UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
|X| QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the quarterly period ended November 30, 2006
OR
|_| 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 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
(Registrant's telephone number, including area code)
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.
Yes |X| No |_|
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one).
Large Accelerated Filer |_| Accelerated Filer |X| Non-Accelerated Filer |_|
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
Indicate 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 24, 2006 - Common Stock, $.005 par value - 83,731,699 shares
INDEX
Page
Number
------
Part 1: FINANCIAL INFORMATION
ITEM 1. Financial Statements
Condensed Consolidated Balance Sheets, November 30, 2006
(Unaudited) and February 28, 2006 1
Condensed Consolidated Statements of Operations, Three Months
and Nine Months Ended, November 30, 2006 and 2005
(Unaudited), and from August 1, 1968 (Date of Inception)
through November 30, 2006 (Unaudited) 2
Condensed Consolidated Statements of Cash Flows, Nine Months
Ended November 30, 2006 and 2005 (Unaudited) and from
August 1, 1968 (Date of Inception) through November 30, 2006
(Unaudited) 3
Notes to Condensed Consolidated Financial Statements 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 17
ITEM 4. Controls and Procedures 17
PART II. OTHER INFORMATION 18
ITEM 1. Legal Proceedings 18
ITEM 1A. Risk Factors 19
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds 19
ITEM 3. Defaults Upon Senior Securities 19
ITEM 4. Submission of Matters to a Vote of Security Holders 19
ITEM 5. Other Information 20
ITEM 6. Exhibits 20
SIGNATURES 21
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, February 28,
2006 2006
(Unaudited) (Restated)
------------ ------------
ASSETS
Current assets:
Cash and cash equivalents $ 4,795,122 $ 1,477,716
Accounts receivable 207,280 170,058
Due from related parties -- 4,801
Prepaid expenses 124,460 147,203
Other current assets 19,087 81,048
------------ ------------
Total current assets 5,145,949 1,880,826
Property and equipment, net 304,549 126,341
Other assets:
Intangible assets, net of amortization:
Myotech, LLC 23,418,416 24,451,580
Other 1,342,901 1.403,270
Deferred financing costs, net of amortization
of $62,117 and $0, respectively 1,470,093 --
Investment in New Scale Technologies, Inc. 100,000 100,000
Security deposit 6,049 6,049
Deferred tax asset, net of valuation allowance of
$9,622,000 and $7,560,000, respectively -- --
------------ ------------
26,337,459 25,960,899
------------ ------------
$ 31,787,957 $ 27,968,066
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of senior secured convertible notes
payable, net of discount of $1,903,655 $ 293,312 $ --
Accounts payable and accrued expenses 2,098,165 1,191,812
Notes payable 71,099 15,886
Line of credit - related party, net of discount
of $100,554 and $1,323,921, respectively 4,329,446 1,476,079
Due to related parties 111,532 26,548
Deferred revenues 20,833 520,833
------------ ------------
Total current liabilities 6,924,387 3,231,158
Long-Term Debt:
Senior Secured Convertible Notes Payable, less
discount of $4,747,197 305,836 --
Fair Value of Warrant Liability 8,587,796 --
------------ ------------
Total Liabilities 15,818,019 3,231,158
Minority interest 13,552,378 15,189,109
Stockholders' equity:
Common stock $.005 par value:
Authorized, 125,000,000 shares
Issued, 83,431,699 and
81,805,243 shares, respectively 417,158 409,026
Additional paid-in capital 54,702,240 49,576,129
------------ ------------
55,119,398 49,985,155
Treasury stock, 4,923,080 shares (8,467,698) (8,467,698)
------------ ------------
46,651,700 41,517,457
Deficit accumulated during the development stage (44,234,140) (31,969,658)
------------ ------------
2,417,560 9,547,799
------------ ------------
$ 31,787,957 $ 27,968,066
============ ============
See Notes to Condensed Consolidated Financial Statements.
1
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Period from
August 1, 1968
Three Months Ended Nine Months Ended (date of
November 30, November 30, inception) to
-------------------------- --------------------------- November 30,
2006 2005 2006 2005 2006
------------ ----------- ------------ ------------ --------------
Revenues:
Development payments $ -- $ 225,000 $ -- $ 225,000 $ 300,000
License fees 62,500 187,500 500,000 250,000 979,166
Testing services and consulting fees 163,594 54,435 381,115 113,119 721,810
------------ ----------- ------------ ------------ ------------
226,094 466,935 881,115 588,119 2,000,976
Operating expenses:
Research and development 1,737,351 1,212,239 6,267,272 5,103,743 19,286,691
General and administrative 1,264,228 1,548,299 4,923,853 6,567,924 22,865,225
Write-down of intellectual property rights -- -- -- -- 530,000
------------ ----------- ------------ ------------ ------------
3,001,579 2,760,538 11,191,125 11,671,667 42,681,916
------------ ----------- ------------ ------------ ------------
Operating loss (2,775,485) (2,293,603) (10,310,010) (11,083,548) (40,680,940)
Other income(expense):
Interest income 34,697 48,922 46,303 60,638 175,451
Interest expense (1,889,188) (243,332) (2,573,595) (1,010,648) (5,445,384)
Additional expense related to warrants (7,304,105) -- (7,304,105) -- (7,304,105)
Change in fair value of warrant liability 6,722,184 -- 6,722,184 -- 6,722,184
Loss on extinguishment of debt - related
party (670,053) -- (670,053) -- (670,053)
Other income 44,499 113,312 138,200 225,541 830,397
Other expense -- -- -- -- (65,086)
------------ ----------- ------------ ------------ ------------
(3,061,966) (81,098) (3,641,066) (724,469) (5,756,596)
------------ ----------- ------------ ------------ ------------
Loss from continuing operations before minority
interest in net loss of Myotech, LLC (5,837,451) (2,374,701) (13,951,076) (11,808,017) (46,437,536)
Minority interest in net loss of Myotech, LLC 470,674 -- 1,686,594 -- 2,292,753
------------ ----------- ------------ ------------ ------------
Loss from continuing operations (5,366,777) (2,374,701) (12,264,482) (11,808,017) (44,144,783)
Loss from discontinued operations -- -- -- -- (89,357)
------------ ----------- ------------ ------------ ------------
Net loss $ (5,366,777) $(2,374,701) $(12,264,482) $(11,808,017) $(44,234,140)
============ =========== ============ ============ ============
Loss per common share - basic and diluted $ (0.07) $ (0.03) $ (0.16) $ (0.16)
============ =========== ============ ============
Weighted average shares outstanding 77,654,013 76,760,163 78,180,322 75,430,870
============ =========== ============ ============
See Notes to Condensed Consolidated Financial Statements.
2
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Period from
Nine Months Ended August 1, 1968
November 30, (date of
--------------------------- inception) to
2006 2005 November 30, 2006
(Restated)
------------ ------------ -----------------
Cash flows used for operating activities:
Net loss $(12,264,482) $(11,808,017) $(44,234,140)
Adjustments to reconcile net loss to net cash
used in operating activities:
Amortization of intangible assets 1,093,533 40,929 1,498,974
Amortization of deferred financing costs 62,117 -- 62,117
Depreciation 47,818 30,882 187,252
Loss on disposal of equipment 3,651 1,505 5,156
Additional expense related to warrants 7,304,105 -- 7,304,105
Change in fair value of warrant liability (6,722,184) -- (6,722,184)
Realized and unrealized losses on marketable securities -- -- 66,948
Loss on extinguishment of debt - related party 670,053 -- 670,053
Accrued interest on note converted to common stock -- 19,506 31,504
Amortization of discount on convertible notes payable 599,148 -- 1,650,098
Write-down of intellectual property rights -- -- 530,000
Amortization of discount on payable to related party 1,640,438 958,160 2,787,002
Issuance of common stock for services -- -- 406,948
Issuance of common stock for interest -- -- 468,823
Grant of stock options for services 1,112,726 4,644,202 7,676,304
Expenses paid by stockholder -- -- 2,640
Minority interest (1,636,731) 26,523 (2,173,347)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable (37,222) -- (199,780)
(Increase) decrease in due from related parties 4,801 134,123 (59,300)
(Increase) decrease in prepaid expenses 22,743 (84,345) (124,460)
(Increase) decrease in other current assets 61,961 (35,832) 22,251
(Increase) decrease in security deposits -- (867) (3,800)
Increase (decrease) in accounts payable and
accrued expenses 906,353 603,544 1,554,045
Increase (decrease) in due to related parties 84,984 -- 68,036
Increase (decrease) in deferred revenues (500,000) 275,000 20,833
------------ ------------ ------------
Net cash used in operating activities (7,546,188) (5,194,687) (28,503,922)
Cash flows used for investing activities:
Purchases of property and equipment (229,677) (53,250) (464,887)
Sales of marketable securities -- -- 2,369,270
Purchase of investment -- -- (100,000)
Acquisition costs of intangible assets -- (466,583) (466,583)
Cash paid for investment in Myotech,
net of cash received of $19,408 -- (280,594) (280,594)
Cash paid for acquisition of Biophan Europe,
net of cash received of $107,956 -- -- (258,874)
Purchases of marketable securities -- -- (2,436,218)
------------ ------------ ------------
Net cash used in investing activities (229,677) (800,427) (1,637,886)
Cash flows provided by financing activities:
Proceeds of bridge loans -- -- 986,500
Loan from stockholder -- -- 143,570
Line of credit borrowing from related party, net of
discount 3,630,000 2,000,000 8,480,950
Line of credit payments (2,000,000) (500,000) (2,572,500)
Proceeds of convertible note payable 7,250,000 -- 7,250,000
Notes payable 55,213 (200,000) (144,787)
Proceeds from sales of common stock 3,175,000 6,050,000 19,438,849
Exercise of options 13,178 182,541 658,466
Exercise of warrants -- 20,707 1,142,451
Swing profits -- 295,362 696,087
Deferred financing costs (1,030,120) -- (1,142,656)
------------ ------------ ------------
Net cash provided by financing activities 11,093,271 7,848,610 34,936,930
------------ ------------ ------------
Net increase (decrease) in cash and equivalents 3,317,406 1,853,496 4,795,122
Cash and equivalents, beginning 1,477,716 753,288 --
------------ ------------ ------------
Cash and equivalents, ending $ 4,795,122 $ 2,606,784 $ 4,795,122
============ ============ ============
See Notes to Condensed Consolidated Financial Statements.
3
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Period from
Nine Months Ended August 1, 1968
November 30, (date of
----------------------- inception) to
2006 2005 November 30, 2006
---------- ---------- -----------------
Supplemental schedule of cash paid for:
Interest $ 30,000 $ 12,603 $ 39,800
========== ========== ==========
Supplemental schedule of non cash investing and financing activities:
Allocation of proceeds from line of credit - related party
to beneficial conversion feature and warrants $ 417,070 $ -- $2,812,555
========== ========== ==========
Allocation of proceeds from notes payable and warrants $7,250,000 $ -- $7,250,000
========== ========== ==========
Issuance of warrants in partial payment of financing costs $ 502,090 $ -- $ 502,090
========== ========== ==========
Reclassification of warrants from equity to warrant liability $ 755,876 $ -- $ 755,876
========== ========== ==========
Issuance of common stock upon conversion
of line of credit loans $ -- $1,000,000 $1,978,450
========== ========== ==========
Issuance of common stock for the acquisition of
a 35% interest in Myotech, LLC $ -- $8,467,698 $8,467,698
========== ========== ==========
Issuance of common stock in satisfaction of
accounts payable $ -- $ -- $ 134,000
========== ========== ==========
Liabilities assumed in conjunction with acquisition of 51% interest in
Biophan Europe and certain intellectual property rights:
Fair value of assets acquired $1,105,714
Cash paid (366,830)
Promissory note issued (200,000)
Restricted stock issued (134,000)
Payables incurred (226,500)
----------
Liabilities assumed $ -- $ -- $ 178,384
========== ========== ==========
Issuance of common stock upon conversion
of bridge loans $ -- $ -- $1,142,068
========== ========== ==========
Acquisition of intellectual property $ -- $ -- $ 425,000
========== ========== ==========
Intellectual property acquired through issuance of
capital stock and assumption of related party payable $ -- $ -- $ 175,000
========== ========== ==========
See Notes to Condensed Consolidated Financial Statements.
4
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
November 30, 2006
INTERIM FINANCIAL STATEMENTS:
The condensed consolidated financial statements as of November 30, 2006 and for
the three and nine months ended November 30, 2006 and 2005 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. These unaudited condensed consolidated financial statements should be
read in conjunction with the audited consolidated financial statements and notes
thereto included in the Company's Annual Report on Form 10-K/A for the fiscal
year ended February 28, 2006.
BASIS OF CONSOLIDATION:
The consolidated financial statements include the accounts of Biophan
Technologies, Inc. ("Biophan"), its wholly owned subsidiaries, LTR Antisense
Technology, Inc.("Antisense") and Nanolution, LLC, formerly MRIC Drug Delivery
Systems, LLC, ("Nanolution"), its majority owned subsidiaries Biophan Europe
GmbH ("Biophan Europe"), formerly aMRIs GmbH, and TE Bio LLC ("TE Bio"), and
Myotech, LLC ("Myotech"), a variable interest entity, collectively referred to
as the "Company". All significant inter-company accounts and transactions have
been eliminated in consolidation.
COMPANY HISTORY:
The Company was incorporated under the laws of the State of Idaho on August 1,
1968 and on January 12, 2000, changed its domicile to Nevada by merging into a
Nevada corporation, and on July 19, 2001, changed its name to Biophan
Technologies, Inc. From the inception of the current line of business on
December 1, 2000, the Company has not generated any material revenues and
operating profits. Therefore, the Company is in the development stage and will
remain so until the realization of significant revenues and operating profits.
The Company's ability to continue in business is dependent upon maintaining
sufficient financing or attaining future profitable operations.
PRINCIPAL BUSINESS ACTIVITIES:
The primary mission is to develop and commercially exploit technologies for
improving the performance, and as a result, the competitiveness of biomedical
devices manufactured by third party companies. The Company possesses
technologies for enabling biomedical devices, both implantable and those used in
diagnostic and interventional procedures, to be safe (do not harm the patient or
physician) and image compatible (allow effective imaging of the device and its
surrounding tissue) with MRI (magnetic resonance imaging). The Company is also
developing and marketing an image compatible ceramic motor; a system for
generating power for implantable devices from body heat, and a series of
implantable devices including MRI-visible vascular implants such as a vena cava
filter, a heart valve and an occluder for the treatment of atrial septal
defects, a hole in the wall separating the left and right chambers of the heart.
The Company's first licensee for several of these technologies is Boston
Scientific (NYSE: BSX). The Company is also an owner of a substantial minority
interest, with rights to take a majority interest, in Myotech,(accounted for as
a variable interest entity) developer of the MYO-VAD, a cardiac assist device
that does not contact circulating blood and utilizes technology that has the
potential to become a standard of care in the device market for treating
multiple types of acute and chronic heart failure including congestive heart
failure and sudden cardiac arrest.
ACCOUNTING FOR STOCK- BASED COMPENSATION
The Company has two stock-based compensation plans, entitled Biophan
Technologies, Inc. 2001 Stock Option Plan and Biophan Technologies, Inc. 2006
Incentive Stock Plan (the "Plans") which are stockholder approved. The Plans
provide for the grant of incentive and non-qualified stock options to selected
employees, and the grant of non-qualified options to selected consultants and to
directors and advisory board members. In addition, various other types of
stock-based awards may be granted. The Plans are administered by the
Compensation Committee of the Board and authorizes the grant of options or
restricted stock awards for 13,000,000 shares under the 2001 Plan and 7,500,000
shares under the 2006 Plan. The Compensation Committee determines which eligible
individuals are to receive options or other awards under the Plans, the terms
and conditions of those awards, the applicable vesting schedule, the option
price and term for any granted options, and all other terms and conditions
governing the option grants and other awards made under the Option Plan.
Non-employee directors also receive periodic option grants pursuant to the
automatic grant program in effect for them under the 2006 Plan.
Effective March 1, 2006, the Company adopted SFAS No. 123 (revised),
"Share-Based Payment" (SFAS 123(R)) utilizing the modified prospective approach.
Prior to the adoption of SFAS 123(R), stock option grants to employees and
directors were accounted for in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees" (the intrinsic value method) and the
disclosure-only provisions of SFAS 123, "Accounting for Stock-Based
Compensation". Accordingly, employee compensation expense was recognized only to
the extent that the fair value of our common stock on the date of grant exceeded
the stock option exercise price.
5
Under the modified prospective approach, SFAS 123(R) applies to new grants and
to grants that were outstanding on February 28, 2006 that are subsequently
modified, repurchased or cancelled. Under the modified prospective approach,
compensation cost recognized in the first three quarters of fiscal 2007 includes
compensation cost for all share-based payments granted prior to, but not yet
vested as of February 28, 2006, based on the grant-date fair value estimated in
accordance with the original provisions of SFAS 123, and compensation cost for
all share-based payments granted subsequent to February 28, 2006, based on the
grant-date fair value estimated in accordance with the provisions of SFAS
123(R). Prior periods were not restated to reflect the impact of adopting the
new standard.
As a result of adopting SFAS 123(R) on March 1, 2006, our net loss and basic and
diluted loss per share for the three months and the nine months ended November
30, 2006, were $228,586 ($.003 per share) and $919,631 ($.012 per share) higher,
respectively, than if we had continued to account for stock-based compensation
under APB Opinion No. 25 for our stock option grants.
The following table illustrates the effect on operating results and per share
information had the Company accounted for stock-based compensation in accordance
with SFAS 123(R) for the three months and nine months ended November 30, 2005:
Nine Months
Three Months Ended Ended
November 30, 2005 November 30, 2005
------------------ -----------------
Net loss - as reported $(2,374,701) $(11,808,017)
Add: Stock-based employee compensation
expense included in reported net loss,
net of related tax effects 29,500 4,355,030
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (220,466) (6,279,291)
----------- ------------
Net loss - pro forma $(2,565,667) $(13,732,278)
=========== ============
Basic and diluted loss
per share - as reported $ (.03) $ (.16)
=========== ============
Basic and diluted loss
per share - pro forma $ (.03) $ (.18)
=========== ============
We use the Black-Scholes option pricing model to estimate the fair value of
stock-based awards with the following weighted-average assumptions for the
indicated periods (no options were granted in the three months ended November
30, 2005:
Nine Nine
Three Months Months Ended Months Ended
Three Months Ended Ended November 30, November 30,
November 30, 2006 November 30, 2005 2006 2005
------------------ ----------------- ------------- ------------
Expected volatility 115.8 N/A 115.8-121.8 60.3-87.8
Risk-free interest rate 4.45% N/A 4.45%-5.35% 4.08%-4.27%
Expected life of options (years) 5.6-6.4 years N/A 3.75-8 years 10 years
Weighted-average grant-date fair value $.33 N/A $.47 $2.09
Expected dividends -0- N/A -0- -0-
The assumptions above are based on multiple factors, including historical
exercise patterns of employees in relatively homogeneous groups with respect to
exercise and post-vesting employment termination behaviors, expected future
exercising patterns for these same homogeneous groups and the implied volatility
of our stock price.
At November 30, 2006, there was $1,547,273 of unrecognized compensation cost
related to stock-based payments which is expected to be recognized over a
weighted-average period of 1.39 years.
6
The following table represents stock option activity for the nine months ended
November 30, 2006:
Weighted-Average
Number of Weighted-Average Remaining
Shares Exercise Price Contract Life
--------- ---------------- ----------------
Outstanding options at 2/28/06 9,594,020 $ .95
Granted 240,000 $1.19
Exercised (38,956) $ .34
Forfeited (209,500) $ .82
Expired (90,000) $ .50
---------
Outstanding options at 11/30/06 9,495,564 $ .93 6.85
========= ===== ====
Outstanding exercisable at 11/30/06 7,223,064 $ .78 6.36
========= ===== ====
Shares available for future stock option grants to employees and others under
our 2001 Stock Option Plan were 455,482 shares available for future stock option
grants to employees and others under our 2006 Stock Option Plan were 7,340,000.
At November 30, 2006, the aggregate intrinsic value of shares outstanding was
$546,225, and the aggregate intrinsic value of options exercisable was $507,975.
Total intrinsic value of options exercised was $17,223 for the nine months ended
November 30, 2006.
The following table summarizes our non-vested stock option activity for the nine
months ended November 30, 2006:
Weighted-Average Grant-Date
Number of Shares Fair Value
---------------- ---------------------------
Non-vested stock options at 2/28/06 3,048,750 $1.31
Granted 160,000 $1.03
Vested (791,750) $ .98
Forfeited (144,500) $ .80
---------
Non-vested stock options at 11/30/06 2,272,500 $ .78
=========
REVENUE RECOGNITION:
The Company earns and recognizes revenue under development agreements when the
phase of the agreement to which amounts relate is completed and the Company has
no further performance obligation. Completion is determined by the attainment of
specified milestones, such as a written progress report. Advance fees received
on such agreements are deferred until recognized.
The Company recognizes initial license fees over the term of the related
agreement. Revenue related to a performance milestone is recognized upon the
achievement of the milestone, as defined in the respective agreements.
The Company recognizes revenues from testing services and consulting fees as
services are performed.
NEW ACCOUNTING PRONOUNCEMENT
EITF 00-19.2--In December 2006, the FASB issued Staff Position No. EITF 00-19-2.
This FSP addresses an issuer's accounting for registration payment arrangements
and specifies that the contingent obligation to make future payments or
otherwise transfer consideration under a registration payment arrangement should
be separately recognized and measured in accordance with FASB No. 5. The
guidance in this FSP amends FASB Statements 133 and 150 and FASB Interpretation
No. 45 to include scope exceptions for registration payments arrangements. This
FSP further clarifies that a financial instrument subject to a registration
payment arrangement should be accounted for without regard to the contingent
obligation to transfer consideration pursuant to the registration payment
arrangement. This guidance is effective for financial statements issued for
fiscal years beginning after December 15, 2006. The Company is currently
assessing the impact this pronouncement will have on its financial statements if
any.
INVESTMENT IN MYOTECH LLC:
Effective November 30, 2005, we entered into a Securities Purchase Agreement for
the acquisition of an initial 35% interest in Myotech, LLC ("Myotech"), a New
York limited liability company, whereby we exchanged 4,923,080 shares of our
common stock, par value $.005, for 3,768,488 Class A (voting) units of Myotech.
Based upon the terms of the Securities Purchase Agreement, we were obligated to
purchase for cash consideration of $2.225 million an additional 811,037 Class A
units. We may elect to acquire up to an additional 3,563,097 Class A units for
further cash consideration of up to $9.775 million, over a 24-month period,
which may result in the Company owning a majority interest in Myotech. During
the three month period ended February 28, 2006, Biophan provided $1,185,000 of
additional funding for 431,946 newly issued Class A units of Myotech. During the
nine month period ended November 30, 2006, Biophan has provided $1,040,000 of
additional funding satisfying the cash consideration of $2.225 million cited
above, for 379,091 newly issued Class A units of Myotech. In addition, Biophan
has also provided an additional investment of $577,447 to Myotech against
milestone 2 in the quarter ended November 30, 2006 for 210,747 newly issued
Class A units, which increased our ownership to 41.5%, for a total investment of
$12,700,746 at November 30, 2006. Additional investments of $800,455 against
milestone 2 have been made since November 30, 2006 for 291,775 additional newly
issued Class A units, which raised our ownership percentage to 42.9% to date.
This investment was previously accounted for using the equity method. However,
the Company re-evaluated its investment in Myotech and has determined that
Myotech is a variable interest entity in accordance with FASB Interpretation No.
46 (FIN-46R) (Revised December 2003), Consolidation of Variable Interest
Entities. The Company has further concluded that it is the primary beneficiary
as defined by FIN-46R and, as a result, the Company is required to consolidate
Myotech as of the date of acquisition of November 30, 2005. Therefore, the
consolidated financial statements of the Company include the accounts of
Myotech, LLC.
7
The following is selected financial data for Myotech, LLC:
November 30, 2006
------------------
Total current assets $ 18,588
Intangible assets, net of amortization 23,418,416
Other assets 176,468
-----------
Total assets $23,613,472
===========
Current liabilities $ 651,126
Equity 22,962,346
-----------
$23,613,472
===========
Three Months Ended Nine Months Ended
November 30, 2006 November 30, 2006
------------------ -----------------
Net loss from operations $(955,117) $(3,230,046)
========= ===========
LINE OF CREDIT AGREEMENTS:
On May 27, 2005, we entered into a Line of Credit Agreement with Biomed
Solutions, LLC, a related party, whereby Biomed agreed to provide a line of
credit facility of up to $2 million. Borrowings under the line, bear interest at
8% per annum, are payable on demand and are convertible at Biomed's election,
into the Company's common stock at 90% of the average closing price for the 20
trading days preceding the date of borrowings under the line. In June 2005, the
Company borrowed the entire $2 million under the line in two separate draws of
$1 million each. In accordance with the agreement, Biomed received warrants to
purchase 500,000 shares of the Company's common stock at an exercise price of
110% of the average closing price for the 20 trading days preceding the date of
execution of the credit agreement. The Company recorded a discount on the
borrowings of $958,160 due to the beneficial conversion feature of the note as
well as for the value of the warrants. The discount was amortized as additional
interest expense over the term of the note. In August 2005, Biomed elected to
convert $1 million of the note plus accrued interest into 480,899 shares of
common stock at which time, the remaining discount related to the $1 million
portion of the loan was fully expensed. On October 7, 2005, we repaid $500,000
of principal and all accrued interest on the loan. The balance of borrowings on
the line was $500,000 at November 30, 2006.
On January 24, 2006, we entered into an additional Line of Credit Agreement (the
"Line of Credit Agreement") with Biomed Solutions, LLC, pursuant to which Biomed
committed to make advances to us, in an aggregate amount of up to $5,000,000.
Under the Line of Credit Agreement, advances may be drawn down in such amounts
and at such times as we determine upon 15 days prior notice to Biomed, except
that we may not draw down more than $1,500,000 in any 30-day period. Amounts
borrowed bear interest at the rate of 8% per annum and were convertible into
shares of our Common Stock at the rate of $1.46 per share. Biomed's obligation
to lend to us under the Line of Credit Agreement expires on June 30, 2007, on
which date the entire amount borrowed by us (and not converted into shares of
our Common Stock) becomes due and payable. In connection with the establishment
of the credit facility, we issued to Biomed a warrant to purchase up to
1,198,630 shares of our Common Stock at an exercise price of $1.89 per share.
The Company recorded a discount on the borrowings of $1,678,425 due to the
beneficial conversion feature of the note as well as for the value of the
warrant. The balance of borrowings on the line was $3,930,000 at November 30,
2006. The fair value of the note is not readily determinable as there is a
limited market for such related party debt.
On October 11, 2006, in connection with our Securities Purchase Agreement dated
October 11, 2006 with Iroquois Master Fund Ltd and other private investors (the
"Purchase Agreement"), we amended our January 24, 2006 Line of Credit Agreement
(the "Biomed Line of Credit Agreement") with Biomed and the Convertible
Promissory Note in the original principal amount of $5,000,000 issued by us to
Biomed on January 24, 2006 pursuant to the Biomed Line of Credit Agreement (the
"$5,000,000 Biomed Note"). The amendment reduced the price at which the
$5,000,000 Biomed Note is convertible into shares of our Common Stock from $1.46
per share to a conversion price of $0.67. In connection with the Purchase
Agreement, we also entered into a Subordination and Standstill Agreement (the
"Subordination Agreement") with Biomed and the investors who are parties to the
Purchase Agreement, pursuant to which Biomed agreed (i) to subordinate its
rights to payment under the $5,000,000 Biomed Note and the Convertible
Promissory Note in the original principal amount of $2,000,000 issued by us to
Biomed on May 27, 2005 to the rights of the investors under the Notes and (ii)
to convert the entire outstanding amount of principal and interest due under the
$5,000,000 Biomed Note in excess of $700,000 into shares of our common stock
upon the effectiveness of an amendment to our Articles of Incorporation to
increase the number of our authorized shares which we have agreed, in the
Purchase Agreement, to propose to our stockholders. For accounting purposes,
these amendments have been treated, in substance, as an extinguishment of the
old debt. Accordingly, the remaining unamortized discount on the old debt of
$1,098,442 was written off, a loss on extinguishment of $670,053 on the old debt
was recognized, and a discount was recorded on the new debt of $175,970 during
the quarter ended November 30, 2006.
8
SENIOR SECURED CONVERTIBLE NOTES
On October 11, 2006, we entered into a Securities Purchase Agreement (the
"Purchase Agreement") with 10 private investors led by Iroquois Master Fund Ltd
("Iroquois"). Pursuant to the Purchase Agreement, on October 12, 2006 we issued
$7,250,000 of Senior Secured Convertible Notes (the "Notes") to the investors
and received proceeds of $6,219,880 after paying estimated fees and expenses of
$1,030,120 related to the transaction. The holders of the Notes may elect to
convert the Notes at any time into shares of our common stock based upon a price
of $0.67 per share (the "Conversion Price"). Interest on the outstanding
principal amount under the Notes is payable quarterly at a rate equal to the
six-month London InterBank Overnight Rate plus 500 basis points, with a minimum
rate of 10% per annum and a maximum rate of 12% per annum, payable at our option
in cash or shares of our common stock registered for resale under the Securities
Act of 1933, as amended (the "Securities Act"). If we elect to make an interest
payment in common stock, the number of shares issuable by us will be based upon
the lower of (i) 90% of the 20-day trailing average volume weighted average
price per share as reported on Bloomberg LP (the "VWAPS") or (ii) the Conversion
Price. Principal on the Notes amortizes and payments are due in 33 equal monthly
installments commencing four months following issuance of the Notes, and may be
made at our option in cash or shares of our common stock registered for resale
under the Securities Act. If we elect to make a principal payment in common
stock, the number of shares issuable by us will be based upon the lower of (i)
87.5% of the 15-day trailing VWAPS prior to the principal payment date or (ii)
the Conversion Price. Our obligations under the Notes are secured by a first
priority security interest in substantially all of our assets pursuant to a
Security Agreement dated as of October 11, 2006 among us, the investors and
Iroquois, as agent for the investors (the "Security Agreement").
As further consideration to the investors, on October 12, 2006 we issued to the
investors one-year warrants to purchase an aggregate of 10,820,896 shares of our
common stock at a price of $0.67 per share. If the investors elect to exercise
these one-year warrants, they will also receive additional five-year warrants to
purchase shares of our common stock equal to the number of shares purchased
under this one-year warrant, with 50% of the additional warrants having an
exercise price of 115% of the per share purchase price, and the remaining 50% of
the additional five-year warrants having an exercise price of 125% of the per
share purchase price. We also issued to the investors five-year warrants to
purchase an aggregate of 10,820,896 shares of our common stock. The first
five-year warrants allow for the purchase of 5,410,448 shares of our common
stock at an exercise price of $0.81 per share, and the second five-year warrants
allow for the purchase of 5,410,448 shares of our common stock at an exercise
price of $0.89 per share. The warrants contain anti-dilution protection that
will automatically adjust the exercise price of the warrants should we issue
equity or equity-linked securities at a price per common share below the
exercise price of the five-year warrants to the price at which we issue such
equity or equity-linked securities. The total fair value of the warrants was
$14,554,105. The Company recorded a discount on the Notes of $7,250,000 for the
fair value of the related warrants. This discount on the Notes is being
amortized over the life of the Notes using the effective interest method. The
excess of the fair value of the warrants over the carrying value of the notes,
which amounted to, $7,304,105, was recognized as an additional interest expense.
FAIR VALUE OF WARRANT LIABILITY
In accordance with the guidance provided by EITF 00-19, Accounting for
Derivative Financial Instruments Indexed to and Potentially Settled in, a
Company's Own Stock, we have recorded a liability of $8,191,418 for the fair
value of the warrants related to the Senior Secured Convertible Notes at
November 30, 2006 in order to provide for the possibility that we may be unable
to comply with the registration rights of the lenders as contained in the
Securities Purchase Agreement and we currently do not have sufficient available
authorized shares to execute a potential conversion of the Notes and related
warrants and thus we would be required to settle the contract in cash. In
addition, since we currently do not have sufficient available authorized shares
to execute a potential conversion of other outstanding warrants if requested to
do so by the grantees, we could be required to settle any conversion requests in
cash. Therefore, we reclassified warrants with an approximate value of $756,000
from equity to the warrant liability. The fair value of this amount was $396,378
at November 30, 2006. The Company expects to seek stockholder approval to
increase the authorized shares at a Special Meeting to be scheduled within the
next three months. The total fair value of derivative liability, originally
recorded at $15,309,980 on October 12, 2006, was adjusted by $6,722,184 to
$8,587,796 at November 30, 2006 resulting in a net non-cash income adjustment of
$581,921 during the quarter ended November 30, 2006.
The warrants subject to the Stand-Still Agreement were not reclassified because
they are not exercisable until the increase in the number of authorized shares
and the investors have agreed not to require a cash settlement in the event the
number of authorized shares is not increased.
As noted above, the fair value of the derivative liability pertaining to the
warrants related to the Senior Secured Convertible Notes is volatile. Several
factors and underlying assumptions are included in the Black-Scholes model to
derive the fair value of the warrants. The factors and the assumptions are as
follows:
1. Number of warrants: varies from time to time dependent upon current
period grants, conversions, forfeitures, and expirations,
2. Term to expiration: expiration dates vary by grant and currently
range from 1-5 years,
3. Market price at the valuation date: $0.70/share at October 12, 2006;
$0.45/share at November 30, 2006,
4. Exercise price of the warrants: varies by grant,
5. Dividend yield - assumed to be zero,
6. Interest rate - we use the US Federal Reserve - "Treasury constant
maturities rates" at the measurement date matched to the maturities
of the warrants. The rates change over time and the maturities of
the warrants change over time.
7. Company stock price volatility on a look-back basis as a proxy for
expected future volatility in stock.price. We use the look-back
approach because the stock has a relatively short trading history as
a publicly traded security.
9
While most of these factors changed during the period of October 12, 2006 to
November 30, 2006, the most significant factor impacting the change in fair
value was the change in stock price.
STOCKHOLDERS' EQUITY:
On May 27, 2005, the Company entered into a Stock Purchase Agreement with SBI
Brightline XI, LLC. The agreement provides a $30 million fixed price financing
for up to 10,000,000 shares at prices ranging from $2 to $4 a share. The sales
of stock must be taken in tranches of 1 million shares each and the financing
agreement requires the shares to be registered for resale by SBI. There are no
resets, warrants, finder's fees or commissions associated with this financing
transaction. Registration of the shares for resale by SBI was effective on May
18, 2006. The Company elected to put the first tranche of 1 million shares at $2
per share on May 23, 2006 and received the entire proceeds. The Company elected
to put the second tranche of 1 million shares at $2 per share on July 21, 2006.
Under this second tranche, only $1,175,000 has been received to date and only
587,500 additional shares have been issued to SBI. On October 11, 2006, the
Company elected to put the entire remaining tranches, at a weighted average
price of $2.60 per share, to SBI. To date, SBI has failed to meet its obligation
to purchase these shares and the Company has not issued the shares.
Changes to stockholders' equity for the nine-month period ended November 30,
2006 were as follows:
Deficit
Accumulated
Number of Additional During the
Outstanding Common Paid-in Treasury Development Stockholders'
Shares Stock Capital Stock Stage Equity
----------- -------- ----------- ----------- ------------ -------------
Balance at February 28, 2006 76,882,163 $409,026 $49,576,129 $(8,467,698) $(31,969,658) $ 9,547,799
Shares issued for option exercises in the
range of $.18 to $.67 per share 38,956 195 12,984 -- -- 13,179
Shares issued for cash pursuant to stock
purchase agreement with SBI at $2.00 per share 1,587,500 7,937 3,167,063 -- -- 3,175,000
Warrants issued in partial payment of
financing costs at $.67 per share -- -- 502,090 -- -- 502,090
Extinguishment of debt on related
party notes payable -- -- 670,053 -- -- 670,053
Allocation of beneficial conversion feature
of related party notes payable -- -- 417,070 -- -- 417,070
Allocation of proceeds to warrants -- -- 7,250,000 -- -- 7,250,000
Reclassification of warrants (8,005,875) (8,005,875)
Stock options expense -- -- 1,112,726 -- -- 1,112,726
Net loss for the nine months ended
November 30, 2006 -- -- -- -- (12,264,482) (12,264,482)
---------- -------- ----------- ----------- ------------ ------------
Balance at November 30, 2006 78,508,619 $417,158 $54,702,240 $(8,467,698) $(44,234,140) $ 2,417,560
========== ======== =========== =========== ============ ============
COMMITMENTS:
The Company was obligated under operating leases for office space originally
expiring January 30, 2008, which the Company had the right to terminate upon
ninety days prior written notice to the landlord. The notice of termination was
given to the landlord and we are operating on a month-to-month basis until such
time as a relocation is accomplished. The Company has entered into new operating
leases for office space commencing February 2007 and expiring March 31, 2022,
subject to our right to terminate at any time after December 31, 2008 upon 90
days' notice.
The following is a schedule of future minimum rental payments, included annual
increases, required under the operating lease agreements:
Year Ending
February 28, Amount
------------ ----------
2007 $ 8,297
2008 102,891
2009 139,558
2010 145,954
2011 150,566
Thereafter 1,887,765
-----------
$2,435,031
===========
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
Our primary mission is to develop and commercially exploit technologies for
improving the performance, and the corresponding competitiveness, of biomedical
devices manufactured by third party companies. We do not currently employ our
own manufacturing or distribution channels but rather rely on relationships with
sub-contractors and/or partner companies. We develop technology protected by
strong intellectual property targeted at specific markets within the medical
technology sector.
COMPANY BUSINESS
Over the past quarter, we have:
o Continued to develop and market our technology to help solve the problems
of MRI safety that prevent MRI examination of people with pacemakers,
implantable cardioverter defibrillators (ICDs), neurostimulators, pain
control devices, pumps, and virtually any implanted or interventional
device with elongated metal leads.
o Continued technical meetings and negotiations with representatives of
multiple medical device companies interested in Biophan's solutions for
MRI safety, and entered into currently ongoing negotiations with several
of these companies in which we have responded to requests for pricing for
co-exclusive licensing options. As a result of the acquisition of Guidant
and Advanced Bionics by Boston Scientific, these companies have a license
to use our technology for MRI safety for pacemakers, ICDs, and
neurostimulators on a non-exclusive basis. This has led to a significant
increase in activity and interest in additional licenses for our
technology. Several of these discussions have resulted in the exchange of
term sheets as well as discussions about possible forms of new R&D
relationships.
o Recognized approximately $226,000 in revenue from licensing, MRI testing,
and consulting. We expect to recognize additional revenue from these
transactions in the next several quarters.
o Continued development of a new cardiac support system, the MYO-VAD,
through our relationship with MYOTECH, LLC. The MYO-VAD is a life-saving
device that provides benefits and competitive advantages not possible with
other cardiac support devices. In the past, this technology has saved
human lives and holds tremendous promise for the treatment of multiple
forms of acute and chronic heart failure.
o Continued optimization of our technology to improve stents so they can be
non-invasively imaged with MRI to detect the presence of restenosis (blood
vessel blockage) and blood clots after implantation. We are also
developing an MRI visible heart valve, including the ability to optionally
place the valve under MRI guidance, which provides significant advantages
over existing imaging procedures. Several technologies to enable stent and
heart valve visibility are licensed exclusively to Boston Scientific
(NYSE:BSX), with rights to enforce and/or sub-license the technology to
third parties. Another technology that is for stent visibility is licensed
exclusively to Biophan and developed in Aachen, Germany, and is outside
the Boston Scientific Agreement. We can license this technology to third
parties. We believe these technologies offer significant competitive
advantage for manufacturers due to the benefit of non-invasive imaging of
device function and the detection of blockage.
o Continued development of an MRI image compatible vena cava filter, which
allows MR imaging of blood clots that may be present in the filter to help
ensure the safe removal of the device. We are also developing a septal
occluder device that can also be imaged and optionally implanted under MRI
guidance to treat conditions such as PFO (patent foramen ovale) and atrial
septal defects, a hole in the septum between the left and right atria in
the heart. This will be the first septal occluder to be visible as well as
optionally implantable under MRI.
o Continued working under a Cooperative Research and Development Agreement
(CRADA) with the FDA's Office of Science and Engineering Laboratories
(OSEL) to research and define methods for measuring MRI safety of medical
implants by examining the leads of cardiac rhythm management and
neurostimulation devices. This work will involve identifying worst case
conditions for testing MRI safety, establishing precise device safety
guidelines, and defining measurement methods, i.e., how to measure device
safety. One objective of the CRADA is to develop test methods and
guidelines that could be offered to standards-setting groups as well as
FDA reviewers for consideration for testing MR compatibility. This
initiative has participation by all major pacemaker, defibrillator,
neurostimulator manufacturers, and several MRI manufacturers, and is
moving the industry towards solving in earnest the problems of MRI
contraindication for these devices.
We have determined that the technologies that we control which are the most
proven and the most likely to produce revenues within the near term are our MRI
technologies (both for safety and image compatibility), and the MYOTECH MYO-VAD
technology. These technologies are our primary areas of focus.
Other programs, such as the biothermal power supply that we have been developing
with NASA, and nanomagnetic controlled drug delivery, will take longer to
develop, and we have decided to fund these projects through either government
grants, strategic partners, or other structures that do not divert focus and
resources from our short-term goals of capitalizing on our core business fields.
The work done to date at NASA on the biothermal power supply has indicated that
it may require an additional 18 months to develop a significant improvement in
thermoelectric materials over the current state of the art, and adequate to
generate power from the available heat in the human body. This is the first step
that we must complete before we can begin construction of a prototype for
generating power from body heat. We estimate that the additional investment
required to take this technology to a completed prototype stage will be at least
two more years, at a cost of approximately $300,000 per year. We are exploring
collaborations or joint development efforts to continue active development of
this program. Currently, we hold a 51% interest in TE-Bio, the company which
owns rights to the patented battery technology.
11
In our patent portfolio for controlled drug delivery using nanomagnetic
particles, we are continuing research work at Alfred University. We created a
division called Nanolution to pursue this technology, but due to our desire to
focus on our core business, we have significantly reduced funding to this
program. We will maintain the key patents and consider possible collaborations
or grant funding opportunities. Basic material development work is proceeding at
Alfred University, where much of our nanoparticle research is conducted.
LIQUIDITY
As further described under the heading "Line of Credit Agreements" in Notes to
Condensed Consolidated Financial Statements, our affiliate Biomed Solutions,
LLC, provided us with a $5 million Line of Credit. Under the Line of Credit
agreement, advances may be drawn down in such amounts and at such times as we
determine upon 15 days prior notice to Biomed, except that we may not draw down
more than $1,500,000 in any 30-day period. Amounts borrowed will bear interest
at the rate of 8% per annum and are convertible into shares of our Common Stock
at the rate of $1.46 per share. Biomed's obligation to lend to us under the line
of credit agreement expires on June 30, 2007, on which date the entire amount
borrowed by us (and not converted into shares of our Common Stock) becomes due
and payable. We are obligated to utilize the entire credit facility. The balance
of borrowings on the line was $3,930,000 at November 30, 2006. Biomed is headed
by our CEO, Michael Weiner, who is also a substantial beneficial owner of
Biomed. On October 11, 2006, in connection with our Securities Purchase
Agreement dated October 11, 2006 with Iroquois Master Fund Ltd and other private
investors (the "Purchase Agreement"), we amended our January 24, 2006 Line of
Credit Agreement (the "Biomed Line of Credit Agreement") with Biomed and the
Convertible Promissory Note in the original principal amount of $5,000,000
issued by us to Biomed on January 24, 2006 pursuant to the Biomed Line of Credit
Agreement (the "$5,000,000 Biomed Note"). The amendments reduce the price at
which the $5,000,000 Biomed Note is convertible into shares of our Common Stock
from $1.46 per share to a conversion price of $0.67. The amendments also
eliminate our obligation to draw down the entire credit facility. In connection
with the Purchase Agreement, we also entered into a Subordination and Standstill
Agreement (the "Subordination Agreement") with Biomed and the investors who are
parties to the Purchase Agreement, pursuant to which Biomed agreed (i) to
subordinate its rights to payment under the $5,000,000 Biomed Note and the
Convertible Promissory Note in the original principal amount of $2,000,000
issued by us to Biomed on May 27, 2005 to the rights of the investors under the
Iroquois Notes and (ii) to convert the entire outstanding amount of principal
and interest due under the $5,000,000 Biomed Note in excess of $700,000 into
shares of our common stock upon the effectiveness of an amendment to our
Articles of Incorporation to increase the number of our authorized shares which
we have agreed, in the Purchase Agreement, to propose to our shareholders.
On May 27, 2005, we entered into a Line of Credit Agreement with Biomed, whereby
Biomed agreed to provide a line of credit facility of up to $2 million.
Borrowings under the line bear interest at 8% per annum, are payable on demand
after November 30, 2006 and are convertible, at Biomed's election into the
Company's common stock at 90% of the average closing price for the 20 trading
days preceding the date of borrowings under the line. In June 2005, the Company
borrowed the entire $2 million under the line in two separate draws of $1
million each, in accordance with the agreement. On August 31, 2005, Biomed
elected to convert $1 million of the note plus accrued interest into 480,899
shares of common stock at which time, the remaining discount related to the $1
million portion of the loan was fully expensed. On October 7, 2005, we repaid
$500,000 of principal and all accrued interest on the loan. The balance of
borrowings on the line was $500,000 at November 30, 2006.
As described in greater detail under the heading "Stockholders' Equity" in the
"Notes to Condensed Consolidated Financial Statements", we have an agreement
with SBI Brightline XI, LLC for a $30 million fixed price financing involving
the sale to SBI of up to 10,000,000 shares of our common stock. The Company
elected to sell the first tranche of 1 million shares at $2 per share on May 23,
2006; the funds from the sale of this first tranche have been received. The
Company elected to sell the second tranche of 1 million shares at $2 per share
on July 21, 2006. To date $1,175,000 of the funds from the sale of this tranche
has been received and 587,500 shares have been issued. On October 11, 2006, we
elected to exercise all of our remaining put rights, requiring SBI to purchase
the remaining tranches at a price of $26,000,000. To date, SBI has failed to
meet its obligation to purchase these shares and the Company has not issued the
shares. We believe SBI's failure to purchase all of the shares which we elected
to sell to them on July 21, 2006, or any of the shares which we elected to sell
to them on October 11, 2006 constitutes a breach of SBI's contractual
obligations under the SBI Agreement. Under the SBI Agreement, SBI is irrevocably
bound to purchase the shares in the amounts and at the times determined by us.
We intend to enforce all of our rights under the SBI Agreement and are actively
considering our options and formulating a strategy to address SBI's default. In
our Purchase Agreement with Iroquois Master Fund Ltd and the other investors, we
agreed (i) to enforce all of our rights and remedies under the SBI Agreement in
connection with the breach by SBI, and (ii) not to agree to any settlement,
amendment, waiver or consent under the SBI Agreement without the prior written
consent of Iroquois.
12
Effective November 30, 2005, we entered into a Securities Purchase Agreement for
the acquisition of an initial 35% interest in Myotech, LLC ("Myotech"), a New
York limited liability company, whereby we exchanged 4,923,080 shares of our
common stock, par value $.005, for 3,768,488 Class A (voting) units of Myotech.
Based upon the terms of the Securities Purchase Agreement, we were obligated to
purchase for cash consideration of $2.225 million an additional 811,037 Class A
units. We may elect to acquire up to an additional 3,563,097 Class A units for
further cash consideration of up to $9.775 million, over a 24-month period,
which may result in the Company owning a majority interest in Myotech. During
the three month period ended November 30, 2006, Biophan has provided $0.577
million of additional funding to Myotech in exchange for 210,747 newly issued
Class A units, which increased our ownership to 41.5%. Additional investments of
$800,455 against milestone 2 have been made since November 30, 2006 for 291,775
additional newly issued Class A units, which raised our ownership percentage to
42.9% to date.
This investment was previously accounted for using the equity method. However,
the Company re-evaluated its investment in Myotech and has determined that
Myotech is a variable interest entity in accordance with FASB Interpretation No.
46 (FIN-46R) (Revised December 2003), Consolidation of Variable Interest
Entities. The Company has further concluded that it is the primary beneficiary
as defined by FIN-46R and, as a result, the Company is required to consolidate
Myotech as of the date of acquisition of November 30, 2005. Therefore, the
consolidated financial statements of the Company include the accounts of
Myotech, LLC.
The Company revalued its investment in Myotech, now reported on the balance
sheet as Intangible assets, using the services of a nationally-recognized
appraisal firm.
On October 11, 2006, we entered into a Securities Purchase Agreement (the
"Purchase Agreement") with 10 private investors led by Iroquois Master Fund Ltd
("Iroquois").
Pursuant to the Purchase Agreement, on October 12, 2006 we issued $7,250,000
face amount of Senior Secured Convertible Notes (the "Notes") to the investors
and received proceeds of $6,219,880 after paying fees and expenses of $1,030,120
related to the transaction. The holders of the Notes may elect to convert the
Notes at any time into shares of our common stock based upon a price of $0.67
per share (the "Conversion Price"). Interest on the outstanding principal amount
under the Notes is payable quarterly at a rate equal to the six-month London
InterBank Overnight Rate plus 500 basis points, with a minimum rate of 10% per
annum and a maximum rate of 12% per annum, payable at our option in cash or
shares of our common stock registered for resale under the Securities Act of
1933, as amended (the "Securities Act"). If we elect to make an interest payment
in common stock, the number of shares issuable by us will be based upon the
lower of (i) 90% of the 20-day trailing average volume weighted average price
per share as reported on Bloomberg LP (the "VWAPS") or (ii) the Conversion
Price. Principal on the Notes amortizes and payments are due in 33 equal monthly
installments commencing four months following issuance of the Notes, and may be
made at our option in cash or shares of our common stock registered for resale
under the Securities Act. If we elect to make a principal payment in common
stock, the number of shares issuable by us will be based upon the lower of (i)
87.5% of the 15-day trailing VWAPS prior to the principal payment date or (ii)
the Conversion Price. Our obligations under the Notes are secured by a first
priority security interest in substantially all of our assets pursuant to a
Security Agreement dated as of October 11, 2006 among us, the investors and
Iroquois, as agent for the investors (the "Security Agreement").
As further consideration to the investors, we issued to the investors one-year
warrants to purchase an aggregate of 10,820,896 shares of our common stock at a
price of $0.67 per share. If the investors elect to exercise these one-year
warrants, they will also receive additional five-year warrants to purchase the
shares of our common stock equal to the number of shares purchased under the
one-year warrants, with 50% of the additional warrants having an exercise price
of 115% of the per share purchase price, and the remaining 50% of the additional
five-year warrants having an exercise price of 125% of the per share purchase
price. We also issued to the investors five-year warrants to purchase an
aggregate of 10,820,896 shares of our common stock. The first five-year warrants
allow for the purchase of 5,410,448 shares of our common stock at an exercise
price of $0.81 per share, and the second five-year warrants allow for the
purchase of 5,410,448 shares of our common stock at an exercise price of $0.89
per share. The warrants contain anti-dilution protection that will automatically
adjust the exercise price of the warrants should we issue equity or
equity-linked securities at a price per common share below the exercise price of
the five-year warrants to the price at which we issue such equity or
equity-linked securities.
We further agreed to register for resale under the Securities Act the common
stock issuable upon the exercise of the warrants and any shares of common stock
the Company may issue to the holders of the Notes in connection with payments of
interest and principal, or which the Company is obligated to issue upon any
conversion of the Notes at the option of the holders.
Our second $250,000 annual minimum payment under our license was received in
December, 2006. As was the case with the first annual minimum payment, this
payment will be recognized over 12 months starting in January 2007. Accordingly,
for the three months ended November 30, 2006, the Company recorded $62,500 in
revenue from the first payment.
We believe that the Company has adequate working capital resources for the
upcoming 4-6 months of operations.
13
RESULTS OF OPERATIONS
The following comments discuss the significant factors affecting the
consolidated operating results, financial condition and liquidity and cash flows
of the Company comparing the three months ended November 30, 2006 to the three
months ended November 30, 2005 and the nine months ended November 30, 2006 to
the nine months ended November 30, 2005.
Comparison of the Three Months Ended November 30, 2006 to the Three Months Ended
November 30, 2005.
Revenues: Revenues were $0.226 million for the three months ended November 30,
2006 as compared to $0.467 million for the three months ended November 30, 2005.
Regarding development payments, in 2005, we recognized $0.225 million in
revenues as a portion of an upfront payment having a 1-year term from Boston
Scientific Scimed. The balance of this upfront payment has been fully recognized
as revenue in the following 3 quarters ended August 31, 2006. Revenues from
license fees represent fees from Boston Scientific Scimed. The remaining $0.164
million in operating revenues consists primarily of MRI-related testing services
and consulting services to medical device manufacturers from our European
subsidiary.
Operating Expenses
Research and Development. Research and development expenses increased by 43%, or
$0.525 million, to approximately $1.737 million for the three months ended
November 30, 2006 from approximately $1.212 million for the three months ended
November 30, 2005.
Because we consolidated Myotech LLC at November 30, 2005, the three months ended
November 30, 2006 include approximately, $0.491 million of expenses from
Myotech. Excluding these expenses, the year-to-year comparison would have
reflected a 2% increase of approximately $0.027 million. With the inclusion of
Myotech, expenses, the increase in expenses is primarily attributable to
spending on certain research projects by approximately $0.350 million and
increased salary-related expenses of $0.236 million, partially offset by reduced
license and patent attorney fees of approximately $0.156 million.
General and Administrative. General and administrative expenses decreased by
18%, or $0.285 million to approximately $1.264 million for the three months
ended November 30, 2006 from approximately $1.548 million for the three months
ended November 30, 2005. Because we consolidated Myotech LLC at November 30,
2005, the three months ended November 30, 2006 include approximately, $0.120
million of expenses from Myotech. Excluding these expenses, the year-to-year
comparison would have reflected a decrease of approximately $0.380 million. With
the inclusion of Myotech expenses, the decrease in expenses is primarily
attributable to decreased general and administrative expenses overall. This
overall decrease occurred despite an increase in noncash stock option expense of
$0.139 million.
Other Income (Expense)
Interest Expense. We incurred interest expense amounting to approximately $1.889
million for the three months ended November 30, 2006 compared to $0.243 million
of expense for the three months ended November 30, 2005. The increased expense
(noncash) is attributed to the write-off of $1.1 million of the remaining
unamortized discount on a note with Biomed Solutions, LLC
Fair Value of Warrant Liability. In accordance with the guidance provided by
EITF 00-19, Accounting for Derivative Financial Instruments Indexed to and
Potentially Settled in, a Company's Own Stock, we have recorded a liability of
$8,191,418 for the fair value of the warrants related to the Senior Secured
Convertible Notes at November 30, 2006 in order to provide for the possibility
that we may be unable to comply with the registration rights of the lenders as
contained in the Securities Purchase Agreement and we currently do not have
sufficient available authorized shares to execute a potential conversion of the
Notes and related warrants and thus we would be required to settle the contract
in cash. In addition, since we currently do not have sufficient available
authorized shares to execute a potential conversion of other outstanding
warrants if requested to do so by the grantees, we could be required to settle
any conversion requests in cash. Therefore, we reclassified warrants with an
approximate value of $756,000 from equity to the warrant liability. The fair
value of this amount was $396,378 at November 30, 2006. The Company expects to
seek stockholder approval to increase the authorized shares at a Special Meeting
to be scheduled within the next three months. The total fair value of derivative
liability, originally recorded at $15,309,980 on October 12, 2006, was adjusted
by $6,722,184 to $8,587,796 at November 30, 2006. The fair value of the
derivative liability pertaining to the warrants is volatile. For a further
explanation on the factors and assumptions included in the Black-Scholes model
to derive the fair values, please refer to the notes to the condensed
consolidated financial statements under the heading 'Fair Value of Warrant
Liability'.
Loss on Extinguishment of Debt. Under another provision of the note agreement
cited above we incurred a loss on the extinguishment of the note (noncash) with
Biomed Solutions, LLC due to the substantial amendment to the note with Biomed,
amounting to $0.670 million.
Minority Interest in Net Loss of Myotech LLC. The loss of $0.471 million is a
pro rata share of the loss incurred by Myotech, LLC attributable to minority
interests for the three months ended November 30, 2006. There was no investment
in Myotech LLC or minority interest in Myotech LLC for the three months ended
November 30, 2005. As further described under the heading "Investment in Myotech
LLC" in the "Notes to Condensed Consolidated Financial Statements" the Company
holds a 41.5% interest in Myotech LLC at November 30,2006, which we must
consolidate as a variable interest entity since the Company is deemed to be the
primary beneficiary in the relationship with Myotech.
14
Comparison of the Nine Months Ended November 30, 2006 to the Nine Months Ended
November 30, 2005.
Revenues: Revenues were $0.881 million for the nine months ended November 30,
2006 as compared to $0.588 million revenues for the nine months ended November
30, 2005 due to development contract payments and license fees from Boston
Scientific Scimed, and operating revenues from our European subsidiary, which
consisted primarily of MRI-related testing and consulting services to medical
device manufacturers.
Operating Expenses
Research and Development. Research and development expenses increased by 23%, to
approximately $ 6,267 million for the nine months ended November 30, 2006 from
approximately $5.104 million for the nine months ended November 30, 2005. Stock
options expense (noncash expense) amounted to $0.472 million in the nine months
ended November 30, 2006 and $2.081 million in the nine months ended November 30,
2005 due primarily to the accounting for contingent stock options in the nine
months ended November 30, 2005. Without consideration for expenses related to
stock options, the expense for the nine months ended November 30, 2006 would
have been $5.795 million compared to $3.022 million for the same period in 2005,
or a 92% increase of $2.772 million.
Because we consolidated Myotech LLC at November 30, 2005, the nine months ended
November 30, 2006 include approximately, $1.800 million of operating expenses
from Myotech and $1.033 million in noncash intangible assets amortization
pertaining to Myotech. With the inclusion of Myotech, and aside from the
increase due to amortization expenses, the increase in expenses is primarily
attributable to spending on certain research projects of approximately $2.0
million and increased salary-related expenses of approximately $0.375 million,
partially offset by reduced license and patent attorney fees of approximately
$0.615 million.
General and Administrative. General and administrative expenses decreased by 25%
to approximately $4.924 million for the nine months ended November 30, 2006 from
approximately $6.568 million for the nine months ended November 30, 2005. Stock
options expense (noncash expense) amounted to $0.641 million in the nine months
ended November 30, 2006 and $2.563 million in the nine months ended November 30,
2005 due primarily to the accounting for contingent stock options in the 9
months ended November 30, 2005. Without consideration for expenses related to
stock options, and without the inclusion of Myotech, the expense for the nine
months ended November 30, 2006 would have been $4.283 million compared to $4.005
million, or a 7% increase of $0.278 million from the same period in 2005.
Because we consolidated Myotech LLC at November 30, 2005, the nine months ended
November 30, 2006 include approximately, $0.396 million of operating expenses
from Myotech. With the inclusion of Myotech, expenses increased by 7% and the
increase in expenses is primarily attributable to spending for salaries and
related costs of $0.380 million and increased outside financial compliance,
audit, legal and other professional services of $0.350 million, partially
offset by reduced spending in most other general and administrative expense
categories.
Other Income (Expense)
Interest Expense. We incurred interest expense amounting to approximately $2.574
million for the nine months ended November 30, 2006 compared to $1.011 million
of expense for the nine months ended November 30, 2005. The increased expense
(noncash) is attributed to the write-off of $1.1 million of the remaining
unamortized discount on a note with Biomed Solutions, LLC
Fair Value of Warrant Liability. In accordance with the guidance provided by
EITF 00-19, Accounting for Derivative Financial Instruments Indexed to and
Potentially Settled in, a Company's Own Stock, we have recorded a liability of
$8,191,418 for the fair value of the warrants related to the Senior Secured
Convertible Notes at November 30, 2006 in order to provide for the possibility
that we may be unable to comply with the registration rights of the lenders as
contained in the Securities Purchase Agreement and we currently do not have
sufficient available authorized shares to execute a potential conversion of the
Notes and related warrants and thus we would be required to settle the contract
in cash. In addition, since we currently do not have sufficient available
authorized shares to execute a potential conversion of other outstanding
warrants if requested to do so by the grantees, we could be required to settle
any conversion requests in cash. Therefore, we reclassified warrants with an
approximate value of $756,000 from equity to the warrant liability. The fair
value of this amount was $396,378 at November 30, 2006. The Company expects to
seek stockholder approval to increase the authorized shares at a Special Meeting
to be scheduled within the next three months. The total fair value of derivative
liability, originally recorded at $15,309,980 on October 12, 2006, was adjusted
by $6,722,184 to $8,587,796 at November 30, 2006. The fair value of the
derivative liability pertaining to the warrants is volatile. For a further
explanation on the factors and assumptions included in the Black-Scholes model
to derive the fair values, please refer to the notes to the condensed
consolidated financial statements under the heading 'Fair Value of Warrant
Liability'.
Loss on Extinguishment of Debt. Under another provision of the note agreement
cited above we incurred a loss on the extinguishment of the note (noncash) with
Biomed Solutions, LLC due to the substantial amendment to the note with Biomed,
amounting to $0.670 million.
Minority Interest in Net Loss of Myotech LLC. The loss of $1.687 million is a
pro rata share of the loss incurred by Myotech, LLC attributable to minority
interests for the nine months ended November 30, 2006. There was no investment
in Myotech LLC or loss on investment in Myotech LLC for the nine months ended
November 30, 2005. As further described under the heading "Investment in Myotech
LLC" in the "Notes to Condensed Consolidated Financial Statements" the Company
holds a 41.5% interest in Myotech LLC, valued on our balance sheet at November
30, 2006 at $12.701 million, which we must consolidate as a variable interest
entity since the Company is deemed to be the primary beneficiary in the
relationship with Myotech.
15
CAPITAL RESOURCES
Our current strategic plan does not indicate a need for material capital
expenditures in the conduct of research and development activities.
We currently employ twenty-eight full-time individuals, twenty-three in the U.S.
and five in Europe.
16
FORWARD LOOKING STATEMENTS
Forward looking statements in this Form 10-Q and in other documents incorporated
herein, as well as in oral statements made by the Company, statements that are
prefaced with the words "may," "will," "expect," "anticipate," "continue,"
"estimate," "project," "intend," "designed" and similar expressions, are
intended to identify forward-looking statements regarding events, conditions,
and financial trends that may affect the Company's future plans of operations,
business strategy, results of operations and financial position. These
statements are based on the Company's current expectations and estimates as to
prospective events and circumstances about which the Company can give no firm
assurance. Further, any forward-looking statement speaks only as of the date on
which such statement is made, and the Company undertakes no obligation to update
any forward-looking statement to reflect subsequent events or circumstances.
Forward-looking statements should not be relied upon as a prediction of actual
future financial condition or results. These forward-looking statements, like
any forward-looking statements, involve risks and uncertainties that could cause
actual results to differ materially from those projected or unanticipated.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Derivative Financial Instruments, Other Financial Instruments, and Derivative
Commodity Instruments.
As of November 30, 2006, the Company did not participate in any derivative
financial instruments, or other financial and commodity instruments for which
fair value disclosure would be required under SFAS No. 107.
Primary Market Risk Exposures.
The Company's primary market risk exposures are in the areas of interest rate
risk and foreign currency exchange rate risk. The Company's investment portfolio
of cash equivalents is subject to interest rate fluctuations, but the Company
believes this risk is immaterial due to the short-term nature of these
investments. For the three and six months ended November 30, 2006, foreign
currency translation gains and losses were immaterial as a result of
consolidating the Company's foreign subsidiaries. During the period, the Company
did not engage in any foreign currency hedging activities.
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation as of the end of the period covered by this quarterly
report on Form 10-Q, our principal executive officer and principal financial
officer, with the participation and assistance of our management, concluded that
our disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated
under the Securities Exchange Act of 1934, were effective in design and
operation. There have been no changes in our system of internal control over
financial reporting in connection with the evaluation by our principal executive
officer and principal financial officer during our fiscal quarter ended November
30, 2006 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
17
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, except as noted below.
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.
The Company is pursuing legal claims against one of its former law firms and
certain of its attorneys. Review of the firm's work product and bills recently
revealed questions about the firm's billing practices and other activities. The
amount of potential damages has not yet been quantified. Also, the law firm has
asserted claims seeking payment of additional legal fees, which claims the
Company has denied. The litigation is in an early stage. While, as with any
legal proceedings, no assurance can be given as to ultimate outcome, management
believes that the outcome of the litigation will not have a material adverse
effect upon the Company's financial condition.
18
ITEM 1A. RISK FACTORS
There have been no significant changes in Risk Factors from the Form 10-Q filed
for the period ended August 31, 2006.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) On October 11, 2006, we entered into a Securities Purchase Agreement (the
"Purchase Agreement"). Pursuant to the Purchase Agreement we issued to ten
qualified institutional buyers (as such term is defined in Rule 144A under the
Securities Act) and/or accredited investors (as such term is defined in Rule
501(a) under the Securities Act) the following securities (the "Securities"):
(i) an aggregate of $7,250,000 principal amount of our Senior Secured
Convertible Notes due October 11, 2009 (the "Notes");
(ii) five-year warrants for the purchase of an aggregate of 5,410,498
shares of our common stock at an exercise price of $0.81 per share;
(iii) five-year warrants for the purchase of an aggregate of 5,410,498
shares of our common stock at an exercise price of $0.89 per share;
and
(iv) one-year warrants for the purchase of an aggregate of 10,820,896
shares of our common stock at an exercise price of $0.67 per share.
The Notes are convertible, at any time at the election of the holders, into
shares of our common stock at a conversion price of $0.67 per share. If the
entire principal amount of the Notes were converted, we would issue to the
holders an aggregate of 10,820,896 shares of our common stock. The Securities
were issued in a private placement not involving any public offering and exempt
from registration under the Securities Act pursuant to the exemptions provided
by Section 4(2) of such Act and by Regulation D and Regulation S promulgated
under such Act. The Securities were sold for cash at an aggregate offering price
of $7,250,000. C.E. Unterberg, Towbin acted as the exclusive placement agent in
the offering. We paid the placement agent a cash fee of $580,000 and issued to
it a five-year warrant to purchase an aggregate of 865,672 shares of our common
stock at a price of $0.67 per share.
(b) On October 18, 2006, we issued and sold 587,500 shares of our common stock,
at a price of $2.00 per share, to SBI Brightline XI, LLC ("SBI"). The sale was
made pursuant to the Stock Purchase Agreement dated as of May 27, 2005 between
us and SBI (as amended by Amendment No. 1 thereto dated January 9, 2006, the
"Stock Purchase Agreement"). The shares sold on October 18 constitute a portion
of the second of ten tranches of shares which we may require SBI to purchase
under the Stock Purchase Agreement. The issuance and sale of the shares was made
without registration under the Securities Act of 1933 pursuant to the exemption
provided in Section 4(2) thereof.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
19
ITEM 5. OTHER INFORMATION
Not applicable
ITEM 6. EXHIBITS
Exhibit No. Exhibit Description Location
----------- -------------------------------------------------- -------------
4.1 Amendment No. 1 dated October 11, 2006, to Line of
Credit Agreement by and between Biophan Technologies,
Inc. and Biomed Solutions, LLC (1)
4.2 Amended and Restated Convertible Promissory Note of
Biophan Technologies, Inc. in the principal amount of
$5,000,000, dated October 11, 2006, payable to the
order of Biomed Solutions, LLC (2)
4.3 Subordination and Standstill Agreement dated October
11, 2006, by and among Biophan Technologies, Inc.,
Biomed Solutions, LLC, and those Purchasers named
therein (3)
4.4 Form of Senior Secured Convertible Notes due October
11, 2009 issued pursuant to the Securities Purchase
Agreement, dated October 11, 2006, by and among
Biophan Technologies, Inc. and those Purchasers
named therein (4)
4.5 Form of Five-Year Warrants issued and to be issued
pursuant to the Securities Purchase Agreement, dated
October 11, 2006, by and among Biophan Technologies,
Inc. and those Purchasers named therein (5)
4.6 Form of One-Year Warrants issued pursuant to the
Securities Purchase Agreement, dated October 11, 2006,
by and among Biophan Technologies, Inc. and those
Purchasers named therein (6)
10.1 Securities Purchase Agreement, dated October 11, 2006,
by and among Biophan Technologies, Inc. and those
Purchasers named therein. (7)
10.2 Security Agreement, dated as of October 11, 2006, by
and among Biophan Technologies, Inc., the Purchasers
named therein and Iroquois Master Fund Ltd., as agent
for the Purchasers (8)
10.3 Amendment No. 2 to Securities Purchase Agreement dated
as of November 28, 2006 between Myotech LLC and
Biophan Technologies, Inc. (9)
10.4 Lease between Schoen Place LLC and Biophan
Technologies, Inc. (10)
31.1 Certification of C.E.O. pursuant to Rule 13a-14(a) Filed herewith
31.2 Certification of C.F.O. pursuant to Rule 13a-14(a) Filed herewith
32.1 Certification of C.E.O. pursuant to Rule 13a-14(b) Filed herewith
and 18 U.S.C. Section 1350
32.2 Certification of C.F.O. pursuant to Rule 13a-14(b) Filed herewith
and 18 U.S.C. Section 1350
(1) Incorporated by reference to Exhibit 10.2 to Form 8-K filed October 13,
2006 (the "October 13, 2006 8-K").
(2) Incorporated by reference to Exhibit 10.3 to the October 13, 2006 8-K.
(3) Incorporated by reference to Exhibit 10.4 to the October 13, 2006 8-K.
(4) Incorporated by reference to Exhibit 4.2 to the October 13, 2006 8-K.
(5) Incorporated by reference to Exhibit 4.3 to the October 13, 2006 8-K.
(6) Incorporated by reference to Exhibit 4.4 to the October 13, 2006 8-K.
(7) Incorporated by reference to Exhibit 4.1 to the October 13, 2006 8-K.
(8) Incorporated by reference to Exhibit 10.1 to the October 13, 2006 8-K.
(9) Incorporated by reference to Exhibit 10.1 to Form 8-K filed on
December 8, 2006.
(10) Incorporated by reference to Exhibit 10.1 to Form 8-K filed on
November 9, 2006.
20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BIOPHAN TECHNOLOGIES, INC.
(Registrant)
By: /s/ Michael L. Weiner
------------------------------------
Name: Michael L. Weiner,
Title: Chief Executive Officer
By: /s/ Darryl L. Canfield
------------------------------------
Name: Darryl L. Canfield
Title: Chief Financial Officer,
Treasurer and Secretary (Principal
Financial Officer and Principal
Accounting Officer)
Date: January 24, 2007
21