ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
Our common stock is listed on the OTC Bulletin Board under the symbol
BIPH. The following table sets forth, for the fiscal quarters indicated, the
high and low bid prices. These quotations reflect inter-dealer prices, without
mark-up, mark-down or commission, and may not represent actual transactions.
Quarter Ended High Low
May 31, 2002 $2.65 $ .75
August 31, 2002 $1.13 $ .30
November 30, 2002 $ .38 $ .18
February 28, 2003 $1.15 $ .29
May 31, 2003 $ .51 $ .27
August 31, 2003 $ .37 $ .12
November 30, 2003 $ .49 $ .10
February 29, 2004 $1.65 $ .32
As of February 29, 2004, we had outstanding 65,945,011 shares of our
common stock which were held by approximately 360 stockholders of record.
DIVIDEND POLICY
We have never paid cash dividends and have no plans to do so in the
foreseeable future. Our future dividend policy will be determined by our Board
of Directors and will depend upon a number of factors, including our financial
condition and performance, our cash needs and expansion plans, income tax
consequences, and the restrictions that applicable laws and our credit
arrangements then impose.
Recent Sales of Unregistered Securities
The securities of Biophan that were issued or sold by Biophan during the
year ended February 29, 2004 and were not registered with the SEC are described
below:
20
On June 30, 2003, we issued 1,268,621 shares of common stock for the
conversion of $183,950 of the $350,000 Line of Credit obligation payable to
Biomed Solutions, LLC. Biomed had previously sold that portion of its receivable
to a single purchaser, Bellador Advisory Services (Labuan) Ltd., a Kuala Lumpur,
Malaysia company. The shares were issued to Bellador and its assigns pursuant to
the exemption provided by Section 3(a)(9) of the Securities Act of 1933,
involving an exchange of securities with an existing securityholder where no
commission is payable. The debt was assigned by Biomed to Bellador pursuant to
the provisions of Regulation S of the Securities Act. All recipients of the
shares were nonaffiliated, non U.S. persons deemed to be accredited investors
and/or persons with knowledge of business. There was no general solicitation or
general advertising related to the transaction, and the recipients were required
to represent that they were non U.S. persons and that they were not acquiring
the shares for the account or benefit of any U.S. Person. The offer to purchase
the shares was not made to a person in the United States and, at the time of the
transaction, the purchasers were outside the United States. All securities
representing the shares were issued with appropriate restrictive legends.
On July 28, 2003, we issued 775,000 shares of common stock for the
conversion of a debt obligation payable to a single investor in the aggregate
amount of $155,568 ($143,570 principal, plus $11,998 interest). The shares were
issued to the investor pursuant to the exemptions provided by Sections 3(a)(9)
and 4(2) of the Securities Act, involving a private transaction in exchange for
debt. The shares were exchanged by Biophan with a single existing security
holder who is a non-affiliated accredited investor. No commission or other
remuneration was paid or given directly or indirectly for soliciting the
exchange. All securities representing the shares were issued with appropriate
restrictive legends.
Between July 12, 2003 and November 17, 2003 we issued an aggregate of
3,325,757 shares of our common stock to Spectrum Advisors, Ltd. in connection
with the restated stock purchase agreement dated as of November 22, 2002 between
us and Spectrum. We received aggregate proceeds of $491,190 from our sale of
these shares to Spectrum. In connection with such sales, we are obligated to
issue to Carolina Financial Services, LLC warrants to purchase 166,288 of our
common stock at an average exercise price of approximately $.16. These
transactions were exempt from registration under Section 4(2) of the Securities
Act because they did not involve any public offering.
On October 1, 2003 we entered into a stock purchase agreement with SBI
Brightline Consulting, LLC pursuant to which SBI agreed to purchase up to
11,000,000 shares of our common stock at fixed prices ranging from $.15 to $.40
per share. This transaction was treated as completed at the time of the signing
of the stock purchase agreement and was exempt from registration under Section
4(2) of the Securities Act because it did not involve any public offering. We
sold the shares pursuant to the stock purchase agreement between December 3,
2003 and January 12, 2004 for aggregate proceeds of $2.9 million. We have been
advised by SBI that it has sold all of such shares pursuant to our Registration
Statement on Form SB-2 (No. 333-109592) which was declared effective by the
Securities and Exchange Commission on November 17, 2003.
On January 21, 2004 and February 10, 2004, respectively, we issued 932,000
and 500,000 shares of common stock for the conversion of $93,200 and $50,000 of
line of credit obligation payable to Biomed Solutions, LLC. Biomed had
previously sold those portions of its receivable to a single purchaser, Bellador
Advisory Services (Labuan) Ltd., a Kuala Lumpur, Malaysia company. The shares
were issued to Bellador and its assigns pursuant to the exemption provided by
Section 3(a)(9) of the Securities Act of 1933, involving an exchange of
securities with an existing securityholder where no commission is payable. The
debt was assigned by Biomed to Bellador pursuant to the provisions of Regulation
S of the Securities Act. All recipients of the shares were nonaffiliated, non
U.S. persons deemed to be accredited investors and/or persons with knowledge of
business. There was no general solicitation or general advertising related to
the transaction, and the recipients were required to represent that they were
non U.S. persons and that they were not acquiring the shares for the account or
benefit of any U.S. Person. The offer to purchase the shares was not made to a
person in the United States and, at the time of the transaction, the purchasers
were outside the United States. All securities representing the shares were
issued with appropriate restrictive legends.
21
On February 5, 2004 we entered into a stock purchase agreement with SBI
Brightline Consulting, LLC pursuant to which SBI agreed to purchase up to
17,750,000 shares of our common stock at fixed prices ranging from $.60 to $2.00
per share. This transaction was treated as completed at the time of the signing
of the stock purchase agreement and was exempt from registration under Section
4(2) of the Securities Act because it did not involve any public offering. Of
the shares covered by this registration statement, 6,000,000 shares are shares
that may be issued by us to SBI pursuant to this stock purchase agreement.
On February 10, 2004, we issued 3,000,000 shares of common stock upon the
conversion of $300,000 of the obligations under our obligation payable to Biomed
Solutions, LLC under a transfer agreement. Biomed had previously sold that
portion of its rights to SBI Brightline Consulting, LLC. The shares were issued
to SBI pursuant to the exemption provided by Section 3(a)(9) of the Securities
Act of 1933, involving an exchange of securities with an existing securityholder
where no commission is payable. The debt was assigned by Biomed to SBI in a
transaction that was exempt from registration under Section 4(2) of the
Securities Act because it did not involve any public offering. The resale of
these 3,000,000 shares is being registered pursuant to this registration
statement.
On February 10, 2004, we issued 3,513,000 shares of common stock upon the
conversion of our outstanding debt obligations payable to Biomed ($200,000 under
a transfer agreement and $151,300 under a line of credit). The shares were
issued to Biomed pursuant to the exemption provided by Section 3(a)(9) of the
Securities Act of 1933, involving an exchange of securities with an existing
security holder where no commission is payable. The resale of these 3,513,000
shares is being registered pursuant to this registration statement.
Between January 15,2004 and February 29,2004, we issued 995,940 shares of
our common stock upon the exercise of outstanding warrants for aggregate gross
proceeds of $332,844. The shares were issued pursuant to the exemption provided
by Section 3(a)(9) of the Securities Act of 1933, involving an exchange of
securities with an existing security holder where no commission is payable.
ITEM 6. PLAN OF OPERATION
We are currently in the development stage of operations and expect to be
in that mode for at least the next twelve months. Our primary mission is to
develop and commercially exploit technologies for enabling cardiac pacemakers
and other implantable medical devices and surgical devices to be safe and
compatible with MRI. We believe that we have successfully demonstrated an
effective solution for making pacemakers safe for use with MRI and providing a
meaningful margin of safety. Our solution addresses both the problems of device
heating and induced voltages in pacemakers, the two primary problems associated
with the use of MRI for patients with pacemakers. Today, approximately 3 million
pacemaker recipients are denied access to MRI when needed, due to safety
concerns and FDA contraindications. If manufacturers of pacemakers incorporated
our solution into their products, we believe they would be safe for use with
MRI. We are in ongoing discussions with the major pacemaker manufacturers, and
one or more of these companies is currently evaluating our technologies and
patents. We are also negotiating with a major research university to undertake a
study to demonstrate further the dangers posed to pacemaker patients by MRI
imaging and the effectiveness of our solution. We believe that pacemaker
manufacturers, once provided with further evidence of the dangers associated
with their products in the context of MRI and the effectiveness of our
technology, will wish to incorporate our technology into their products to avoid
potential liabilities from the sale of devices that could have been made safer.
On October 1, 2003, we entered into a stock purchase agreement with SBI
Brightline Consulting, LLC that obligated SBI to purchase, upon our election, up
to 11,000,000 shares of our common stock for an aggregate purchase price of $2.9
million. The agreement required that the shares be registered with the SEC and a
registration statement for that purpose became effective on November 19, 2003.
All 11,000,000 shares have now been purchased by SBI for gross proceeds of $2.9
million, providing us with a positive net worth and cash on hand and investments
of $2.0 million as of February 29, 2004. We used the balance of these proceeds
to fund a portion of our operating and research and development expenses during
the year ended February 29, 2004.
22
In addition to the stock purchase agreement with SBI, we had been a party
to a restated stock purchase agreement with Spectrum Advisors Ltd. that became
effective on November 22, 2002. Under the Spectrum agreement we sold Spectrum a
total of 3,325,757 shares for aggregate consideration of $491,190. We used these
proceeds to fund a portion of our operating and research and development
expenses during 2003. We and Spectrum mutually agreed to terminate the Spectrum
agreement on February 9,2004.
During the fiscal year ended February 29, 2004, we borrowed an additional
$250,950 and repaid $72,500 under the Line of Credit agreement with Biomed. We
used the net borrowings of $178,450 to fund a portion of our operating and
research and development expenses until we started receiving proceeds from the
sale of shares to SBI as described above.
On February 5, 2004, we entered into a second stock purchase agreement
with SBI that obligates SBI to purchase, upon our election, up to 17,750,000
shares of our common stock for an aggregate purchase price of $25.0 million. SBI
is not obligated to purchase shares pursuant to this stock purchase agreement
unless the resale of the shares by SBI is registered under the Securities Act.
Only 6,000,000 shares covered by the second stock purchase agreement have been
registered for resale by SBI. As a result, SBI will not be obligated to purchase
the remaining shares covered by the stock purchase agreement unless and until we
have registered the resale of such shares by SBI. In addition, we do not
currently have sufficient authorized and unissued shares to issue such remaining
shares to SBI. We intend to seek approval at our next annual meeting of
stockholders to amend our articles of incorporation to increase our number of
authorized shares. If such amendment is approved, we will then decide whether or
not to register additional shares for resale by SBI so that we will have the
right to sell such additional shares to SBI under the stock purchase agreement.
No shares have yet been sold to SBI under the second stock purchase agreement.
We are currently exploring the possibility of listing our common stock on
a national securities exchange. Depending on the number of shares of stock that
we sell to SBI under the stock purchase agreement, the capital provided by such
sales may enable us to satisfy the capital requirements for such a listing.
During January and February 2004, obligations of $294,500 under our line
of credit and our obligation of $500,000 payable under the transfer agreement,
both owed to Biomed Solutions, LLC and its assignees, were converted according
to their terms into 7,945,000 shares of our common stock, thereby eliminating
these liabilities and increasing our stockholders' equity.
We estimate that the proceeds from the sale of our common stock pursuant
to the previous SBI stock purchase agreement and Spectrum agreement, coupled
with the additional equity financing available under the new SBI stock purchase
agreement, will be more than sufficient to satisfy our projected cash
requirements over the next 12 months. Our estimate of these cash requirements is
as follows:
Research and product development $ 973,000
Operating expenses, including
administrative salaries and benefits,
office expenses, rent expense, legal
and accounting, publicity, investor
relations 1,137,000
---------
Total Cash Requirements $2,110,000
=========
In December 2003, we announced three major strategic initiatives for 2004:
(1) Acquisition of Intellectual Assets, (2) Market Expansion, and (3) Strategic
Partnerships.
(1) We have five United States patents under license and 60 patents
pending or issued. The U.S. Patent and Trademark Office (PTO)
recently allowed an additional two patents for nanomagnetic particle
coatings, licensed exclusively to us for medical applications. Four
patents developed by us covering photonic applications for moving
biosensor information from inside the body and for other
applications have issued, and an additional four have also been
allowed and will issue within the next several months. We are
aggressively pursuing internal research and development projects, as
well as sourcing leading-edge providers of related technologies.
Intellectual property, such as technology solutions and patents, may
be developed internally, through joint ventures, or purchased. To
ensure the continuing value of our intellectual assets, we will
aggressively defend our patents and licensed technology, both
domestically and abroad.
23
(2) We currently enjoy a leadership position in developing technologies
designed to make implanted medical devices, such as heart
pacemakers, safe for use with MRI and other diagnostic imaging
tools. We have also developed technologies that allow for the use of
interventional MRI, without the heating problems that can cause
tissue damage or imaging problems that obscure the outcome of the
procedures. Based on discussions underway with several biomedical
device manufacturers, both in the U.S. and overseas, we plan to
expand the use of the technologies we have developed to make a wider
range of devices compatible with MRI. These technologies reduce
radio frequency interference, heating, and induced voltages. Since
the beginning of 2004 we have expanded our development and
partnering activities related to these technologies to include
guidewires, stents, drug pumps, biopsy needles and other prosthetic
and surgical tool devices, where the lack of MRI compatibility
negatively impacts investigational and diagnostic procedures.
Discussions with these device manufacturers indicate a need for, and
interest in, solutions to additional problems where we can develop
solutions based on our technology. We have used both surrogate
devices (such as copper rings) and actual manufactured implantable
products, in a gel phantom, to demonstrate our ability to accurately
image devices and their interior spaces in a manner that could not
be done previously. Part of our strategic initiative for 2004 will
include expanding our technology offerings to the companies with
whom we are already in discussions or collaborating.
Our Photonic MRI Microcoil (PMM) is one example of our expanded
technology. Recent studies indicate up to 85% of heart attacks and
strokes may be caused by vulnerable plaque which may result in
thrombosis, and is not easily detected by other methods. Our
technologies are designed to pinpoint specific sites where therapies
can address the problem. By inserting the PMM directly into a blood
vessel, MRI can provide a detailed look at vulnerable plaque without
injury-causing heating or image degradation. There are other uses of
our photonic catheter for diagnostics and therapeutic applications.
We were recently notified that the United States Patent and
Trademark Office (US PTO) has issued four U.S. patents, and allowed
an additional four of our pending patent applications for issuance,
and we have paid the fees to allow these patents to file.
Another example of our expanding on the use of our nanomagnetic
particle coating technology is NanoView. The concept of our NanoView
technology is to utilize nanomagnetic particles, a specific type of
nanotechnology, as contrast agents to preferentially bind to tissues
of diagnostic interest with the goal of improving detail and
contrast in MRI diagnostic image processes. We expect NanoView to
improve performance in terms of signal intensity and the use of
multiple markers, which broadens the applications of MRI imaging. We
have begun discussions with several manufacturers of contrast agents
and others in the diagnostic materials sector.
(3) Leveraging strategic partnerships is vital to our mission. In
November, 2003 we announced that we had entered into a joint
development agreement with Boston Scientific, a major medical device
manufacturer. We have successfully completed the first phase of a
multi-phase development plan with Boston Scientific, and we are
discussing the next phase of this program. Relationships such as
this one help us validate our technology and also develop potential
sales channels. We have entered into Non-Disclosure Agreements with
a number of major manufacturers of implanted biomedical and related
devices. We are discussing with these companies potential strategic
partnership arrangements that may include joint development
projects, original equipment manufacturing arrangements and
licensing agreements.
24
We estimate that our ongoing research and development plan will require
approximately $973,000 of our funds over the next 12 months, dedicated to the
following activities:
MRI Shielding for Active Medical Devices $ 563,000
MRI Shielding for Passive Medical Devices 410,000
--------
Total $ 973,000
=========
These amounts may increase as customer contracts identify specific tasks
and testing that may be required.
The MRI Shielding project entails the development of technology that may
be applied to active medical devices and passive medical devices to allow
patients to undergo MRI diagnostics. Active medical devices include such items
as pacemakers and drug pumps, and passive medical devices include such items as
biopsy needles, stents and guidewires.
In November 2003, we recorded $75,000 as a development payment from Boston
Scientific for prototype development of a prospective product adaptation. The
development activities related to this payment have been completed. We are in
discussions concerning additional phases of this initiative that, if completed
and successful, may lead to a license for one or more of our technologies in the
context of one or more product lines.
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 eleven full-time individuals.
Our plans do not include funding for FDA approvals, as our strategy is to
supply solutions to the major biomedical device manufacturers, who will
incorporate our technology into their existing and future product lines. It will
be the responsibility of these manufacturers to apply for and receive FDA
approval of their products. Since our technologies are made of known
biocompatible, non-toxic materials, and since we do not change the method by
which the devices conduct diagnostic and/or therapeutic functionality, we
anticipate reasonable timeframes for our customers to obtain FDA approvals of
devices that add our capability for safety and/or image enhancements.
25
ITEM 7. FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
BIOPHAN TECHNOLOGIES, INC.
AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29,2004
BIOPHAN TECHNOLOGIES, INC.AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
FEBRUARY 29, 2004
Independent Auditor's Report F-1
Consolidated Financial Statements:
Balance Sheet F-2
Statement of Operations F-3
Statement of Stockholders' Equity F-4
Statement of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - F-10
26
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Biophan Technologies, Inc.
We have audited the accompanying consolidated balance sheet of Biophan
Technologies, Inc. and Subsidiaries (a development stage company) as of February
29, 2004, and the related consolidated statements of operations, stockholders'
equity, and cash flows for each of the two years in the period then ended, and
the amounts in the cumulative column in the consolidated statements of
operations, stockholders' equity, and cash flows for the period from August 1,
1968 (date of inception) to February 29, 2004. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Biophan
Technologies, Inc. and Subsidiaries as of February 29, 2004 and the results of
their operations and their cash flows for each of the two years in the period
then ended and the amounts included in the cumulative column in the consolidated
statements of operations and cash flows for the period from August 1, 1968 to
February 29, 2004 in conformity with accounting principles generally accepted in
the United States of America.
/s/GOLDSTEIN GOLUB KESSLER LLP
New York, New York
March 30, 2004
Pg. F-1
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED BALANCE SHEET
FEBRUARY 29, 2004
ASSETS
Current assets:
Cash $ 823,900
Investments in marketable securities 1,150,000
Due from related parties 34,222
Prepaid expenses 69,185
--------------------------------------------------------------------------------
Total current assets 2,077,307
--------------------------------------------------------------------------------
Property and equipment, net 61,214
--------------------------------------------------------------------------------
Other assets:
Intellectual property rights 70,000
Security deposit 2,933
Deferred equity placement costs 19,891
Deferred tax asset, net of valuation allowance of $2,926,000 --
--------------------------------------------------------------------------------
92,824
--------------------------------------------------------------------------------
$ 2,231,345
============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 254,058
--------------------------------------------------------------------------------
Total current liabilities 254,058
--------------------------------------------------------------------------------
Stockholders' equity:
Common stock - $.005 par value:
Authorized, 80,000,000 shares
Issued and outstanding, 65,945,011 shares 329,725
Additional paid-in capital 13,339,289
Deficit accumulated during the development stage (11,691,727)
--------------------------------------------------------------------------------
1,977,287
--------------------------------------------------------------------------------
$ 2,231,345
============
See notes to consolidated financial statements
Pg. F-2
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF OPERATIONS
-------------------------------------------------------------------------------------------
Period from
August 1,
1968 (date of
Year ended Year ended inception) to
February 29, February 28, February 29,
2004 2003 2004
-------------------------------------------------------------------------------------------
Revenues:
Development payments $ 75,000 $ -- $ 75,000
-------------------------------------------------------------------------------------------
Operating expenses:
Salaries and related 527,206 648,304 1,697,000
Research and development 1,240,439 1,373,124 3,675,831
Professional fees 705,375 522,115 2,577,091
Write-down of intellectual property rights -- 40,000 530,000
General and administrative 678,422 582,174 1,762,676
-------------------------------------------------------------------------------------------
3,151,442 3,165,717 10,242,598
-------------------------------------------------------------------------------------------
Operating loss (3,076,442) (3,165,717) (10,167,598)
-------------------------------------------------------------------------------------------
Other income (expense):
Interest expense (729,527) (447,853) (1,730,923)
Interest income 1,815 17,083 46,578
Other income 85,584 187,040 314,659
Other expense -- (28,805) (65,086)
-------------------------------------------------------------------------------------------
Total other expense, net (642,128) (272,535) (1,434,772)
-------------------------------------------------------------------------------------------
Loss from continuing operations (3,718,570) (3,438,252) (11,602,370)
Loss from discontinued operations -- -- (89,357)
-------------------------------------------------------------------------------------------
Net loss $ (3,718,570) $ (3,438,252) $(11,691,727)
===========================================================================================
Loss per common share - basic and diluted $ (0.08) $ (0.11)
===========================================================================
Weighted average shares outstanding 44,017,010 31,731,051
===========================================================================
See notes to consolidated financial statements
Pg. F-3
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
--------------------------------------------------------------------------------------------------------
PERIOD FROM AUGUST 1, 1968 (DATE OF INCEPTION) TO FEBRUARY 29, 2004
--------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Additional During the Stockholders'
Number Commo Paid-in Development Equity
of Shares Stock Capital Stage (Deficiency)
--------------------------------------------------------------------------------------------------------
1969 - 14,130 shares issued for services
for $.05 per share 14,130 $ 70 $ 637 $ 707
1970 - 1,405,000 shares issued for mining
rights for $.05 per share 1,405,000 7,025 63,225 70,250
1970 - 55,500 shares issued for services
for $.05 per share 55,500 278 2,497 2,775
1973 - 10,000 shares issued for services
for $.05 per share 10,000 50 450 500
1976 - 500 shares issued for services
for $.05 per share 500 3 22 25
1978 - 12,000 shares issued for services
for $.05 per share 12,000 60 540 600
1980 - 225,000 shares issued for services
for $.05 per share 225,000 1,125 10,125 11,250
1984 - 20,000 shares issued for services
for $.05 per share 20,000 100 900 1,000
1986 - 10,000 shares issued for services
for $.05 per share 10,000 50 450 500
1990 - 10,000 shares issued for services
for $.05 per share 10,000 50 450 500
1993 - 25,000 shares issued for services
for $.05 per share 25,000 125 1,125 1,250
Net loss from inception through
February 28, 1998 (89,357) (89,357)
--------------------------------------------------------------------------------------------------------
Balance at February 28, 1998 1,787,130 8,936 80,421 (89,357) --
1999 - 10,000 shares issued for services
for $.05 per share 10,000 50 450 $ 500
1999 - 1,000,000 shares issued for services
for $.005 per share 1,000,000 5,000 5,000
Net loss for the year ended
February 28, 1999 (5,500) (5,500)
--------------------------------------------------------------------------------------------------------
Balance at February 28, 1999 2,797,130 13,986 80,871 (94,857) --
2000 - 1,000,200 shares issued
for services for $.005 per share 1,000,200 5,001 5,001
See notes to consolidated financial statements
Pg. F-4
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIENCY
-------------------------------------------------------------------------------------------------------------------------------
PERIOD FROM AUGUST 1, 1968 (DATE OF INCEPTION) TO FEBRUARY 29, 2004
-------------------------------------------------------------------------------------------------------------------------------
Deficit
Accumulated
Additional During the Stockholders'
Number Common Paid-in Development Equity
of Shares Stock Capital Stage (Deficiency)
-------------------------------------------------------------------------------------------------------------------------------
Net loss for the year ended
February 29, 2000 (5,001) (5,001)
-------------------------------------------------------------------------------------------------------------------------------
Balance at February 29, 2000 3,797,330 18,987 80,871 (99,858) --
2000 - 250,000 shares issued for services
for $.005 per share 250,000 1,250 1,250
2000 - Expenses paid by stockholder 2,640 2,640
2000 - 10,759,101 shares issued for
acquisition of Antisense Technology, Inc 10,759,101 53,795 121,205 175,000
2000 - 10,759,101 shares issued for cash
for $.005 per share 10,759,101 53,796 121,204 175,000
Net loss for the year ended
February 28, 2001 (729,130) (729,130)
-------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 2001 25,565,532 127,828 325,920 (828,988) (375,240)
2001 - 2,399,750 shares issued for cash
for $1.00 per share 2,399,750 11,999 2,387,751 2,399,750
2001 - 468,823 shares issued for interest 468,823 2,344 466,479 468,823
2001 - Redemption of 200,000 shares (200,000) (1,000) (1,000)
2001 - 1,315,334 shares issued upon
conversion of bridge loans at $.75 per share 1,315,334 6,576 979,924 986,500
2001 - Offering costs associated with
share issuances for cash (254,467) (254,467)
2002 - Grant of stock options for services 702,800 702,800
Net loss for the year ended
February 28, 2002 (3,705,917) (3,705,917)
-------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 2002 29,549,439 147,747 4,608,407 (4,534,905) 221,249
2002 - Shares issued for cash for
$.34 per share 993,886 4,969 337,461 342,430
2002 - Shares issued for cash for
$.15 per share 1,192,874 5,964 167,002 172,966
2002 to 2003 - Shares issued for cash for
$.25 per share 5,541,100 27,706 1,357,569 1,385,275
2002 to 2003 - Shares issued as commissions
on offerings 357,394 1,787 (1,787) --
2002 to 2003 Cash commissions on offerings (119,488) (119,488)
Offering costs (45,644) (45,644)
Grant of stock options for services 485,000 485,000
Intrinsic value of beneficial conversion feature
of note payable and MRI liability 800,000 800,000
Net loss for the year ended
February 28,2003 (3,438,252) (3,438,252)
-------------------------------------------------------------------------------------------------------------------------------
Balance at February 28, 2003 37,634,693 188,173 7,588,520 (7,973,157) (196,464)
2003 - Shares issued upon conversion of
related party loans at $.14 per share 1,268,621 6,343 177,607 183,950
2003 - Shares issued upon conversion of
stockholder loan plus accrued interest
at $.20 per share 775,000 3,875 151,693 155,568
2003 - Shares issued for cash pursuant to
equity line of credit at prices from
$.11 to $.23 per share 3,325,757 16,629 474,561 491,190
2003 - Shares issued for option exercises
at $.14 per share 3,000,000 15,000 412,847 427,847
2004 - Shares issued for warrant exercises
at $.25 and $.50 per share 995,940 4,980 327,864 332,844
2004 - Shares issued for cash pursuant to
stock purchase agreement at prices from
$.15 to $.40 per share 11,000,000 55,000 2,845,000 2,900,000
2004 - Shares issued upon conversion of
related party loans at $.10 per share 7,945,000 39,725 754,775 794,500
Offering costs (209,528) (209,528)
Grant of stock options for services 565,000 565,000
Intrinsic value of beneficial conversion feature
of line of credit loans 250,950 250,950
Net loss for the year ended February 29, 2004 (3,718,570) (3,718,570)
-------------------------------------------------------------------------------------------------------------------------------
Balance at February 29, 2004 65,945,011 $ 329,725 $ 13,339,289 $(11,691,727) $ 1,977,287
===============================================================================================================================
See notes to consolidated financial statements
Pg. F-5
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
CONSOLIDATED STATEMENT OF CASH FLOWS
----------------------------------------------------------------------------------------------------------------
Period from
August 1,
1968 (date of
Year ended Year ended inception) to
February 29, February 28, February 29,
2004 2003 2004
----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net loss $(3,718,570) $(3,438,252) $(11,691,727)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 23,643 25,601 64,173
Realized and unrealized losses on marketable securities -- 28,805 66,948
Accrued interest on note payable converted to common
stock 11,998 -- 11,998
Amortization of interest on convertible notes payable 667,617 383,333 1,050,950
Write-down of intellectual property rights -- 40,000 530,000
Amortization of discount on payable to related party -- -- 75,000
Issuance of common stock for services -- 101,108
Issuance of common stock for interest -- -- 468,823
Grant of stock options for services 565,000 485,000 1,752,800
Expenses paid by stockholder -- -- 2,640
Changes in operating assets and liabilities:
(Increase) decrease in advances receivable 10,127 (10,127) --
(Increase) in due from related parties (9,854) (24,368) (34,222)
(Increase) decrease in prepaid expenses 21,738 896 (69,185)
(Increase) in security deposits -- -- (2,933)
Increase (decrease)in accounts payable and
accrued expenses (89,158) 214,176 240,727
(Decrease) in due to related parties (9,401) (6,948) (43,496)
----------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (2,526,860) (2,301,884) (7,476,396)
----------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of property and equipment (21,625) (7,951) (125,387)
Sales of marketable securities 302,000 540,000 1,219,270
Purchases of marketable securities (1,150,000) (302,000) (2,436,218)
----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (869,625) 230,049 (1,342,335)
----------------------------------------------------------------------------------------------------------------
Cash flow from financing activities:
Proceeds of bridge loans -- -- 986,500
Loan from stockholder -- 143,570 143,570
Line of credit borrowing from related party 250,950 300,000 550,950
Line of credit payments (72,500) -- (72,500)
Net proceeds from sales of capital stock 3,252,200 1,735,539 7,363,849
Proceeds from exercise of options 427,847 -- 427,847
Proceeds from exercise of warrants 332,844 -- 332,844
Deferred equity placement costs (19,891) (70,538) (90,429)
----------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,171,450 2,108,571 9,642,631
----------------------------------------------------------------------------------------------------------------
Net increase in cash 774,965 36,736 823,900
Cash at beginning of period 48,935 12,199 --
----------------------------------------------------------------------------------------------------------------
Cash at end of period $ 823,900 $ 48,935 $ 823,900
================================================================================================================
Supplemental schedule of noncash investing and financing activities:
Intellectual property acquired through issuance of common
stock and assumption of related party payable $ -- $ -- $ 175,000
================================================================================================================
Acquisition of intellectual property rights $ -- $ -- $ 425,000
================================================================================================================
Issuance of common stock upon conversion of
bridge loans $ 155,568 $ -- $ 1,142,068
================================================================================================================
Issuance of common stock upon conversion of related
party loans $ 978,450 $ -- $ 978,450
================================================================================================================
See notes to consolidated financial statements
Pg. F-6
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2004
1. PRINCIPAL BUSINESS ACTIVITY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of Consolidation
The consolidated financial statements include the accounts of Biophan
Technologies, Inc. ("Biophan") and its wholly owned subsidiaries, LTR Antisense
Technology, Inc.("Antisense")and MRIC Drug Delivery Systems, LLC ("MRIC")
(collectively referred to as the "Company"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
Company History
The Company is in the development stage and is expected to remain so for at
least the next 12 months. The Company is developing technologies that make
biomedical devices safe and compatible for use in an MRI (Magnetic Resonance
Imaging) machine.
The Company was incorporated under the laws of the State of Idaho on August
1,1968. On January 12, 2000, the Company changed its domicile to Nevada by
merging into a Nevada corporation, and on July 19, 2001, changed its name to
Biophan Technologies, Inc.
The Company has not generated any material revenues throughout its history. The
Company's ability to continue in business is dependent upon obtaining sufficient
financing or attaining future profitable operations.
On December 1, 2000, the Company acquired LTR Antisense Technology, Inc., a New
York corporation ("LTR"), from Biomed Solutions, LLC (formerly Biophan, LLC), a
New York limited liability company ("Biomed"), in a share for share exchange. As
a result of the exchange, LTR became a wholly owned subsidiary of the Company.
The exchange was consummated pursuant to and in accordance with an Exchange
Agreement, originally dated December 1, 2000 and subsequently amended, by and
among the Company, LTR and Biomed. LTR owns multiple patents for proprietary HIV
antisense gene therapy technology.
In connection with the exchange, the Company (i) issued an aggregate of
10,759,101 shares of common stock to Biomed in exchange for all the issued
shares of LTR and (ii) issued an aggregate of 10,759,101 shares of common stock
to a group of investors for $175,000. Also on December 1, 2000, the Company
acquired intellectual property rights, including a pending patent to the
MRI-compatible pacemaker technology from Biomed (the "Assignment"), for future
consideration of $500,000 ("MRI technology purchase liability payable"). The
Assignment was consummated pursuant to, and in accordance with, an Assignment
and Security Agreement, originally dated December 1, 2000 and subsequently
amended, by and between the Company and Biomed (See Note 6).
Pg. F-7
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2004
Revenue Recognition
The Company earns and recognizes revenue under development agreements when the
phase of the agreement to which amounts relate is completed. Completion is
determined by the attainment of specified milestones including a written
progress report. Advance fees received on such agreements are deferred until
recognized.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly
liquid instruments with an original maturity of three months or less to be cash
equivalents.
Concentration of Credit Risk
The Company maintains cash in bank deposit accounts which, at times, exceed
federally insured limits. The Company has not experienced any losses on these
accounts.
Marketable Securities
Marketable securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities. Trading
securities are recorded at fair value, with the change in fair value during the
period included in operations.
Depreciation
Depreciation of property and equipment is provided by the double declining
balance and straight-line methods over the estimated useful lives of the related
assets. Costs for internally developed intellectual property rights with
indeterminate lives are expensed as incurred.
Intangible Assets
At each balance sheet date, the Company evaluates the period of amortization of
intangible assets. The factors used in evaluating the period of amortization
include: (i) current operating results, (ii) projected future operating results,
and (iii) any other material factors that affect continuity of the business.
Deferred Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted rates
expected to apply when the differences are expected to be realized. A valuation
allowance is recognized if it is anticipated that some or all of the deferred
tax asset may not be realized.
Loss Per Share
Basic loss per common share is computed by dividing net loss by the weighted-
average number of shares of common stock outstanding during the period. Diluted
loss per common share gives effect to dilutive options, warrants and other
potential common stock outstanding during the period. Potential common stock has
not been included in the computation of diluted loss per share, as the effect
would be antidilutive.
Stock Options
The Company has elected to apply Accounting Principles Board ("APB") Opinion No.
25, Accounting for Stock Issued to Employees, and related interpretations in
accounting for its stock options issued to employees (intrinsic value) and has
adopted the disclosure-only provisions of Statement of Financial Accounting
Standards ("SFAS") No. 123, Accounting for Stock-Based Compensation. Had the
Company elected to recognize compensation cost based on the fair value of the
options granted at the grant date as prescribed by SFAS No. 123, the Company's
net loss and loss per common share would have been as follows:
Year ended February 29 and 28 2004 2003
--------------------------------------------------------------------
Net loss - as reported $(3,718,570) $(3,438,252)
Add: Stock-based employee compensation
expense included in reported net loss,
net of related tax effects 118,000 458,000
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related tax effects (241,000) (524,000)
--------------------------------------------------------------------
Net loss - pro forma $(3,841,570) $(3,504,252)
====================================================================
Basic and diluted loss
per share - as reported $ (.08) $ (.11)
====================================================================
Basic and diluted loss
per share - pro forma $ (.09) $ (.11)
====================================================================
The Company's assumptions used to calculate the fair values of options issued
during the year ended February 29, 2004 were (i) risk-free interest rates of
3.17% through 4.38, (ii) expected lives of 5 to 10 years, (iii) expected
volatility of 160%, and (iv) expected dividends of zero.
The Company's assumptions used to calculate the fair values of options issued
during the year ended February 28, 2003 were (i) risk-free interest rates of
3.05% through 4.75%, (ii) expected lives of 5 to 10 years, (iii) expected
volatility of 90%, and (iv) expected dividends of zero.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires the use of estimates by management. Actual
results could differ from these estimates.
Accounting Standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
accompanying financial statements.
Pg. F-8
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2004
2. INVESTMENTS IN MARKETABLE SECURITIES:
Investments in trading securities are summarized as follows at February 29,
2004:
Gross
Unrealized Fair
Cost Gain/Loss Value
--------------------------------------------------------------------------
Certificates of Deposit $1,150,000 $ - $1,150,000
==========================================================================
There were no material unrealized holding losses on trading securities at
February 29,2004.
3. PREPAID EXPENSES:
Prepaid expenses at February 29, 2004 consist of the following:
Property and equipment, at cost, consists of the following:
Depreciation/
Amortization
Period
-----------------------------------------------------------
Furniture & Equipment $58,010 5-7 years
Computers 13,218 5 years
Internet Web site 54,159 7 years
-----------------------------------------------------------
125,387
Less accumulated depreciation (64,173)
-----------------------------------------------------------
$61,214
===========================================================
Depreciation expense for the years ended February 29, 2004 and February 28,2003
amounted to $23,643 and $25,601, respectively. Depreciation expense for the
period from August 1, 1968 (Date of Inception) to February 29, 2004 was $64,173.
5. INTELLECTUAL PROPERTY RIGHTS:
Intellectual property rights were acquired on December 1, 2000 and encompass the
utilization of new proprietary technology to prevent implantable cardiac
pacemakers and other critical and life-sustaining medical devices from being
affected by MRI and other equipment using magnetic fields, radio waves and
similar forms of electromagnetic interference.
6. LOAN AGREEMENTS:
In June 2002, the Company signed a Loan Agreement with a shareholder providing
for borrowings of up to $400,000 with interest payable at 8% per annum.
Principal and accrued interest become due and payable on December 31, 2003. A
total of $143,570 was borrowed under this Agreement and on June 30, 2003 the
shareholder agreed to a conversion offer and the principal balance plus accrued
interest of $11,998 was converted into 775,000 shares of the Company's common
stock.
In June 2002, the Company executed a line-of-credit agreement (the "Line") with
Biomed Solutions, LLC that provided for borrowings up to $250,000 with interest
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 and later the expiration of the entire line was
extended to June 1, 2004. In consideration for the increase in the Line, Biomed
received 30,000 additional warrants to purchase shares of restricted common
stock at a price dependent on the selling price of the Company's stock, as
defined. The exercise price of the warrants issued to Biomed in exchange for the
increase in the line of credit to $350,000 and the extension of the payment date
to December 1, 2002 is the lowest of (i) the closing bid price on June 4, 2002;
(ii) the closing bid price on the date of exercise; or (iii) the lowest per
share purchase price paid by any third party between June 4, 2002 and the
exercise date. The fair value of the warrants - in accordance with guidance
provided by Statement of Financial Accounting Standards No. 123, Accounting for
Stock-Based Compensation - was estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions: risk-free
interest rate of 5.25; no dividend yield; volatility factor of the expected
market price of the company's common stock of 0.0%, and an expected life of 2.8
years. The value attributed to the warrants was insignificant. As a result,
these warrants were allocated no value.
During the current year through January 20, 2004, the Company issued 1,268,621
shares of common stock for the conversion of $183,950 of the Line of Credit
obligation and drew down additional amounts under the Line, which amounts were
also fully discounted as a result of the beneficial conversion feature and
recorded as additional paid-in capital. On January 21, 2004, $294,500 was
outstanding under the Line and $93,200 was converted into 932,000 shares of
common stock. On February 10, 2004, the remaining balance of $201,300 was
converted into 2,013,000 shares of common stock.
Under the Transfer Agreement dated December 1, 2000, the Company incurred a
liability ("MRI technology purchase liability payable") to Biomed of $500,000,
with interest at 8% per annum, in connection with the acquisition of the MRI
intellectual property rights described above. Biomed maintained a security
interest in the underlying patents and the liability was due by June 1, 2004.
In August 2002, in consideration for extending the maturity date to June 1, 2004
and for prior extensions, the Company and Biomed agreed to make the $500,000 MRI
technology purchase liability payable to Biomed convertible at Biomed's election
into shares of the Company's common stock at a price dependent on the selling
price of the Company's stock, as defined, but below market. Consequently, the
intrinsic value of the beneficial conversion feature of the liability was
recorded as a discount, such that the full $500,000 was discounted, with a
corresponding increase to additional paid-in capital. On February 10, 2004, the
entire balance of $500,000 was converted into 5,000,000 shares of common stock.
Of this amount, $300,000 had been transferred to SBI Brightline Consulting, LLC
by Biomed and converted by SBI. Because Biomed effectively acquired $75,950 of
convertible debt by lending that amount during the six months preceding
conversion, under applicable securities laws the Company is entitled to receive
Biomed's profit on $75,590 of the $300,000 transferred to SBI. This profit
approximates $835,000 and will be paid by Biomed as payments are received from
SBI. The Company will record these payments as credits to additional paid-in
capital.
7. STOCKHOLDERS' EQUITY:
During the year ended February 29, 2004, the Company issued 3,325,757 shares of
common stock for gross cash proceeds of $491,190 pursuant to an equity line of
credit agreement with Spectrum Advisors Ltd. and issued 11,000,000 shares for
gross cash proceeds of $2,900,000 pursuant to a stock purchase agreement with
SBI Brightline Consulting, LLC. In addition, 3,000,000 shares of common stock
were issued upon the exercise of options for cash proceeds of $427,847; and
995,940 shares were issued upon the exercise of warrants for cash proceeds of
$332,844.
On February 5, 2004, the Company entered into a second stock purchase agreement
with SBI that obligates SBI to purchase, upon the Company's election, up to
17,750,000 shares of common stock for an aggregate purchase price of $25.0
million. Currently, only 6,000,000 shares covered by the stock purchase
agreement have been registered for resale by SBI under the Security Act as the
Company does not currently have sufficient authorized and unissued shares to
issue such remaining shares to SBI. As a result, SBI will not be obligated to
purchase the remaining shares covered by the stock purchase agreement unless and
until the Company has registered the resale of such shares by SBI. The Company
intends to seek approval at its next annual meeting of stockholders to amend its
articles of incorporation to increase the number of authorized shares. The
purchase of 6,000,000 shares by SBI will result in gross cash proceeds of
$3,900,000 to the Company. Currently, no shares have been purchased by SBI under
the second stock purchase agreement.
During the year ended February 29, 2004, the Company issued 995,940 shares of
stock upon the exercise of warrants for total proceeds of $332,844. As of
February 29, 2004, warrants to purchase 3,930,536 shares of our common stock
were outstanding. The exercise prices for these warrants range from $.10 per
share to $1.00 per share, and the weighted-average exercise price for all of the
outstanding warrants is $.50 per share.
8. COMMITMENTS:
The Company is obligated under an operating lease for office space expiring
September 30, 2004. The Company may terminate the lease upon ninety days prior
written notice to the landlord. The aggregate minimum future payments under
this lease are $33,922 for the year ending February 28, 2005. Rent expense
charged to operations under this operating lease aggregated $57,899 and $51,321
for the years ended February 29, 2004 and February 28, 2003, respectively. Rent
expense charged to operations for the period from August 1, 1968 (Date of
Inception) to February 29, 2004 was $123,887.
In addition, the Company is obligated under three license or royalty agreements
for patents that expire at various dates through 2023. These agreements may be
terminated by the Company with 60 days written notice. Aggregate minimum future
payments under these agreements total $506,000. License/royalty expense charged
to operations was $15,000 for each of the years ended February 29, 2004 and
February 28, 2003.
9. RELATED PARTY TRANSACTIONS:
The Company has affiliations with two entities, Biomed Solutions, LLC ("Biomed")
and Technology Innovations, LLC ("TI"), that are related by virtue of common
management personnel and stock ownership. During the current year, the Company
charged Biomed for services of certain Company personnel and charged both Biomed
and TI for expenses allocable to and paid on their behalf. The total of these
charges was $120,081. During the year ended February 28, 2003, Biomed and TI
paid expenses on behalf of the Company aggregating $128,411. At February 29,
2004, the combined balances due from these related parties was $34,222. The
amounts do not bear interest and the Company expects to collect them in full
during the next twelve months.
10. STOCK-BASED COMPENSATION PLAN:
The Company has a stock option plan (the "Plan") which provides for the granting
of nonqualified or incentive stock options ("ISO") to officers, key employees,
non-employee directors and consultants. The Plan authorizes the granting of
options to acquire up to 7,000,000 common shares. ISO grants under the Plan are
exercisable at the market value of the Company's stock on the date of such
grant. Nonqualified option grants under the Plan are exercisable at amounts
determined by the board of directors. All options under the Plan are exercisable
at times as determined by the board of directors, not to exceed 10 years from
the date of grant. Additionally, the Plan provides for the granting of
restricted stock to officers and key employees.
The following table summarizes activity in stock options:
Weighted-
average
Exercise
Options Price
--------------------------------------------------------
Outstanding at February 28, 2002 1,779,997 .51
Granted 739,998 .42
Forfeited (30,000) .50
Exercised -- --
--------------------------------------------------------
Outstanding at February 28, 2003 2,489,995 .48
Granted 4,469,998 .17
Forfeited (90,000) .30
Exercised (3,000,000) .14
--------------------------------------------------------
Outstanding at February 29, 2004 3,869,993 $ .39
========================================================
Weighted-average fair value of
options granted during the year
ended February 29, 2004 and
February 28, 2003,respectively $.16 .33
========================================================
The following table summarizes information about stock options outstanding
and exercisable at February 29, 2004:
Options Outstanding Options Exercisable
--------------------------------- ----------------------------
Weighted
Average Weighted- Weighted-
Remaining Average Average
Range of Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life Price Exercisable Price
--------------------------------------------------------------------------------
$.10 - $.43 2,245,000 8.37 years $ .25 1,067,501 $ .27
$.50 - $1.00 1,624,993 6.35 years $ .58 1,366,243 $ .59
--------------------------------------------------------------------------------
$.10 - $1.00 3,869,993 7.52 years $ .39 1,564,661 $ .45
================================================================================
Pg. F-9
BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE COMPANY)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 29, 2004
At February 29, 2004, 130,007 shares of common stock were reserved for future
issuance of stock options.
11. INCOME TAXES:
As of February 29, 2004, the Company had net operating loss carryforwards of
approximately 8,607,000 for federal income tax purposes, which expire through
2024.
The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is as follows:
Year Ended February 29 and 28, 2004 2003
-----------------------------------------------------------
Tax benefit at U.S. statutory rates 34 % 34 %
Increase in valuation allowance (34)% (34)%
-----------------------------------------------------------
-0-% -0-%
===========================================================
Deferred tax asset is comprised of the following:
February 29, 2004
-----------------------------------------------------------
Net operating loss carryforwards $2,766,000
Write-down of intellectual property rights 160,000
-----------------------------------------------------------
Total deferred tax asset 2,926,000
Valuation allowance (2,926,000)
-----------------------------------------------------------
Net deferred tax asset $ -0-
==========================================================
F-10
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not applicable.
ITEM 8A. CONTROLS AND PROCEDURES.
Based on their evaluation as of the end of the period covered by this annual
report on Form 10-KSB, 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 February
29, 2004 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT.
The officers and directors of Biophan are as follows:
Name Age Title
---- --- -----
Guenter H. Jaensch 65 Chairman of the Board
Michael L. Weiner 56 Director, Chief Executive Officer, President
Robert J. Wood 64 Vice-President, Treasurer, Chief Financial Officer
David A. Miller 49 Secretary (Resigned March 1, 2004)
Jeffrey L. Helfer 51 Vice-President-Engineering
Robert S. Bramson 65 Director
Steven Katz 55 Director
Ross B. Kenzie 72 Director
The above listed officers and directors will serve until the next annual
meeting of the shareholders or until their death, resignation, retirement,
removal, or disqualification, or until their successors have been duly elected
and qualified. Vacancies in the existing Board of Directors may be filled by
majority vote of the remaining directors. Officers serve at the will of the
Board of Directors.
GUENTER H. JAENSCH, PHD is the former Chairman and CEO of Siemens
Pacesetter, Inc., a manufacturer of pacemakers. During his more than twenty-five
years at Siemens, Dr. Jaensch held various senior executive positions prior to
running Siemens Pacesetter, including President of Siemens Communications
Systems, Inc. from August 1983 to March 1985, Chairman and President of Siemens
Corporate Research and Support, Inc., from April 1982 to September 1991 and
Chairman and CEO of Siemens Pacesetter, Inc. and Head of the Cardiac Systems
Division of Siemens AG Medical Engineering Group from October 1991 to September
1994. Dr. Jaensch holds a Masters Degree in Business Administration and a Ph.D.
in Business and Finance from the University of Frankfurt and taught business and
statistics at the University prior to joining Siemens in 1969. In 1994, he
joined St. Jude Medical as Chairman and CEO of Pacesetter, Inc., a St. Jude
Medical Company, and retired in 1995 to manage his personal investments. Since
December 1997 he has been a director of MRV Communications, a publicly traded
company which is a leading company in the fiber optic technology business. Dr.
Jaensch has been a director of Biophan since March 2002.
27
MICHAEL L. WEINER began his career at Xerox Corporation in 1975, where he
served in a variety of capacities in sales and marketing, including manager of
software market expansion and manager of sales compensation planning. In 1985,
after a ten year career at Xerox, Mr. Weiner founded Microlytics, a Xerox
spin-off company which developed technology from the Xerox Palo Alto Research
Center into a suite of products with licenses to many companies. In January
1995, Weiner co-founded and became CEO of Manning & Napier Information Services,
a Rochester-based company providing patent analytics, prior art searches, and
other services. He held this position until January of 1999. In February 1999 he
formed Technology Innovations, LLC, to develop and expand certain intellectual
property assets. In August, 2000, Technology Innovations, LLC created a
subsidiary, Biomed Solutions, LLC, to pursue certain biomedical and
nanotechnology opportunities. Mr. Weiner serves on the Boards of Biomed
Solutions, LLC, Technology Innovations, LLC, Speech Compression Technologies, LP
(an R&D partnership commenced in 1989 to pursue compression technologies),
Nanoset, LLC, and Nanocomp, LLC. Mr. Weiner holds six issued patents invented
prior to the formation of Biophan which are owned by other companies that
employed Mr. Weiner prior to the formation of Biophan. These patents do not
involve technology that is competing or will compete with Biophan. Mr. Weiner
has been CEO and a director of Biophan since December 2000.
ROBERT J. WOOD is a Certified Public Accountant with extensive experience
in public accounting and business consulting. He began his career at Price
Waterhouse & Co. in 1962 after graduating from St. John Fisher College with a
B.B.A. in Accounting. From 1973 to 2000, he was consecutively owner/partner of
Metzger, Wood & Sokolski, CPAs (through December 1985), Mengel, Metzger, Barr &
Co., LLP (through December 1990), and Wood & Company, CPAs, P.C. (through
November 2000), all in Rochester, New York. In December 2000, his practice was
acquired by a regional CPA firm, Eldredge, Fox and Porretti, LLP and he was
engaged in business consulting until joining Biophan as full-time Chief
Financial Officer in August 2001. Effective March 1, 2004 Mr. Wood was appointed
Secretary. He is a member of the New York State Society of Certified Public
Accountants. A portion of Mr. Wood's time is spent assisting with the fiscal
management of Biomed Solutions, LLC, a related company, for which Biophan is
reimbursed.
STUART G. MACDONALD is experienced in research and development with a
broad engineering and science background, emphasizing a systems approach to
developing complex technology. From January 1995 through December 2000, Mr.
MacDonald was employed at Ortho-Clinical Diagnostics, a Johnson & Johnson
company, in Rochester, New York, holding the position of Director-Engineering
from 1996 to mid-1997 and Vice-president, Clinical Lab Instrumentation R&D from
mid-1997 through December 2000. He was responsible for overall management of the
R&D group, including personnel, administration and financial performance. He
worked at Eastman Kodak Company from 1971 to 1994, rising to the position of
Assistant Director, Clinical Diagnostic Research Labs. Mr. MacDonald has a B.S.
in Mechanical Engineering and Masters of Engineering degree from Cornell
University. He is also licensed as a professional engineer by the State of New
York. Mr. MacDonald was employed by Biophan as Vice-President-Research and
Development in January 2001. A portion of Mr. McDonald's time is spent assisting
with the research program of Biomed Solutions, LLC, a related company, for which
Biophan is reimbursed.
JEFFREY L. HELFER'S background includes 28 years in new product and
technology development, systems management, new business development, and
regulatory affairs, having served in a number of positions at Eastman Kodak
Company for 19 years until November 1994 and from December 1994 to September
2001 at Ortho-Clinical Diagnostics (OCD) in Rochester, New York, a Johnson &
Johnson company. Most recently, he was program director within OCD's Product
Development and Program Management Center of Excellence, where he was
responsible for systems management of OCD's next-generation clinical chemistry
platform. He also held positions as Program Director and Director of Regulatory
Affairs from April 2000 to September 2001, Director of Engineering from January
1997 to March 2000, Director of New Business Development from February 1995 to
December 1996, and headed up multiple international and corporate initiatives to
improve product performance and business processes. He holds a B.S. from
Rochester Institute of Technology and an M.S. from the University of Rochester,
both in Mechanical Engineering. Mr. Helfer is a Johnson & Johnson certified
Design for Six Sigma Black Belt and a New York State Professional Engineer. Mr.
Helfer was employed by Biophan as Vice-President-Engineering in October 2001. A
portion of Mr. Helfer's time is spent assisting with the research program of
Biomed Solutions, LLC, a related company, for which Biophan is reimbursed.
28
ROBERT S. BRAMSON is an engineer and patent attorney and since 1996 has
been a partner in Bramson & Pressman, a law firm that focuses on patent and
technology licensing matters. Since 1996 he has also been President of VAI
Management Corp., a consulting firm that specializes in patent and technology
licensing. He is former head of the Computer and Technology law group of
Schnader, Harrison, Segal & Lewis (where he worked from 1968 to 1989); former
Vice President and General Patent and Technology Counsel for Unisys (from 1989
to 1990); founder and former CEO of InterDigital Patents Corporation, a patent
licensing company (from 1992 to 1995); former Licensing Counsel for Abbott
Laboratories (from 1963 to 1966); and has been Adjunct Professor of Patent Law,
Computer Law and (presently) Licensing Law at Temple Law School, Rutgers Law
School and Villanova Law School at different times (from 1980 to date). Mr.
Bramson has been a director of Biophan since July 2001.
STEVEN KATZ is President of Steven Katz & Associates, Inc., a
technology-based management consulting firm specializing in strategic planning,
corporate development, new product planning, technology licensing, and
structuring and securing various forms of financing since 1982. From January
2000 until October 2001, Mr. Katz was President and Chief Operating Officer of
Senesco Technologies, Inc., a public company engaged in the development of
proprietary genes with application to agro-biotechnology. From 1983 to 1984 he
was the co-founder and Executive Vice President of S.K.Y. Polymers, Inc., a
biomaterials company. Prior to S.K.Y. Polymers, Inc., Mr. Katz was Vice
President and General Manager of a non-banking division of Citicorp. From 1976
to 1980 he held various senior management positions at National Patent
Development Corporation, including President of three subsidiaries. Prior
positions were with Revlon, Inc. (1975) and Price Waterhouse & Co. (1969 to
1974). Mr. Katz received a Bachelor of Business Administration degree in
Accounting from the City College of New York in 1969. He is presently a member
of the Board of Directors of USA Technologies, Inc., a publicly held
corporation, and several other private companies. Mr. Katz has been a director
of Biophan since July 2001.
ROSS B. KENZIE is a former Chairman and Chief Executive Officer of Goldome
Bank, from which he retired in June 1989. He was previously Executive Vice
President of Merrill Lynch & Co., in the New York worldwide headquarters, and is
a former member of the Merrill Lynch & Co. Board of Directors. He is a former
Director of the Federal Home Loan Bank of New York (from 1984 to 1988) and
served on the boards of the National Council of Savings Institutions (from 1982
to 1986), the Federal Reserve Bank of New York, Buffalo Branch (from 1985 to
1987), and the Savings Banks Association of New York State (from 1984 to 1987).
Mr. Kenzie was a Director of Millard Fillmore Hospitals (from 1982 to 1995)and
is currently Past Chairman Emeritus. He served on the Board of the Kaleida
Health, Education and Research Foundation (from 1998 to 2000) and is currently
on its Investment Committee. He was a Director of the Health Systems Agency of
Western New York (from 1988 to 1991), and was a member of the Western New York
Commission on Health Care Reform (from 1987 to 1990). Mr. Kenzie was a member of
the College Council of the State University College at Buffalo (from 1981 to
1998) and served as Chairman. He was a Director of the College's Foundation and
a member of its Finance Committee (from 1984 to 1998) and is currently on its
Investment Committee. He served on the Council of the Burchfield-Penney Art
Center (from 1990 to 2001) and the Albright Knox Art Gallery (from 1983 to
1985). He is also a member of the Board, and the Chairman of the Investment
Committee of the State University at Buffalo Foundation. Mr. Kenzie currently
serves on the boards of several companies including the publicly held Rand
Capital Corporation and many entrepreneurial ventures that are privately held,
including the Boards of Members of Biomed Solutions LLC and Technology
Innovations, LLC. Mr. Kenzie has been a director of Biophan since December 2000.
COMMITTEES
The Board of Directors has an Audit Committee consisting of Messrs.
Bramson, Katz and Kenzie and a Compensation Committee consisting of Messrs.
Bramson, Katz and Kenzie. The Audit Committee makes recommendations concerning
the engagement of independent public accountants, reviews with the independent
accountants the results of the audit engagement, approves professional services
provided by the accountants including the scope of non-audit services, if any,
and reviews the adequacy of our internal accounting controls. The Board of
Directors has determined that Messrs. Katz and Kenzie, both independent
directors, meet the qualifications as an "audit committee financial expert".
The Compensation Committee makes recommendations to the Board regarding
executive and employee compensation and benefits.
29
CODE OF ETHICS
The Company has adopted a Code of Ethics for Senior Financial Officers
that is applicable to our principal executive officer, principal financial
officer, principal accounting officer or controller, or persons performing
similar functions. A copy of our Code of Ethics for Senior Financial Officers is
filed as an exhibit to this annual report on Form 10-KSB.
CONFLICTS OF INTEREST
Messrs. MacDonald, Helfer, Wood and other of our employees from time to
time spend a portion of their time on the business affairs of Biomed or its
affiliates, for which Biomed reimburses us a percentage of their salary and
benefits. Our Board of Directors reviews this arrangement on a regular basis.
Currently, Biomed reimburses us for less than 50% of the payroll costs of
Messrs. MacDonald, Helfer, Wood and others. The Board of Directors does not
believe that any conflicts of interest arise as a result of this policy, but it
monitors the relationship on an ongoing basis.
Michael Weiner devotes essentially his full business time to our company.
His employment agreement with us requires a majority of his time, allowing him
to attend to certain administrative duties of Technology Innovations, its
subsidiary, Biomed, and Speech Compression Technologies, LP, an R&D partnership
holding certain assets. Mr. Weiner is a member and the manager of Biomed and of
Technology Innovations. Ross Kenzie, one of the Biophan directors, is on the
Board of Members of each of Technology Innovations and Biomed. Biomed is in the
business of identifying and acquiring technologies in the biomedical field for
exploitation.
Biomed is an investor in Nanoset, and Mr. Weiner serves on the board of
Nanoset. Subsequent to the formation of Nanoset and Mr. Weiner's joining their
board, Mr. Weiner learned that the nanomagnetic particle technology held by
Nanoset might be applicable to the MRI safety goals of Biophan. Mr. Weiner
brought this technology to our attention, and we eventually licensed the
technology from Nanoset. Biomed holds a 33% interest in Nanoset. Our license
agreement with Nanoset was negotiated based on arms-length negotiations. Mr.
Weiner and Mr. Kenzie each abstained from voting on whether to approve the
license agreement.
Biomed is also a 25% investor in Myotech, LLC. Messrs. Weiner, MacDonald
and Helfer serve on the board of managers of Myotech. Myotech is developing a
biomedical device that does not compete with those being developed by us.
Biomed has agreed that all intellectual property developed by the
employees of Biomed that is in the area of MRI Safe and/or Image Compatible
Technology (MRI Technology) and HIV Antisense will be assigned to us. Per this
agreement, MRI Technology means the technology necessary to enable medical
devices to be resistant to radio frequency and static and gradient
electromagnetic fields produced by MRI machines. HIV Antisense is a method of
treating HIV.
Our independent directors will make all determinations and decisions
relating to the issue involving Biomed and its affiliates described above,
without the vote of either Mr. Weiner or Mr. Kenzie. In addition, the Board will
act to ensure that Mr. Weiner and Mr. Kenzie discharge their obligations to us
in accordance with their fiduciary duties to us.
LIMITATION ON LIABILITY AND INDEMNIFICATION OF DIRECTORS AND OFFICERS
Under Nevada Revised Statutes Section 78.138, a director or officer is
generally not individually liable to the corporation or its shareholders for any
damages as a result of any act or failure to act in his capacity as a director
or officer, unless it is proven that:
o his act or failure to act constituted a breach of his fiduciary
duties as a director or officer; and
o his breach of those duties involved intentional misconduct, fraud or
a knowing violation of law.
30
This provision is intended to afford directors and officers protection
against and to limit their potential liability for monetary damages resulting
from suits alleging a breach of the duty of care by a director or officer. As a
consequence of this provision, stockholders of Biophan will be unable to recover
monetary damages against directors or officers for action taken by them that may
constitute negligence or gross negligence in performance of their duties unless
such conduct falls within one of the foregoing exceptions. The provision,
however, does not alter the applicable standards governing a director's or
officer's fiduciary duty and does not eliminate or limit the right of Biophan or
any stockholder to obtain an injunction or any other type of non-monetary relief
in the event of a breach of fiduciary duty.
As permitted by Nevada law, Biophan's By-Laws include a provision which
provides for indemnification of a director or officer by us against expenses,
judgments, fines and amounts paid in settlement of claims against the director
or officer arising from the fact that he was an officer or director, provided
that the director or officer acted in good faith and in a manner he or she
believed to be in or not opposed to our best interests. Biophan has purchased
insurance under a policy that insures both Biophan and its officers and
directors against exposure and liability normally insured against under such
policies, including exposure on the indemnities described above. Insofar as
indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
SCIENTIFIC ADVISORY BOARD
From time to time, we call upon the advice of members of our Scientific
Advisory Board who currently serve without fixed cash compensation but are each
entitled to receive 8,333 options upon completion of each year of membership.
The members of our Board are:
BRADFORD C. BERK, M.D., PH.D. - Since 1998, Dr. Berk has been Director,
Center of Cardiovascular Research; Paul N. Yu Professor and Chief of Cardiology;
Charles A. Dewey Professor and Chairman of Medicine, University of Rochester
Medical Center. Dr. Berk has clinical expertise in adult cardiology and
scientific expertise in cardiovascular medicine, particularly vascular biology.
HERBERT A. HAUPTMAN, PH.D. - In 1970, Dr. Hauptman joined the
crystallographic group of the Hauptman-Woodward Medical Research Institute
(formerly the Medical Foundation of Buffalo) of which he became Research
Director in 1972. He currently serves as President of the Hauptman-Woodward
Medical Research Institute as well as Research Professor in the Department of
Biophysical Sciences and Adjunct Professor in the Department of Computer Science
at the University of Buffalo. He was awarded the 1985 Nobel Prize in Chemistry
and was elected to the National Academy of Sciences in 1988.
KEVIN PARKER, M.S., PH.D. - Dean Parker is a Professor of Electrical and
Computer Engineering, Radiology, and Bioengineering at the University of
Rochester. In 1998, Dr. Parker was named Dean of the School of Engineering and
Applied Sciences.
HENRY M. SPOTNITZ, M.D. - Since 1994, Dr. Spotnitz has been Vice-Chairman,
Research and Information Systems Department of Surgery at Columbia Presbyterian
Medical Center.
JIANHUI ZHONG, PH.D. - Professor Zhong joined the University of Rochester
in 1997 and is currently an Associate Professor of Radiology, Physics, and
Biomedical Engineering, and Director of the MRI Research Group at the University
Medical Center.
SPECIAL CONSULTANT TO THE SCIENTIFIC ADVISORY BOARD
RAY KURZWEIL, B.S. - Founder, Chairman, and CEO of Kurzweil Technologies,
Inc., a technology development company, since 1995. President Clinton awarded
Mr. Kurzweil the National Medal of Technology in 1999, for his invention of the
Kurzweil Reading Machine for the Blind. Mr. Kurzweil was inducted into the
National Inventor's Hall of Fame in 2002, and received the Lemelson-MIT Prize in
2001. Mr. Kurzweil also developed Kurzweil Voice Recognition System, and
Kurzweil Music Synthesizer.
Section 16(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") requires our executive officers and directors and persons who
own more than ten percent of our common stock to file reports of ownership and
changes in ownership with the SEC. Such executive officers, directors and
greater than ten percent stockholders are also required by SEC rules to furnish
us with copies of all Section 16(a) forms they file. Based solely on
representations from certain reporting persons, we believe that, with respect to
the year ended February 29, 2004, all filings applicable to our executive
officers, directors and ten percent stockholders required by Section 16(a) have
been made.
ITEM 10. EXECUTIVE COMPENSATION
The following table summarizes the annual compensation paid to our named
executive officers during the three years ended February 29, 2004:
Securities
Underlying
Name and Principal Position Year Salary options/SARs
--------------------------- ------- -------- ------------
Michael L. Weiner, CEO 2/29/04 $175,000 300,000
Michael L. Weiner, CEO 2/28/03 $175,000 250,000
Michael L. Weiner, CEO 2/28/02 $150,600 --
Robert J. Wood, CFO 2/29/04 $129,000 125,000
Robert J. Wood, CFO 2/28/03 $109,461 50,000
Stuart G. MacDonald,
Vice-President-Research 2/29/04 $153,846 200,000
Stuart G. MacDonald,
Vice-President-Research 2/28/03 $116,057 100,000
Jeffrey L. Helfer,
Vice-President-Engineering 2/29/04 $153,846 200,000
Jeffrey L. Helfer,
Vice-President-Engineering 2/28/03 $113,461 100,000
Columnar information required by Item 402(a)(2) of Regulation SB has been
omitted for categories where there has been no compensation awarded to, earned
by, or paid to, the named executive officers required to be reported in the
table during fiscal years 2002 through 2004.
STOCK OPTIONS
On June 22, 2001, the Board of Directors adopted the Biophan Technologies,
Inc. 2001 Stock Option Plan. The Option Plan was amended on August 20, 2003. The
Option Plan provides for the grant of incentive and non-qualified stock options
to selected employees, the grant of non-qualified options to selected
consultants and to directors and advisory board members. The Option Plan is
administered by the Compensation Committee of the Board of Directors and
authorizes the grant of options for 7,000,000 shares. The Compensation Committee
determines the individual employees and consultants who participate under the
Plan, the terms and conditions of options, the option price, the vesting
schedule of options and other terms and conditions of the options granted
pursuant thereto. Non-employee directors participate pursuant to the formula set
forth in the Option Plan. Each director receives an initial grant of options to
purchase 20,000 shares, vesting on the first anniversary of the grant, and
additional grants of options to purchase 20,000 shares on each succeeding
anniversary of such director's election. On October 31, 2003, the board of
directors made a special, one-time grant of options to purchase 60,000 shares to
each non-employee director. As of February 29, 2004, we had granted options to
purchase 6,869,993 shares of common stock under the option plan and 3,869,993
were outstanding.
32
The following table summarizes information concerning stock options
granted to the named executive officers during the last completed fiscal year
ended February 29, 2004:
Percent of
Number of total
securities options/SARs Exercise
underlying granted to or base
options/SARs employees in price Expiration
Name granted (#) fiscal year ($/Sh) date
--------------------- ------------ -------------- --------- -------------
Michael L. Weiner 300,000 31.58% $.18 10/31/13
Robert J. Wood 125,000 13.16% $.18 10/31/13
Stuart G. MacDonald 200,000 21.05% $.18 10/31/13
Jeffrey L. Helfer 200,000 21.05% $.18 10/31/13
No named executive officer exercised options in the fiscal year ended
February 29, 2004. The following table presents the number and values of
exercisable and unexercisable options as of February 29, 2004:
Number of
securities Value of
underlying unexercised
unexercised in-the-money
Shares options/ SARs at options/SARs at
acquired FY-end (#) FY-end ($)
on Value Exercisable/ Exercisable/
Name exercise realized Unexercisable Unexercisable
-------------------- --------- ---------- ------------------ ------------------
Michael L. Weiner None -- 401,667/308,333 $384,750/$296,750
Robert J. Wood None -- 124,583/150,417 $100,787/$137,963
Stuart G. MacDonald None -- 176,667/223,333 $146,100/$208,900
Jeffrey L. Helfer None -- 156,667/243,333 $131,900/$223,100
EMPLOYMENT AGREEMENTS
Each of Michael L. Weiner, President and Chief Executive Officer; Stuart
G. MacDonald, Vice President of Research and Development; Robert J. Wood,
Treasurer and Chief Financial Officer; and Jeffrey L. Helfer, Vice President of
Engineering has entered into employment agreements with Biophan.
Mr. Weiner's employment agreement has an initial term of three years with
subsequent one-year renewal periods. His employment agreement may be terminated
by us for cause or upon his death or disability. In the event of the disability
of Mr. Weiner, termination of his employment agreement by us following a change
in control or termination of his employment agreement by him for good reason,
Mr. Weiner is entitled to receive (i) the unpaid amount of his base salary
earned through the date of termination; (ii) any bonus compensation earned but
not yet paid; and (iii) a severance payment equal to one (1) year of his then
current salary. In addition, Mr. Weiner will be immediately vested in any
options, warrants, retirement plan or agreements then in effect. Good Reason
means (i) a material change of Mr. Weiner's duties, (ii) a material breach by us
under the employment agreement, or (iii) a termination of Mr. Weiner's
employment in connection with a change in control.
As used in Mr. Weiner's employment agreement, "change in control" means
(1) our merger or consolidation with another entity where the members of our
Board do not, immediately after the merger or consolidation, constitute a
majority of the Board of Directors of the entity issuing cash or securities in
the merger or consolidation immediately prior to the merger or consolidation, or
(2) the sale or other disposition of all or substantially all of our assets.
In the event of termination for cause, all of Mr. Weiner's unexercised
warrants and options, whether or not vested, will be canceled, and Mr. Weiner
will not be eligible for severance payments. In the event of voluntary
termination, all of Mr. Weiner's unvested warrants and options will be canceled
and he will have three (3) months from the date of termination to exercise his
rights with respect to the unexercised but vested options. He will not be
eligible for severance payments.
33
The employment agreements for each of Messrs. MacDonald, Wood and Helfer
are terminable by either us or the employee upon 30 days' notice or by us for
cause (as defined in their employment agreements) or upon the death or
disability of the employee. However, each of them is entitled to receive
severance equal to six months' base salary, payable in six equal consecutive
monthly installments in the event that the employee is terminated by us within
ninety (90) days following a change in control. In addition, under such
circumstances each of them will be immediately vested in any options, warrants,
retirement plan or agreements then in effect.
For purposes of the employment agreements for Messrs. MacDonald, Wood and
Helfer, "change in control" means (1) on the date of the merger or consolidation
of Biophan with another entity where the members of the Board of Directors,
immediately prior to the merger or consolidation, would not, immediately after
the merger or consolidation, constitute a majority of the Board of Directors of
the entity issuing cash or securities in the merger or consolidation; (2) on the
date Michael L. Weiner is terminated as CEO of the Company; or (3) on the date
of the sale or other disposition of all or substantially all of the assets of
Biophan.
In the event of termination for cause, all unexercised warrants and
options held by the applicable employee, whether or not vested, will be canceled
and the employee will not be eligible for severance payments. In the event of
voluntary termination, all unvested warrants and options will be canceled and
the employee will have three (3) months from the date of termination to exercise
his rights with respect to the unexercised but vested options.
COMPENSATION OF THE BOARD OF DIRECTORS
Directors who are also our employees do not receive additional
compensation for serving on the Board or its committees. Non-employee directors,
for their services as directors, are paid an annual cash fee of $3,500 and a
per-meeting fee of $1,000. Dr. Jaensch receives an additional $1,000 per month
for serving as Chairman of the Board. In addition, non-employee directors
receive options under our Stock Option Plan. All directors are reimbursed for
their reasonable expenses incurred in attending Board meetings. Steven Katz
receives an additional $3,000 per year for serving as Chairman of the Audit
Committee. Otherwise, no additional compensation is paid to any director for
serving as a member of any committee of the Board. We maintain directors and
officers liability insurance.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The table below lists the beneficial ownership of our common stock, as of
February 29, 2004, by each person known by us to be the beneficial owner of more
than 5% of our common stock, by each of our directors and officers and by all of
our directors and officers as a group.
Name and Address of Number of Shares
Beneficial Owner Beneficially Owned Percent of Class(2)
(1)(2)
---------------------------- ------------------- --------------------
+Guenter H. Jaensch (3) 801,667 1.21%
964 Allamanda Drive
Delray Beach, FL 33483
+Michael L. Weiner (4) 7,058,029 10.44%
693 Summit Drive
Webster, NY 14580
34
Name and Address of Number of Shares
Beneficial Owner Beneficially Owned Percent of Class(2)
(1)(2)
---------------------------- ------------------- --------------------
Wilson Greatbatch (5) 4,944,461 7.46%
5935 Davison Road
Akron, NY 14001
+Robert S. Bramson (6) 65,000 *
1100 East Hector Street
Suite 410
Consohocken, PA 19428
+Ross B. Kenzie (7) 65,000 *
Cyclorama Bldg. Suite 100
369 Franklin Street
Buffalo, NY 14202
+Steven Katz (8) 120,000 *
20 Rebel Run Drive
East Brunswick, NJ 08816
Robert J. Wood (9) 214,583 *
12 Peachtree Lane
Pittsford, NY 14534
Stuart G. MacDonald (10) 266,667 *
4663 East Lake Road
Pultneyville, NY 14538
Jeffrey H. Helfer (11) 306,667 *
1153 Hidden Valley Trail
Webster, NY 14580
David A. Miller 100,500 *
4004 Sunnyside Road
Sandpoint, ID 83864
Technology Innovations, 5,656,501 8.43%
LLC(12)
150 Lucius Gordon Drive
Suite 215
West Henrietta, NY 14586
Biomed Solutions, LLC(13) 5,355,857 7.98%
150 Lucius Gordon Drive
Suite 215
West Henrietta, NY 14586
All Officers and Directors as 8,998,113 13.05%
a group (9 persons)
----------
* Denotes less than one percent.
+ Denotes Member of the Board of Directors.
(1) Except as may be set forth below, the persons named in the table have sole
voting and investment power with respect to all shares shown as
beneficially owned by them.
(2) Applicable percentage of ownership is based on 65,945,011 shares
outstanding as of February 29,2004, together with applicable options for
such shareholder. Beneficial ownership is determined in accordance with
the rules of the SEC and includes voting and investment power with respect
to shares. Shares subject to options or warrants currently exercisable or
exercisable within 60 days after February 29, 2004 are included in the
number of shares beneficially owned and are deemed outstanding for
purposes of computing the percentage ownership of the person holding such
options or warrants, but are not deemed outstanding for computing the
percentage of any other stockholder.
35
(3) Includes 501,667 shares issuable upon exercise of options and warrants
granted to Dr. Jaensch.
(4) Michael L. Weiner is a member and the manager of Technology Innovations,
LLC, which is the majority owner of Biomed Solutions, LLC. Mr. Weiner is
also the Manager of Biomed. Mr. Weiner's calculation includes 4,175,857
shares owned beneficially and of record by Biomed and 300,644 shares owned
beneficially and of record by Technology Innovations. Includes 1,180,000
shares issuable upon exercise of warrants held by Biomed and 491,667
shares issuable upon exercise of options held by Mr. Weiner.
(5) Includes 4,459,468 shares owned of record and beneficially by Greatbatch
Gen-Aid, Ltd., an entity owned by Wilson Greatbatch, and 109,993 shares
owned by E. & W.G. Foundation, a private foundation of which Mr.
Greatbatch is co-trustee. Also includes 225,000 shares issuable upon
exercise of options held by Mr. Greatbatch and 150,000 shares issuable
upon exercise of warrants held by Mr. Greatbatch.
(6) Includes 65,000 shares issuable upon exercise of options held by Mr.
Bramson.
(7) Includes 65,000 shares issuable upon exercise of options held by Mr.
Kenzie. Does not include shares owned beneficially or of record by Biomed
or by Technology Innovations. Mr. Kenzie is the Manager and an equity
member of Biophan Ventures, LLC, which is the 43% equity member in Biomed;
he is also the Manager of Patent Ventures LLC, which is the Class A Member
of Technology Innovations. Mr. Kenzie and Mr. Weiner comprise the Board of
Members of Biomed; Mr. Kenzie serves on the Board of Members of Technology
Innovations.
(8) Includes 120,000 shares issuable upon exercise of options held by Mr.
Katz.
(9) Includes 154,583 shares issuable upon exercise of options and warrants
held by Mr. Wood.
(10) Includes 206,667 shares issuable upon exercise of options and warrants
held by Mr. MacDonald.
(11) Includes 206,667 shares issuable upon exercise of options and warrants
held by Mr. Helfer.
(12) Includes 4,175,857 shares owned beneficially and of record by Biomed and
1,180,000 shares issuable upon exercise of warrants held by Biomed.
Technology Innovations, LLC is the majority owner of Biomed Solutions,
LLC.
(13) Includes 1,180,000 shares issuable upon exercise of warrants held by
Biomed.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
(1) Michael L. Weiner, President and Chief Executive Officer of Biophan,
is the Manager and a 42.7% equity member of Technology Innovations, LLC., a 57%
equity member of Biomed Solutions, LLC (formerly Biophan, LLC). Mr. Weiner is
also the Manager of Biomed. He and Ross Kenzie make up the Board of Members of
Biomed. Biomed is the record owner of 662,857 shares of common stock of Biophan;
Technology Innovations is the record owner of 300,644 shares of common stock of
Biophan. As Manager of Technology Innovations and Biomed, Mr. Weiner has control
over these entities. Mr. Weiner is also on the board of Nanoset, LLC, an entity
owned in part by Biomed Solutions, and with which we have entered into a
technology license agreement.
(2) On December 1, 2000, Biomed received 10,759,101 shares of Biophan's
common stock in exchange for its shares of LTR Antisense Technology, Inc. Most
of those shares have been distributed to the members of Biomed and their
members.
36
(3) On December 1, 2000, Biomed transferred its MRI-compatible pacemaker
patent pending and related technology to Biophan for a future payment of
$500,000. This obligation bears interest at 8% per annum from February 28, 2002,
and has been extended several times, to June 1, 2004. After June 1, 2004,
principal and interest are payable in 12 equal monthly installments. Since
November 30, 2002, this entire obligation has been convertible into common
shares of Biophan at a conversion price equal to the lowest of (i) the closing
bid price on June 4, 2002; (ii) the closing bid price on the date of exercise;
or (iii) the lowest per share purchase price paid by any third party between
June 4, 2002 and the exercise date. On February 10, 2004, Biomed transferred
$300,000 of this obligation to SBI Brightline Consulting, LLC and converted the
remaining balance of $200,000 into shares of our common stock common. On the
same date, SBI converted the $300,000 obligation transferred to it into shares
of our common stock.
(4) On June 4, 2002, we executed a line of credit agreement with Biomed
providing for borrowings up to $250,000. On August 19, 2002, the line was
increased by $100,000 and the expiration date thereof for that portion of the
line was set at August 19, 2003. The payment date of amounts borrowed under the
original line was extended to December 1, 2002. On November 7, 2002, the
maturity date of the line was extended until such time as the financing
contemplated by the Spectrum stock purchase agreement commenced. It was later
extended to June 1, 2004. On February 10, 2004, all outstanding balances under
the line of credit were converted to common stock in accordance with the terms
of the credit agreement.
(5) Biomed holds warrants to purchase a total of 1,180,000 shares of our
common stock. On March 1, 2001, it received warrants to purchase 200,000 shares
at an exercise price of $1.00 in consideration of management effort and expense
incurred on our behalf. On June 4, 2002, it received warrants to purchase
100,000 shares at an exercise price of $1.00 in consideration of the extension
of the due date for the Transfer Agreement payment, and warrants to purchase
75,000 shares at an exercise price of $1.00 in consideration of the grant of the
line of credit. (Wilson Greatbatch also received 150,000 warrants in
consideration of the extension of the due date of the Transfer Agreement
payment). On August 19, 2002, Biomed received warrants to purchase 30,000 shares
in consideration of the increase in the line of credit commitment, and warrants
to purchase 275,000 shares for additional extensions of the payment terms of the
Transfer Agreement payment. On that date, the exercise price for all 680,000
warrants then held by Biomed was set at the lowest of (i) the closing bid price
on June 4, 2002; (ii) the closing bid price on the date of exercise; or (iii)
the lowest per share purchase price paid by any third party between June 4, 2002
and the exercise date. On November 7, 2002, Biomed was granted warrants to
purchase an additional 500,000 shares at an exercise price of $.50 per share in
consideration of another extension of the Transfer Agreement payment. Each
extension of the Transfer Agreement payment enabled us to retain the
MRI-compatible technology that we acquired under the Transfer Agreement. In
connection with each issuance of warrants to Biomed, our board of directors
determined, without the vote of Mr. Weiner or Mr. Kenzie, that the consideration
received by us was fair and adequate consideration for the warrants issued.
(6) During the year ended February 29, 2004, the Company charged Biomed
for services of certain Company personnel and charged both Biomed and Technology
Innovations for expenses allocable to and paid on their behalf. The total of
these charges was $120,081. During the year ended February 28, 2003, Biomed and
Technology Innovations paid expenses on our behalf aggregating $128,411. These
advances did not bear interest and were subsequently repaid.
(7) On January 1, 2001, Wilson Greatbatch was granted 250,000 options at
an exercise price of $.50 for his consulting services to us and 8,333 options at
an exercise price of $.50 as former Chairman of the Scientific Advisory Board.
As a consultant Mr. Greatbatch assisted us in the development of our photonic
pacemaker by providing design and engineering services. The board of directors
determined that the value of the consulting services was fair and adequate
consideration for the options issued. We recorded compensation expense of $9,200
with respect to those options. Through his ownership of Greatbatch Gen-Aid, Ltd.
and his co-trusteeship of a private foundation, E.& W.G. Foundation, he is the
beneficial owner of 4,919,509 common shares of our common stock. He also
received consideration from Biomed in connection with transfer of the
MRI-compatible pacemaker technology to Biophan. On June 4, 2002, he received
warrants to purchase 150,000 shares of our common stock with an exercise price
of $1.00 in consideration of the extension of the payment due under the Transfer
Agreement. Greatbatch Gen-Aid holds a 3.5% membership interest (11 Units) in
Technology Innovations.
37
On February 28, 2001, we entered into a research and development agreement
with Greatbatch Enterprises Corporation. Mr. Greatbatch is the CEO and majority
stockholder of Greatbatch Enterprises. Under the agreement, Greatbatch
Enterprises undertook certain technology development and testing, for which we
paid Greatbatch Enterprises an aggregate of $297,000. The agreement terminated
in December 2002 with the completion of animal testing by Greatbatch
Enterprises.
(8) On March 1, 2002, Dr. Guenter H. Jaensch was granted options to
purchase 250,000 shares at an exercise price of $.10 per share and on July 16,
2002 was granted additional options to purchase 100,000 shares at an exercise
price of $.43 per share, in each case for consulting services he provided to us.
As a consultant, Dr. Jaensch assisted us in developing our strategic plan,
attended trade shows, and arranged and met with potential customers and
strategic partners. The Board of Directors determined that the value of the
consulting services was fair and adequate consideration for the options issued.
We valued the options at $36,900 and $592,500, respectively.
(9) All transactions discussed above are considered by the Board of
Directors to have been consummated on terms approximately equivalent to those
that might have prevailed in arms-length transactions with unaffiliated parties
under similar circumstances.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Index
No.
----
2.1 Articles of Merger Incorporated by reference
to Exhibit 3.2 to Biophan's
Form 10-KSB for the year
ended February 29, 2000
(the "2000 10-KSB")
2.2 Articles of Dissolution Incorporated by reference
to Exhibit 3.3 to the 2000
10-KSB
2.3 Exchange Agreement, dated as of Incorporated by reference
December 1, 2000, by and among to Exhibit 2.3 to Biophan's
Biophan, Biomed Solutions, LLC Registration Statement on
(formerly Biophan, LLC), and LTR Form SB-2 (File No.
Antisense Technology, Inc. 333-102526) (the "Prior
Registration")
3.1 Articles of Incorporation (Nevada) Incorporated by reference
to Exhibit 3.1 to the 2000
10-KSB
3.2 Bylaws (Nevada) Incorporated by reference
to Exhibit 3.2 to Biophan's
Form 10-SB filed on May 13,
1999.
3.3 Amendment to the Articles of Incorporated by reference
Incorporation to Exhibit 3.1(i) to
Biophan's Form 8-K, filed
December 15, 2000.
3.4 Amendment to Exchange Agreement Incorporated by reference
to Exhibit 2 to Biophan's
Form 10-KSB for the year
ended February 28, 2001 and
filed as an exhibit to Form
SB-2a on May 1, 2003.
3.5 Certificate of Amendment to Incorporated by reference
Articles of Incorporation to Exhibit 3.1(i) to
Biophan's Form 8-K on
August 27, 2001.
4.1 Stock Purchase Warrant between Incorporated by reference
Biophan and Biomed Solutions, LLC to Exhibit 4.1 to
(formerly Biophan, LLC) dated June Biophan's Form 10-QSB for
4, 2002 the period ended May 31,
2002.
4.2 Stock Purchase Warrant between Incorporated by reference
Biophan and Bonanza Capital to Exhibit 4.2 to
Masterfund Ltd. Biophan's Form 10-QSB for
the period ended May 31,
2002.
38
4.3 Restated Stock Purchase Warrant Incorporated by reference
between Biophan and Biomed to Exhibit 4.3 to
Solutions, LLC, dated January 8, Biophan's Form 10-QSB for
2003 the period ended November
30, 2002.
4.4 Stock Purchase Warrant between Incorporated by reference
Biophan and Biomed Solutions, LLC to Exhibit 4.4 to
dated November 11, 2002 Biophan's Form 10-QSB for
the period ended November
30, 2002.
4.5 Form of Stock Purchase Warrant Incorporated by reference
issued to principals of Carolina to Exhibit 4.5 to
Financial Services, for a total of Biophan's Form 10-QSB for
121,572 shares the period ended November
30, 2002.
4.6 Form of Stock Purchase Warrant to Incorporated by reference
be issued to Carolina Financial to Exhibit 4.6 to
services in connection with the Biophan's Form 10-QSB for
Stock Purchase Agreement with the period ended November
Spectrum Advisors, Ltd 30, 2002.
4.7 Form of Stock Purchase Warrant Incorporated by reference
issued to investors in private to Exhibit 4.7 to
placement of securities, for a Biophan's Form 10-QSB for
total of 2,770,550 shares the period ended November
30, 2002.
4.8 Stock Purchase Warrant issued to Incorporated by reference
SBI USA, LLC to Exhibit 4.8 to
Biophan's Form 10-QSB for
the period ended November
30, 2002.
4.9 Registration Rights Agreement Incorporated by reference
dated February 10, 2004 by and to Exhibit 4.9 to
among Biophan Technologies, Inc., Biophan's Registration
Biomed Solutions, LLC and SBI Statement on Form SB-2
Brightline Consulting, LLC (File No.333-112678) (the
"2004 Registration").
10.1 Assignment, dated as of December Incorporated by reference
1, 2000, by and between Biophan to Exhibit 10.1 to
and Biomed Solutions, LLC Biophan's Form 8-K, filed
(formerly Biophan, LLC), a New December 15, 2000.
York limited liability company
10.2 Security Agreement, dated as of Incorporated by reference
December 1, 2000, by and between to Exhibit 10.2 to
Biophan and Biomed Solutions, LLC Biophan's Form 8-K, filed
(formerly Biophan, LLC), a New December 15, 2000.
York limited liability company
10.3 Transfer Agreement Incorporated by reference
to Exhibit 99.1 to
Biophan's Form 10-KSB for
the year ended February
28, 2001.
10.4 Amendment to Transfer Agreement Incorporated by reference
to Exhibit 99.2 to
Biophan's Form 10-KSB for
the year ended February
28, 2001.
10.5 Line of Credit Agreement between Incorporated by reference
Biophan and Biomed Solutions, LLC to Exhibit 10.1 to
dated June 4, 2002 Biophan's Form 10-QSB for
the period ended May 31,
2002.
10.6 Convertible Promissory Note Incorporated by reference
between Biophan and Biomed to Exhibit 10.2 to
Solutions, LLC dated June 4, 2002 Biophan's Form 10-QSB for
the period ended May 31,
2002.
10.7 Loan Agreement between Biophan and Incorporated by reference
H. Deworth Williams dated June 18, to Exhibit 10.3 to
2002 Biophan's Form 10-QSB for
the period ended May 31,
2002.
39
10.8 Stock Purchase Agreement between Incorporated by reference
Biophan and Bonanza Capital to Exhibit 10.4 to
Masterfund LTD Biophan's Form 10-QSB for
the period ended May 31,
2002.
10.9 Escrow Agreement between Biophan, Incorporated by reference
Bonanza Capital Masterfund LTD and to Exhibit 10.5 to
Boylan, Brown, Code, Vigdor & Biophan's Form 10-QSB for
Wilson LLP the period ended May 31,
2002.
10.10 Registration Rights Agreement Incorporated by reference
between Biophan and Bonanza to Exhibit 10.6 to
Capital Masterfund LTD Biophan's Form 10-QSB for
the period ended May 31,
2002.
10.11 Executive Employment Agreement Incorporated by reference
between Biophan and Michael L. to Exhibit 10.7 to
Weiner dated December 1, 2000 Biophan's Form 10-QSB for
the period ended May 31,
2002.
10.12 Executive Employment Agreement Incorporated by reference
between Biophan and Jeffrey L. to Exhibit 10.8 to
Helfer dated June 6, 2002 Biophan's Form 10-QSB for
the period ended May 31,
2002.
10.13 Executive Employment Agreement Incorporated by reference
between Biophan and Stuart G. to Exhibit 10.9 to
MacDonald dated June 6, 2002 Biophan's Form 10-QSB for
the period ended May 31,
2002.
10.14 Executive Employment Agreement Incorporated by reference
between Biophan and Robert J. Wood to Exhibit 10.10 to
dated June 6, 2002 Biophan's Form 10-QSB for
the period ended May 31,
2002.
10.15 Financial Accommodations Agreement Incorporated by reference
between Biophan and Bellador to Exhibit 10.11 to
(Labuan) Ltd dated July 1, 2002 Biophan's Form 10-QSB for
the period ended May 31,
2002.
10.16 Stock Purchase Agreement between Incorporated by reference
Biophan and Spectrum Advisors, Ltd. to Exhibit 10.16 to
Biophan's Form 10-QSB for
the period ended November
30, 2002.
10.17 Escrow Agreement between Biophan, Incorporated by reference
Spectrum Advisors, Ltd. and to Exhibit 10.17 to
Boylan, Brown, Code, Vigdor & Biophan's Form 10-QSB for
Wilson LLP. the period ended November
30, 2002.
10.18 Registration Rights Agreement Incorporated by reference
between Biophan and Spectrum to Exhibit 10.18 to
Advisors, Ltd. Biophan's Form 10-QSB for
the period ended November
30, 2002.
10.19 Lease Agreement between Biophan Incorporated by reference
and High Technology of Rochester, to Exhibit 10.19 to
Inc. Biophan's Form SB-2a on
March 14, 2003.
10.20 Strategic Partnership Agreement Incorporated by reference
between Biophan and UB Business to Exhibit 10.20 to
Alliance dated December 10, 2001 Biophan's Form SB-2a on
March 14, 2003.
10.21 License Agreement between Biophan, Filed as Exhibit 10.50 to
Xingwu Wang and Nanoset, LLC dated Biophan's Form SB-2 filed
January 15, 2004 on October 9, 2003.
10.22 Patent License Agreement between Incorporated by reference
Biophan and Deborah D. L. Chung to Exhibit 10.22 to
dated April 5, 2002 Biophan's Form SB-2a on
March 14, 2003.
10.23 License Agreement between Biophan Incorporated by reference
and Johns Hopkins University to Exhibit 10.23 to
Biophan's Form SB-2a on
March 14, 2003.
10.24 Advisory Agreement between Biophan Incorporated by reference
and SBI USA, LLC dated December to Exhibit 10.24 to
18, 2002 Biophan's Form SB-2a on
March 14, 2003.
40
10.25 Development Agreement between Incorporated by reference
Biophan and Alfred University to Exhibit 10.25 to
dated February 21, 2002 Biophan's Form SB-2a on
March 14, 2003.
10.26 Development Agreement between Incorporated by reference
Biophan and Alfred University to Exhibit 10.26 to
dated January 24, 2003 Biophan's Form SB-2a on
March 14, 2003.
10.27 First Amendment to Restated Stock Incorporated by reference
Purchase Agreement between Biophan to Exhibit 10.27 to
and Spectrum Advisors, Ltd. Biophan's Form SB-2a on
March 14, 2003.
10.28 Development Agreement between Incorporated by reference
Biophan and Greatbatch to Exhibit 10.28 to
Enterprises, Inc., dated February Biophan's Form SB-2a on
28, 2001 May 1, 2003.
10.29 Assignment of Patent No: Incorporated by reference
60,269,817, by and between Biophan to Exhibit 10.29 to
and Michael L. Weiner, Wilson Biophan's Form SB-2a on
Greatbatch, Patrick R. Connelly, May 1, 2003.
and Stuart G. MacDonald
10.30 Assignment of Patent No: Incorporated by reference
10,077,988, by and between Biophan to Exhibit 10.30 to
and Patrick R. Connelly, Michael Biophan's Form SB-2a on
L. Weiner, Stuart G. MacDonald, May 1, 2003.
Thomas H. Foster, Wilson
Greatbatch, and Victor Miller
10.31 Assignment of Patent No: Incorporated by reference
10,077,836, by and between Biophan to Exhibit 10.31 to
and Michael L. Weiner, Stuart G. Biophan's Form SB-2a on
MacDonald, and Patrick R. Connelly May 1, 2003.
10.32 Assignment of Patent No: Incorporated by reference
10,077,823, by and between Biophan to Exhibit 10.32 to
and Patrick R. Connelly, Michael Biophan's Form SB-2a on
L. Weiner, Jeffrey L. Helfer , May 1, 2003.
Stuart G. MacDonald, and Victor
Miller
10.33 Assignment of Patent No: Incorporated by reference
10,077,978, by and between Biophan to Exhibit 10.33 to
and Michael L. Weiner, Jeffrey L. Biophan's Form SB-2a on
Helfer, Stuart G. MacDonald, May 1, 2003.
Patrick R. Connelly, and Victor
Miller
10.34 Assignment of Patent No: Incorporated by reference
10,078,062, by and between Biophan to Exhibit 10.34 to
and Michael L. Weiner, Patrick R. Biophan's Form SB-2a on
Connelly, Stuart G. MacDonald, May 1, 2003.
Jeffrey L. Helfer, Victor Miller
10.35 Assignment of Patent No: Incorporated by reference
10,077,932, by and between Biophan to Exhibit 10.35 to
and Michael L. Weiner, Jeffrey L. Biophan's Form SB-2a on
Helfer, Patrick R. Connelly, May 1, 2003.
Stuart G. MacDonald, and Victor
Miller
10.36 Assignment of Patent No: Incorporated by reference
10,077,887, by and between Biophan to Exhibit 10.36 to
and Michael L. Weiner, Jeffrey L. Biophan's Form SB-2a on
Helfer, Patrick R. Connelly, May 1, 2003.
Stuart G. MacDonald, and Victor
Miller
10.37 Assignment of Patent No: Incorporated by reference
10,077,883, by and between Biophan to Exhibit 10.37 to
and Michael L. Weiner, Jeffrey L. Biophan's Form SB-2a on
Helfer, Patrick R. Connelly, May 1, 2003.
Stuart G. MacDonald, and Victor
Miller
10.38 Assignment of Patent No: Incorporated by reference
10,077,958, by and between Biophan to Exhibit 10.38 to
and Michael L. Weiner, Jeffrey L. Biophan's Form SB-2a on
Helfer, Patrick R. Connelly, May 1, 2003.
Stuart G. MacDonald, and Victor
Miller
41
10.39 Assignment of Patent No: Incorporated by reference
10,077,888, by and between Biophan to Exhibit 10.39 to
and Patrick R. Connelly, Stuart G. Biophan's Form SB-2a on
MacDonald, and Michael L. Weiner May 1, 2003.
10.40 Assignment of Patent No: Incorporated by reference
60,357,935, by and between Biophan to Exhibit 10.40 to
and Jeffrey L. Helfer, Robert W. Biophan's Form SB-2a on
Gray, and Michael L. Weiner May 1, 2003.
10.41 Assignment of Patent No: Incorporated by reference
10,132,457, by and between Biophan to Exhibit 10.41 to
and Stuart G. MacDonald, Jeffrey Biophan's Form SB-2a on
L. Helfer, and Michael L. Weiner May 1, 2003.
10.42 Assignment of Patent No: Incorporated by reference
09,864,944, by and between Biophan to Exhibit 10.42 to
and Wilson Greatbatch, Patrick R. Biophan's Form SB-2a on
Connelly and Michael L. Weiner May 1, 2003.
10.43 Assignment of Patent No: Incorporated by reference
09,865,049, by and between Biophan to Exhibit 10.43 to
and Victor Miller, Wilson Biophan's to Form SB-2a on
Greatbatch, Patrick R. Connelly May 1, 2003.
and Michael L. Weiner
10.44 Assignment of Patent No: Incorporated by reference
09,885,867, by and between Biophan to Exhibit 10.44 to
and Wilson Greatbatch, Patrick R. Biophan's Form SB-2a on
Connelly and Michael L. Weiner May 1, 2003.
10.45 Assignment of Patent No: Incorporated by reference
09,885,868, by and between Biophan to Exhibit 10.45 to
and Victor Miller, Wilson Biophan's Form SB-2a on
Greatbatch, Patrick R. Connelly May 1, 2003.
and Michael L. Weiner
10.46 Assignment of Patent No: Incorporated by reference
10,283,530, by and between Biophan to Exhibit 10.46 to
and Wilson Greatbatch and Michael Biophan's Form SB-2a on
L. Weiner May 1, 2003.
10.47 Assignment of Patent No: Incorporated by reference
10,369,429, by and between Biophan to Exhibit 10.47 to
and Jeffrey L. Helfer, Robert W. Biophan's Form SB-2a on
Gray, and Michael L. Weiner May 1, 2003.
10.48 Assignment of Patent No: Incorporated by reference
10,162,318, by and between Biophan to Exhibit 10.48 to
and Biomed Solutions, LLC Biophan's Form SB-2a on
May 1, 2003.
10.49 Strategic Partnership Agreement Incorporated by reference
between Biophan and UB Business to Exhibit 10.49 to
Alliance dated May 27, 2003. Biophan's Form SB-2a on
July 11, 2003.
10.50 Development Agreement between Filed as Exhibit 10.51 to
Biophan and Alfred University Biophan's Form SB-2 filed
dated July 17, 2003 on October 9, 2003.
10.51 Stock Purchase Agreement dated Incorporated by reference
October 1, 2003 between Biophan to Exhibit 10.50 to
and SBI Brightline Consulting, LLC. Biophan's Registration
Statement on Form SB-2.
10.52 Stock Purchase Agreement dated Incorporated by reference
February 5, 2004 between Biophan to Exhibit 10.52 to the
and SBI Brightline Consulting, LLC. 2004 Registration
Statement.
10.53 2001 Stock Option Plan Incorporated by reference
to Exhibit 10.53 to the
2004 Registration
Statement.
10.54 Letter Agreement dated August 19, Incorporated by reference
2002 between Biomed Solutions, LLC to Exhibit 10.54 to the
and Biophan 2004 Registration
Statement.
14.1 Code of Ethics for Senior Filed herewith.
Financial Officers
42
21 Subsidiaries Incorporated by reference
to Exhibit 21 to Biophan's
Form 10-KSB for the year
ended February 28, 2001.
23.1 Consent of Frank G. Shellock Filed as an exhibit to Form
SB-2/a on March 14,2003.
23.2 Consent of Robert Rubin M.D. Filed as an exhibit to Form
SB-2/a on March 14,2003.
31.1 Certification of C.E.O. pursuant Filed herewith
to Rule 13a-14(a)
31.2 Certification of C.F.O. pursuant Filed herewith
to Rule 13a-14(a)
32.1 Certification of C.E.O. Pursuant Filed herewith.
to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
32.2 Certification of C.F.O. Pursuant Filed herewith.
to 18 U.S.C. Section 1350, as
Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
Not applicable
Item 14. Principal Accountant Fees and Services
(1) Audit Fees
The aggregate fees billed by Goldstein Golub Kessler LLP, our
principal accountants, for professional services rendered for the audits
of the Company's annual financial statements for the last two fiscal years
and for the reviews of the financial statements included in the Company's
quarterly reports on Form 10-QSB and for services in connection with SEC
registration statements during the last two fiscal years ended February
29, 2004 and February 28, 2003 was $69,386 and $41,500 respectively.
(2) Audit-Related Fees
The Company did not engage its principal accountants to provide
assurance and related services during the last two fiscal years.
(3) Tax Fees
The Company did not engage its principal accountants to provide tax
compliance, tax advice and tax planning services during the last two
fiscal years.
(4) All Other Fees
The Company did not engage its principal accountants to render
services to the Company during the last two fiscal years, other than as
reported above.
(5) Pre-approval Policies and Procedures
In accordance with its charter, the Audit Committee is required to
approve all audit and non-audit services provided by the independent
auditors and shall not engage the independent auditors to perform the
specific non-audit services proscribed by law or regulation.
43
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
BIOPHAN TECHNOLOGIES, INC.
By: \s\ Michael L. Weiner
-----------------------
Name: Michael L. Weiner
Title: President, CEO and Director
Dated: May 13, 2004
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Signature Title Date
--------- ----- -------------
\s\ Michael L. Weiner President, CEO and Director May 13, 2004
---------------------
Michael L. Weiner (Principal Executive Officer)
\s\ Robert J. Wood Vice President, Secretary, Treasurer
------------------ and CFO May 13, 2004
Robert J. Wood (Principal Financial
and Accounting Officer)
\s\ Ross B. Kenzie Director May 13, 2004
---------------------
Ross B. Kenzie
\s\ Steven Katz Director May 13, 2004
---------------------
Steven Katz
\s\ Robert S. Bramson Director May 13, 2004
---------------------
Robert S. Bramson
44
EXHIBIT 14.1
CODE OF ETHICS FOR SENIOR FINANCIAL OFFICERS
Biophan Technologies, Inc. promotes ethical conduct in the practice of financial
management. Senior financial officers hold an important and elevated role in
corporate governance. They are uniquely capable and empowered to ensure that
stockholders' interests are appropriately balanced, protected and preserved.
It is the policy of Biophan that the principal executive officer, principal
financial officer, principal accounting officer or controller, or persons
performing similar function will adhere to the following principles governing
their professional and ethical conduct in fulfillment of their responsibilities:
1. Act with honesty and integrity, including the ethical handling of actual or
apparent conflicts of interest between personal and professional relationships.
2. Provide full, fair, accurate, timely, and understandable disclosure in
reports and documents filed with the SEC as well as other public communications.
3. Comply with the laws of federal, state, and local governments applicable to
Biophan, and the rules and regulations of regulatory agencies.
4. Promptly report violations of this code to the Audit Committee of the Board
of Directors.
5. Be accountable for promoting adherence to this code.
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULE 13A-14(A)
I, Michael L. Weiner, Chief Executive Officer of Biophan Technologies, Inc. (the
"registrant"), certify that:
1. I have reviewed this annual report on Form 10-KSB of Biophan
Technologies, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such
evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 13, 2004
/s/Michael L. Weiner
----------------------
Michael L. Weiner
Chief Executive Officer
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULE 13A-14(A)
I, Robert J. Wood, Chief Financial Officer of Biophan Technologies, Inc. (the
"registrant"), certify that:
1. I have reviewed this annual report on Form 10-KSB of Biophan
Technologies, Inc.;
2. Based on my knowledge, this 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 report;
3. Based on my knowledge, the financial statements, and other financial
information included in this 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 report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small
business issuer and have:
(a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, 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 report is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure
controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures,
as of the end of the period covered by this report based on such
evaluation; and
(c) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation of internal control over
financial reporting, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons
performing the equivalent functions):
(a) all significant deficiencies and material weaknesses in the
design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the registrant's
ability to record, process, summarize and report financial
information; and
(b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
Date: May 13, 2004
/s/Robert J. Wood
--------------------
Robert J. Wood
Chief Financial Officer
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Biophan Technologies, Inc. (the
"Company") on Form 10-KSB for the period ended February 29, 2004, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Michael L. Weiner, Chief Executive Officer of the Company, certify to the best
of my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec.
906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
/s/Michael L. Weiner
----------------------
Michael L. Weiner
Chief Executive Officer
May 13, 2004
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual report of Biophan Technologies, Inc. (the
"Company") on Form 10-KSB for the period ended February 29, 2004, as filed with
the Securities and Exchange Commission on the date hereof (the "Report"), I,
Robert J. Wood, Chief Financial Officer of the Company, certify to the best of
my knowledge, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of the
Company.
/s/Robert J. Wood
-------------------
Robert J. Wood
Chief Financial Officer
May 13, 2004
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