UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] Quarterly Report under Section 13 or 15(d)of the
Securities Exchange Act of 1934
For the quarterly period ended: August 31, 2003
[ ] Transition Report under Section 13 or 15(d) of the
Exchange Act of 1934
For the transition period from ____ to ____
Commission File No. 0-26057
BIOPHAN TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 82-0507874
--------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
150 Lucius Gordon Drive, Suite 215
West Henrietta, New York 14586
--------------------------------- ---------
(Address of principal executive offices) (Zip code)
(585) 214-2441
-----------------------
Issuer's telephone number
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
[ X ] Yes [ ] No
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date.
Class Outstanding as of October 14, 2003
Common Stock, $.005 par value 46,004,177
Transitional small Business Disclosure Format (Check One): Yes[ ] No[x]
1
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
ITEM I. Financial Statements
Independent Accountant's Report 3
Condensed Consolidated Balance Sheets, August 31, 2003 (Unaudited)
and February 28, 2003 4
Condensed Consolidated Statements of Operations, Three Months and Six
Months Ended August 31, 2003 and 2002 (Unaudited), and from August 1,
1968 (Date of Inception) through August 31, 2003 (Unaudited) 5
Condensed Consolidated Statements of Cash Flows, Six Months Ended
August 31, 2003 and 2002 (Unaudited) and from August 1, 1968
(Date of Inception) through August 31, 2003 (Unaudited) 6
Notes to Condensed Consolidated Financial Statements 7
ITEM 2. Plan of Operation 10
ITEM 3. Controls and Procedures 13
PART II. OTHER INFORMATION 14
ITEM 1. Legal Proceedings 14
ITEM 2. Changes in Securities and Use of Proceeds 14
ITEM 3. Defaults Upon Senior Securities 15
ITEM 4. Submission of Matters to a Vote of Security Holders 15
ITEM 5. Other Information 16
ITEM 6. Exhibits and Reports on Form 8-K 16
a. Exhibits 16
b. Reports on Form 8-K 17
SIGNATURES 18
2
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
INDEPENDENT ACCOUNTANT'S REPORT
-------------------------------
To the Board of Directors
Biophan Technologies, Inc.
We have reviewed the accompanying condensed consolidated balance sheet of
Biophan Technologies, Inc. and Subsidiaries as of August 31, 2003, and the
related condensed consolidated statements of operations for the three-month
and six-month periods ended August 31, 2003 and 2002 and the condensed
consolidated statements of cash flows for the six-month periods ended August
31, 2003 and 2002. These financial statements are the responsibility of the
Company's management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the consolidated
financial statements taken as a whole. Accordingly, we do not express such an
opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the condensed consolidated financial statements referred
to above for them to be in conformity with accounting principles generally
accepted in the United States of America.
We have previously audited, in accordance with auditing standards generally
accepted in the United States of America, the consolidated balance sheet as of
February 28, 2003, and the related consolidated statements of operations,
stockholders' deficiency, and cash flows for the year then ended (not
presented herein); and in our report dated April 10, 2003, we expressed an
unqualified opinion on those consolidated financial statements. In our
opinion, the information set forth in the accompanying condensed consolidated
balance sheet as of February 28, 2003, is fairly stated, in all material
respects, in relation to the consolidated balance sheet from which it has been
derived.
GOLDSTEIN GOLUB KESSLER LLP
New York, New York
October 7, 2003
3
BIOPHAN TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
August 31, 2003
(Unaudited) February 28, 2003
------------------------------------
ASSETS
Current Assets:
Cash $ 5,350 $ 48,935
Investments in marketable securities - 302,000
Advances receivable - 10,127
Due from related party 58,561 24,368
Prepaid expenses 78,932 90,923
--------------------------------
Total Current Assets 142,843 476,353
--------------------------------
Fixed Assets, at cost, net 70,394 63,232
Other Assets:
Intellectual property rights 70,000 70,000
Security deposit 2,933 2,933
Deferred equity placement costs - 70,538
Deferred tax asset, net of valuation
allowance of $2,477,000 and $2,120,000
respectively - -
--------------------------------
72,933 143,471
--------------------------------
$ 286,170 $ 683,056
================================
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
Current Liabilities:
Accounts payable and accrued expenses 696,782 $ 343,216
Loan payable to stockholder - 143,570
Payable to related party, less discount 219,501 300,000
Due to related party 11,443 9,401
--------------------------------
Total Current Liabilities 927,726 796,187
--------------------------------
Long-term payable to related party,
less discount 190,000 83,333
Stockholders' Deficiency:
Common stock, $.005 par value
Authorized, 80,000,000 shares
Issued and outstanding,
40,951,317 shares, and
37,634,693 shares, respectively 204,757 188,173
Additional paid-in capital 8,292,433 7,588,520
Deficit accumulated during the
development stage (9,328,746) (7,973,157)
--------------------------------
(831,556) (196,464)
--------------------------------
$ 286,170 $ 683,056
================================
See Notes to Condensed Consolidated Financial Statements.
4
BIOPHAN TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Period from August
Three Months Ended Six Months Ended 1, 1968 (date of
August 31, August 31, inception) to
2003 2002 2003 2002 August 31, 2003
-----------------------------------------------------------------
Operating expenses:
Salaries and related $ 129,861 $ 175,914 $ 257,503 $ 347,127 $ 1,427,297
Research and development 201,786 189,466 439,889 641,281 2,875,181
Professional fees 149,567 129,527 255,676 270,020 2,127,392
Write-down of intellectual
property rights - - - - 530,000
General and administrative 119,709 122,300 224,445 287,609 1,308,699
----------------------------------------------------------------
Operating loss (600,923) (617,207) (1,177,513) (1,546,037) (8,268,569)
Other income(expense):
Interest income 362 93 1,264 16,701 46,027
Interest expense (134,413) (161,260) (244,664) (171,560) (1,246,060)
Other income 37,520 76,226 65,324 89,724 294,399
Other expense - - (28,805) (65,086)
----------------------------------------------------------------
(96,531) (84,941) (178,076) (93,940) (970,720)
----------------------------------------------------------------
Loss from continuing
operations (697,454) (702,148) (1,355,589) (1,639,997) (9,239,289)
Loss from discontinued
operations - - - - (89,357)
----------------------------------------------------------------
Net loss $ (697,454) $ (702,148) $(1,355,589) $(1,639,997) $(9,328,646)
================================================================
Loss per common share-
basic and diluted $ (0.02) $ (0.02) $ (0.04) $ (0.06)
==================================================
Weighted average shares
outstanding 39,070,506 29,652,082 38,532,599 29,600,761
==================================================
See Notes to Condensed Consolidated Financial Statements.
5
BIOPHAN TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Period from
August 1, 1968
Six Months Ended (date of inception)
August 31, to
2003 2002 August 31, 2003
-------------------------------------------
Cash flows used for operating activities:
Net loss $(1,355,589) $(1,639,977) $(9,328,746)
Adjustments to reconcile net loss to net cash
provided(used) by operating activities:
Depreciation 11,528 12,780 52,058
Realized and unrealized losses on
marketable securities - 28,805 66,948
Accrued interest on note payable
converted to common stock 11,998
Amortization of interest on convertible
notes payable 210,118 150,000 593,451
Write-down of intellectual property rights - - 530,000
Amortization of discount on payable to
related party - - 75,000
Issuance of common stock for services - - 101,108
Issuance of common stock for interest - - 468,823
Grant of stock options for services 116,000 94,000 1,303,800
Expenses paid by stockholder - - 2,640
Changes in operating assets and liabilities:
(Increase)decrease in advances receivable 10,127 - -
Increase in due from related
parties (34,193) - (58,561)
(Increase) decrease in prepaid expenses 11,991 (78,193) (78,932)
Increase in security deposits - - (2,933)
Increase in accounts payable and
accrued expenses 353,566 203,974 683,451
Increase(decrease) in due to related
parties 2,042 (7,421) (32,053)
----------------------------------------
(662,412) (1,236,032) (5,623,946)
Cash flows used for investing activities:
Purchases of fixed assets (18,690) (7,951) (122,452)
Sales of marketable securities 302,000 540,000 1,219,270
Purchases of marketable securities - - (1,286,218)
----------------------------------------
283,310 532,049 (189,400)
Cash flows provided by financing activities:
Proceeds of bridge loans - - 986,500
Loan from stockholder - 143,570 143,570
Line of credit borrowing from related party 175,000 300,000 475,000
Net proceeds from sales of capital stock 192,625 391,345 4,193,626
Proceeds from exercise of options 20,000 - 20,000
Deferred equity placement costs 52,108 (20,000) -
Proceeds from exercise of options 20,000 20,000
----------------------------------------
335,517 814,915 5,818,696
----------------------------------------
Net increase(decrease)in cash (43,585) 110,932 5,350
Cash, beginning 48,935 12,199 -
----------------------------------------
Cash, ending $ 5,350 $ 123,131 $ 5,350
========================================
Supplemental schedule of noncash investing
and financing activities:
Intellectual property acquired through
issuance of capital stock and
assumption of related party payable $ - $ - $ 175,000
========================================
Acquisition of intellectual property $ - $ - $ 425,000
========================================
Issuance of common stock upon conversion
of bridge loans $ 143,570 $ - $ 1,130,070
========================================
Issuance of common stock upon partial
conversion of line of credit loans $ 183,950 $ - $ 183,950
========================================
See Notes to Condensed Consolidated Financial Statements.
6
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
August 31, 2003
INTERIM FINANCIAL STATEMENTS:
The condensed consolidated financial statements as of August 31, 2003 and for
the three and six months ended August 31, 2003 and 2002 are unaudited.
However, in the opinion of management of the Company, these financial
statements reflect all adjustments, consisting solely of normal recurring
adjustments, necessary to present fairly the financial position and results
of operations for such interim periods. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
obtained for a full year.
BASIS OF CONSOLIDATION:
The condensed 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.
ORGANIZATIONAL HISTORY:
The Company was incorporated under the laws of the State of Idaho on August 1,
1968. On January 12, 2000, the Company changed its domicile to Nevada by
merging into a Nevada corporation, and on July 19, 2001, changed its name to
Biophan Technologies, Inc. The Company's stock currently trades over-the-
counter under the symbol BIPH. Our corporate headquarters are located at 150
Lucius Gordon Drive, Suite 215, West Henrietta, New York 14586; Tel.
(585) 214-2441; website: www.biophan.com.
On December 1, 2000, the Company acquired LTR Antisense Technology, Inc., a
New York corporation ("LTR"), from Biomed Solutions, LLC (formerly Biophan,
LLC), a New York limited liability company ("Biomed"), in a share for share
exchange. As a result of the exchange, LTR became a wholly owned subsidiary of
the Company. The exchange was consummated pursuant to and in accordance with
an Exchange Agreement, 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.
PRINCIPAL BUSINESS ACTIVITIES:
7
The Company is in the development stage and is expected to remain so for at
least the next twelve months.
The Company is developing technologies that make implantable biomedical
devices safe for use in an MRI (Magnetic Resonance Imaging) machine. Many
implanted biomedical devices are prohibited for use in an MRI machine,
including pacemakers, cardioverter-defibrillators, neurostimulators, bladder
control devices, insulin pumps with wire connected sensors, pain control
devices, interluminal imaging coils, interventional catheters and guide wires,
endoscopes, and others. The Company plans to provide intellectual property
licenses to manufacturers of these biomedical devices.
ACCOUNTING FOR STOCK OPTIONS:
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:
Three Months Ended Six Months Ended
August 31, August 31,
2003 2002 2003 2002
------------------------------------------------------------------------------------------
Net loss - as reported $ (697,454) $ (702,148) $ (1,355,589) $ (1,639,977)
Add - stock based employee
compensation expense included
in reported net loss, net of
related tax effects 30,000 47,000 60,000 94,000
Deduct - Total stock based
employee compensation expense
determined under fair value
based method for all awards,
net of related tax effects 64,000 115,000 114,000 230,034
------------------------------------------------------------------------------------------
Net loss - pro forma $ (731,454) $ (770,148) $ (1,409,589) $ (1,776,011)
==========================================================================================
Basic and diluted loss per
share - as reported $ (.02) $ (.03) $ (.04) $ (.06)
==========================================================================================
Basic and diluted loss per
share - pro forma $ (.02) $ (.03) $ (.04) $ (.06)
==========================================================================================
PREPAID EXPENSES:
Prepaid expenses at August 31, 2003 consist of the following:
8
Prepaid insurance $ 60,807
Prepaid supplies 18,125
--------
$ 78,932
========
LOAN AGREEMENTS:
In June 2002, the Company signed a Loan Agreement with a stockholder providing
for borrowings of up to $400,000 with interest payable at 8% per annum.
Principal and accrued interest become due and payable on December 31, 2003.
On July 28, 2003, the Company issued 775,000 shares of common stock for the
conversion of the entire principal amount of the loan of $143,570 plus accrued
interest of $11,998.
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. The entire line now
expires on June 1, 2004. 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.
On June 30, 2003, we issued 1,268,621 shares of common stock for the
conversion of $183,950 of the $350,000 Line of Credit obligation. The Company
has drawn additional amounts totaling $175,000 under the Line, which amounts
were also fully discounted as a result of the beneficial conversion feature,
and recorded as additional paid-in capital. At August 31, 2003, $291,050 was
outstanding under the Line. The stated liability for financial reporting
purposes is $291,050 less an unamortized discount $131,549, or $159,501.
Under the Transfer Agreement dated December 1, 2000, the Company incurred a
9
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 above. 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%.
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. At August 31, 2003, the balance of the MRI technology purchase
liability payable, net of a discount of $250,000, is $250,000.
At August 31, 2003, the principal amounts of the Company's obligations
approximated their estimated fair values based upon current borrowing rates
for similar issues.
CHANGES IN EQUITY:
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 required the Company to file
with the Securities and Exchange Commission ("SEC") a Registration Statement
covering the shares issuable under this agreement. The registration became
effective on July 11, 2003. Through August 31, 2003, the Company sold and
issued 1,119,348 shares of common stock under the agreement for gross proceeds
of $192,625. Also, during the quarter, $122,646 of related offering expenses
were charged against the additional paid-in capital account.
On August 13, 2003, 2,000,000 options were granted to two consultants,
exercisable at prices equal to 80% of the closing price of the stock on the
day prior to exercise. During the month of August, options for 153,655 shares
were exercised for an aggregate of $20,000.
Item 2. PLAN OF OPERATION
The following information should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-
QSB. This Quarterly Report on Form 10-QSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. Actual events or
results may differ materially from those projected in the forward-looking
statements as a result of a number of factors including those identified
herein and in the Company's Annual report on Form 10-KSB and other periodic
reports and filings with the Securities and Exchange Commission.
We are currently in the development stage of operations and expect to be
in that mode for at least the next 12 months. 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 MRI
10
and other equipment that generates powerful magnetic and radio frequency
signals.
On October 1, 2003, we entered into a stock purchase agreement with SBI
Brightline Consulting, LLC that obligates SBI to purchase, upon our election,
up to 11,000,000 shares of our common stock for an aggregate purchase price
of $2.9 million. The agreement requires that the shares be registered with
the SEC and a registration statement for that purpose was filed with the SEC
on October 9, 2003. Once the registration statement becomes effective there
will be no limitation on when we may require SBI to purchase the shares except
that the shares are divided into six tranches that must be purchased in a
particular order.
In addition to agreement with SBI, we are a party to a restated stock
purchase agreement with Spectrum Advisors LTD. Pursuant to the Spectrum
agreement, we may require Spectrum to purchase shares of our common stock
at our sole discretion and from time to time over a period of 24 months
ending July 11, 2005. The purchase price for shares purchased under the
Spectrum agreement is 80% of the average daily volume weighted average
price of our common stock during the trading days relating to a particular
draw. Spectrum is currently committed to purchase shares for consideration of
up to $3 million under the Spectrum agreement. We have registered for resale
by Spectrum 8,960,000 shares of common stock that we may sell to Spectrum
pursuant to the Spectrum agreement. As of the current date, we have sold
Spectrum 3,325,757 shares for aggregate consideration of $491,190. If we were
to sell to Spectrum the remaining shares that we have already registered at
the closing price of our common stock on October 13, 2003 of $.22 per share,
we would receive additional consideration of $1,014,163. If that were to
occur, it would leave $1,494,647 available for sale under the Spectrum
agreement if we were to choose to register additional shares for resale by
Spectrum.
We estimate that a combination of the equity financing from the sale of
our common stock pursuant to the SBI and Spectrum stock purchase agreements
will be sufficient to satisfy our projected cash requirements over the next
12 months. Our estimate of these cash requirements is as follows:
Research and product development.................... $ 973,000
Operating expenses, including
administrative salaries and benefits,
office expenses, rent expense, legal
and accounting, publicity, investor
relations......................................... 1,137,000
Partially repay related party loans plus interest... 330,000
Pay down past-due accounts payable.................. 260,000
----------
Total Cash Requirements............................. $2,700,000
==========
Our estimate of operating expenses represents the expenditures we
anticipate incurring in the operation of our business, and includes our
estimated costs associated with the preparation and
filing of the registration statement with respect to the shares to be sold
to SBI.
We intend to pursue our research and product development activities,
concentrating the major portion of our available resources on the shielding
11
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. Consistent
with our business strategy, on September 25, 2003, we entered into a
development agreement with a medical device manufacturer to develop MRI
capability for one of their products. The terms of this development agreement
are confidential. Additionally, our negotiations with other biomedical device
manufacturers and our evaluation of their proposals is continuing.
Our goal is to enter into a development arrangement with several or more
of these entities whereby each 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 $973,000 of our funds over the next 12 months, dedicated to the
following activities:
MRI Shielding for Active Medical Devices.......... $ 563,000
MRI Shielding for Passive Medical Devices......... 410,000
----------
Total........................................... $ 973,000
==========
The MRI Shielding project entails the development of technology that
may be applied to active medical devices and passive medical devices to allow
patients to undergo MRI diagnostics. Active medical devices include such
items as pacemakers and drug pumps, and passive medical devices include such
items as biopsy needles, stents and guidewires.
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
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.
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
12
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.
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 3. Controls and Procedures
Evaluation of Disclosure Controls and Procedures.
Based on an evaluation under the supervision and with the participation of our
management as of a date within 90 days of the filing date of this Quarterly
Report on Form 10-QSB, our principal executive officer and principal financial
officer have concluded that our disclosure controls and procedures (as defined
in Rules 13a-14(c) and 15d-14(c) under the securities Exchange Act of 1934,
13
are effective to ensure that information required to be disclosed in reports
that we file or submit under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in SEC rules and
forms.
Changes in Internal Controls.
There were no significant changes in our internal controls or in other factors
that could significantly affect these controls subsequent to the date of their
evaluation. There were no significant deficiencies or material weaknesses,
and therefore there were no corrective actions taken. However, the design of
any system of controls is based in part upon certain assumptions about the
likelihood of future events and there is no certainty that any design will
succeed in achieving its stated goal under all potential future
considerations, regardless of how remote.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material legal proceedings and there are no
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 2. Changes in Securities and Use of Proceeds
On June 30, 2003, we issued 1,268,621 shares of common stock for the
conversion of $183,950 of the $350,000 Line of Credit obligation payable to
Biomed Solutions, LLC. Biomed had previously sold that portion of its
receivable to a single purchaser. The shares were issued pursuant to the
exemption provided by Section 3(a)(9) of the Securities Act of 1933, involving
a private transaction in exchange for debt, and pursuant to the provisions
of Regulation S of the Securities Act. All recipients of the shares were
nonaffiliated, non U.S. persons deemed to be accredited investors and/or
persons with knowledge of business. There was no general solicitation or
general advertising related to the transaction, and the recipients were
required to represent that they were non U.S. persons and that they were
not acquiring the shares for the account or benefit of any U.S. Person.
The offer to purchase the shares was not made to a person in the United
States and, at the time of the transaction, the purchasers were outside the
United States. All securities representing the shares were issued with
appropriate restrictive legends.
On July 28, 2003, we issued 775,000 shares of common stock for the
conversion of a debt obligation payable to a single investor in the aggregate
amount of $155,568 ($143,570 principal, plus $11,998 interest). The shares
were issued to the investor pursuant to the exemptions provided by Sections
3(a)(9) and 4(2) of the Securities Act, involving a private transaction in
exchange for debt. The shares were exchanged by Biophan with a single
14
existing security holder who is a non-affiliated accredited investor. No
commission or other remuneration was paid or given directly or indirectly for
soliciting the exchange. All securities representing the shares were issued
with appropriate restrictive legends.
Between July 12, 2003 and August 31, 2003 we issued an aggregate of
1,119,348 shares of our common stock to Spectrum Advisors, Ltd. in connection
with the restated stock purchase agreement dated as of November 22, 2002
between us and Spectrum. We received aggregate proceeds of $192,625 from
our sale of these shares to Spectrum. In connection with such sales, we are
obligated to issue to Carolina Financial Services, LLC warrants to purchase
55,967 shares of our common stock at an average exercise price of $.19. These
transactions were exempt from registration under Section 4(2) of the
Securities Act because they did not involve any public offering.
Item 3. Defaults Upon Senior Securities
This Item is not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
On Wednesday, August 20, 2003, pursuant to proper notice to stockholders, the
Company held its Annual Meeting of Stockholders at the Company's offices in
West Henrietta, New York. At the Meeting, the following directors were
elected, by the indicated vote, to serve as directors until the next Annual
Meeting of Stockholders or until their successors are elected and qualified.
Nominee For Abstain
--------- ----- ----------
Guenter H. Jaensch 23,363,572 50,150
Michael L. Weiner 23,413,722 0
Steven Katz 23,413,572 150
Ross B. Kenzie 23,398,922 14,800
Robert S. Bramson 23,402,722 11,000
A proposal was also made to amend the Company's Certificate of Incorporation
to increase the number of common shares authorized to be issued from
60,000,000 to 80,000,000 shares. The proposal carried by a vote of 22,971,812
for, 346,225 against and 95,685 abstaining.
A proposal to increase the number of shares reserved for issuance under the
2001 Stock Option Plan from 2,500,000 to 7,000,000 was approved by a vote of
18,858,567 For, 523,660 against and 22,410 abstaining.
Stockholders were also asked to amend the formula for the grant of options to
non-employee directors under the 2001 Stock Option Plan. The proposal carried
by a vote of 23,268,002 for, 55,950 against and 89,770 abstaining.
Lastly, stockholders ratified the appointment of Goldstein Golub Kessler, LLP,
as independent auditors of the Company for the fiscal year ending February
28, 2004 by a vote of 23,184,652 for, 87,400 against and 141,670 abstaining.
15
Item 5. Other Information
This Item is not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Exhibit Description Location
------------------------------------------------------------------------------
2.1 Articles of Merger Incorporated by reference
to Exhibit 3.2 to Biophan's
Form 10-KSB for the year
ended February 29, 2000
2.2 Articles of Dissolution Incorporated by reference
` to Exhibit 3.3 to the 2000
10-KSB
2.3 Exchange Agreement, dated as of Incorporated by reference
December 1, 2000, by and among to Exhibit 2.3 to Biophan's
Biophan, Biomed Solutions, LLC Registration Statement on
(formerly Biophan, LLC), and LTR Form SB-2 (File No. 333-
Antisense Technology, Inc. 102526) (the "Prior
Registration")
3.1 Articles of Incorporation (Nevada) Incorporated by reference
to Exhibit 3.1 to the 2000
10-KSB
3.2 Bylaws (Nevada) Incorporated by reference
to Exhibit 3.2 to Biophan's
Form 10-SB filed on May 13,
1999.
3.3 Amendment to the Articles of Incorporated by reference
Incorporation to Exhibit 3.1(i) to
Biophan's Form 8-K, filed
December 15, 2000.
3.4 Amendment to Exchange Agreement Incorporated by reference
to Exhibit 2 to Biophan's
Form 10-KSB for the year
ended February 28, 2001 and
filed as an exhibit to Form
SB-2a on May 1, 2003.
3.5 Certificate of Amendment to Incorporated by reference
Articles of Incorporation to Exhibit 3.1(i) to
Biophan's Form 8-K on
August 27, 2001.
4.1 Stock Purchase Warrant between Incorporated by reference
Biophan and Biomed Solutions, LLC to Exhibit 4.1 to
(formerly Biophan, LLC) dated June Biophan's Form 10-QSB for
16
4, 2002 the period ended May 31,
2002.
4.2 Restated Stock Purchase Warrant Incorporated by reference
Biophan and Bonanza Capital to Exhibit 4.2 to
Masterfund LTD Biophan's Form 10-QSB for
the period ended May 31,
2002.
4.3 Restated Stock Purchase Warrant Incorporated by reference
between Biophan and Biomed to Exhibit 4.3 to
Solutions, LLC, dated January 8, Biophan's Form 10-QSB for
2003 the period ended November
30, 2002.
4.4 Stock Purchase Warrant between Incorporated by reference
Biophan and Biomed Solutions, LLC to Exhibit 4.4 to Biophan's
dated November 11, 2002 Form 10-QSB for the period
ended November 30, 2002.
4.5 Form of Stock Purchase Warrant Incorporated by reference
issued to principals of Carolina to Exhibit 4.5 to Biophan's
Financial Services, for a total of Form 10-QSB for the period
121,572 shares ended November 30, 2002.
4.6 Form of Stock Purchase Warrant to Incorporated by reference
be issued to Carolina Financial to Exhibit 4.6 to Biophan's
services in connection with the Form 10-QSB for the period
Stock Purchase Agreement with ended November 30, 2002.
Spectrum Advisors, Ltd
4.7 Form of Stock Purchase Warrant Incorporated by reference
issued to investors in private to Exhibit 4.7 to Biophan's
placement of securities, for a Form 10-QSB for the period
total of 2,770,550 shares ended November 30, 2002.
4.8 Stock Purchase Warrant issued to Incorporated by reference
SBI USA, LLC to Exhibit 4.8 to Biophan's
Form 10-QSB for the period
ended November 30, 2002.
10.1 Stock Purchase Agreement dated Incorporated by reference
October 1, 2003 between Biophan to Exhibit 10.50 to
and SBI Brightline Consulting, Biophan's Form SB-2 on
LLC. October 9, 2003.
10.2 Development Agreement between Incorporated by reference
Biophan and Alfred University to Exhibit 10.51 to
dated July 17, 2003 Biophan's Form SB-2 on
October 9, 2003.
31.1 Certification by Chief Executive Filed herewith
Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002
31.2 Certification by Chief Financial Filed herewith
Officer pursuant to Section 302
of the Sarbanes-Oxley Act of 2002.
32.1 Certification by Chief Executive Filed herewith
Officer and Chief Financial Officer
pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
Not applicable.
17
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
BIOPHAN TECHNOLOGIES,INC.
(Registrant)
Date: October 15, 2003
By: /s/ Michael L. Weiner
------------------------------
Name: Michael L. Weiner,
Title: Chief Executive Officer
By: /s/ Robert J. Wood
------------------------------
Name: Robert J. Wood
Title: Chief Financial Officer
18