licenses to many companies. In January
1995, Weiner co-founded and became CEO of Manning & Napier Information
Services, a Rochester-based company providing patent analytics, prior art
searches, and other services. He held this position until January of 1999. In
60
February 1999 he formed Technology Innovations, LLC, to develop and expand
certain intellectual property assets. In August, 2000, Technology Innovations,
LLC created a subsidiary, Biomed Solutions, LLC, to pursue certain biomedical
and nanotechnology opportunities. Mr. Weiner serves on the Boards of Biomed
Solutions, LLC, Technology Innovations, LLC, Speech Compression Technologies,
LP (an R&D partnership commenced in 1989 to pursue compression technologies),
Nanoset, LLC, and Nanocomp, LLC. Mr. Weiner holds six issued patents invented
prior to the formation of Biophan which are owned by other companies that
employed Mr. Weiner prior to the formation of Biophan. These patents do not
involve technology that is competing or will compete with Biophan. Mr. Weiner
has been CEO and a director of Biophan since December 2000.
Robert J. Wood is a Certified Public Accountant with extensive experience
in public accounting and business consulting. He began his career at Price
Waterhouse & Co. in 1962 after graduating from St. John Fisher College with a
B.B.A. in Accounting. From 1973 to 2000, he was consecutively owner/partner
of Metzger, Wood & Sokolski, CPAs (through December 1985), Mengel, Metzger,
Barr & Co., LLP (through December 1990), and Wood & Company, CPAs, P.C.
(through November 2000), all in Rochester, New York. In December 2000, his
practice was acquired by a regional CPA firm, Eldredge, Fox and Porretti, LLP
and he was engaged in business consulting until joining Biophan as full-time
Chief Financial Officer in August 2001. He is a member of the New York State
Society of Certified Public Accountants. A portion of Mr. Wood's time is
spent assisting with the fiscal management of Biomed Solutions, LLC, a related
company, for which Biophan is reimbursed.
David A. Miller was self employed from January 1998 until June 2001.
Since June 2001 he has been employed by Biophan. From January 1998 through
June 2000 Mr. Miller managed a retail outlet for his family's antique, gold
and jewelry business. Additionally, from January 1998 until June 2001 he
operated a business providing office support services. Mr. Miller has been an
SEC Edgar system filing agent since November 1999. Mr. Miller has been
associated with us since 1996. He has held the office of Corporate Secretary
since January 30, 1999. During the period from April 22, 1998 until December
1, 2000 we were inactive. Mr. Miller provided office space for us and
performed duties associated with maintaining our corporate existence. His
duties included preparing and filing documents with applicable governmental
agencies, maintaining stock records, stockholder relations, keeping minutes of
Board of Directors and stockholder meetings and electronically filing periodic
and special reports with the SEC. Since December 1, 2000 Mr. Miller has
served in a similar manner consistent with the requirements of the office of
Corporate Secretary. He served on the Board of Directors from April 22, 1998
until February 1, 2001 and held the offices of Vice-President and Treasurer
from April 22, 1998 until December 1, 2000.
Stuart G. MacDonald is experienced in research and development with a
broad engineering and science background, emphasizing a systems approach to
developing complex technology. From January 1995 through December 2000, Mr.
MacDonald was employed at Ortho-Clinical Diagnostics, a Johnson & Johnson
company, in Rochester, New York, holding the position of Director-Engineering
from 1996 to mid-1997 and Vice-president, Clinical Lab Instrumentation R & D
from mid-1997 through December 2000. He was responsible for overall
management of the R&D group, including personnel, administration and financial
performance. He worked at Eastman Kodak Company from 1971 to 1994, rising to
the position of Assistant Director, Clinical Diagnostic Research Labs. Mr.
MacDonald has a B.S. in Mechanical Engineering and Masters of Engineering
degree from Cornell University. He is also licensed as a professional
engineer by the State of New York. Mr. MacDonald was employed by Biophan as
Vice-President-Research and Development in January 2001. A portion of Mr.
McDonald's time is spent assisting with the research program of Biomed
Solutions, LLC, a related company, for which Biophan is reimbursed.
61
Jeffrey L. Helfer's background includes 28 years in new product and
technology development, systems management, new business development, and
regulatory affairs, having served in a number of positions at Eastman Kodak
Company for 19 years until November 1994 and from December 1994 to September
2001 at Ortho-Clinical Diagnostics (OCD) in Rochester, New York, a Johnson &
Johnson company. Most recently, he was program director within OCD's Product
Development and Program Management Center of Excellence, where he was
responsible for systems management of OCD's next-generation clinical chemistry
platform. He also held positions as Program Director and Director of
Regulatory Affairs from April 2000 to September 2001, Director of Engineering
from January 1997 to March 2000, Director of New Business Development from
February 1995 to December 1996, and headed up multiple international and
corporate initiatives to improve product performance and business processes.
He holds a B.S. from Rochester Institute of Technology and an M.S. from the
University of Rochester, both in Mechanical Engineering. Mr. Helfer is a
Johnson & Johnson certified Design for Six Sigma Black Belt and a New York
State Professional Engineer. Mr. Helfer was employed by Biophan as Vice-
President-Engineering in October 2001. A portion of Mr. Helfer's time is
spent assisting with the research program of Biomed Solutions, LLC, a related
company, for which Biophan is reimbursed.
Robert S. Bramson is an engineer and patent attorney and since 1996 has
been a partner in Bramson & Pressman, a law firm that focuses on patent and
technology licensing matters. Since 1996 he has also been President of VAI
Management Corp., a consulting firm that specializes in patent and technology
licensing. He is former head of the Computer and Technology law group of
Schnader, Harrison, Segal & Lewis (where he worked from 1968 to 1989); former
Vice President and General Patent and Technology Counsel for Unisys (from 1989
to 1990); founder and former CEO of InterDigital Patents Corporation, a patent
licensing company (from 1992 to 1995); former Licensing Counsel for Abbott
Laboratories (from 1963 to 1966); and has been Adjunct Professor of Patent
Law, Computer Law and (presently) Licensing Law at Temple Law School, Rutgers
Law School and Villanova Law School at different times (from 1980 to date).
Mr. Bramson has been a director of Biophan since July 2001.
Steven Katz is President of Steven Katz & Associates, Inc., a technology-
based management consulting firm specializing in strategic planning, corporate
development, new product planning, technology licensing, and structuring and
securing various forms of financing since 1982. From January 2000 until
October 2001, Mr. Katz was President and Chief Operating Officer of Senesco
Technologies, Inc., a public company engaged in the development of proprietary
genes with application to agro-biotechnology. From 1983 to 1984 he was the co-
founder and Executive Vice President of S.K.Y. Polymers, Inc., a biomaterials
company. Prior to S.K.Y. Polymers, Inc., Mr. Katz was Vice President and
General Manager of a non-banking division of Citicorp. From 1976 to 1980 he
held various senior management positions at National Patent Development
Corporation, including President of three subsidiaries. Prior positions were
with Revlon, Inc. (1975) and Price Waterhouse & Co. (1969 to 1974). Mr. Katz
received a Bachelor of Business Administration degree in Accounting from the
City College of New York in 1969. He is presently a member of the Board of
Directors of USA Technologies, Inc., a publicly held corporation, and several
other private companies. Mr. Katz has been a director of Biophan since July
2001.
Ross B. Kenzie is a former Chairman and Chief Executive Officer of
Goldome Bank, from which he retired in June 1989. He was previously Executive
Vice President of Merrill Lynch & Co., in the New York worldwide
headquarters, and is a former member of the Merrill Lynch & Co. Board of
Directors. He is a former Director of the Federal Home Loan Bank of New York
(from 1984 to 1988) and served on the boards of the National Council of
Savings Institutions (from 1982 to 1986), the Federal Reserve Bank of New
York, Buffalo Branch (from 1985 to 1987), and the Savings Banks Association of
62
New York State (from 1984 to 1987). Mr. Kenzie was a Director of Millard
Fillmore Hospitals (from 1982 to 1995)and is currently Past Chairman
Emeritus. He served on the Board of the Kaleida Health, Education and
Research Foundation (from 1998 to 2000) and is currently on its Investment
Committee. He was a Director of the Health Systems Agency of Western New York
(from 1988 to 1991), and was a member of the Western New York Commission on
Health Care Reform (from 1987 to 1990). Mr. Kenzie was a member of the
College Council of the State University College at Buffalo (from 1981 to 1998)
and served as Chairman. He was a Director of the College's Foundation and a
member of its Finance Committee (from 1984 to 1998) and is currently on its
Investment Committee. He served on the Council of the Burchfield-Penney Art
Center (from 1990 to 2001) and the Albright Knox Art Gallery (from 1983 to
1985). He is also a member of the Board, and the Chairman of the Investment
Committee of the State University at Buffalo Foundation. Mr. Kenzie currently
serves on the boards of several companies including the publicly held Rand
Capital Corporation and many entrepreneurial ventures that are privately held,
including the Boards of Members of Biomed Solutions LLC and Technology
Innovations, LLC. Mr. Kenzie has been a director of Biophan since December
2000.
Committees
The Board of Directors has an Audit Committee consisting of Messrs. Bramson,
Katz and Kenzie and a Compensation Committee consisting of Messrs. Bramson,
Katz and Kenzie. The Audit Committee makes recommendations concerning the
engagement of independent public accountants, reviews with the independent
accountants the results of the audit engagement, approves professional
services provided by the accountants including the scope of non-audit
services, if any, and reviews the adequacy of our internal accounting
controls. The Compensation Committee makes recommendations to the Board
regarding executive and employee compensation and benefits.
Compensation of the Board of Directors
Non-management directors are paid an annual cash fee of $3,500 and a per-
meeting fee of $1,000. In addition, non-management directors receive options
under our Stock Option Plan described below. All directors are reimbursed
reasonable expenses incurred in attending Board meetings. We maintain
directors and officers liability insurance.
Conflicts of Interest:
Messrs. MacDonald, Helfer and Wood each spends a portion of his time on
the business affairs of Biomed for which Biomed reimburses Biophan a
percentage of their salary and benefits. Our Board of Directors periodically
reviews this arrangement on a regular basis. Currently, Biomed reimburses
Biophan for approximately 20% of the time of MacDonald, Helfer and Wood. The
Board of Directors does not believe that any conflicts of interest arise as a
result of this policy, but it monitors the relationship on an ongoing basis.
Michael Weiner devotes essentially his full business time to our company.
His employment agreement with Biophan requires a majority of his time,
allowing him to attend to certain administrative duties of Technology
Innovations, its subsidiary, Biomed Solutions, and Speech Compression
Technologies, LP, an R&D partnership holding certain assets. Mr. Weiner is a
member and the manager of Biomed and of Technology Innovations. Ross Kenzie,
one of the Biophan directors, is on the Board of Members of Technology
Innovations and Biomed. Biomed is in the business of identifying and
acquiring technologies in the biomedical field for exploitation; it is a
creditor of our company pursuant to the Line of Credit Note; and it has the
right to reacquire the MRI-compatible technology which it sold to us if
payments are not made when due. Due to these opposing roles, conflicts of
63
interest could arise as to the enforcement of Biomed's rights under the Line
of Credit Note, the determination of which entity will acquire a particular
technology and the enforcement of its rights to the MRI-compatible technology
under the Transfer Agreement.
Biomed is an investor in Nanoset, and Mr. Weiner serves on the board of
Nanoset. Subsequent to the formation of Nanoset and Mr. Weiner's joining
their board, Mr. Weiner learned that the nanomagnetic particle technology
held by Nanoset might be applicable to the MRI safety goals of Biophan. Mr.
Weiner brought this technology to the attention of Biophan which eventually
licensed the technology from Nanoset. Biomed holds a 33% interest in
Nanoset. Biophan's license agreement with Nanoset was negotiated based on
arms-length negotiations. Mr. Weiner and Mr. Kenzie each abstained from
voting on whether to approve the license agreement.
Biomed has agreed that all intellectual property developed by the
employees of Biomed that is in the area of MRI Safe and/or Image Compatible
Technology (the "MRI Technology") and HIV Antisense shall be assigned to
Biophan. Per this agreement, MRI Technology means the technology necessary
to enable medical devices resistant to radio frequency and static and gradient
electromagnetic fields produced by magnetic resonance imaging machines. HIV
Antisense is a method of treating HIV.
Our independent directors will make all determinations and decisions
relating to the issue involving Biomed described above, without the vote of
either Mr. Weiner or Mr. Kenzie. In addition, the Board will act to ensure
that Mr. Weiner and Mr. Kenzie discharge their obligations to Biophan in
accordance with their fiduciary duties to Biophan.
Limitation on Liability of Directors
Under Nevada Revised Statutes Section 78.138, a director or officer is
generally not individually liable to the corporation or its shareholders for
any damages as a result of any act or failure to act in his capacity as a
director or officer, unless it is proven that:
* his act or failure to act constituted a breach of his fiduciary duties
as a director or officer; and
* his breach of those duties involved intentional misconduct, fraud or a
knowing violation of law.
This provision is intended to afford directors protection against and to limit
their potential liability for monetary damages resulting from suits alleging a
breach of the duty of care by a director. As a consequence of this provision,
stockholders of Biophan will be unable to recover monetary damages against
directors for action taken by them that may constitute negligence or gross
negligence in performance of their duties unless such conduct falls within one
of the foregoing exceptions. The provision, however, does not alter the
applicable standards governing a director's fiduciary duty and does not
eliminate or limit the right of Biophan or any stockholder to obtain an
injunction or any other type of non-monetary relief in the event of a breach
of fiduciary duty.
As permitted by Nevada law, Biophan's By-Laws include a provision which
provides for indemnification of a director or officer by us against
expenses, judgments, fines and amounts paid in settlement of claims against
the director or officer arising from the fact that he was an officer or
director, provided that the director or officer acted in good faith and in a
manner he or she believed to be in or not opposed to our best interests.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons pursuant to
64
the foregoing provisions, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable.
Scientific Advisory Board
From time to time, we call upon the advice of members of our Scientific
Advisory Board who currently serve without fixed cash compensation but are
each entitled to receive 8,333 options upon completion of each year of
membership. The members of our Board are:
Bradford C. Berk, M.D., Ph.D.- Since 1998, Dr. Berk has been Director, Center
of Cardiovascular Research; Paul N. Yu Professor and Chief of Cardiology;
Charles A. Dewey Professor and Chairman of Medicine, University of Rochester
Medical Center. Dr. Berk has clinical expertise in adult cardiology and
scientific expertise in cardiovascular medicine, particularly vascular
biology.
Herbert A. Hauptman, Ph.D.- In 1970, Dr. Hauptman joined the crystallographic
group of the Hauptman-Woodward Medical Research Institute (formerly the
Medical Foundation of Buffalo) of which he became Research Director in 1972.
He currently serves as President of the Hauptman-Woodward Medical Research
Institute as well as Research Professor in the Department of Biophysical
Sciences and Adjunct Professor in the Department of Computer Science at the
University of Buffalo. He was awarded the 1985 Nobel Prize in Chemistry and
elected to the National Academy of Sciences in 1988.
Kevin Parker, M.S., Ph.D.- Dean Parker is a Professor of Electrical and
Computer Engineering, Radiology, and Bioengineering at the University of
Rochester. In 1998, Dr. Parker was named Dean of the School of Engineering
and Applied Sciences.
Henry M. Spotnitz, M.D.- Since 1994, Dr. Spotnitz has been Vice-Chairman,
Research and Information Systems Department of Surgery at Columbia
Presbyterian Medical Center.
Jianhui Zhong, Ph.D.- Professor Zhong joined the University of Rochester in
1997 and is currently an Associate Professor of Radiology, Physics, and
Biomedical Engineering, and Director of the MRI Research Group at
the University Medical Center.
Special Consultant to the Scientific Advisory Board
Ray Kurzweil, B.S.- Founder, Chairman, and CEO of Kurzweil Technologies, Inc.,
a technology development company, since 1995. President Clinton awarded Mr.
Kurzweil the National Medal of Technology in 1999, for his invention of the
Kurzweil Reading Machine for the Blind. Mr. Kurzweil was inducted into the
National Inventor's Hall of Fame in 2002, and received the Lemelson-MIT Prize
in 2001. Mr. Kurzweil also developed Kurzweil Voice Recognition System, and
Kurzweil Music Synthesizer.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") requires our executive officers and directors and persons who own more
than ten percent of our common stock to file reports of ownership and changes
in ownership with the SEC. Such executive officers, directors and greater
than ten percent stockholders are also required by SEC rules to furnish us
with copies of all Section 16(a) forms they file. Based solely on
representations from certain reporting persons, we believe that, with respect
to the year ended February 28, 2003, all filings applicable to our executive
65
officers, directors and ten percent stockholders required by Section 16(a)
have been made.
Item 10. Executive Compensation
The following table summarizes the annual compensation paid to our named
Executive Officers during the three years ended February 28, 2003:
Name
and Year Salary Securities
principal underlying
position options/SARs
(a) (b) (c) (g)
------------------------------------------------------------
Michael L. Weiner, 2/28/01 $ -0- 250,000
CEO
Michael L. Weiner, 2/28/02 $150,600 -0-
CEO
Michael L. Weiner, 2/28/03 $175,000 250,000
CEO
Robert J. Wood 2/28/03 $109,461 50,000
CFO
Stuart G. MacDonald 2/28/03 $116,057 100,000
Vice-President-Research
Jeffrey L. Helfer 2/28/03 $113,461 100,000
Vice-President-Engineering
Columnar information required by Item 402(a)(2) has been omitted for
categories where there has been no compensation awarded to, earned by, or paid
to, the named Executive required to be reported in the table during fiscal
years 2001 through 2003.
Stock Options
As of June 22, 2001, the Board of Directors adopted the Biophan
Technologies, Inc. 2001 Stock Option Plan. The Option Plan provides for the
grant of incentive and non-qualified stock options to selected employees, the
grant of non-qualified options to selected consultants and to directors and
advisory board members. The Option Plan is administered by the Compensation
Committee of the Board of Directors and authorizes the grant of options for
2,500,000 shares. The Compensation Committee determines the individual
employees and consultants who participate under the Plan, the terms and
conditions of options, the option price, the vesting schedule of options and
other terms and conditions of the options granted pursuant thereto. Non-
employee directors participate pursuant to the formula set forth in the
Option Plan. Each Director receives an initial grant of 30,000 options,
vesting equally on the first, second and third anniversaries of grant and
annual grants of 10,000 options thereafter. As of February 28, 2003, we
have granted options to purchase 2,489,995 shares of Common Stock under
the Option Plan. To date, no options have been exercised.
The following table summarizes information concerning stock options granted
to the named Executives during the last completed fiscal year ended
February 28, 2003:
66
Percent of
Total
Number of options/SARs
Securities granted
underlying to Exercise
options/SARs employees or base
granted in fiscal price Expiration
Name (#) year ($/Sh) date
(a) (b) (c) (d) (e)
----------------------------------------------------------------------
Michael L. 250,000 25.25% $.43 7/16/12
Weiner, CEO
Robert J. 50,000 5.05% $.43 7/16/12
Wood, CFO
Stuart G. 100,000 10.10% $.43 7/16/12
MacDonald, Vice-
President-Research
Jeffrey L. Helfer, 100,000 10.10% $.43 7/16/12
Vice-President-
Engineering
No named Executive Officer exercised options in the fiscal year ended February
28, 2003. The following table presents the number and values of exercisable
and unexercisable options as of February 28, 2003:
Number of
securities Value of
underlying unexercised in-
Shares unexercised the-money
acquired Value options/SARS at options/SARs at
Name on realized FY-end (#) FY-end ($)
exercise ($) Exercisable/Unexer- Exercisable/Unexer-
(#) cisable cisable
(a) (b) (c) (d) (e)
-----------------------------------------------------------------------------
Michael L. None $-0- 266,668/233,332 $4,167/$8,333
Weiner, CEO
Robert J. None $-0- 56,667/93,333 $833 /$1,667
Wood
CFO
Stuart G. None $-0- 73,334/126,666 $1,667/$3,333
MacDonald
Vice-President-R&D
Jeffrey L. None $-0- 73,334/126,666 $1,667/$3,333
Helfer
Vice-President-Eng.
Employment Agreements
We have Employment Agreements with all our executive officers.
Mr. Weiner's Agreement provides, among other things, for an annual salary not
less than $175,000, a rate of pay that commenced within the fiscal year ended
February 28, 2002. He may be terminated by us for cause, without cause with
ninety days' written notice, upon his death or disability or upon a change in
control of the Corporation. In the event of involuntary termination,
disability or change in control, we will pay (i) the unpaid amount of the base
salary earned through the date of termination (ii) any bonus compensation
earned but not yet paid; and (iii) a severance payment equal to one (1) year
of his then current salary. In addition, the Executive will be immediately
vested in any options, warrants, retirement plan or agreements then in effect.
In the event of termination for cause, all unexercised warrants and
options, whether or not vested, shall be canceled and he will not be eligible
67
for severance payments.
In the event of voluntary termination, all unvested warrants and options
shall be canceled and he shall have three (3) months from the date of
termination to exercise his rights with respect to any unexercised but vested
options. He will not be eligible for severance payments.
As used in the Employment Agreement, "change in control" means the
occurrence of any one of the following events:
(1) on the date of the merger or consolidation of Biophan with
another entity where the members of the Board, immediately prior
to the merger or consolidation, would not immediately after the
merger or consolidation, constitute a majority of the Board of
Directors of the entity issuing cash or securities in the merger or
consolidation, or (2) on the date of the sale or other disposition of
all or substantially all of the assets of Biophan.
Item 11. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters
The table below lists the beneficial ownership of our common stock, as of June
11, 2003, by each person known by us to be the beneficial owner of more than 5%
of such securities, as well as the shares of Biophan beneficially owned by each
director and officer and by all directors and officers as a group.
Title of Class: Common
Shares
Name and Address of Beneficially
Beneficial Owner Owned(1)(2) Percent of Class
---------------------- ------------ ----------------
*Guenter H. Jaensch(3)
964 Allamanda Drive
Delray Beach, FL 33483 733,334 1.93%
*Michael L. Weiner (4)
693 Summit Drive
Webster, NY 14580 9,068,938 23.20%
Edward F. Cowle
99 Park Avenue
Suite 2230
New York, NY 10016 2,898,600 7.70%
Geoffrey Williams
56 West 400 Street
Suite 200
Salt Lake City, UT 84101 2,389,701 6.35%
Wilson Greatbatch (5)
5935 Davison Road
Akron, NY 14001 5,856,210 15.41%
*Robert S. Bramson (6)
1100 East Hector Street
Suite 410
Consohocken, PA 19428 20,000 .05%
68
*Ross B. Kenzie (7)
Cyclorama Bldg. Suite 100
369 Franklin Street
Buffalo, NY 14202 20,000 .05%
*Steven Katz (8)
20 Rebel Run Drive
East Brunswick 70,000 .19%
Robert J. Wood (9)
12 Peachtree Lane
Pittsford, NY 14534 146,667 .39%
Stuart G. MacDonald (10)
4663 East Lake Road
Pultneyville, NY 14538 163,334 .43%
Jeffrey H. Helfer (11)
1153 Hidden Valley Trail
Webster, NY 14580 203,334 .54%
David A. Miller
4004 Sunnyside Road
Sandpoint, ID 83864 100,500 .27%
All Officers and Directors as a 10,526,107 26.39%
group (9 persons)
* Member of the Board of Directors
(1) Except as may be set forth below, the persons named in the table have
sole voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) Applicable percentage of ownership is based on 37,634,693 shares
outstanding as of June 11, 2003, together with applicable options
for such shareholder. Beneficial ownership is determined in
accordance with the rules of the SEC and includes voting and
investment power with respect to shares. Shares subject to options
or warrants currently exercisable or exercisable within 60 days after
June 11, 2003 are deemed outstanding for purposes of computing the
percentage ownership of the person holding such options or warrants,
but are not deemed outstanding for computing the percentage of any
other shareholder.
(3) Includes 433,334 shares issuable upon exercise of options and
warrants granted to Dr. Jaensch which shares he has the right to
acquire within 60 days.
(4) Michael L. Weiner is a member and the manager of Technology
Innovations, LLC, which is the majority owner of Biomed Solutions,
LLC . Mr. Weiner is also the Manager of Biomed. Mr. Weiner's
calculation includes 662,857 shares owned beneficially and of record
by Biomed and 300,644 shares owned beneficially and of record by
Technology Innovations. Includes 1,180,000 shares issuable to Biomed
upon exercise of warrants issued to Biomed, 2,068,966 shares issuable
to Biomed upon conversion of $300,000 outstanding as of February 28,
2003 on the line of credit described in Note 4 under Certain
69
Transactions, and 3,448,276 shares issuable to Biomed upon conversion
of the $500,000 transfer agreement payment, as described in Note 5
under Certain Transactions. It also includes 283,334 shares issuable
upon exercise of options granted to Mr. Weiner, which shares Mr.
Weiner has the right to acquire within 60 days.
(5) Includes 5,379,550 shares owned of record and beneficially by
Greatbatch Gen-Aid, Ltd., an entity owned by Wilson Greatbatch, and
109,993 shares owned by E. & W.G. Foundation, a private foundation of
which Mr. Greatbatch is co-trustee. Also includes 216,667 shares
issuable upon exercise of options granted to Mr. Greatbatch, which
shares Mr. Greatbatch has the right to acquire within 60 days, and
includes 150,000 warrants issued in connection with the Transfer
Agreement with Biomed.
(6) Includes 20,000 shares issuable upon exercise of options granted to
Mr. Bramson, which shares he has the right to acquire within 60
days.
(7) Includes 20,000 shares issuable upon exercise of options granted to
Mr. Kenzie, which shares he has the right to acquire within 60 days.
Does not include shares owned beneficially or of record by Biomed or
by Technology Innovations. Mr. Kenzie is the Manager and an equity
member of Biophan Ventures, LLC, which is the 43% equity member in
Biomed; he is also the Manager of Patent Ventures LLC, which is the
Class A Member of Technology Innovations. Mr. Kenzie and Mr. Weiner
comprise the Board of Members of Biomed; Mr. Kenzie serves on the
Board of Members of Technology Innovations.
(8) Includes 20,000 shares issuable upon exercise of options granted to
Mr. Katz, which shares he has the right to acquire within 60 days.
(9) Includes 86,667 shares issuable upon exercise of options and warrants
granted to Mr. Wood, which shares he has the right to acquire within
60 days.
(10) Includes 103,334 shares issuable upon exercise of options and
warrants granted to Mr. MacDonald, which shares he has the right to
acquire within 60 days.
(11) Includes 103,334 shares issuable upon exercise of options and
warrants granted to Mr. Helfer, which shares he has the right to
acquire within 60 days.
Item 12. Certain Relationships and Related Transactions.
(1) Michael L. Weiner, President and Chief Executive Officer of Biophan,
is the Manager and a 42.7% equity member of Technology Innovations,
LLC., a 57% equity member of Biomed Solutions, LLC
(formerly Biophan, LLC). Mr. Weiner is also the Manager of Biomed.
He and Ross Kenzie make up the Board of Members of Biomed. Biomed is
the record owner of 662,857 shares of common stock of Biophan;
Technology Innovations is the record owner of 300,644 shares of
common stock of Biophan. As Manager of Technology Innovations and
Biomed, Mr. Weiner has control over these entities. Mr. Weiner is
also on the board of Nanoset, LLC, an entity owned in part by Biomed
Solutions, and with which the we have entered into a technology
license agreement.
(2) On December 1, 2000, Biomed received 10,759,101 shares of Biophan's
common stock in exchange for its shares of LTR Antisense Technology,
70
Inc. Most of those shares have been distributed to the members of
Biomed and their members.
(3) Also on December 1, 2000, Biomed transferred its MRI-compatible
pacemaker patent pending and related technology to Biophan for a
future payment of $500,000. This payment bears interest at 8% per
annum from February 28, 2002, and has been extended several times, to
June 1, 2004. After June 1, 2004, principal and interest are payable
in 12 equal monthly installments. After November 30, 2002, this
entire obligation is convertible into common shares of Biophan at a
conversion price equal to the lowest of (i) the closing bid price on
June 4, 2002; (ii) the closing bid price on the date of exercise; or
(iii) the lowest per share purchase price paid by any third party
between June 4, 2002 and the exercise date.
(4) On June 4, 2002, we executed a line of credit agreement with Biomed
providing for borrowings up to $250,000. On August 19, 2002, the
line was increased $100,000 and the expiration date thereof for that
portion of the line was set at August 19, 2003. The payment date of
amounts borrowed under the original Line was extended to December 1,
2002. On November 7, 2002, the maturity date of the Line was
extended until such time as the financing contemplated by the common
stock purchase agreement commences; thereafter, it is payable over
time as Biophan receives proceeds from the equity line.
(5) Biomed also holds a total of 1,180,000 warrants to purchase shares of
Biophan common stock. On March 1, 2001, it received options to
purchase 200,000 shares at an exercise price of $1.00, in
consideration of management effort and expense incurred on behalf of
Biophan. On June 4, 2002, it received 100,000 warrants at an exercise
price of $1.00 in consideration of the extension of the due date for
the Transfer Agreement payment, and 75,000 warrants with an exercise
price of $1.00 for the grant of the line of credit. (Wilson
Greatbatch also received 150,000 warrants in consideration of the
extension of the due date of the Transfer Agreement. On August 19,
2002, Biomed received 30,000 warrants in consideration of the
increase in the line of credit commitment, and 275,000 warrants
for additional extensions of the payment terms of the Transfer
Agreement payment. On that date, the exercise price for all
680,000 warrants then outstanding to Biomed was set at the lowest of
(i) the closing bid price on June 4, 2002; (ii) the closing bid price
on the date of exercise; or (iii) the lowest per share purchase price
paid by any third party between June 4, 2002 and the exercise
date. On November 7, 2002, Biomed was granted warrants to purchase an
additional 500,000 shares at an exercise price of $.50 per share, in
consideration of the final extension of the Transfer Agreement
payment approved that day. The number of warrants will be reduced by
16,667 for each month prior to June 1, 2005 that the Transfer
Agreement obligation is paid in full. Each extension of the Transfer
Agreement payment enabled us to retain the MRI-compatible technology
that it acquired under the Transfer Agreement. In each forgoing case,
the Board of Directors determined, without the vote of Mr. Weiner and
Mr. Kenzie, that the consideration received by us was fair and
adequate consideration for the warrants issued.
(6) During the years ended February 28, 2003 and 2002, Biomed and
Technology Innovations paid expenses on behalf of Biophan aggregating
$128,411 and $253,014, respectively. These advances did not bear
interest and were subsequently repaid.
(7) On January 1, 2001, Wilson Greatbatch was granted 250,000 options
for his consulting services to us, and 8,333 options as former
71
Chairman of the Scientific Advisory Board. As a consultant Mr.
Greatbatch assisted Biophan in its development of its photonic
pacemaker by providing design and engineering services. The board of
directors determined that the value of the consulting services was
fair and adequate consideration for the options issued; Biophan
recorded compensation expense of $9,200 with respect to those
options. Through his ownership of Greatbatch Gen-Aid, Ltd. and his
co-trusteeship of a private foundation, E.& W.G. Foundation, he is
the beneficial owner of 5,489,543 common shares of Biophan. He is
also entitled to receive 60% of the consideration payable to Biomed
($500,000) for transfer of the MRI-compatible pacemaker technology to
Biophan; on June 4, 2002, he received 150,000 warrants with an
exercise price of $1.00 in consideration of the extension of the
payment due under the Transfer Agreement. Greatbatch Gen-Aid holds
a 3.5% membership interest (11 Units) in Technology Innovations.
On February 28, 2001, we entered into a research and development
agreement with Greatbatch Enterprises Corporation. Wilson
Greatbatch, a beneficial owner of more than 5% of our common stock,
is the CEO and majority stockholder of Greatbatch Enterprises.
Under the agreement, Greatbatch Enterprises undertook certain
technology development and testing, for which we paid Greatbatch
Enterprises an aggregate of $297,000. The agreement terminated in
December 2002 with the completion of animal testing by Greatbatch
Enterprises.
(8) On March 1, 2002, Dr. Guenter H. Jaensch was granted options to
purchase 250,000 shares and on 7/16/02 was granted an additional
100,000 options, for his consulting services to us. As a consultant,
Dr. Jaensch assisted us in developing our strategic plan, attended
trade shows, and arranged and met with potential customers and
strategic partners. The Board of Directors determined that the
value of the consulting services was fair and adequate consideration
for the options issued; Biophan valued the options at $36,900 and
$592,500, respectively.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibit Index
No.
*EX-2.1 Articles of Merger filed as Exhibit to Form 10-KSB for the
year ended February 29, 2000.
*EX-2.2 Articles of Dissolution filed as Exhibit to Form 10-KSB for
the year ended February 29, 2000.
*EX-2.3 Exchange Agreement, dated as of December 1, 2000, by and among
Biophan, Biomed Solutions, LLC (formerly Biophan, LLC), and LTR,
filed as an exhibit to Form SB-2/a on March 14, 2003.
*EX-3.1 Certificate of Incorporation (Nevada) filed as Exhibit to
Form 10-KSB for the year ended February 29, 2000.
*EX-3.2 Bylaws (Nevada) Filed as exhibit to Form 10-KSB for the year
ended February 28, 2002.
*EX-3.3 Amendment to the Articles of Incorporation filed as part of
Form 8-K, filed December 15, 2000.
*EX-3.4 Amendment to Exchange Agreement filed as Exhibit to Form
10-KSB for the year ended February 28, 2001.
72
*EX-3.5 Certificate of Amendment to Articles of Incorporation filed
as exhibit to Form 8-K on August 27, 2001.
*EX-4.1 Stock Purchase Warrant between Biophan and Biomed Solutions, LLC
(formerly Biophan, LLC) dated June 4, 2002, filed as Exhibit to
Form 10-QSB for the period ended May 31, 2002.
*EX-4.2 Stock Purchase Warrant between Biophan and Bonanza Capital
Masterfund LTD, filed as Exhibit to Form 10-QSB for the period
ended May 31, 2002.
*EX-4.3 Restated Stock Purchase Warrant between Biophan and Biomed
Solutions, LLC, dated January 8, 2003, filed as Exhibit to Form
10-QSB for the period ended November 30, 2002.
*EX-4.4 Stock Purchase Warrant between Biophan and Biomed Solutions, LLC
dated November 11, 2002, filed as Exhibit to Form 10-QSB for the
period ended November 30, 2002.
*EX-4.5 Form of Stock Purchase Warrant issued to principals of Carolina
Financial Services, for a total of 121,572 shares, filed as Exhibit
to Form 10-QSB for the period ended November 30, 2002.
*EX-4.6 Form of Stock Purchase Warrant to be issued to Carolina Financial
services in connection with the Stock Purchase Agreement with
Spectrum Advisors, Ltd, filed as Exhibit to Form 10-QSB for the
period ended November 30, 2002.
*EX-4.7 Form of Stock Purchase Warrant issued to investors in private
placement of securities, for a total of 2,770,550 shares, filed as
Exhibit to Form 10-QSB for the period ended November 30, 2002.
*Ex-4.8 Stock Purchase Warrant issued to SBI USA, LLC , filed as Exhibit
to Form 10-QSB for the period ended November 30, 2002.
*EX-10.1 Assignment, dated as of December 1, 2000, by and between Biophan
and Biomed Solutions, LLC (formerly Biophan, LLC), a New York
limited liability company, filed as part of Form 8-K, filed
December 15, 2000.
*EX-10.2 Security Agreement, dated as of December 1, 2000, by and between
Biophan and Biomed Solutions, LLC (formerly Biophan, LLC), a New
York limited liability company, filed as part of Form 8-K, filed
December 15, 2000.
*EX-10.3 Transfer Agreement filed as Exhibit to Form 10-KSB for the
year ended February 28, 2001.
*EX-10.4 Amendment to Transfer Agreement filed as Exhibit to Form
10-KSB for the year ended February 28, 2001.
*EX-10.5 Line of Credit Agreement between Biophan and Biomed Solutions,
LLC dated June 4, 2002, filed as Exhibit to Form 10-QSB for the
period ended May 31, 2002.
*EX-10.6 Convertible Promissory Note between Biophan and Biomed Solutions,
LLC dated June 4, 2002, filed as Exhibit to Form 10-QSB for the
period ended May 31, 2002.
73
*EX-10.7 Loan Agreement between Biophan and H. Deworth Williams
dated June 18, 2002, filed as Exhibit to Form 10-QSB for
the period ended May 31, 2002.
*EX-10.8 Stock Purchase Agreement between Biophan and Bonanza Capital
Masterfund LTD, filed as Exhibit to Form 10-QSB for the period
ended May 31, 2002.
*EX-10.9 Escrow Agreement between Biophan, Bonanza Capital Masterfund LTD
and Boylan, Brown, Code, Vigdor & Wilson LLP, filed as Exhibit to
Form 10-QSB for the period ended May 31, 2002.
*EX-10.10 Registration Rights Agreement between Biophan and Bonanza Capital
Masterfund LTD, filed as Exhibit to Form 10-QSB for the period
ended May 31, 2002.
*EX-10.11 Executive Employment Agreement between Biophan and Michael L.
Weiner dated December 1, 2000, filed as Exhibit to Form 10-QSB for
the period ended May 31, 2002.
*EX-10.12 Executive Employment Agreement between Biophan and Jeffrey L. Helfer
dated June 6, 2002, filed as Exhibit to Form 10-QSB for the period
ended May 31, 2002.
*EX-10.13 Executive Employment Agreement between Biophan and Stuart G.
MacDonald dated June 6, 2002, filed as Exhibit to Form 10-QSB for
the period ended May 31, 2002.
*EX-10.14 Executive Employment Agreement between Biophan and Robert J. Wood
dated June 6, 2002, filed as Exhibit to Form 10-QSB for the
period ended May 31, 2002.
*EX-10.15 Financial Accommodations Agreement between Biophan and Bellador
(Labuan) Ltd dated July 1, 2002, filed as Exhibit to Form
10-QSB for the period ended May 31, 2002.
*EX-10.16 Stock Purchase Agreement between Biophan and Spectrum Advisors,
LTD., filed as Exhibit to Form 10-QSB for the period ended
November 30, 2002.
*EX-10.17 Escrow Agreement between Biophan, Spectrum Advisors, Ltd. and
Boylan, Brown, Code, Vigdor & Wilson LLP., filed as Exhibit to
Form 10-QSB for the period ended November 30, 2002.
*EX-10.18 Registration Rights Agreement between Biophan and Spectrum
Advisors, Ltd., filed as Exhibit to Form 10-QSB for the period
ended November 30, 2002.
*EX-10.19 Lease Agreement between Biophan and High Technology of Rochester,
Inc. dated October 8, 2001, filed as an exhibit to Form
SB-2/a on March 14, 2003.
*EX-10.20 Strategic Partnership Agreement between Biophan and UB Business
Alliance dated December 10, 2001, filed as an exhibit to Form
SB-2/a on March 14, 2003.
*EX-10.21 License Agreement between Biophan and Xingwu Wang and Nanoset,
LLC dated February 7, 2002, filed as an exhibit to Form
SB-2/a on March 14, 2003.
*EX-10.22 Patent License Agreement between Biophan and Deborah D. L. Chung
dated April 5, 2002, filed as an exhibit to Form SB-2/a on
March 14, 2003.
74
*EX-10.23 License Agreement between Biophan and Johns Hopkins University
dated April 24, 2002, filed as an exhibit to Form SB-2/a on
March 14, 2003.
*EX-10.24 Advisory Agreement between Biophan and SBI USA, LLC dated
December 18, 2002, filed as an exhibit to Form SB-2/a on
March 14, 2003.
*EX-10.25 Development Agreement between Biophan and Alfred University
dated February 21, 2002, filed as an exhibit to Form
SB-2/a on March 14, 2003.
*EX-10.26 Development Agreement between Biophan and Alfred University
dated January 24, 2003, filed as an exhibit to Form
SB-2/a on March 14, 2003.
*EX-10.27 First Amendment to Restated Stock Purchase Agreement between
Biophan and Spectrum Advisors, Ltd., dated March 10, 2003,
filed as an exhibit to Form SB-2/a on March 14, 2003.
*EX-10.28 Development Agreement between Biophan and Greatbatch Enterprises,
Inc., dated February 28, 2001, filed as an exhibit to Form
SB-2/a on March 14, 2003.
*EX-10.29 Assignment of Patent No: 60,269,817, by and between Biophan and
Michael L. Weiner, Wilson Greatbatch, Patrick R. Connelly, and
Stuart G. MacDonald, filed as an exhibit to Form SB-2/a on March
14, 2003.
*EX-10.30 Assignment of Patent No: 10,077,988, by and between Biophan and
Patrick R. Connelly, Michael L. Weiner, Stuart G. MacDonald, Thomas
H. Foster, Wilson Greatbatch, and Victor Miller, filed as an
exhibit to Form SB-2/a on March 14, 2003.
*EX-10.31 Assignment of Patent No: 10,077,836, by and between Biophan and
Michael L. Weiner, Stuart G. MacDonald, and Patrick R. Connelly,
filed as an exhibit to Form SB-2/a on March 14, 2003.
*EX-10.32 Assignment of Patent No: 10,077,823, by and between Biophan and
Patrick R. Connelly, Michael L. Weiner, Jeffrey L. Helfer ,
Stuart G. MacDonald, and Victor Miller, filed as an exhibit to Form
SB-2/a on March 14, 2003.
*EX-10.33 Assignment of Patent No: 10,077,978, by and between Biophan and
Michael L. Weiner, Jeffrey L. Helfer, Stuart G. MacDonald,
Patrick R. Connelly, and Victor Miller, filed as an exhibit to Form
SB-2/a on March 14, 2003.
*EX-10.34 Assignment of Patent No: 10,078,062, by and between Biophan and
Michael L. Weiner, Patrick R. Connelly, Stuart G. MacDonald,
Jeffrey L. Helfer, Victor Miller, filed as an exhibit to Form
SB-2/a on March 14, 2003.
*EX-10.35 Assignment of Patent No: 10,077,932, by and between Biophan and
Michael L. Weiner, Jeffrey L. Helfer, Patrick R. Connelly,
Stuart G. MacDonald, and Victor Miller, filed as an exhibit to Form
SB-2/a on March 14, 2003.
*EX-10.36 Assignment of Patent No: 10,077,887, by and between Biophan and
Michael L. Weiner, Jeffrey L. Helfer, Patrick R. Connelly,
Stuart G. MacDonald, and Victor Miller, filed as an exhibit to Form
SB-2/a on March 14, 2003.
75
*EX-10.37 Assignment of Patent No: 10,077,883, by and between Biophan and
Michael L. Weiner, Jeffrey L. Helfer, Patrick R. Connelly,
Stuart G. MacDonald, and Victor Miller, filed as an exhibit to Form
SB-2/a on March 14, 2003.
*EX-10.38 Assignment of Patent No: 10,077,958, by and between Biophan and
Michael L. Weiner, Jeffrey L. Helfer, Patrick R. Connelly,
Stuart G. MacDonald, and Victor Miller, filed as an exhibit to Form
SB-2/a on March 14, 2003.
*EX-10.39 Assignment of Patent No: 10,077,888, by and between Biophan and
Patrick R. Connelly, Stuart G. MacDonald, and Michael L. Weiner,
filed as an exhibit to Form SB-2/a on March 14, 2003.
*EX-10.40 Assignment of Patent No: 60,357,935, by and between Biophan and
Jeffrey L. Helfer, Robert W. Gray, and Michael L. Weiner, filed as
an exhibit to Form SB-2/a on March 14, 2003.
*EX-10.41 Assignment of Patent No: 10,132,457, by and between Biophan and
Stuart G. MacDonald, Jeffrey L. Helfer, and Michael L. Weiner,
filed as an exhibit to Form SB-2/a on March 14, 2003.
*EX-10.42 Assignment of Patent No: 09,864,944, by and between Biophan and
Wilson Greatbatch, Patrick R. Connelly and Michael L. Weiner, filed
as an exhibit to Form SB-2/a on March 14, 2003.
*EX-10.43 Assignment of Patent No: 09,865,049, by and between Biophan and
Victor Miller, Wilson Greatbatch, Patrick R. Connelly and Michael
L. Weiner, filed as an exhibit to Form SB-2/a on March 14, 2003.
*EX-10.44 Assignment of Patent No: 09,885,867, by and between Biophan and
Wilson Greatbatch, Patrick R. Connelly and Michael L. Weiner, filed
as an exhibit to Form SB-2/a on March 14, 2003.
*EX-10.45 Assignment of Patent No: 09,885,868, by and between Biophan and
Victor Miller, Wilson Greatbatch, Patrick R. Connelly and Michael
L. Weiner, filed as an exhibit to Form SB-2/a on March 14, 2003.
*EX-10.46 Assignment of Patent No: 10,283,530, by and between Biophan and
Wilson Greatbatch and Michael L. Weiner, filed as an exhibit to Form
SB-2/a on March 14, 2003.
*EX-10.47 Assignment of Patent No: 10,369,429, by and between Biophan and
Jeffrey L. Helfer, Robert W. Gray, and Michael L. Weiner, filed as
an exhibit to Form SB-2/a on March 14, 2003.
*EX-10.48 Assignment of Patent No: 10,162,318, by and between Biophan and
Biomed Solutions, LLC, filed as an exhibit to Form SB-2/a on March
14, 2003.
*EX-10.49 Strategic Partnership Agreement between Biophan and UB Business
Alliance dated May 27, 2003 filed as a exhibit to Form SB-2/a on
June 12, 2003.
*EX-16.1 Letter on change of accountants filed as Exhibit to Form
10-KSB for the year ended February 28, 2001.
*EX-16.2 Appointment of independent public accountants filed as
exhibit to Form 8-K on May 7, 2001.
*EX-21 Subsidiaries filed as Exhibit to Form 10-KSB for the year
ended February 28, 2001.
*EX-22.1 Definitive Proxy Statement filed with the Securities and Exchange
Commission on January 10, 2000
76
*EX-22.2 Definitive Proxy Statement filed with the Securities and
Exchange Commission on June 3, 2001.
*EX-23.1 Auditors' Consent - Goldstein Golub Kessler LLP, filed as an exhibit
to Form SB-2/a on March 14, 2003.
*EX-23.2 Consent of Frank G. Shellock, filed as an exhibit to Form SB-2/a on
March 14, 2003.
*EX-23.3 Consent of Robert Rubin M.D., filed as an exhibit to Form SB-2/a on
March 14, 2003.
*EX-24.1 Power of Attorney (included on Signature Page of the Registration
Statement)
*EX-99.1 2001 Stock Option Plan filed as exhibit to Form 8-K on August
27, 2001.
EX-99.2 Certification of C.E.O. Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
EX-99.3 Certification of C.F.O. Pursuant to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
* Exhibits so marked have heretofore been filed with the Securities and
Exchange Commission as part of the filing indicated and are
incorporated herein by reference.
(b) Reports on Form 8-K
Not applicable
Item 14. Controls and Procedures
Within the 90 days prior to the date of filing this Annual Report on Form
10-KSB/A, we carried out an evaluation, under the supervision and with the
participation of our management, including the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation
of our disclosure controls and procedures pursuant to Exchange Act Rule
13a-14 and 15d-14. Based upon that evaluation, the Chief Executive Officer
and the Chief Financial Officer concluded that our disclosure controls and
procedures are effective in timely alerting them to material information
relating to the Company required to be included in our periodic SEC filings.
Subsequent to the date of that evaluation, there have been no significant
changes in the our internal controls or in other factors that could
significantly affect internal controls, nor were any corrective actions
required with regard to significant deficiencies and material weaknesses.
77
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BIOPHAN TECHNOLOGIES, INC.
By: \s\ Michael L. Weiner
-----------------------
Name: Michael L. Weiner
Title: President, CEO and Director
Dated: June 13, 2003
In accordance with the Exchange Act, this report has been signed
below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature Title Date
--------- ----- -------------
\s\ Michael L. Weiner President, CEO and Director June 13, 2003
---------------------
Michael L. Weiner (Principal Executive Officer)
\s\ Robert J. Wood Vice President, Treasurer and CFO June 13, 2003
---------------------
Robert J. Wood (Principal Financial
and Accounting Officer)
\s\ David A. Miller Secretary June 13, 2003
---------------------
David A. Miller
\s\ Ross B. Kenzie Director June 13, 2003
---------------------
Ross B. Kenzie
\s\ Steven Katz Director June 13, 2003
---------------------
Steven Katz
\s\ Robert S. Bramson Director June 13, 2003
---------------------
Robert S. Bramson
78
CERTIFICATIONS
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Michael L. Weiner, Chief Executive Officer of the Biophan Technologies,
Inc. (the "registrant"), certify that:
1. I have reviewed this annual report on Form 10-KSB/A of Biophan
Technologies, Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
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
annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
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 officers and I have indicated in
this annual 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: June 13, 2003
/s/Michael L. Weiner
----------------------
Michael L. Weiner
Chief Executive Officer
79
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert J. Wood, Chief Financial Officer of the Biophan Technologies,
Inc. (the "registrant"), certify that:
1. I have reviewed this annual report on Form 10-KSB/A of Biophan
Technologies, Inc.;
2. Based on my knowledge, this annual 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 annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
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
annual 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 annual report (the "Evaluation Date"); and
c) presented in this annual 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 officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent functions):
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 officers and I have indicated in
this annual 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: June 13, 2003
/s/Robert J. Wood
--------------------
Robert J. Wood
Chief Financial Officer
80