UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] Quarterly Report pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the period ended: November 30, 2002
[ ] Transition Report Pursuant to section 13 or 15(d) of the
Securities and Exchange Act of 1934
For the transition period from ____ to ____
Commission File No. 0-26057
BIOPHAN TECHNOLOGIES, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 82-0507874
--------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification
No.)
150 Lucius Gordon Drive, Suite 215
West Henrietta, New York 14586
--------------------------------- ---------
(Address of principal executive offices) (Zip code)
(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 January 10, 2003
Common Stock, $.005 par value 37,634,693
Transitional Small Business Disclosure Format (Check One): Yes[ ] No[x]
1
INDEX
Page
Number
Independent Accountant's Report 3
Consolidated Balance Sheets, November 30, 2002 (Unaudited)
and February 28, 2002 4
Consolidated Statements of Operations, Three Months and Nine
Months Ended November 30, 2002 and 2001 (Unaudited), and from
August 1, 1968 (Date of Inception) through November 30, 2002
(Unaudited) 5
Consolidated Statements of Cash Flows, Nine Months Ended
November 30, 2002 and 2001 (Unaudited) and from August 1, 1968
(Date of Inception) through November 30, 2002 (Unaudited) 6
Notes to Consolidated Financial Statements 7
ITEM 2. Plan of Operation 9
ITEM 3. Controls and Procedures 15
PART II. OTHER INFORMATION 12
ITEM 1. Legal Proceedings 12
ITEM 2. Changes in Securities 12
ITEM 3. Defaults Upon Senior Securities 13
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 13
a. Exhibits 13
b. Reports on Form 8-K 13
SIGNATURES 14
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 November 30, 2002, and the
related condensed consolidated statements of operations for the nine-month and
three-month periods ended November 30, 2002 and 2001, and the consolidated
statements of cash flows for the nine-month periods ended November 30, 2002
and 2001., and the amounts included in the cumulative column in the condensed
consolidated statements of operations and cash flows for the period from March
1, 2002 to November 30, 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
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 financial statements taken as
a whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that
should be made to the accompanying condensed consolidated financial statements
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 of
Biophan Technologies, Inc. and Subsidiaries as of February 28, 2002, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the year then ended and the amounts included in the cumulative
column in the consolidated statements of operations and cash flows for the
period from March 1, 2000 to February 28, 2002. The amounts in the cumulative
column in the consolidated statements of operations and cash flows for the
period from August 1, 1968 (date of inception) to February 29, 2000 were
audited by other auditors whose report, dated June 2, 2000, included an
emphasis relating to the Company's ability to continue as a going concern
(not presented herein). In our report dated April 5, 2002, except for
Note 10, as to which the date was June 7, 2002, we expressed an unqualified
opinion on those consolidated financial statements. In our opinion, the
information set forth in the accompanying condensed consolidated balance sheet
as of February 28, 2002, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/GOLDSTEIN GOLUB KESSLER LLP
New York, New York
January 3, 2003
3
BIOPHAN TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEETS
November 30, 2002
(Unaudited) February 28, 2002
-------------------------------------------
ASSETS
Current Assets:
Cash and equivalents $ 28,053 $ 12,199
Marketable securities, at market value - 568,805
Due from related parties 16,779
Prepaid expenses 130,468 91,819
-------------------------------------------
Total Current Assets 175,300 672,823
Fixed Assets, at cost, net 69,642 80,882
Other Assets:
Intellectual property rights 110,000 110,000
Security deposit 2,933 2,933
Deferred private equity placement costs 20,000 -
Deferred tax asset, net of valuation allowance of
$1,718,000 and $1,305,000 respectively - -
-------------------------------------------
132,933 112,933
-------------------------------------------
$ 377,875 $ 866,638
===========================================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Accounts payable and accrued expenses $ 326,780 $ 129,040
Loan payable to stockholder 143,570
Payable to related party 300,000 500,000
Due to related parties 4,790 16,349
-------------------------------------------
Total Current Liabilities 775,140 645,389
Long-term payable to related party 500,000
Stockholders' Equity (Deficiency):
Common stock, $.005 par value
Authorized, 60,000,000 shares
Issued and outstanding, 32,987,759 and 29,549,439
shares respectively 164,939 147,747
Additional paid-in capital 5,786,427 4,608,407
Deficit accumulated during the development stage (6,848,631) (4,534,905)
-------------------------------------------
(897,265) 221,249
-------------------------------------------
$ 377,875 $ 866,638
===========================================
See Notes to Consolidated Financial Statements.
4
BIOPHAN TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Period from August
Three Months Ended Nine Months Ended 1, 1968 (date of
November 30, November 30, inception) to
2002 2001 2002 2001 November 30, 2002
------------------------------------------------------------------------
Operating expenses:
Salaries and related $ 146,462 $ 149,392 $ 493,589 $ 264,299 $ 1,015,079
Research and development 195,842 284,035 837,123 570,790 1,899,391
Professional fees 104,784 243,357 374,804 415,994 1,724,405
Write-down of intellectual property
rights - - - - 490,000
General and administrative 111,321 194,063 398,930 283,155 901,010
------------------------------------------------------------------------
Operating loss (558,409) (870,847) (2,104,446) (1,534,238) (6,029,885)
Other income(expense):
Interest income 177 11,088 16,878 16,758 44,558
Interest expense (162,862) (292,499) (334,422) (524,117) (887,965)
Other income 47,345 47,109 137,069 47,109 179,104
Other expense (41,020) (28,805) (51,493) (65,086)
------------------------------------------------------------------------
(115,340) (275,322) (209,280) (511,743) (729,389)
------------------------------------------------------------------------
Loss from continuing operations (673,749) (1,146,169) (2,313,726) (2,045,981) (6,759,274)
Loss from discontinued operations - - - - (89,357)
------------------------------------------------------------------------
Net loss $ (673,749) $(1,146,169) $(2,313,726) $(2,045,981) $(6,848,631)
========================================================================
Loss per common share -basic
and diluted $ ( 0.02) $ (0.04) $ (0.08) $ (0.08)
========================================================
Weighted average shares outstanding 31,902,380 27,270,895 30,359,831 26,228,246
========================================================
See Notes to Consolidated Financial Statements.
5
BIOPHAN TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Period from August
Nine Months Ended 1, 1968 (date of
November 30, inception) to
2002 2001 November 30, 2002
---------------------------------------------------
Cash flows - operating activities:
Net loss $ (2,313,726) $ (2,045,981) $ (6,848,631)
Adjustments to reconcile net loss to net cash
used for operating activities:
Depreciation 19,191 3,800 34,120
Unrealized loss on marketable securities - 51,493 38,143
Amortization of interest on convertible note payable 300,000 - 300,000
Losses on marketable securities 28,805 - 28,805
Write-down of intellectual property rights - - 490,000
Amortization of discount on payable to
related party - 46,500 75,000
Issuance of common stock for services - - 101,108
Issuance of common stock for interest - 469,759 468,823
Grant of stock options for services 138,000 - 840,800
Expenses paid by stockholder - - 2,640
Changes in operating assets and liabilities:
Increase in due from related parties (16,779) - (16,779)
Increase in prepaid expenses (38,649) (86,625) (130,468)
Increase in security deposits (2,933)
Increase in accounts payable and
accrued expenses 197,740 840 313,449
Decrease in due to related parties (11,559) (189,362) (38,706)
---------------------------------------------------
(1,696,977) (1,749,576) (4,344,629)
---------------------------------------------------
Cash flows - investing activities:
Purchases of fixed assets (7,951) (31,448) (103,762)
Cost of web site development - (41,259) -
Security deposit - (2,933) -
Sales of marketable securities 540,000 - 917,270
Purchases of marketable securities - (984,217) (984,218)
---------------------------------------------------
532,049 (1,059,857) (170,710)
---------------------------------------------------
Cash flows - financing activities:
Proceeds of bridge loans - 986,500 986,500
Deferred equity placement costs (20,000) - (20,000)
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 757,212 1,783,675 3,133,322
---------------------------------------------------
1,180,782 2,770,175 4,543,392
---------------------------------------------------
Net increase(decrease) in cash and cash equivalents 15,854 (39,258) 28,053
Cash and cash equivalents, beginning 12,199 172,092 -
---------------------------------------------------
Cash and cash equivalents, ending $ 28,053 $ 132,834 $ 28,053
===================================================
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 $ - $ - $ 986,500
==================================================
See Notes to Consolidated Financial Statements.
6
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2002
INTERIM FINANCIAL STATEMENTS:
The consolidated financial statements as of November 30, 2002 and for the
three and nine months ended November 30, 2002 and 2001 are unaudited.
However, in the opinion of management of the Company, these financial
statements reflect all adjustments, consisting solely of normal recurring
adjustments, necessary to present fairly the financial position and results of
operations for such interim periods. The results of operations for the
interim periods presented are not necessarily indicative of the results to be
obtained for a full year.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Biophan
Technologies, Inc. ("Biophan") (formerly GreatBio Technologies, Inc.) and its
wholly owned subsidiaries, LTR Antisense Technology, Inc. ("Antisense") and
MRIC Drug Delivery Systems, LLC ("MRIC") (collectively referred to as the
"Company"). All significant intercompany accounts and transactions have been
eliminated in consolidation.
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.
7
PRINCIPAL BUSINESS ACTIVITIES
The Company is developing technologies that make biomedical devices safe for
use in an MRI (Magnetic Resonance Imaging) machine. Many 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 manufacture and market a temporary pacemaker and to supply sub-system
components and intellectual property licenses to manufacturers of other
biomedical devices.
The Company is in the development stage and is expected to remain so for at
least the next twelve months.
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.
At November 30, 2002, $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 additional warrants to purchase shares
of restricted common stock at a price dependent on the Company's traded market
price, as defined. These warrants have 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 November 30, 2002, the Company has borrowed $300,000 in aggregate
under the Line.
At it's November meeting, the Board of Directors approved extending the
maturity date of the $500,000 MRI technology purchase liability payable to
Biomed to June 1, 2004 and the Line of Credit loan to such time as funds are
received from the pending registered offering through an institutional
investor.
CHANGES IN EQUITY:
In accordance with a Private Placement Memorandum dated July 2, 2001, the
Company offered to sell 3,000,000 shares of common stock, par value $.005 per
share, at $1.00 per share. Gross proceeds of $2,399,750 (net proceeds of
$2,188,332) were received.
8
In June 2001, the Company entered into bridge loan agreements providing gross
proceeds of $986,500. Loans of $400,000 from one lender provided for a
maturity date of December 15, 2001 and interest payable by issuance of 100,000
shares of stock on the due date. As additional consideration, the noteholder
received 100,000 shares of stock and warrants to purchase an additional
100,000 shares at $1.00 per share. The noteholder had the right to convert
the principal amounts into stock at $.75 per share at any time prior to
maturity. The Company also received proceeds from a series of bridge loans
aggregating $586,500 upon the same general terms as above except that interest
was payable by issuance of 73,324 shares of stock at the maturity date of
October 29, 2001 (extended to November 29, 2001). All bridge lenders
exercised their conversion options on November 29, 2001, at which time the
Company issued 1,315,334 shares of common stock to convert the loans to equity.
During June 2002, the Company entered into a Stock Purchase Agreement with an
institutional investor whereby the Company agreed to sell up to $2,400,000 of
the Company's common stock. In November 2002, the agreement was revised to
provide for sales of stock up to $3,000,000. The agreement requires the
Company to file with the Securities and Exchange Commission ("SEC") a
Registration Statement covering the shares issuable under this agreement. The
Company can begin selling shares to the purchaser immediately after the SEC
declares the above-mentioned Registration Statement effective. The Company is
in the process of filing for registration.
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 $503,412 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. Through January 6, 2003, net cash
proceeds of $1,277,772 were received under this agreement.
Item 2. PLAN OF OPERATION
The following information should be read in conjunction with the consolidated
financial statements and notes thereto appearing elsewhere in this Form 10-
QSB. This Quarterly Report on Form 10-QSB contains certain forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. Actual events or
results may differ materially from those projected in the forward-looking
statements as a result of a number of factors including those identified
herein and in the Company's Annual report on Form 10-KSB and other periodic
reports and filings with the Securities and Exchange Commission.
Overview
We continue in the development stage of our operations and are expected to be
in that mode for the foreseeable future. Our primary mission is to develop
and commercially exploit potentially significant technologies for enabling
cardiac pacemakers and other life sustaining medical devices to be safe and
compatible with magnetic resonance imaging (MRI) and other equipment that
generates powerful magnetic and radio frequency signals.
9
Results of Operations
During the year-ago quarter ended November 30, 2001, we pursued the
development of our proprietary technology, realized no revenues and incurred
research and development expenses of $284,035 and other operating expenses of
$586,812 plus interest expense of $292,499. The net loss for the quarter was
$1,146,169, including $276,774 of non-cash charges for interest expense
incurred in connection with the payment of interest on bridge loans by
issuance of shares of common stock.
During the quarter ended November 30, 2002, we pursued the development of our
proprietary technology, incurring research and development expenses of
$195,842 and other operating expenses of $362,567. The net loss for the
current quarter was $673,749, which includes non-cash charges of $194,000.
Of that amount, $44,000 is related to expensing options and $150,000 is
related to imputed interest expense on our line of credit agreement.
During the nine months ended November 30, 2002, we incurred a net loss of
$2,313,726 as compared with net loss of $2,045,981 for the nine months ended
November 30, 2001. Research and development expenses were $837,123 and other
operating expenses were $1,267,323 for the nine months ended November 30, 2002
as compared with $570,790 and $963,448 respectively, for the nine months ended
November 30, 2001. The net loss for the nine months ended November 30, 2002
included $438,000 of non-cash interest and options charges and the net loss
for the nine months ended November 30, 2001 included $469,759 of non-cash
interest charges.
We remained in the development stage through the quarter ended November 30,
2002 and have realized no operating revenues.
Research and Product Development Activities
We are developing technology to allow patients with biomedical devices to
safely undergo MRI diagnostics. This includes a temporary pacemaker which
will allow a patient with an implanted pacemaker to safely undergo an MRI scan
without the current risks that resulted in the 1997 FDA contraindication for
pacemakers and other devices.
We have contracted for animal testing of our prototype fiber-optic temporary
pacemaker. Greatbatch Enterprises is conducting the animal tests in
conjunction with a leading research university. After the animal tests are
completed, we plan to file an FDA application for human clinical trials.
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 Parkinson's and epilepsy. We
have also received OEM licensing interest from several companies wishing to
use the fiber-optic lead to power miniature MRI receiving coils, known as
"intraluminal coils." These coils are placed in body cavities, close to
tissue, to improve MRI image resolution, reduce scan time, and enable quality
images to be obtained with lower strength and lower cost MRI machines. We are
anticipating one or more R&D contracts to help finance the development of this
technology platform.
We have developed an MRI-safe solution for defibrillation by using a
discontinuous wire lead. This enables the high voltage cardioversion-
defibrillation pulse to bridge the gaps in the lead while preventing lower
voltage MRI induced currents from bridging the gap and heating the lead.
We have licensed, on an exclusive basis, shielding and filtering technologies
which include the use of carbon composite and nanomagnetic particle
technologies. These technologies have the potential to shield medical devices
from MRI interference. This specialized area of nanotechnology uses
nanoparticles that allow precision altering of the magnetic field in a non-
conductive material that exhibits unique properties due to the nano-scale size
and formulation of the coating.
10
The nonmagnetic nanoparticles used in our proprietary process appear to have
properties which can be used to shield metal wires inside the shielding. As a
result of promising early indicators, we have significantly stepped up our R&D
efforts with these nanomaterials, carbon composites, and RF filtering.
We have entered into exclusive licenses to the patented technologies described
above, and have contracted with consultants in private industry and at the
University of Buffalo and Alfred University to conduct research to perfect
these solutions. Recently, successful testing of these solutions in an MRI
machine was accomplished.
We have obtained a license from Johns Hopkins University for an issued patent
for an MRI-Safe ECG and Pacemaker Lead. The license is exclusive for
implantable devices and also covers other market segments. This is the only
issued patent for MRI-safe pacing. This technology provides a low-pass RF
filter at the electrode tip in the heart, and at the pacemaker device in the
chest. This low-pass filter stops much of the potentially damaging energy
traveling to the electrode tip in the heart. Used in conjunction with our
proprietary shielding technologies, the problem of MRI safety can be
significantly mitigated.
To further improve the chances for this approach to work, we have has also
filed patents for reducing the energy output of an MRI machine, 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 pacemakers, defibrillators, and other medical devices.
We conduct much of our R&D and prototype development through sub-contract
arrangements with third parties. Greatbatch Enterprises has developed the
fiber-optic prototype temporary pacemaker for us under contract, and has
assigned the related patent applications to Biophan. We are exploring
manufacturing arrangements with FDA registered biomedical device manufacturing
companies with expertise in the field. Wherever possible, we use the plant and
staff infrastructure of other companies, reducing our overhead and taking
advantage of third-party experience and know-how.
Liquidity and Capital Resources
In June 2002, we executed a line-of-credit agreement with Biomed that provided
for borrowings up to $250,000 with interest payable at 8% per annum. Biomed
received warrants to purchase 75,000 shares of common stock at $1.00 per
share. On August 19, 2002, the line was increased by $100,000 and the
expiration date of that additional amount was set as August 19, 2003. In
consideration, Biomed received additional warrants and all warrants then held
by Biomed were priced or repriced to be exercisable 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. Biomed has the option of
converting the principal and interest of the loan on the same basis. Biomed
also received the right to receive 33% of proceeds (up to $300,000) from the
sale or licensing of our shielding or filtering technologies. On November 7,
2002, our Board of Directors approved further modifications to the line. The
portion of the line of credit due on December 1, 2002 was extended to such
time as a registration statement becomes effective. As consideration, we
agreed to pay to Biomed an additional 10% royalty (up to $175,000) of proceeds
from the sale or leasing of our technologies. Currently, $300,000 has been
borrowed under the line of credit.
11
In June 2002, we extended the due date of the $500,000 payment due to Biomed
under the Transfer Agreement for the MRI-compatible technology transferred to
us, to September 1, 2002 which date was further extended to December 1, 2002.
For these extensions, Biomed received warrants to purchase a total of 375,000
shares. On November 7, 2002 this obligation was further extended to June 1,
2004, bearing interest at 8% from February 28, 2002. After June 1, 2004, the
obligation will be repaid in 12 equal monthly installments. In consideration
of this extension, Biomed was granted warrants to purchase 500,000 shares at
an exercise price of $.50 per share. The number of warrants will be reduced
by 16,667 for each month that the obligation is pre-paid.
Also in June 2002, we 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. To date, we
have borrowed $143,570 under this Agreement.
Pursuant to offerings exempt from registration under Regulation S of the
Securities Act, we raised net proceeds of $503,412 during August and
September 2002.
Effective August 22, 2002, we entered into a finder's agreement with Westbay
Consulting, Inc. providing for the sale of restricted shares of common stock
to accredited investors pursuant to Rule 506 of Regulation D under the
Securities Act. The finder receives a cash fee of 10% plus stock. From
September 27 through January 6, 2002, net cash proceeds of $ 1,277,772 were
received under this agreement.
On November 22, 2002, we entered into a Stock Purchase Agreement with Spectrum
Advisors, in the nature of an equity line, whereby we have the option to sell
up to $3,000,000 of our common stock to Spectrum, with an option for the
Company to increase the line further. This Agreement restated and superseded
a Stock Purchase Agreement entered into June 6, 2002 with Bonanza Capital, on
essentially the same terms and conditions. The minimum daily sale of common
stock under the Agreement is $12,500. The agreement requires us to file with
the SEC a registration statement covering the shares issuable under this
agreement. We can begin selling shares to the purchaser after the SEC declares
our registration statement effective.
We believe that the above-described financing arrangements will be sufficient
to fund the next twelve months of operations and beyond. The proceeds will
be applied to the ongoing R&D program for achieving MRI-safe implantable
cardiac pacemakers and other devices as well as to administrative expenses.
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.
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, 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
There are presently no material pending legal proceedings to which we are a
party or to which any of our property is subject and, to the best of our
knowledge, no such actions against us is contemplated or threatened.
Item 2. Changes in Securities
During the three-month period ended November 30, 2002, we issued a total of
1,925,046 shares of our common stock for gross cash proceeds of $394,067,
less commissions and offering costs of $28,200. In connection with these
transactions, we also issued 24,172 shares of our common stock as additional
commission. The net proceeds from the sales were used for general working
capital purposes.
12
Of the aforementioned shares, 238,500 were issued to nonaffiliated, non-U.S.
persons in offshore transactions exempt from registration under the
Securities Act of 1933 and the shares are deemed restricted securities. For
the issuance of these shares, we relied upon the exemption from registration
provided by Regulation S of the Securities Act. The balance of the
aforementioned shares were issued as restricted securities in a private
placement deemed exempt from registration pursuant to Regulation D of the Act.
Item 3. Changes Upon Default of Senior Securities
This Item is not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
This Item is not applicable.
Item 5. Other Information
This Item is not applicable.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
*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 the Registrant, Biophan and LTR filed as part of
Form 8-K, filed December 15, 2000.
*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.
*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 the Company and Biomed
Solutions, 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 the Company 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 the Company and Biomed
Solutions, LLC, dated January 8, 2003.
EX-4.4 Stock Purchase Warrant between the Company and Biomed Solutions, LLC
dated November 11, 2002.
EX-4.5 Form of Stock Purchase Warrant issued to principals of Carolina
Financial Services, for a total of 121,572 shares.
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.
EX-4.7 Form of Stock Purchase Warrant issued to investors in private
placement of securities , for a total of 2,770,550 shares.
Ex-4.8 Stock Purchase Warrant issued to SBI E2-Capital (USA), Inc.
EX-5.1 Opinion of counsel
*EX-10.1 Assignment, dated as of December 1, 2000, by and between the
Registrant and Biophan 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 the Registrant and Biophan 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 the Company 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 the Company and Biomed
Solutions, LLC dated June 4, 2002, filed as Exhibit to Form
10-QSB for the period ended May 31, 2002.
*EX-10.7 Loan Agreement between the Company 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 the Company 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 the Company, 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 the Company 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 the Company 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 the Company 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 the Company 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 the Company 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 the Company 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 the Company and Spectrum
Advisors, LTD,
EX-10.17 Escrow Agreement between the Company, Spectrum Advisors, Ltd.
and Boylan, Brown, Code, Vigdor & Wilson LLP.
EX-10.18 Registration Rights Agreement between the Company and
Spectrum Advisors, Ltd.
*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 Definitve Proxy Statement filed with the Securities and Exchange
Commission on January 10, 2000
*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
*EX-23.2 Consent of Boylan, Brown, Code, Vigdor & Wilson, LLP is included in
its opinion filed as Exhibit 5.1.
*EX-24.1 Power of Attorney (included on Signature Page of their Registration
Statement)
*EX-99 2001 Stock Option Plan filed as exhibit to Form 8-K on August
27, 2001.
EX-99.1 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-99.2 Certification of Principal Accounting Officer 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
There were no reports filed on Form 8-K during the three months
ended November 30, 2002.
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BIOPHAN TECHNOLOGIES,INC.
(Registrant)
Date: January 14, 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
14
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 quarterly report on Form 10-QSB of Biophan
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying 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 quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: January 14, 2003
/s/Michael L. Weiner
----------------------
Michael L. Weiner
Chief Executive Officer
15
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 quarterly report on Form 10-QSB of Biophan
Technologies, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying 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
quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying 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 quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: January 14, 2003
/s/Robert J. Wood
--------------------
Robert J. Wood
Chief Financial Officer
16