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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all of the information you should consider before investing in our common stock. You should read this entire prospectus carefully, especially the risks of investing in our common stock discussed under "Risk Factors" beginning on page 8, and the consolidated financial statements and notes to those consolidated financial statements, before making an investment decision.

BIOPHAN TECHNOLOGIES, INC.

Our Corporate Information

We were incorporated in the State of Idaho on August 1, 1968, under the name Idaho Copper and Gold, Inc. On February 9, 1999, we changed our name to Idaho Technical, Inc. On January 24, 2000, we changed our domicile to Nevada by merging into our wholly-owned Nevada subsidiary. We began our current line of business on December 1, 2000. On December 1, 2000, we changed our name to GreatBio Technologies, Inc. and on July 19, 2001, we changed our name to Biophan Technologies, Inc.

From inception through August 31, 2007, we have incurred cumulative net losses of $53,423,577. Since December 1, 2000, we have relied almost entirely on sales of our securities and loans to fund our operations.

Our principal executive offices are located at 15 Schoen Place, Pittsford, New York 14534 and our telephone number is (585) 267-4800.

The Offering

 

Securities offered by the Selling Shareholders		38,102,868 shares
Common stock to be outstanding after the offering		141,226,524 shares *
Use of proceeds		We will not receive any proceeds from the sale of shares by the selling stockholders.
Risk Factors		You should read the "Risk Factors" section of this prospectus for a discussion of factors that you should consider carefully before deciding to invest in shares of our common stock.
OTC Bulletin Board symbol		“BIPH”

The number of shares of our common stock to be outstanding following this offering is based on 103,123,656 shares of our common stock outstanding as of October 22, 2007, and assumes the conversion of an aggregate face amount of $5,287,756 of our outstanding Senior Secured Convertible Notes due October 11, 2009 into an aggregate of 35,251,707 shares of common stock to be sold by selling stockholders in this offering and (ii) the issuance of 2,851,161 shares of common stock in payment of interest to accrue under the Notes during their term, and to be sold by the selling stockholders in this offering and excludes (i) the exercise of outstanding options under our incentive stock compensation plans, (ii) the issuance of any shares of our common stock to SBI Brightline XI, LLC pursuant to the Stock Purchase Agreement dated as of May 27, 2005 (as amended), and (iii) the exercise of any other options, warrants or other rights to acquire shares of our common stock by any person or entity (including the selling stockholders).

* Includes 4,923,080 shares of our common stock held by Myotech, LLC. Because we have consolidated our financial statements with those of Myotech in accordance with FASB Interpretation No. 46 (Revised December 2003), "Consolidation of Variable Interest Entities" ("FIN 46(R)"), these shares are carried as treasury shares on our Consolidated Balance Sheets as of February 28, 2007 and August 31, 2007 and the Consolidated Statement of Stockholders' Equity as of February 28, 2007. However, because we did not have direct control over the voting or disposition of the shares held by Myotech, these shares are treated as issued and outstanding shares throughout this prospectus except (i) in the section entitled "Selected Financial Data" on page 12 and (ii) in the Financial Statements beginning on page F-1.

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SUMMARY CONSOLIDATED FINANCIAL DATA 

The tables below summarize our consolidated statements of operations for the six months ended August 31, 2007 and 2006 (Unaudited), and for the years ended February 28, 2007, 2006 and 2005 (Audited) and our consolidated balance sheet data as of February 28, 2007 and 2006 (Audited) and August 31, 2007 (Unaudited). The summary data as of and for the six months ended August 31, 2007 and 2006 (Unaudited) and the summary data as of and for the years ended February 28, 2007 and 2006 (Audited) are derived from our consolidated financial statements and related notes, which are included elsewhere in this prospectus. In the opinion of management, the unaudited interim consolidated financial statements have been prepared on the same basis as the audited consolidated financial statements and include all adjustments necessary for the fair presentation of our financial position and results of operations for these periods. You should read the following information together with the more detailed information contained in “Selected Consolidated Financial Data,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and the accompanying notes included elsewhere in this prospectus.

CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
		Year Ended February 28,									Six Months Ended August 31,
		2007			2006			2005			2007			2006
Revenues:
Development payments		$	-		$	225,000		$	-		$	-		$	-
License fees			562,500			479,166			-			125,000			437,500
Grant revenues			-			-			-			75,000			-
Testing services and consulting fees			427,029			340,695			-			132,351			217,521
			989,529			1,044,861			-			332,351			655,021
Operating expenses:
Research and development			7,190,975			6,829,142			2,629,980			2,817,784			4,529,921
General and administrative			6,824,945			8,451,886			3,337,185			3,290,423			3,659,625
			14,015,920			15,281,028			5,967,165			6,108,207			8,189,546
Operating loss			(13,026,391	)		(14,236,167	)		(5,967,165	)		(5,775,856	)		(7,534,525	)
Other income(expense):
Interest income			82,224			70,701			11,869			20,431			11,606
Interest expense			(4,303,543	)		(1,140,866	)		-			(1,714,326	)		(684,407	)
Additional expense related to warrants			(7,304,105	)		-			-			-			-
Change in fair value of warrant liability			5,318,064			-			-			3,434,017			-
Debt forgiveness			-			-			-			197,614			-
Liquidated damages			-			-			-			(652,500	)		-
Loss on extinguishment of debt-related party			(670,053	)		-			-			-			-
Other income			161,196			215,789			161,749			33,939			93,701
Other expense			(5,442	)		-			-			-			-
			(6,721,659	)		(854,376	)		173,618			1,319,175			(579,100	)
Loss from continuing operations before minority interest in Myotech, LLC			(19,748,050	)		(15,090,543	)		(5,793,547	)		(4,456,681	)		(8,113,625	)
Minority interest in Myotech, LLC			2,025,639			606,159			-			725,173			1,215,920
Net loss		$	(17,722,411	)	$	(14,484,384	)	$	(5,793,547	)	$	(3,731,508	)	$	(6,897,705	)
Loss per common share - basic and diluted		$	(0.23	)	$	(0.19	)	$	(0.08	)	$	(0.05	)	$	(0.09	)
Weighted average shares outstanding			77,864,738			75,787,052			69,263,893			81,167,908			77,393,718

CONSOLIDATED BALANCE SHEET DATA:

			As of February 28,					As of August 31,
			2007			2006			2007
Cash and cash equivalents		$	2,418,551		$	1,477,716		$	268,716
Intangible assets, net		$	24,396,805		$	25,854,850		$	23,660,783
Total assets		$	28,896,251		$	27,968,066		$	25,780,474
Total liabilities		$	18,966,774		$	3,231,158		$	7,970,845
Minority interest		$	13,139,882		$	15,189,109		$	12,367,582
Total stockholders’ equity (deficiency)		$	(3,210,405	)	$	9,547,799		$	5,442,047

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RISK FACTORS

Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors, as well as the other information in this prospectus, before deciding whether to invest in our common stock. If any of the following risks actually materializes, our business, financial condition and results of operations would suffer. The trading price of our common stock could decline as a result of any of these risks, and you might lose all or part of your investment in our common stock. You should read the section entitled "Forward-Looking Statements" immediately following these risk factors for a discussion of what types of statements are forward-looking statements, as well as the significance of such statements in the context of this prospectus.

 

WE MAY BE SUBJECT TO LIABILITY IN THE FORM OF A CLAIM FOR RESCISSION BY CERTAIN SHAREHOLDERS.

 

As a result of our Forbearance Agreement with certain investors dated February 16, 2007, the Securities and Exchange Commission may take the position that the sale of the $7,250,000 of senior secured convertible notes had not been completed before we filed the registration statement of which this prospectus is a part and as such we may have issued securities without a valid exemption in violation of Section 5 of the Securities Act of 1933, as amended, for such placement. The $7,250,000 of senior secured convertible notes were convertible by the investors into 10,820,896 shares of common stock. As additional consideration for the senior secured convertible notes we issued the investors warrants to purchase 10,820,896 shares of our common stock and in connection with the execution of the Forbearance Agreement we issued the investors additional warrants to purchase an aggregate of 60,000 shares of our common stock.

 

If the Securities and Exchange Commission takes the position that the foregoing was a violation of Section 5 of the Securities Act of 1933, as amended, the investors may be entitled to, among other penalties or fines which may be assessed against us the right to demand rescission of the offering. In that case, we would be required to pay each investor the amount we received as consideration for the securities issued under an invalid exemption, plus any interest accrued with respect to such amount at the applicable rate, and the securities would be cancelled.

 

WE ARE A BUSINESS WITH A LIMITED OPERATING HISTORY AND ARE NOT LIKELY TO SUCCEED UNLESS WE CAN OVERCOME THE MANY OBSTACLES WE FACE.

 

We are an early-stage research and development company with limited prior business operations and no material revenues to date. We are presently engaged in the development of certain technologies for use with medical procedures and biomedical devices. Because of our limited operating history, you may not have adequate information on which you can base an evaluation of our business and prospects. To date, our efforts have been devoted primarily to the following:

 

·

organizational activities;

 

·

developing a business plan;

 

·

obtaining funding;

 

·

conducting research and working toward the ultimate successful development of our technologies;

 

·

aggressively patenting our intellectual property;

 

·

licensing technology from third parties related to our business; and

 

·

marketing to major biomedical device manufacturers.

 

In order to establish ourselves in the medical device market, we are dependent upon continued funding and the successful development and marketing of our products. You should be aware of the increased risks, uncertainties, difficulties, and expenses we face as a research and development company and that an investment in our common stock may be worthless if our business fails.

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IF WE ARE UNABLE TO GENERATE SUFFICIENT REVENUES IN THE FUTURE, WE MAY NOT BE ABLE TO CONTINUE OUR BUSINESS.

 

We are still in our formative and development stage. As an investor, you should be aware of the difficulties, delays, and expenses normally encountered by an enterprise in its development stage, many of which are beyond our control, including unanticipated research and developmental expenses, employment costs, and administrative expenses. We cannot assure our investors that our proposed business plans as described in this prospectus will materialize or prove successful, or that we will ever be able to finalize development of our products or operate profitably. If we cannot operate profitably, you could lose your entire investment. As a result of the start-up nature of our business, initially we expect to sustain substantial operating expenses without generating significant revenues.

 

WE HAVE A HISTORY OF LOSSES AND A LARGE ACCUMULATED DEFICIT AND WE EXPECT FUTURE LOSSES THAT MAY CAUSE OUR STOCK PRICE TO DECLINE.

 

For the six months ended August 31, 2007, we incurred a net loss of $3,731,508, and for the fiscal years ended February 28, 2007, 2006 and 2005, we incurred net losses of $17,722,411, $14,484,384, $5,793,547, respectively. We have incurred cumulative net losses from inception through August 31, 2007 of $53,423,577. We expect to continue to incur losses as we spend additional capital to develop and market our technologies and establish our infrastructure and organization to support anticipated operations. We cannot be certain whether we will ever earn a significant amount of revenues or profit, or, if we do, that we will be able to continue earning such revenues or profit. Also, our current financial condition may limit our ability to develop and ultimately market our technologies. Any of these factors could cause our stock price to decline and result in you losing a portion or all of your investment.

 

THE INABILITY TO RETAIN AND ATTRACT KEY PERSONNEL COULD ADVERSELY AFFECT OUR BUSINESS AND PLAN OF OPERATIONS.

 

We believe that our future success will depend on the abilities and continued service of certain of our senior management and executive officers, particularly our Chief Executive Officer and those persons involved in the research and development of our products. If we are unable to retain the services of these persons, or if we are unable to attract additional qualified employees, researchers, and consultants, we may be unable to successfully finalize and eventually market our medical devices and other products being developed, which will have a material adverse effect on our business.

 

OUR RESEARCH AND DEVELOPMENT EFFORTS MAY NOT RESULT IN COMMERCIALLY VIABLE PRODUCTS, WHICH COULD RESULT IN A DECLINE OF OUR STOCK PRICE AND A LOSS OF YOUR INVESTMENT.

 

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WE MAY NOT BE ABLE TO DEVELOP A MARKET FOR OUR TECHNOLOGY, WHICH WILL LIKELY CAUSE OUR STOCK PRICE TO DECLINE.

 

The demand and price for our technology and related products will be based upon the existence of markets for the technology and products and the markets for products of others, which may utilize our technology. The extent to which we may gain a share of our intended markets will depend, in part, upon the cost effectiveness and performance of our technology and products when compared to alternative technologies, which may be conventional or heretofore unknown. If the technology or products of other companies provide more cost-effective alternatives or otherwise outperform our technology or products, the demand for our technology or products may be adversely affected. Our success will be dependent upon market acceptance of our technology and related products. Failure of our technology to achieve and maintain meaningful levels of market acceptance would materially and adversely affect our business, financial condition, results of operations, and market penetration. This would likely cause our stock price to decline.

 

IF WE ARE NOT ABLE TO COMPETE EFFECTIVELY IN THE COMPETITIVE MEDICAL DEVICE INDUSTRY, OUR FUTURE GROWTH AND OPERATING RESULTS WILL SUFFER.

 

Our future success depends on our ability to compete effectively with manufacturers of medical devices, including major manufacturers of pacemakers and other implantable devices that may have internal development programs. We are an early-stage research and development company engaged exclusively in developing our initial technologies. Products using our technologies have not yet been commercialized and we have generated no material revenue from operations. As a result, we may have difficulty competing with larger, established medical device companies. Most of our potential competitors will be established, well-known companies that have:

 

·

substantially greater financial, technical and marketing resources;

 

·

larger customer bases;

 

·

better name recognition;

 

·

related product offerings; and

 

·

larger marketing areas.

 

Companies such as Medtronic, Inc., Guidant Corporation, St. Jude Medical, Boston Scientific Corporation, and Johnson & Johnson are major, international providers of medical devices currently with limited compatibility for MRI. Because these companies may possibly develop MRI image compatibility solutions for their own product lines, they may ultimately be in competition with us. These companies represent a wide array of medical devices and products, technologies, and approaches. All of these companies have more resources than we do and, therefore, a greater opportunity to develop comparable products and bring those products to market more efficiently than we can. If we do not compete effectively with current and future competitors, our future growth and operating results will be adversely affected.

 

WE MAY NOT BE ABLE TO OBTAIN NECESSARY GOVERNMENT APPROVAL TO MARKET OUR TECHNOLOGY WHICH WILL LIKELY CAUSE OUR STOCK PRICE TO DECLINE AND OUR BUSINESS TO FAIL.

 

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WE MAY NOT BE ABLE TO PROTECT OUR PROPRIETARY RIGHTS AND WE MAY INFRINGE THE PROPRIETARY RIGHTS OF OTHERS. OUR INABILITY TO PROTECT OUR RIGHTS COULD IMPAIR OUR BUSINESS AND CAUSE US TO INCUR SUBSTANTIAL EXPENSE TO ENFORCE OUR RIGHTS.

 

Proprietary rights are critically important to us. We currently have 49 issued U.S. patents and over 60 U.S. and international patents pending. Although we intend to aggressively pursue additional patent protection for our technologies as we continue to develop them, we cannot assure you that any additional patents will be issued. Although we will seek to defend our patents and to protect our other proprietary rights, our actions may be inadequate to protect our patents and other proprietary rights from infringement by others, or to prevent others from claiming infringement by us of their patents and other proprietary rights.

 

Policing unauthorized use of our technology is difficult, and some foreign laws do not provide the same level of protection as U.S. laws. Litigation may be necessary in the future to enforce our intellectual property rights, to protect our trade secrets or patents that we may obtain, or to determine the validity and scope of the proprietary rights of others. Such litigation could result in substantial costs and diversion of resources and have a material adverse effect on our future operating results.

 

 

USE OF PROCEEDS

We will not receive any of the proceeds of the sale of shares of common stock by the selling stockholders.

DIVIDEND POLICY

 

 

SELECTED CONSOLIDATED FINANCIAL DATA

The following consolidated statements of operations data for the years ended February 28, 2007, 2006 and 2005 and the consolidated balance sheet data as of February 28, 2007 and 2006 have been derived from our audited consolidated financial statements and related notes, which are included elsewhere in this prospectus. The statements of operations data for the years ended February 29, 2004 and February 28, 2003 and the balance sheet data as of February 28, 2005, February 29, 2004 and February 28, 2003 have been derived from our audited consolidated financial statements that do not appear in this prospectus.

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Tabular Disclosure of Contractual Obligations

The following table sets forth information, as of February 28, 2007, our most recent fiscal year end, with respect to our known contractual obligations reflected on our Balance Sheet as of such date:

		Payment Due By Period
		Total			Less Than 1 Year			1-3 Years			3-5 Years			More Than 5 Years
Contractual Obligations:
Long-Term Debt		$	7,250,000		$	2,856,061		$	4,393,939		$	—		$	—
Capital Lease Obligations			27,049			7,445			19,604			—			—
Operating Lease Obligations			2,301,550			102,891			286,094			311,626			1,600,939
Cooperative Research and Development Agreement (CRADA)			112,500			75,000			37,500			—			—
License Agreements			5,447,500			337,500			737,500			690,000			3,682,500
Employment Agreements			313,750			218,750			95,000
Total		$	15,452,349		$	3,597,647		$	5,569,637		$	1,001,626		$	5,283,439

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Lease Obligation

 

At February 28, 2007, the Company was obligated under operating leases for office space originally expiring January 30, 2008, which the Company had the right to terminate upon ninety days prior written notice to the landlord. The notice of termination was given to the landlord and we occupied the premises on a month-to-month basis until February 9, 2007. The Company has entered into new operating leases for office space commencing March 2007 and expiring April 30, 2022, subject to our right to terminate at any time after December 31, 2008 upon 90 days' notice.

 

 

Year Ending February 28,		Amount
2008		$	102,891
2009			139,558
2010			146,536
2011			153,636
2012			157,990
Thereafter			1,600,939
		$	2,301,550

 

Rent expense, net of subrentals, charged to operations under these operating lease aggregated $113,161, $70,775 and $58,546 for the years ended February 28, 2007, 2006, and 2005, respectively. Rent expense, net of subrentals, charged to operations for the period from August 1, 1968 (Date of Inception) to February 28, 2007 was $368,626.

 

License Agreements

 

We are obligated under seven license or royalty agreements for patents that expire at various dates through 2025. These agreements may be terminated by us with 60 days written notice. Aggregate minimum future payments over the remaining life of the patents under these agreements total $5,447,500. License/royalty expense charged to operations was $152,410, $594,890, and $89,880 for the years ended February 28, 2007, 2006 and 2005 respectively.

 

Employment Agreements

 

We have employment agreements with our executive officers that renew annually unless terminated by either party. Such agreements, which have been revised from time to time, provide for minimum salary levels, adjusted annually for cost-of-living changes, as well as for incentive bonuses that are payable if specified management goals are attained.

 

Also, we have an employment contract with an officer that expires November 9, 2007, and Biophan Europe has an employment agreement with a key employee that expires on February 24, 2009. These agreements provide for base salaries, bonuses based on attaining certain milestones, a restricted stock grant and stock options. The aggregate commitment for future base salaries at February 28, 2007, excluding bonuses and other awards approximates $313,750.

 

Investment in Myotech, LLC

 

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Based upon the terms of the Securities Purchase Agreement, we were obligated to purchase for cash consideration of $2,225,000 an additional 811,037 Class A units. We may also elect to acquire up to an additional 3,563,097 Class A units for further cash consideration of up to $9,775,000, over a 24-month period, which may result in our owning a majority interest in Myotech. During the three month period ended February 28, 2006, we provided $1,185,000 of additional funding for 431,946 additional Class A units of Myotech. During 2007, we provided $1,040,000 of additional funding satisfying the mandatory $2,225,000 cash contribution, and received in exchange 379,091 additional Class A units of Myotech. In addition, Biophan has also provided an additional investment of $1,994,349 to Myotech against milestone 2 in the year ended February 28, 2007 for 726,963 newly issued Class A units, which increased our ownership to 43.7%. Additional investments of $105,175 against milestone 2 have been made since February 28, 2007 for 38,337 additional newly issued Class A units, which raised our ownership percentage to 43.8% to date.

 

On October 2, 2007, we entered into a Securities Purchase Agreement with Myotech, pursuant to which we agreed to purchase from Myotech an aggregate of 15,496,547 membership units for an aggregate purchase price of $3,200,000. Prior to the execution of the agreement we owned 5,408,194 Class A Membership Units of Myotech. In accordance with the agreement, upon execution of the agreement we received 5,000,000 Class A Membership Units and were to receive an additional 4,316,547 Class A Membership Units upon the payment of an aggregate initial purchase price of $1,200,000. Thereafter, upon the satisfaction of certain conditions, we would purchase an additional 6,180,000 Class A Membership Units of Myotech for a purchase price of $2,000,000. As a result of this investment the Company’s holdings in Myotech will increase to approximately 75% and provide Biophan with control of a majority of the Board of Directors of Myotech.

 

We have determined that Myotech is a Variable Interest Entity within the meaning of FIN 46(R) and that we are the primary beneficiary (as defined in FIN 46(R)). Consequently, the financial statements of Myotech have been consolidated with our consolidated financial statements for all periods ending on or after November 30, 2005, the date of our initial investment in Myotech.

 

Additional Expense Related to Warrants.

 

In accordance with the guidance provided by EITF 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company's Own Stock, we incurred this expense in connection with the issuance of convertible notes and warrants on October 12, 2006 to record the total fair value of derivative liability, originally recorded at $15,309,980. This amount is adjusted quarterly. The adjustment is recorded under a separate caption "Change in Fair Value of Warrant Liability".

 

Fair Value of Warrant Liability.

 

In accordance with the guidance provided by EITF 00-19, Accounting for Derivative Financial Instruments Indexed to and Potentially Settled in, a Company's Own Stock, we have recorded a liability of $10,157,937 for the fair value of the warrants related to the Senior Secured Convertible Notes at February 28, 2007 in order to provide for the possibility that we may be unable to comply with the registration rights of the lenders as contained in the Securities Purchase Agreement and we currently do not have sufficient available authorized shares to execute a potential conversion of the Notes and related warrants and thus we would be required to settle the contract in cash. In addition, since we currently do not have sufficient available authorized shares to execute a potential conversion of other outstanding warrants if requested to do so by the grantees, we could be required to settle any conversion requests in cash. Therefore, we reclassified warrants with an approximate value of $756,000 from equity to the warrant liability. The fair value of this amount was $336,069 at February 28, 2007. The Company has obtained stockholder approval to increase the authorized shares at a Special Meeting held on May 8, 2007. The total fair value of derivative liability, originally recorded at $15,309,980 on October 12, 2006, was adjusted by $4,815,974 to $10,494,006 at February 28, 2007. The fair value of the derivative liability pertaining to the warrants is volatile. For a further explanation on the factors and assumptions included in the Black-Scholes model to derive the fair values, please refer to the notes to the consolidated financial statements under the heading 'Fair Value of Warrant Liability'.

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RESULTS OF OPERATIONS

The following table presents the dollar amount and percentage of changes from period to period of the line-items included in our Condensed Consolidated Statements of Operations for the three months and six months ended August 31, 2007 and 2006:

		Three Months Ended August 31,												Six Months Ended August 31,
		2007			2006			Incr. (Decr.)			% Change			2007			2006			Incr. (Decr.)			% Change
Revenue		$	160,018		$	310,099		$	(150,081	)		(48.40	%)	$	332,351		$	655,021		$	(322,670	)		(49.26	%)
Operating expenses:
Research and development			1,497,837			1,941,513			(443,676	)		(22.85	%)		2,817,784			4,529,921			(1,712,137	)		(37.80	%)
General and administrative			1,802,753			1,573,434			229,319			(14.57	%		3,290,423			3,659,625			(369,202	)		(10.09	%)
Total expenses			3,300,590			3,514,947			(214,357	)		(6.10	%)		6,108,207			8,189,546			(2,081,339	)		(25.41	%)
Operating loss			(3,140,572	)		(3,204,848	)		64,276			(2.01	%)		(5,774,856	)		(7,534,525	)		1,758,669			(23.34	%)
Other income (expense)			(1,026,255	)		(329,508	)		(696,747	)		211.45	%		1,319,175			(579,100	)		1,898,275			(327.80	%)
Loss from continueing operations before minority interest in Myotech, LLC			(4,166,827	)		(3,534,356	)		(632,471	)		17.89	%		(4,456,681	)		(8,113,625	)		3,656,944			(45.07	%)
Minority interest in Myotech, LLC			253,354			520,095			(266,741	)		(51.29	%)		725,173			1,215,920			(490,747	)		(40.36	%)
Net loss		$	(3,913,473	)	$	(3,014,261	)	$	(899,212	)		29.83	%	$	(3,731,508	)	$	(6,897,705	)	$	3,166,197			(45.90	%)

The following comments discuss the significant factors affecting the consolidated operating results of the Company comparing the three months ended August 31, 2007 to the three months ended August 31, 2006 and the six months ended August 31, 2007 to the six months ended August 31, 2006.

 

Comparison of the Three Months Ended August 31, 2007 to the Three Months Ended August 31, 2006

 

Revenues:

Revenues were $160,018 for the three months ended August 31, 2007 as compared to $310,099 for the three months ended August 31, 2006. The decrease was due principally to the agreed-upon schedule of license fee payments and amortization thereof from Boston Scientific Scimed ($125,000) and decreased operating revenues from our European subsidiary, which consisted primarily of MRI-related testing and consulting services to medical device manufacturers ($50,000).

 

Research and Development Expenses:

Research and development expenses decreased by 23%, or $444,000. After factoring out an increase in non-cash charges relating to stock options expense ($450,000) however, expenses decreased by 894,000, 51%. The decrease is attributable generally to our planned reductions in spending on our research and development projects, due to restructuring. The major areas of decreased expenses were Project Funding ($580,000), Consulting ($180,000), and Personnel ($116,000).

 

General and Administrative Expenses:

General and administrative expenses increased by 15%, or $229,000. After factoring out an increase in non-cash charges relating to stock options expense ($450,000) however other expenses decreased by 660,000, or 35%. The decrease is attributable generally to our planned reductions in spending on our research and development projects, due to restructuring. The major areas of decreased expenses were Public Relations ($263,000), Personnel ($117,000), Travel ($76,000), Shareholder Expenses ($74,000), Office Supply and Expense ($56,000) and Consulting & Outside Services ($43,000).

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Other income (expense):

The major component of this category is interest expense, accounting for $1,234,622 of a net total of $1,026,255 for the three months ended August 31, 2007 compared with $380,934 of a net total of $329,508 for the three months ended August 31, 2006. Interest expense increased by $853,688. The major areas attributable to the increase was due to interest ($180,000), and discount (905,197) related to the Senior Secured Convertible Notes and a decrease in interest ($359,000) related to the Biomed Line of Credit.

Minority Interest in Myotech LLC:

The increase in this line-item is a direct effect of allocating the losses incurred by Myotech to the interest of the owners of Myotech other than Biophan.

Comparison of the Six Months Ended August 31, 2007 to the Six Months Ended August 31, 2006

Revenues:

Revenues were $332,351 for the six months ended August 31, 2007 as compared to $655,021 for the six months ended August 31, 2006. The decrease was due principally to the agreed-upon schedule of license fee payments and amortization thereof from Boston Scientific Scimed ($315,500) and decreased operating revenues from our European subsidiary, which consisted primarily of MRI-related testing and consulting services to medical device manufacturers ($82,000). There was also an increase in Grant revenues ($75,000).

 

Research and Development Expenses:

Research and development expenses decreased by 38%, or $1,712,137. After factoring out an increase in non-cash charges relating to stock options expense ($267,000) however, expenses decreased by $2,162,000, 49%. The decrease is attributable generally to our planned reductions in spending on our research and development projects, due to restructuring. The major areas of decreased expenses were Project Funding ($1,360,000), Consulting ($432,000), and Personnel ($127,000).

 

General and Administrative Expenses:

General and administrative expenses decreased by 10%, or $369,202. After factoring out an increase in non-cash charges relating to stock options expense ($889,000) However, other expenses decreased by 1,258,000, or 36%. The decrease is attributable generally to our planned reductions in spending, due to restructuring. The major areas of decreased expenses were Public Relations ($678,000), Personnel ($128,000), Travel ($100,000), Shareholder Expenses ($70,000), Legal fees ($142,000), Office Supply and Expense ($44,000), and Consulting and Outside Services ($241,000). Also, there was an increase in Accounting fees ($202,000).

Other income (expense):

The major component of this category is interest expense, accounting for $1,714,326 of a net other income of $1,319,175 for the six months ended August 31, 2007 compared with $684,407 of a net other expense of $579,100 for the six months ended August 31, 2006. The major areas attributable to the increase were due to interest ($342,000), discount ($1,910,000), and a decrease in change in fair value of derivative liability ($4,339,000) related to the Senior Secured Convertible Notes and a decrease in interest ($570,000) related to the reduction of the Biomed Line of Credit. Other items attributable to the increase in net other income is the change in the fair value of warrant liability ($3,434,000) and a decrease due to liquidated damages ($652,500).

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The following table sets forth our results of operations for the fiscal years ended February 28, 2005 through 2007:

		Year Ended February 28,
		2007			2006			2005
Revenues:
Development payments		$	—		$	225,000		$	—
License fees			562,500			479,166			—
Testing services and consulting fees			427,029			340,695			—
			989,529			1,044,861			—
Operating expenses:
Research and development			7,190,975			6,829,142			2,629,980
General and administrative			6,824,945			8,451,886			3,337,185
Write-down of intellectual property rights			—			—			—
			14,015,920			15,281,028			5,967,165
Operating loss			(13,026,391	)		(14,236,167	)		(5,967,165	)
Other income(expense):
Interest income			82,224			70,701			11,869
Interest expense			(4,303,543	)		(1,140,866	)		—
Additional expense related to warrants			(7,304,105	)		—			—
Change in fair value of warrant liability			5,318,064			—			—
Loss on extinguishment of debt - related party			(670,053	)		—			—
Other income			161,196			215,789			161,749
Other expense			(5,442	)		—			—
			(6,721,659	)		(854,376	)		173,618
Loss from continuing operations before minority interest in Myotech, LLC			(19,748,050	)		(15,090,543	)		(5,793,547	)
Minority interest in Myotech, LLC			2,025,639			606,159			—
Loss from continuing operations			(17,722,411	)		(14,484,384	)		(5,793,547	)
Loss from discontinued operations			—			—			—
Net loss		$	(17,722,411	)	$	(14,484,384	)	$	(5,793,547	)
Loss per common share - basic and diluted		$	(0.23	)	$	(0.19	)	$	(0.08	)
Weighted average shares outstanding			77,864,738			75,787,052			69,263,893

Comparison of the Years Ended February 28, 2007 and 2006

Revenues

Revenues for the year ended February 28, 2007 were $0.990 million compared to $1.045 in 2006. Our 2007 revenues pertain to $0.563 million in license fees from our licensing agreement with Boston Scientific Scimed, Inc. and $0.427 million from our MRI testing services and consulting fees in Biophan Europe. Our 2006 revenues pertain to $0.704 million in development payments and license fees from our licensing agreement with Boston Scientific Scimed, Inc. and $0.341 million from our MRI testing services and consulting fees in Biophan Europe.

Operating Expenses

Research and Development. These expenses primarily consist of the personnel-related, technical consulting, professional fees for patent attorneys, and license fees. For the year ended February 28, 2007, these expenses increased by 5.3%, or $0.362 million, to $7.191 million compared to $6.829 million for 2006. Because we consolidated Myotech, LLC at November 30, 2005, the fourth quarter of 2006 included $0.443 million of Myotech operational expenses and $0.344 of Myotech intangible assets amortization. We consolidated Myotech LLC for the fiscal year.The most significant changes in this category of expenses include a decrease in non-cash stock option compensation expense of $1.5 million due primarily to a 2006 expense of $ 1.948 million of non-cash expense from the vesting of contingent stock options that vested upon the achievement of specified performance-based milestones, which was partially offset by 0.1 million for additional professional staff and salary increases. In addition, we increased our funding of various research and development projects by $1.3 million and we incurred $1.0 million of increased noncash patent amortization expense related to the Myotech intangible assets, which was partially offset by $0.6 million of decreased spending for outside professional services related to licenses and patent maintenance.

 

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General and Administrative.

General and administrative expenses include the costs of personnel-related expenses for the administrative, legal, finance, information technology, and communications functions. For the year ended February 28, 2007, these expenses declined by 19%, or $1.627 million to $6.825 million compared to $8.452 million for 2006. Because we consolidated Myotech LLC at November 30, 2005, the fourth quarter of 2006 included $0.165 million of Myotech operational expenses. We consolidated Myotech LLC for the fiscal year 2007. The most significant changes in this category of expenses include a decrease in non-cash stock option compensation expense of $1.7 million due primarily to a 2006 expense of $ 2.296 million of non-cash expense from the vesting of contingent stock options that vested upon the achievement of specified performance-based milestones, which was partially offset by 0.5 million for additional professional staff and salary increases; increased outside professional services of $0.6 million primarily related to audit, first-year Sarbanes Oxley compliance, and financial consulting. These cost increases were offset by decreased spending by $1.0 million for other expenses.

Other Income (Expense)

Interest Expense. We incurred interest expense amounting to approximately $4.304 million for the year February 28, 2007 compared to $1.141 million of expense for the year ended February 28, 2006. The increased expense (noncash) is attributed to $2.3 million in interest under provisions of the $7.25 million Senior Secured Convertible Notes held by Iroquois Master Fund Ltd and other investors; the write-off of $1.1 million of the remaining unamortized discount on a note to Biomed Solutions, LLC; and approximately $0.9 million of interest payable on borrowings under lines of credit with Biomed Solutions, LLC.

Change in Fair Value of Warrant Liability. We adjusted this liability of $10.494 million primarily related to the Senior Secured Convertible Notes at February 28, 2007, or a decrease in expense of $5.318 million from our initial recording of this derivative liability of $15.309 million at the closing date of October 12, 2006.

Loss on Extinguishment of Debt. We incurred a loss on the extinguishment of the note (noncash) to Biomed Solutions, LLC due to the substantial amendment to the note to Biomed, amounting to $0.670 million.

Minority Interest in Myotech LLC. The loss of $2.026 million is a pro rata share of the loss incurred by Myotech, LLC attributable to minority interests for the year ended February 28, 2007. The loss of $0.606 million is the pro rata share of the loss incurred by Myotech from November 30, 2005 (date of acquisition) through February 28, 2006. As further described under the heading "Business Combinations" in the "Notes to Consolidated Financial Statements" the Company holds a 43.7% interest in Myotech LLC, valued on our balance sheet at February 28, 2007 at $12.687 million, which we must consolidate as a variable interest entity since the Company is deemed to be the primary beneficiary in the relationship with Myotech.

Comparison of the Years Ended February 28, 2006 and 2005

Revenues

Revenues for the year ended February 28, 2006 were $1.045 million compared to no revenues in 2005. Our 2006 revenues pertain to $0.704 million in development payments and license fees from our licensing agreement with Boston Scientific Scimed, Inc. and $0.341 million from our MRI testing services and consulting fees in Biophan Europe.

 

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Operating Expenses

Research and Development. These expenses primarily consist of the personnel-related, technical consulting, professional fees for patent attorneys, and license fees. For the year ended February 28, 2006, these expenses increased by 160%, or $4.199 million, to $6.829 million compared to $2.630 million for

2005. Because we consolidated Myotech, LLC at November 30, 2005, the fourth quarter included $0.443 million of Myotech operational expenses and $0.344 of Myotech intangible assets amortization. Excluding these expenses, the year-to-year comparison would have reflected an increase of 130%, or $3.411 million. The most significant increase was caused by $1.948 million in non-cash contingent stock option expense due to the vesting of contingent options that vested upon the achievement of specified performance-based milestones. With the inclusion of the Myotech expenses, we also increased funding of various research and development projects by $0.846 million; we incurred increased licensing fees by $0.515 million, and increased expenses for additional professional staff and salary increases for current staff of $0.538 million.

General and Administrative. General and administrative expenses include the costs of personnel-related expenses for the administrative, legal, finance, information technology, and communications functions. For the year ended February 28, 2006, these expenses rose by 153%, or $5.115 million to $8.452 million compared to $3.337 million for 2005. Because we consolidated Myotech LLC at November 30, 2005, the fourth quarter included $0.165 million of Myotech operational expenses. The most significant increase in expense was caused by approximately $2.296 million in non-cash contingent stock option expense due to the vesting of contingent options that vested upon the achievement of specified performance-based milestones. With the inclusion of the Myotech expenses, outside services increased by $1.666 million, consisting primarily of additional legal and financial consulting and communications expenses, combined with $0.358 million in added costs for new staff and increased salaries, and $0.518 million for travel and other administrative expenses.

Other Income (Expense)

Interest Expense. We incurred interest expense amounting to approximately $1.141 million primarily related to a $5 million line of credit from Biomed Solutions, LLC ("Biomed"), which included a beneficial conversion feature of approximately $1.0 million. The discount is being amortized over the term of the line of credit. The Company incurred no interest expense in 2005.

Minority Interest. This amount is the pro rata share of the loss incurred by Myotech LLC for the 4th quarter of fiscal 2006 at which time Myotech is consolidated with the Company. For further information regarding the basis of consolidation of Myotech, please refer to Footnote 3 in the Notes to the Consolidated Financial Statements.

LIQUIDITY AND CAPITAL RESOURCES

 

Liquidity

 

On May 27, 2005, we entered into a Line of Credit Agreement with Biomed Solutions, LLC, a related party, whereby Biomed agreed to provide a line of credit facility of up to $2 million. Borrowings under the line, bear interest at 8% per annum, are payable on demand and are convertible at Biomed's election, into the Company's common stock at 90% of the average closing price for the 20 trading days preceding the date of borrowings under the line. In June 2005, the Company borrowed the entire $2 million under the line in two separate draws of $1 million each. In accordance with the agreement, Biomed received warrants to purchase 500,000 shares of the Company's common stock at an exercise price of 110% of the average closing price for the 20 trading days preceding the date of execution of the credit agreement. The Company recorded a discount on the borrowings of $958,160 due to the beneficial conversion feature of the note as well as for the value of the warrants. The discount was amortized as additional interest expense over the term of the note. In August 2005, Biomed elected to convert $1 million of the note plus accrued interest into 480,899 shares of common stock at which time, the remaining discount related to the $1 million portion of the loan was fully expensed. On October 7, 2005, we repaid $500,000 of principal and all accrued interest on the loan. The balance of borrowings on the line was $500,000 at August 31, 2007.

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On January 24, 2006, we entered into an additional Line of Credit Agreement (the "Line of Credit Agreement") with Biomed Solutions, LLC, pursuant to which Biomed committed to make advances to us, in an aggregate amount of up to $5,000,000. Under the Line of Credit Agreement, advances may be drawn down in such amounts and at such times as we determine upon 15 days prior notice to Biomed, except that we may not draw down more than $1,500,000 in any 30-day period. Amounts borrowed bear interest at the rate of 8% per annum and were convertible into shares of our Common Stock at the rate of $1.46 per share. Biomed's obligation to lend to us under the Line of Credit Agreement expires on June 30, 2007, on which date the entire amount borrowed by us (and not converted into shares of our Common Stock) becomes due and payable. In connection with the establishment of the credit facility, we issued to Biomed a warrant to purchase up to 1,198,630 shares of our Common Stock at an exercise price of $1.89 per share. The Company recorded a discount on the borrowings of $1,678,425 due to the beneficial conversion feature of the note as well as for the value of the warrant.

 

On October 11, 2006, in connection with our Securities Purchase Agreement dated October 11, 2006 with Iroquois Master Fund Ltd and other private investors (the "Purchase Agreement"), we amended our January 24, 2006 Line of Credit Agreement (the "Biomed Line of Credit Agreement") with Biomed and the Convertible Promissory Note in the original principal amount of $5,000,000 issued by us to Biomed on January 24, 2006 pursuant to the Biomed Line of Credit Agreement (the "$5,000,000 Biomed Note"). The amendment reduced the price at which the $5,000,000 Biomed Note is convertible into shares of our Common Stock from $1.46 per share to a conversion price of $0.67. In connection with the Purchase Agreement, we also entered into a Subordination and Standstill Agreement (the "Subordination Agreement") with Biomed and the investors who are parties to the Purchase Agreement, pursuant to which Biomed agreed (i) to subordinate its rights to payment under the $5,000,000 Biomed Note and the Convertible Promissory Note in the original principal amount of $2,000,000 issued by us to Biomed on May 27, 2005 to the rights of the investors under the Notes and (ii) to convert the entire outstanding amount of principal and interest due under the $5,000,000 Biomed Note in excess of $700,000 into shares of our common stock upon the effectiveness of an amendment to our Articles of Incorporation to increase the number of our authorized shares which was effective May 9, 2007. On July 19, 2007, Biomed converted $2,180,000 of principal and $195,899 of accrued interest into a total of 3,546,118 shares of our common stock leaving a balance outstanding at August 31, 2007 of $1,750,000.

 

On October 11, 2006, we entered into a Securities Purchase Agreement (the "Purchase Agreement") with 10 private investors led by Iroquois Master Fund Ltd ("Iroquois"). Pursuant to the Purchase Agreement, on October 12, 2006 we issued $7,250,000 of Senior Secured Convertible Notes (the "Notes") to the investors and received proceeds of $6,219,880 after paying estimated fees and expenses of $1,030,120 related to the transaction. The holders of the Notes may elect to convert the Notes at any time into shares of our common stock based upon a price of $0.67 per share (the "Conversion Price"). Interest on the outstanding principal amount under the Notes is payable quarterly at a rate equal to the six-month London InterBank Overnight Rate plus 500 basis points, with a minimum rate of 10% per annum and a maximum rate of 12% per annum, payable at our option in cash or shares of our common stock registered for resale under the Securities Act of 1933, as amended (the "Securities Act"). If we elect to make an interest payment in common stock, the number of shares issuable by us will be based upon the lower of (i) 90% of the 20-day trailing average volume weighted average price per share as reported on Bloomberg LP (the "VWAPS") or (ii) the Conversion Price. Principal on the Notes amortizes and payments are due in 33 equal monthly installments commencing four months following issuance of the Notes, and may be made at our option in cash or shares of our common stock registered for resale under the Securities Act. If we elect to make a principal payment in common stock, the number of shares issuable by us will be based upon the lower of (i) 87.5% of the 15-day trailing VWAPS prior to the principal payment date or (ii) the Conversion Price. Our obligations under the Notes are secured by a first priority security interest in substantially all of our assets pursuant to a Security Agreement dated as of October 11, 2006 among us, the investors and Iroquois, as agent for the investors (the "Security Agreement").

 

As further consideration to the investors, we issued to the investors one-year warrants to purchase an aggregate of 10,820,896 shares of our common stock at a price of $0.67 per share. If the investors elect to exercise these one-year warrants, they will also receive additional five-year warrants to purchase the shares of our common stock equal to the number of shares purchased under the one-year warrants, with 50% of the additional warrants having an exercise price of $.85 per share, and the remaining 50% of the additional five-year warrants having an exercise price of $.92 per share. We also issued to the investors five-year warrants to purchase an aggregate of 10,820,896 shares of our common stock. The first five-year warrants allow for the purchase of 5,410,448 shares of our common stock at an exercise price of $0.81 per share, and the second five-year warrants allow for the purchase of 5,410,448 shares of our common stock at an exercise price of $0.89 per share. The warrants contain anti-dilution protection that, should we issue equity or equity-linked securities at a price per common share below the exercise price of the five-year warrants, it will automatically adjust the exercise price of the warrants to the price at which we issue such equity or equity-linked securities. The total fair value of the warrants was $14,554,105. The Company recorded a discount on the Notes of $7,250,000 for the fair value of the related warrants. The excess of the fair value of the warrants over the carrying value of the notes, which amounted to $7,304,105, was recognized as additional expense related to warrants in the statement of operations for the year ended February 28, 2007. The discount on the Notes is being amortized over the life of the Notes using the effective interest method. The discount amortization for the three months and six months ended August 31, 2007 amounted to $905,197 and $1,910,971 respectively, and is included in interest expense in the accompanying statements of operations.

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We further agreed to register for resale under the Securities Act the common stock issuable upon the exercise of the warrants and any shares of common stock we may issue to the holders of the Notes in connection with payments of interest and principal, or which we are obligated to issue upon any conversion of the Notes at the option of the holders. Because we were unable to comply with various provisions of the registration requirements of the Purchase Agreement we incurred liquidated damages amounting to $652,500 that have been accrued and was charged to operations during the three months ended May 31, 2007.

 

On February 21, 2007, we entered into a Forbearance Agreement (the "Forbearance Agreement") with the investors pursuant to which the investors agreed that, during the period commencing on February 16, 2007 and ending on the earlier of (i) March 31, 2007 or (ii) the date on which any Termination Event (as defined in the Forbearance Agreement) first occurs (the "Forbearance Period"), they will forbear from exercising any and all of the rights and remedies which they may have against us or any of our assets under the Notes or the Purchase Agreement or at law or in equity as a result of any default under the Notes or as a result of the occurrence of certain events with respect to the Purchase Agreement. In exchange for entering into the Forbearance Agreement, we issued pro rata to the investors three-year warrants for the purchase of an aggregate of 60,000 shares of our common stock at an exercise price of $0.51 per share (the "Fee Warrants").

 

Upon the issuance of the Fee Warrants, the exercise prices of the five-year warrants issued to the investors pursuant to the Purchase Agreement (the "Original Warrants") for the purchase of an aggregate of 10,820,896 shares of our common stock were automatically adjusted from $0.81 per share and $0.89 per share, respectively, to $0.51 per share, and the number of shares of our common stock issuable upon exercise of the Original Warrants was automatically adjusted, proportionately, to an aggregate of 18,034,830 shares. In the Forbearance Agreement, the investors waived, with respect to the issuance of the Fee Warrants, application of similar anti-dilution adjustments contained in the Notes and in a third series of warrants for the purchase, on or before October 12, 2007, of an aggregate of 10,820,896 additional shares of our common stock at an exercise price of $0.67 per share (the "One Year Warrants"). C.E. Unterberg Towbin, which holds a warrant for the purchase of 865,672 shares of our common stock at an exercise price of $0.67 per share, issued to it in connection with its services as exclusive placement agent under the Purchase Agreement, separately agreed to waive, with respect to the issuance of the Fee Warrants, application of the anti-dilution provisions set forth in that warrant. Because the anti-dilution adjustment to the Original Warrants is accounted for as a modification of the Original Warrants, we recorded an expense for this modification in the period ended February 28, 2007.

 

On October 3, 2007, we entered into Amendment No. 1 to the Securities Purchase Agreement, Senior Secured Convertible Notes, Warrants and Security Agreement with the independent private investors. Pursuant to the Amendment, we agreed to amend the Notes to provide that even if the we elect to make a monthly installment payment in cash, the holder will have the right to convert any portion of the Note into common stock of the Company and apply the number of shares the holder would have received had we elected to make payment in common stock. In addition, the Conversion Price was reduced to $0.15. The Amendment also amended the warrants to reduce the exercise prices of the various warrants to $0.23. In exchange for the foregoing, the investors released certain intellectual property for the Security Agreement, allowing the Company to transfer and sell such intellectual property. Further, in the Amendment, we agreed to certain spending covenants in connection with the proceeds we will receive from the sale of the intellectual property under the Intellectual Property Assignment Agreement dated as of August 6, 2007 by and between Biophan and Medtronic, Inc.  As of October 22, 2007 an aggregate of $5,287,756 in principal was outstanding with respect to these Notes.

 

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Effective November 30, 2005, we entered into a Securities Purchase Agreement for the acquisition of an initial 35% interest in Myotech, LLC ("Myotech"), a New York limited liability company, whereby we exchanged 4,923,080 shares of our common stock, par value $.005, for 3,768,488 Class A (voting) units of Myotech.

 

Based upon the terms of the Securities Purchase Agreement, we were obligated to purchase for cash consideration of $2.225 million an additional 811,037 Class A units. We may elect to acquire up to an additional 3,563,097 Class A units for further cash consideration of up to $9.775 million, over a 24-month period, which may result in the Company owning a majority interest in Myotech. During the three month period ended February 28, 2006, Biophan provided $1,185,000 of additional funding for 431,946 newly issued Class A units of Myotech. During the year ended February 28, 2007, Biophan has provided $1,040,000 of additional funding satisfying the cash consideration of $2.225 million cited above, for 379,091 newly issued Class A units of Myotech. In addition, Biophan has also provided an additional investment of $1,994,349 to Myotech against milestone 2 in the year ended February 28, 2007 for 726,963 newly issued Class A units, which increased our ownership to 43.7%. Additional investments of $395,685 were made during the six months ended August 31, 2007 for 144,232 additional newly issued Class A units, which raised our ownership percentage to 44.1%.

 

We have determined that Myotech is a Variable Interest Entity within the meaning of FIN 46(R) and that we are the primary beneficiary (as defined in FIN 46(R)). Consequently, the financial statements of Myotech have been consolidated with our consolidated financial statements for all periods ending on or after November 30, 2005, the date of our initial investment in Myotech.

 

 

Biophan's marketing efforts are focused on business-to-business sales of our technology. Since we are focused on working with the leaders in each market segment, the number of prospective partners is approximately 25 medical device companies. Biophan's marketing and sales efforts rely on a select group of experienced business development and technology licensing executives.

 

Biophan entered into its first significant license agreement with Boston Scientific Scimed Corporation in 2005 covering a range of products in exclusive and non-exclusive product segments. Boston Scientific renewed its license in January 2007, with a $250,000 payment.

 

MYOTECH Circulatory Support System (CSS)

 

Biophan has also taken a majority equity position in Myotech, LLC, to help Myotech develop and market a novel circulatory support system. The Company has determined that Myotech is a variable interest entity in accordance with FIN 46(R). The Company has further concluded that it is the primary beneficiary as defined by FIN 46(R) and, as a result, the Company is required to consolidate Myotech as of the date of acquisition of November 30, 2005. Therefore, the consolidated financial statements of the Company include the accounts of Myotech, LLC.

 

Myotech was formed in July 2003 to commercialize a mechanical circulatory support system called the Myotech CSS which is based upon a family of technologies known as Direct Mechanical Ventricular Actuation (DMVA). The Myotech CSS is aimed at one of the largest and fastest growing medical market segments, the treatment of heart failure. ABN-AMRO Morgan Stanley has forecast worldwide sales of ventricular assist devices (VAD) to grow from its 2003 level of $400 million to $7.1 billion by 2009, reflecting an anticipated compounded annual growth rate of 61%.

 

Existing cardiac assist devices, such as VADs, have serious limitations that include clotting and stroke, infection, bleeding, repeat major surgery, and high mortality rates. The devices are available only at a limited number of transplant and specialized cardiac centers and are very expensive to use, often costing in excess of $200,000 per procedure.

 

The Myotech CSS is a comprehensive circulatory support system that has features designed to provide safer and more effective support to a wide array of acute and chronic heart failure conditions. As shown in trials of early prototypes of DMVA technology at Duke University in the 1990s, such a device can be installed quickly to stabilize and provide short term support to patients suffering from acute heart failure to help the heart to recover and ultimately allow the device to be removed. The Myotech CSS offers the following additional competitive advantages:

 

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No contact with circulating blood which reduces the problems of clotting and stroke, bleeding, repeat surgery, and infection - problems that plague existing VADs;

 

Technically simple, rapid installation (approximately three minutes) that does not require highly specialized cardiothoracic surgeons; and

 

The ability to completely restore blood flow from the diseased or failed heart. The Myotech CSS provides systolic (emptying) and diastolic (filling) support to both ventricles. Current VADs typically provide only systolic support to one ventricle.

 

Future versions are expected to include designs with therapeutic capabilities, such as drug delivery designed to enable the Myotech CSS to treat a wide variety of acute and chronic heart failure conditions. We also plan to make the Myotech CSS available in multiple sizes to treat more heart failure patients, including women.

 

Healthcare leaders in the U.S. government and private sector also recognize this resulting in an allocation of $1 million in 2007 to accelerate the availability of the Myotech CSS in forward combat treatment stations as well as suburban and rural hospitals.

 

The short term goal is to develop and introduce a first generation (Gen-1) product. We will initially focus on the commercialization of the Gen-1 Myotech CSS product, which is designed to address sudden cardiac arrest and acute myocardial infarction complicated with cardiogenic shock. Additional R&D will be conducted in parallel to develop the technological capabilities required for the Company to expand the use of the Gen-1 product.

 

 

MARKET OPPORTUNITY

 

MRI Related Technologies

 

Some medical devices have limitations related to MRI safety, and may be contraindicated for use with MRI (such as pacemakers and neurostimulators). Patients with these types of implants cannot have MRI exams performed even if the exams are needed for life threatening conditions, such as cancer detection or diagnosis of aneurysms.

 

Many devices are already safe for use with MRI, but have limited MRI image compatibility. This includes devices such as stents, vena cava filters, and some types of catheters and guidewires. Some of these devices are simply not well imaged under MRI, while other devices have properties that interfere with the MRI image by causing an image artifact (distortion) in the area in and around the device, limiting the effectiveness of MRI for placement or diagnostic follow-up on these implants.

 

Biophan has solutions to these problems. Biophan's internally developed technology and patents, in combination with exclusive in-licensed technologies provide comprehensive intellectual property coverage for Biophan's MRI image compatibility solutions.

 

 

MYOTECH Circulatory Support System (CSS)

 

With regard to the Myotech CSS technology, we recognize the following:

 

Mechanical cardiac assist devices provide many benefits for heart failure patients relative to existing treatment procedures;

 

The potential of the VAD market alone is estimated to be approximately $7 to $8 billion and growing at a rate of 50-60% annually;

 

Conventional VADs have distinct disadvantages including invasiveness to the patient, clotting and stroke, bleeding, repeat surgery, and infection;

 

There are currently no other equally capable solutions on the market and none are anticipated. This position is based upon the following:

 

Searches of the medical market;

 

Review of U.S. and foreign patents and patent activity;

 

Review of the literature and activity within the scientific community;

 

Our Scientific Advisory Board's knowledge of relevant industry activities; and

 

Participation in relevant tradeshows;

 

We possess a substantial intellectual property portfolio which protects current and future developments of its technology in the U.S. and other major international markets; and

 

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The expertise, depth, and experience of its management team.

 

Based on the above and management's knowledge of its markets, Biophan, along with MYOTECH, has developed the following strategy and operating philosophy:

 

o Initially focus on the development and approval of a Gen-1 product for sudden cardiac arrest;

 

o On an longer term basis, focus on next-generation products for the therapeutic recovery ;

 

o Enhance awareness of the Myotech CSS by:

 

Utilizing the Scientific Advisory Board;

 

Engaging industry thought leaders;

 

Publication of the results of pre-clinical and clinical

 

activities; and

 

Participation at major medical and scientific forums;

 

o Interface with the FDA on a pre-approval basis to help ensure rapid approval of Myotech CSS product;

 

o Market and distribute the Myotech CSS by entering into a strategic relationship with a leading medical device company with an appropriate sales and marketing infrastructure;

 

 

o Protect current and future technology developments by establishing a strong trademark and patent position;

 

o Recruit additional, expert-level subject matter expertise where it compliments core team capabilities; and

 

 

TECHNOLOGY

 

Technologies for MRI Image Compatibility

 

Biophan has developed and in licensed a number of technologies for improving MRI image compatibility of interventional devices and implants. These technologies fall into two main categories:

 

o Resonator Technology

 

o Incorporating a resonant circuit, tuned to the resonant frequency of the MRI machine, to enhance the MRI signal and overcome the image artifact (distortion).

 

Product Opportunities for Improved MRI Imaging

 

These product opportunities include the following:

 

o MRI visible stents

 

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o MRI visible vena cava filters

 

o MRI visible stent based heart valve

 

o Guidewires

 

o Catheters

 

MRI Visible Stents

 

A stent is a device that is implanted to hold open a blood vessel that has become too narrow due to atherosclerosis. When imaged under MRI, stents create a large image artifact which prevents viewing of blockages or clotting within the stent. Biophan has developed a solution to this problem.

 

The image artifact (a large dark area on the MRI image in the area where the stent is located) prevents the physician from seeing the critical area in and around the stent. This is caused by the fact that a metallic stent behaves as a Faraday Cage due to its geometry and material, and the stent additionally creates a magnetic susceptibility artifact due to the material of manufacture of the stent.

 

To overcome this limitation, Biophan has developed a resonator technology, which uses tuned circuits to increase the RF signal, and overcome the Faraday Cage effect, making it possible to image within and around a stent.

 

Biophan's technology allows imaging of a blood clot or restenosis within a stent. Currently, measuring restenosis within a stent requires either angiography or intravenous ultrasound, both of which involve complex and invasive catheterization procedures and have a higher chance of complications to the patient than a simple, non-invasive MRI scan.

 

MRI Visible Vena Cava Filters

 

A vena cava filter is a device inserted into a major vein to prevent a thrombus (blood clot) from entering the lungs, which could cause a pulmonary embolism. This device will trap the blood clot in a "cage" before it reaches the lungs.

 

 

MRI Visible Stent-Based Heart Valve

 

A stent based heart valve enables replacement of the aortic valve without the requirement of an open-heart surgery. In cases of calcification of the aortic valve, the function of the valve is no longer efficient. The standard clinical procedure would be to replace the valve in an open-heart surgery. This is a complicated and expensive procedure.

 

Our technology allows the procedure to be performed via percutaneous access through a peripheral vessel, with the procedure performed over a guide wire for placement. The procedure may be performed under fluoroscopy using contrast media injections, or under MRI guidance. For this procedure, there is no need to stop the heart, and no need to put the patient on a heart-lung bypass machine during the operation.

 

With an MRI visible stent-based heart valve, the physician can utilize MRI imaging, with its 3D-orientation and excellent image quality. It is possible to perform the planning and the implementation of the interventions without the side effects of exposure to x-rays, including harmful radiation exposure for both the patients and the physician, and the need for nephrotoxic contrast media. In addition, the ability to accurately visualize the function of the valve under MRI with Biophan's resonator technology can allow less invasive follow up to assess valve function on a regular basis.

 

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Guidewires and Catheters

 

 

SALES AND MARKETING

 

MRI Related Technologies

 

These technologies are applicable to a broad array of products, including stents, vena cava filters, heart valves, occluders, and catheters.

 

Biophan's technology supplies an important feature for these devices, but the devices and systems are complex and have a significant hurdles in terms of design, development, manufacturing and regulatory approval. As a result, Biophan plans to license these technologies to leading medical device manufacturers who have the experience, capabilities and sales force to market products with these features and benefits.

 

 

COMPETITION

 

In the area of devices that can be imaged non-invasively under MRI, such as imaging restenosis inside stents, or visualizing blood flow in heart valves, the Company holds fundamental issued patents on its solutions, including resonant circuits (which overcome Faraday cage effects of stents). Other companies have filed patents on alternative designs, but Biophan and its licensors have the only known solutions demonstrated to enable visualizing inside stents and heart valves under MRI.

 

In the area of cardiovascular support, there are several manufacturers of circulatory support systems, including Abiomed, Thoratec, World Heart, and others. In the area of acute heart failure, where restoration of cardiac output is needed for an arrested heart, there are no circulatory systems known to the Company that can provide full systolic and diastolic support to an arrested heart, without blood contact, as quickly as the Myotech circulatory support system. PPA Technologies AG, in Germany, is developing a device that provides non-blood contacting support, their patents are not widely filed outside of Germany and do not cover many of the features and full range of capabilities of the Myotech CSS.

 

 

INTELLECTUAL PROPERTY

 

MRI Related Technologies

 

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        Biophan controls, directly or through exclusive licenses, 49 issued U.S. patents, and over 60 pending applications at various stages of examination. These cover a broad range of technologies, including MRI image compatibility technologies, biothermal power supply technologies and photonics-related technologies.

 

Trademarks

 

The name "Biophan" is a registered trademark of the Company. We have filed for registration of the following trademarks: Nanolution, Nanolute and Nanoview.

 

Myotech's intangible assets currently consist primarily of trademarks and patent applications.

 

Myotech has filed for registration of the following trademarks: Myotech, MYO-VAD, Your Heart Your Life, and We take therapy to heart.

 

Myotech's first patent application "Sensor-Equipped and Algorithm-Controlled Direct Mechanical Ventricular Assist Device" has published worldwide; national filing has begun in Europe, Canada, Japan, China, and India. The second patent application "Therapeutic Agent Delivery Apparatus with Direct Mechanical Ventricular Assist Capability" has published in the US, and has been filed worldwide as a PCT. These applications are being followed by five divisionals and CIP applications. A provisional application "Method and Apparatus for Minimally Invasive Direct Mechanical Ventricular Actuation" has been filed. Utility and foreign applications will follow. Work has begun on a comprehensive application focused on the biochemical and physiological aspects of the treatment of acute and chronic heart.

 

Employees

 

 

Facilities

 

 

Legal Proceedings

 

Except as noted below, we are not a party to any material legal proceedings and there are no material legal proceedings pending with respect to our property, except as noted below. We are not aware of any legal proceedings contemplated by any governmental authorities involving either us or our property. None of our directors, officers or affiliates is an adverse party in any legal proceedings involving us or our subsidiaries, or has an interest in any proceeding which is adverse to us or our subsidiaries.

 

The Company is pursuing legal claims against one of its former law firms and certain of its attorneys. Review of the firm's work product and bills recently revealed questions about the firm's billing practices and other activities. The amount of potential damages has not yet been quantified. Also, the law firm has asserted claims seeking payment of additional legal fees, which claims the Company has denied. The litigation is in an early stage. While, as with any legal proceedings, no assurance can be given as to ultimate outcome, management believes that the outcome of the litigation will not have a material adverse effect upon the Company's financial condition. Accordingly, adjustments, if any that might result from the resolution of this matter have not been reflected in the financial statements.

 

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Stuart G. MacDonald has been Biophan's Vice-President-Research and Development since January 2001. From January 1995 through December 2000, Mr. MacDonald was employed at Ortho-Clinical Diagnostics, a Johnson & Johnson company, 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 worked at Eastman Kodak Company from 1971 to 1994, rising to the position of Assistant Director, Clinical Diagnostic Research Labs. A portion of Mr. MacDonald's time is spent assisting with the research programs of Biomed Solutions, LLC and Myotech, LLC, related companies, for which Biophan is reimbursed.

There are no family relationships among any of our directors or executive officers.

 

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Corporate Governance Guidelines

 

Our Board has long believed that good corporate governance is important to ensure that we are managed for the long-term benefit of our stockholders. Our common stock is currently quoted on the OTC Bulletin Board. The OTC Bulletin Board currently does not have any corporate governance rules similar to the NASDAQ Stock Market, Inc., the American Stock Exchange, Inc. or any other national securities exchange or national securities association. However, our Board believes that the corporate governance rules of NASDAQ and AMEX represent good governance standards and, accordingly, during the past year, our Board has continued to review our governance practices in light of the Sarbanes-Oxley Act of 2002, the new rules and regulations of the Securities and Exchange Commission and the new listing standards of NASDAQ and AMEX, and it has implemented certain of the foregoing rules and listing standards during this past fiscal year. Biophan has also 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. Our Board is also considering adopting during this current fiscal year additional corporate governance guidelines to assist it in the exercise of its duties and responsibilities and to serve the best interests of Biophan and its stockholders.  

 

Board Determination of Independence

 

 

The Board held nine (9) meetings during our fiscal year ended February 28, 2007. The standing committees of the Board are the Audit Committee and the Compensation Committee. The Board does not currently have a nominating committee and has not established any specific procedure for selecting candidates for director. Directors are currently nominated by a majority vote of the Board. There is also no established procedure for stockholder communications with members of the Board or the Board as a whole. However, stockholders may communicate with our investor relations department, and such communications are either responded to immediately or are referred to the president or chief financial officer for a response. During fiscal 2007, each of the incumbent directors, during his period of service, attended at least 75% of the total number of meetings held by the Board.

 

Audit Committee.

 

The Audit Committee is composed of Dr. Jaensch and Mr. Greenberg. The responsibilities of the Audit Committee as more fully set forth in the Audit Committee Charter adopted in July 2003 and posted on our website at www.biophan.com, include appointing, retaining, replacing, compensating and overseeing the work of the independent accountants, who report to, and are directly accountable to, the Committee. The Audit Committee 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 Audit Committee met formally five (5) times during our fiscal year ended February 28, 2007. During that fiscal year, the Audit Committee was composed at various times of Dr. Jaensch, Mr. Bramson, Mr. Kenzie, Mr. Greenberg, Mr. Yakatan and Mr. Katz. On the occasion of two of the four meetings held by the Committee during his tenure, Mr. Yakatan was absent. Otherwise, each member of the Audit Committee attended all of the meetings. The Board has determined that each of Dr. Jaensch and Mr. Greenberg meets the qualifications as an "audit committee financial expert". Each member of the Audit Committee is "independent" as such term is used in Section 10A(m)(3) of the Securities and Exchange Act of 1934, as amended.

 

Compensation Committee.

 

 

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Director Compensation

 

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, receive an annual cash fee of $8,000. Dr. Jaensch receives an additional $30,000 for serving as Chairman of the Board. In addition, non-employee directors receive options under our 2006 Incentive Stock Plan. All directors receive reimbursement for their reasonable expenses incurred in attending Board meetings. An additional $3,000 per year is paid to the 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.

 

 

DIRECTOR COMPENSATION (1)

Name		Fees Earned or Paid in Cash ($)			Option Awards ($)(2)			All Other Compensation ($)			Total ($)
Guenter H. Jaensch			38,000 (3	)		24,834 (9	)		0			62,834
Steven Katz			8,000 (4	)		24,834 (10	)		183,500 (16	)		216,334
Theodore A. Greenberg			6,000 (5	)		24,834 (11	)		0			30,834
Stan Yakatan			2,000 (6	)		5,165 (12	)		0			7,165
Michael Friebe			0 (7	)		0 (13	)		27,984 (17	)		27,984
Robert S. Bramson			2,000 (7	)		0 (14	)		34,607 (18	)		36,607
Ross B. Kenzie			6,000 (8	)		24,834 (15	)		0			30,834

 

(1) Certain columnar information required by Item 402(k)(2) of Regulation S-K has been omitted for categories where there was no compensation awarded to, or paid to, the named directors during the fiscal year ended February 28, 2007.

 

(2) The reported amounts reflect the dollar amounts recognized for financial statement reporting purposes for the fiscal year ended February 28, 2007, in accordance with FAS 123R, of awards pursuant to our Stock Incentive Plan and may include amounts from awards granted both in and prior to the fiscal year ended February 28, 2007. As required, the amounts shown exclude the impact of any forfeitures related to service-based vesting conditions. The actual amount realized by the director will likely vary based on a number of factors, including the Company's performance, stock price fluctuations and applicable vesting.

 

(3) Includes a $30,000 fee for service as Chairman of the Board and an $8,000 fee for service on the Board.

 

(4) Resigned in March 2007.

 

(5) Elected to the Board in April 2006.

 

(6) Elected to the Board in December 2006.

 

(7) Term expired in July 2006.

 

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(9) An option for the purchase of 40,000 shares of common stock at an exercise price of $1.06 per share was granted to Dr. Jaensch on July 18, 2006. This option becomes fully vested and exercisable on the earlier of (i) completion of one year of service as a director measured from the date of grant or (ii) continuation of such service through the day immediately preceding the first annual shareholders meeting following the date of grant. This option has a termination date of July 18, 2016. At February 28, 2007, Dr. Jaensch held options for the purchase of an aggregate of 715,000 shares of common stock, of which options for the purchase of 627,500 shares were exercisable.

 

(10) An option for the purchase of 40,000 shares of common stock at an exercise price of $1.06 per share was granted to Mr. Katz on July 18, 2006. This option becomes fully vested and exercisable on the earlier of (i) completion of one year of service as a director measured from the date of grant or (ii) continuation of such service through the day immediately preceding the first annual shareholders meeting following the date of grant. This option has a termination date of July 18, 2016. At February 28, 2007, Mr. Katz held options for the purchase of an aggregate of 420,000 shares of common stock, of which options for the purchase of 332,500 shares were exercisable.

 

(11) An option for the purchase of 40,000 shares of common stock at an exercise price of $1.06 per share was granted to Mr. Greenberg on July 18, 2006. This option becomes fully vested and exercisable on the earlier of (i) completion of one year of service as a director measured from the date of grant or (ii) continuation of such service through the day immediately preceding the first annual shareholders meeting following the date of grant. This option has a termination date of July 18, 2016. At February 28, 2007, Mr. Greenberg held options for the purchase of an aggregate of 40,000 shares of common stock, none of which were exercisable.

 

(12) An option for the purchase of 40,000 shares of common stock at an exercise price of $0.45 per share was granted to Mr. Yakatan on December 1, 2006. This option becomes fully vested and exercisable on the earlier of (i) completion of one year of service as a director measured from the date of grant or (ii) continuation of such service through the day immediately preceding the first annual shareholders meeting following the date of grant. This option has a termination date of December 1, 2016. At February 28, 2007, Mr. Yakatan held options for the purchase of an aggregate of 40,000 shares of common stock, none of which were exercisable.

 

(13) Dr. Friebe held no options at February 28, 2007.

 

(14) At February 28, 2007, Mr. Bramson held options for the purchase of an aggregate of 365,000 shares, of which options for the purchase of 277,500 shares were exercisable.

 

(15) An option for the purchase of 40,000 shares of common stock at an exercise price of $1.06 per share was granted to Mr. Kenzie on July 18, 2006. This option required (i) completion of one year of service as a director measured from the date of grant or (ii) continuation of such service through the day immediately preceding the first annual shareholders meeting following the date of grant. Because Mr. Kenzie resigned on October 31, 2006 before satisfaction of the vesting requirements, this option terminated without becoming exercisable. At February 28, 2007, Mr. Kenzie held options for the purchase of an aggregate of 245,000 shares of common stock, of which options for the purchase of 197,500 shares were exercisable.

 

(16) Other compensation consists of fees for consulting services performed by Mr. Katz.

 

(17) Other compensation consists of salary as an employee of our subsidiary, Biophan Europe GmbH, through May 2006 and fees for consulting services through September 2006.

 

 

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CODE OF ETHICS

 

 

POTENTIAL CONFLICTS OF INTEREST

 

Messrs. MacDonald, Helfer, 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, 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.

 

Messrs. MacDonald and Helfer serve on the board of managers of Myotech, LLC, an entity in which Biomed is a 12.53% owner and Biophan is a 68% owner. Myotech is developing a biomedical device that does not compete with those being developed by us.

 

Mr. Lanzafame is on the Board of NaturalNano, Inc., the principal owner of which is Technology Innovations, LLC. NaturalNano has entered into a research and development agreement with us for drug eluting technology.

 

 

LIMITATION OF LIABILITY AND INDEMNIFICATION

 

As permitted by the Nevada General Corporation Law, we have adopted provisions in our certificate of incorporation and by-laws to be in effect at the closing of this offering that limit or eliminate the personal liability of our directors. Consequently, a director will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for:

 

o any breach of the director's duty of loyalty to us or our stockholders;

 

o any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

o any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or

 

o any transaction from which the director derived an improper personal benefit.

 

These limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies such as an injunction or rescission.

 

In addition, our by-laws provide that:

 

o we will indemnify our directors, officers and, in the discretion of our board of directors, certain employees to the fullest extent permitted by the Nevada General Corporation Law; and

 

o we will advance expenses, including attorneys' fees, to our directors and, in the discretion of our board of directors, to our officers and certain employees, in connection with legal proceedings, subject to limited exceptions.

 

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        We also maintain general liability insurance that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, including liabilities under the Securities Act of 1933, as amended. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling the registrant pursuant to the foregoing provisions, we have been informed 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.

 

These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder's investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We believe that these provisions, the indemnification agreements and the insurance are necessary to attract and retain talented and experienced directors and officers.

 

At present, there is no pending litigation or proceeding involving any of our directors or officers where indemnification will be required or permitted. We are not aware of any threatened litigation or proceeding that might result in a claim for such indemnification.

 

COMPENSATION DISCUSSION AND ANALYSIS

 

General Compensation Philosophy

 

 

Executive Compensation Guiding Principles

 

Our general compensation philosophy is further guided by the following principles specific to our executives:

 

o A strong link between pay and Company performance

 

o Executives aligned with stockholders and managing from the perspective of owners with a meaningful equity stake in Biophan in the form of grants of stock options and restricted stock.

 

o A competitive compensation package that will enable the Company to attract and motivate high-performing talent and that is strongly competitive with other biotechnology companies in our industry.

 

o A simple and cost-efficient program design

 

The Compensation Committee of our Board of Directors determines the base salary (and any bonus and equity-based compensation) for each executive officer annually. John F. Lanzafame, our Chief Executive Officer, confers with members of the Compensation Committee, and makes recommendations, regarding the compensation of all executive officers other than himself. He does not participate in the Compensation Committee's deliberations regarding his own compensation. In determining the compensation of our executive officers, the Compensation Committee consults the annual Bioworld Executive Compensation Report, but does not engage in any benchmarking of total compensation or any material element of compensation.

 

 

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Components of Biophan's Compensation Program

 

The compensation program for our Named Executive Officers consists of:

 

(1)  Base salary;

 

(2)  Long-term incentive compensation, including:

 

(i)  Stock Options, Restricted Stock, and Restricted Stock Units,

 

(ii)  Stock Appreciation Rights, and Other Stock-Based Awards,

 

(iii)  Broad-based Employee Benefits

 

(1)  Base Salary

 

With respect to annual compensation, the fundamental objective in setting base salary levels for the Company's senior management is to pay competitive rates to attract and retain high quality, competent executives. Competitive pay levels are determined based upon proxy disclosures, individual leadership, level of responsibility, management skills and industry activities. The Company does not currently have a bonus program for its executives.

 

(2)  Long Term Incentive Compensation

 

(i)  Stock Options, Restricted Stock, and Restricted Stock Units.

 

The Company has two equity-based compensation plans, entitled Biophan Technologies, Inc. 2001 Stock Option Plan and Biophan Technologies, Inc. 2006 Incentive Stock Plan (the "Plans"), which are stockholder approved. The Plans provide for the grant of incentive and non-qualified stock options to employees, and the grant of non-qualified options to consultants and to directors and advisory board members. In addition, various other types of stock-based awards, such a stock appreciation rights, may be granted under the Plans. The Plans are administered by the Compensation Committee of our Board of Directors, which determines the individuals eligible to receive options or other awards under the Plans, the terms and conditions of those awards, the applicable vesting schedule, the option price and term for any granted options, and all other terms and conditions governing the option grants and other awards made under the Plans. Under the 2006 Plan, non-employee directors receive automatic grants of options for the purchase of 40,000 shares of common stock (i) upon the initial election to the Board of Directors and (ii) at each successive Annual Meeting at which they are re-elected to the Board. Under the 2001 Plan, 13,000,000 shares of our common stock were reserved for issuance pursuant to options or restricted stock awards; at February 28, 2007, 597,981 shares were available for future option grants and awards. Under the 2006 Plan, 7,500,000 shares of our common stock were reserved for issuance pursuant to options or restricted stock awards; at February 28, 2007, 7,265,003 shares were available for future option grants and awards.

 

To date, awards have been solely in the form of non-qualified stock options granted under the Plans. The Compensation Committee grant these stock-based incentive awards from time to time for the purpose of attracting and retaining key executives, motivating them to attain the Company's long-range financial objectives, and closely aligning their financial interests with long-term stockholder interests and share value.

 

Restricted stock awards entitle recipients to acquire shares of common stock, subject to our right to repurchase all or part of such shares from the recipient in the event that the conditions specified in the applicable award are not satisfied prior to the end of the applicable restriction period established for such award. Restricted stock unit awards entitle the recipient to receive shares of common stock to be delivered in the future subject to such terms and conditions on the delivery of the shares as the Board of Directors may determine.

 

 

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SUMMARY COMPENSATION TABLE (1)

 

The table set forth below summarizes the compensation paid to our named executive officers during the year ended February 28, 2007.

Name and Principal Position		Year			Salary ($)			Bonus ($)(2)			Stock Awards ($)(3)			Option Awards ($)(4)			All Other Compensation ($)			Total ($)
Michael L. Weiner (6)			2007			260,000			0			0			0			11,758			271,758
President
Darryl L. Canfield (7)			2007			180,000			0			0			0			0			180,000
CFO
John F. Lanzafame (8)			2007			188,077			0			0			0			0			188,077
Vice-President and COO
Stuart G. MacDonald			2007			175,000			0			0			0			0			175,000
Vice-President-Research
Jeffrey L. Helfer			2007			180,000			0			0			0			0			180,000
Vice-President-Engineering

 

(1)

Certain columnar information required by Item 402(c)(2) of Regulation S-K has been omitted for categories where there has been no compensation awarded to, or paid to, the named executive officers required to be reported in the table during fiscal year ended February 28, 2007.

 

(2)

No bonus was paid to any named executive officer. The Company does not have a formal bonus plan, but the Compensation Committee has, from time to time on the recommendation of management, awarded cash bonuses to employees in recognition of exceptional service.

 

(3)

The Company did not issue any stock awards to named executive officers in the fiscal year ended February 28, 2007.

 

(4)

The Company did not issue any options awards to named executive officers in the fiscal year ended February 28, 2007.

 

(5)

Unless otherwise indicated, the aggregate amount of perquisites and other personal benefits given to each of the named executive officers valued at the actual cost to the Company was less than $10,000. These amounts consist of contributions made by the Company to the 401(k) Plan and premiums for long-term disability for each of the officers.

 

(6)

Resigned in October 2007.

 

(7)

Resigned in June 2007.

 

(8)

Was appointed as Chief Executive Officer in September 2007.

Grants of Plan Based Awards

 

 

Outstanding Equity Awards at Fiscal Year End

 

The following table presents the number and values of exercisable and unexercisable options at February 28, 2007:

 

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Option Awards (1)

Name		Number of Securities Underlying Unexercised Options (#) Exercisable (Vested)			Number of Securities Underlying Unexercised Options (#) Unexercisable (Unvested)			Option Exercise Price ($/Sh)			Option Expiration Date
Michael L. Weiner			250,000 (2	)		0			0.50			01/01/2011
			250,000 (3	)		0			0.43			07/16/2012
			300,000 (4	)		0			0.18			10/31/2013
			800,000			200,000 (5	)		0.97			05/10/2014
Darryl Canfield			300,000			300,000 (6	)		1.87			11/09/2015
John F. Lanzafame			75,000			25,000 (7	)		0.67			07/19/2014
			112,500			37,500 (8	)		0.74			09/03/2014
			240,000			60,000 (9	)		1.80			3/15/2015
			91,667			183,333 (10	)		1.56			01/06/2016
Stuart G. MacDonald			100,000 (11	)		0			0.50			01/01/2011
			100,000 (12	)		0			0.43			07/16/2012
			200,000 (4	)		0			0.18			10/31/2013
			340,000			85,000 (13	)		0.97			05/10/2014
			25,000 (14	)		0			2.60			05/27/2015
Jeffrey L. Helfer			100,000 (15	)		0			0.50			01/01/2011
			100,000 (3	)		0			0.43			07/16/2012
			200,000 (4	)		0			0.18			10/31/2013
			340,000			85,000 (13	)		0.97			05/10/2014
			25,000 (14	)		0			2.60			05/27/2015

 

(1) Certain columnar information required by Item 402(f) (2) of Regulation S-K has been omitted for categories where there has been no compensation awarded to, or paid to, the named executive officers required to be reported in the table during fiscal year ended February 28, 2007.

 

(2) These stock options were granted on January 1, 2001, with 100,000 vesting and becoming exercisable immediately. The remaining options vested and became exercisable in three equal annual installments with the first installment vesting on January 1, 2002.

 

(3) These stock options were granted on July 16, 2002. This option vested and became exercisable in three equal annual installments with the first installment vesting on December 31, 2002.

 

(4) These stock options were granted on October 31, 2003. This option vested and became exercisable in four equal annual installments with the first installment vesting on October 31, 2003.

 

(5) These stock options were granted on May 10, 2004. This option becomes vested and exercisable after the following contingencies are met.

 

a. 400,000 options upon completion of a financing deal,

 

 

c. 200,000 options upon completion of a listing on a major exchange.

 

(6) These stock options were granted on November 9, 2005. This option becomes vested and exercisable in six equal annual installments with the first installment vesting on November 9, 2005.

 

(7) These stock options were granted on July 19, 2004. This option becomes vested and exercisable in four equal annual installments with the first installment vesting July 19, 2004.

 

(8) These stock options were granted September 3, 2004. This option becomes vested and exercisable in four equal annual installments with the first installment vesting September 3, 2004.

 

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(9) These stock options were granted on March 10, 2005. This option becomes vested and exercisable after the following contingencies are met.

 

a. 90,000 options upon completion of a financing deal vest and become exercisable in three equal semi-annual installments with the first installment vesting March 15, 2005,

 

b. 150,000 options upon completion of a substantial licensing and/or strategic transaction vest and become exercisable in three equal semi-annual installments with the first installment vesting March 15, 2005, and

 

c. 60,000 options upon completion of a listing on a major exchange vest and become exercisable in three equal semi-annual installments with the first installment vesting on the date of completion.

 

(10) These stock options were granted on January 6, 2006. This option becomes vested and exercisable in three equal annual installments with the first installment vesting on January 6, 2007.

 

(11) These stock options were granted January 1, 2001. This option vested and became exercisable in five equal annual installments with the first installment vesting January 1, 2002.

 

(12) These stock options were granted July 16, 2002. This option vested and became exercisable on December 31, 2002.

 

(13) These stock options were granted on May 10, 2004. This option becomes vested and exercisable after the following contingencies are met.

 

a. 127,500 options upon completion of a financing deal,

 

b. 212,500 options upon completion of a substantial licensing and/or strategic transaction, and

 

c. 85,000 options upon completion of a listing on a major exchange.

 

(14) These stock options were granted May 27, 2005. This option vested and became exercisable on May 27, 2005.

 

 

Options Exercised and Stock Vested

 

No named executive officer exercised options in the fiscal year ended February 28, 2007. Options held by the following named executive officer vested during the year ended February 28, 2007 as follows:

Darryl L. Canfield  200,000

John F. Lanzafame  154,127

Stuart G. MacDonald  50,000

Jeffrey L. Helfer  50,000

 

Employment Agreements

 

Each of John F. Lanzafame, interim Chief Executive Officer; Stuart G. MacDonald, Vice President of Research and Development; and Jeffrey L. Helfer, Vice President and General Manager of Cardiovascular Products; has entered into an employment agreement with Biophan.

 

 

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        For purposes of the employment agreements for Messrs. MacDonald, Helfer and Lanzafame "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 President of the Company (Mr. Weiner resigned on October 3, 2007); 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 vested warrants and options remain exercisable for the life of the applicable agreement.

 

Termination and Change in Control Tables

 

The tables below outline the potential payments to our Named Executive Officers upon the occurrence of certain termination triggering events. For the purposes of the table, below are the standard definitions for the various types of termination, although exact definitions may vary by agreement and by person.

 

"Voluntary termination" means a termination initiated by the executive officer.

 

"Voluntary termination for Good Reason" generally means termination initiated by the executive officer (i) following a change in control as defined above (ii) due to a material breach by the Company under the employment agreement or (iii) a significant change in the executive officer's duties.

 

"Involuntary Termination--Disability" means entitlement to long-term disability benefits under the Company Disability Income Plan, as amended and any successor plan, or a determination of a permanent and total disability under a state workers compensation statute.

 

"Involuntary Termination-- For Cause" means the occurrence of one or more of the following events (i) the Executive willfully refuses to obey reasonable and lawful orders of the President or the Board of Directors; (ii) the Executive has willfully breached or habitually neglected his duty and has failed to correct his behavior within five (5) days following receipt of written notice of such concerns; (iii) the Executive has been convicted in a court of law of a crime or offense which involves dishonesty or fraud; (iv) the Executive has breached any of the Executive's obligations pursuant to this Agreement; or (v) the Executive has committed an intentional tort against the Company or its Executives.

 

 

"Involuntary Termination for Change-in-Control" occurs when a named executive is terminated after the completion of change in control as described above in Employment Contracts.

 

No Named Executive Officer is entitled to a payment in connection with Involuntary Termination--For Cause.

Only Mr. Helfer is entitled to a payment in connection with a Voluntary Termination for Good Reason.

 

Michael L. Weiner
President, Director
		Voluntary
		Termination						Involuntary Termination
Executive Benefits and Payments Upon		Good Reason or			Disability or									Change in
Termination (1)		Retirement			Death			For Cause			Not For Cause			Control
Compensation
Severence (2)			0		$	260,000			0		$	260,000		$	260,000
Benefits and Perquisites (3)
401(k) Match (4)			0			9,000			0			9,000			9,000
Health Insurance (5)			0			10,200			0			10,200			10,200
Long-Term Disability premiums (5)			0			1,360			0			1,360			1,360
Darryl L. Canfield
Vice President, Treasurer, Secretary, Chief Financial Officer
			Voluntary
			Termination						Involuntary Termination
Executive Benefits and Payments Upon			Good Reason or			Disability or									Change in
Termination (1)			Retirement			Death			For Cause			Not For Cause			Control
Compensation
Severence (2)			0			0			0			0		$	90,000
Benefits and Perquisites (3)
401(k) Match (4)			0			0			0			0			3,600
Health Insurance (5)			0			0			0			0			1,930
Long-Term Disability premiums (5)			0			0			0			0			810
John F. Lanzafame
Vice -President - Business Development, Chief Operating Officer
			Voluntary
			Termination						Involuntary Termination
Executive Benefits and Payments Upon			Good Reason or			Disability or									Change in
Termination (1)			Retirement			Death			For Cause			Not For Cause			Control
Compensation
Severence (2)			0			0			0			0		$	90,000
Benefits and Perquisites (3)
401(k) Match (4)			0			0			0			0			3,600
Health Insurance (5)			0			0			0			0			4,500
Long-Term Disability premiums (5)			0			0			0			0			240

Stuart MacDonald
Vice-President - Research and Development

		Voluntary
		Termination						Involuntary Termination
Executive Benefits and Payments Upon		Good Reason or			Disability or									Change in
Termination (1)		Retirement			Death			For Cause			Not For Cause			Control
Compensation
Severence (2)			0			0			0			0		$	87,500
Benefits and Perquisites (3)
401(k) Match (4)			0			0			0			0			3,500
Health Insurance (5)			0			0			0			0			1,600
Long-Term Disability premiums (5)			0			0			0			0			640
Jeffrey L. Helfer
Vice-President and General Manager-Cardiovascular Products
			Voluntary
			Termination						Involuntary Termination
Executive Benefits and Payments Upon			Good Reason or			Disability or									Change in
Termination (1)			Retirement			Death			For Cause			Not For Cause			Control
Compensation
Severence (2)		$	90,000			0			0			0			0
Benefits and Perquisites (3)
401(k) Match (4)			3,600			0			0			0			0
Health Insurance (5)			4,500			0			0			0			0
Long-Term Disability premiums (5)			550			0			0			0			0

 

(1)

For purposes of this analysis, we assume that the named Executive Officer's compensation is as follows: John Lanzafame and Jeffrey Helfer's current base salaries are $180,000; Stuart MacDonald's current base salary is $175,000.

 

(2)

Severance is calculated as follows: John Lanzafame and Stuart MacDonald receive six (6) months of base salary for Involuntary Termination-Change in Control; Jeffrey Helfer receives six (6) months for Voluntary Termination-Good Reason.

 

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(3)

Payments associated with benefits and perquisites are limited to the items listed. No other continuation of benefits or perquisites occurs under the termination scenarios listed.

 

(4)

401(k) Employer Match is calculated on salary paid as per Safe Harbor provision of the 401(k) Plan up to the maximum allowable contribution.

 

(5)

Health Insurance and Long-Term Disability continuation is calculated as follows: each of John Lanzafame, Stuart MacDonald, and Jeffrey Helfer at six (6) months.

 

LIMITATION OF LIABILITY AND INDEMNIFICATION

 

As permitted by the Nevada General Corporation Law, we have adopted provisions in our certificate of incorporation and by-laws to be in effect at the closing of this offering that limit or eliminate the personal liability of our directors. Consequently, a director will not be personally liable to us or our stockholders for monetary damages or breach of fiduciary duty as a director, except for liability for:

 

o any breach of the director's duty of loyalty to us or our stockholders;

 

o any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

 

o any unlawful payments related to dividends or unlawful stock repurchases, redemptions or other distributions; or

 

o any transaction from which the director derived an improper personal benefit.

 

These limitations of liability do not alter director liability under the federal securities laws and do not affect the availability of equitable remedies such as an injunction or rescission.

 

In addition, our by-laws provide that:

 

o we will indemnify our directors, officers and, in the discretion of our board of directors, certain employees to the fullest extent permitted by the Nevada General Corporation Law; and

 

o we will advance expenses, including attorneys' fees, to our directors and, in the discretion of our board of directors, to our officers and certain employees, in connection with legal proceedings, subject to limited exceptions.

 

We also maintain general liability insurance that covers certain liabilities of our directors and officers arising out of claims based on acts or omissions in their capacities as directors or officers, including liabilities under the Securities Act of 1933, as amended. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling the registrant pursuant to the foregoing provisions, we have been informed 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.

 

These provisions may discourage stockholders from bringing a lawsuit against our directors for breach of their fiduciary duty. These provisions may also have the effect of reducing the likelihood of derivative litigation against directors and officers, even though such an action, if successful, might otherwise benefit us and our stockholders. Furthermore, a stockholder's investment may be adversely affected to the extent we pay the costs of settlement and damage awards against directors and officers pursuant to these indemnification provisions. We believe that these provisions, the indemnification agreements and the insurance are necessary to attract and retain talented and experienced directors and officers.

 

 

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BENEFICIAL OWNERSHIP OF COMMON STOCK BY DIRECTORS, OFFICERS AND PRINCIPAL STOCKHOLDERS

 

The following table sets forth the beneficial ownership information of our common stock at October 22, 2007, for:

 

o each person known to us to be the beneficial owner of more than 5% of our common stock (other than selling stockholders, whose beneficial ownership is disclosed on page 54);

 

o each named executive officer;

 

o each of our directors; and

 

o all of our executive officers and directors as a group.

 

We have determined beneficial ownership in accordance with the rules of the SEC. Except as indicated by the footnotes below, we believe, based on the information furnished to us, that the persons and entities named in the table below have sole voting and investment power with respect to all shares of common stock reflected as beneficially owned. We have based our calculation of the percentage of beneficial ownership on 103,123,656 shares of common stock outstanding on October 22, 2007.

 

 

Name of Beneficial Owner		Shares Beneficially Owned			Percentage Ownership
Guenter H. Jaensch 16065 Bristol Isle Way Delray Beach, FL 33446			1,521,000 (1	)		1.46	%
Theodore A. Greenberg 530 F Grand Street, Apt. 8FG New York, NY 10002			109,000 (2	)		*
Bonita L. Labosky 3067 East Lake Road Skaneateles, NY 13152			66,000 (2	)		*
Stan Yakatan 245 33rd Street Hermosa Beach, CA 90254			310,000 (3	)		*
John F. Lanzafame 10 Alameda Drive Fairport, NY 14450			1,476,667 (2	)		1.41	%
Stuart G. MacDonald 4663 East Lake Road Pultneyville, NY 14538			1,400,000 (4	)		1.34	%

 

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Robert J. Wood 12 Peachtree Lane Pittsford, NY 14534			1,205,000 (2	)		1.16	%
Biomed Solutions, LLC 15 Schoen Place Pittsford, NY 14534			5,585,705 (5	)		5.17	%
Technology Innovations, LLC 15 Schoen Place Pittsford, NY 14534			5,886,349 (6	)		5.45	%
Michael L. Weiner 3349 Monroe Ave, Unit 350 Rochester, NY 14618			7,693,710 (8	)		7.02	%
All Directors and Executive Officers as a Group (7 persons)			6,087,667 (7	)		5.60	%

 

* Less than 1%

 

(1)

Includes 1,521,000 shares issuable upon exercise of currently-exercisable options. Also includes 225,000 shares owned by Dr. Jaensch's wife; Dr. Jaensch disclaims beneficial ownership of the shares held by his wife.

 

(2)

Issuable upon exercise of currently exercisable options.

 

(3)

Includes 300,000 shares issuable upon exercise of currently exercisable options.

 

(4)

Includes 1,310,000 shares issuable upon exercise of currently exercisable options.

 

(5)

Includes 4,928,949 shares issuable upon exercise of currently-exercisable warrants and conversion of outstanding convertible promissory notes and accrued interest thereon.

 

(6)

Includes (i) 656,756 shares owned by Biomed Solutions, LLC and (ii) 4,928,949 shares issuable to Biomed Solutions, LLC upon exercise of currently-exercisable warrants and conversion of outstanding convertible promissory notes and accrued interest thereon. Technology Innovations, LLC is the beneficial owner of 57% of the outstanding membership interests of Biomed Solutions, LLC; it disclaims ownership of these shares except to the extent of its pecuniary interest in Biomed Solutions, LLC.

 

(7)

Includes shares issuable upon exercise of options as described in notes 1 through 6 above. Also includes shares as to which beneficial ownership is disclaimed, as described in note 1 above.

 

(8)

Includes (i) 656,756 shares owned by Biomed Solutions LLC and an aggregate of 4,928,949 shares issuable to Biomed Solutions LLC upon exercise of currently-exercisable warrants and conversion of outstanding convertible promissory notes and accrued interest, and (ii) 300,644 shares owned by Technology Innovations LLC. Mr. Weiner is deemed to have voting and investment control over these shares by reason of his status as Manager of Biomed Solutions LLC and Technology Innovations LLC. He disclaims beneficial ownership of these shares except to the extent of his pecuniary interest in Biomed Solutions LLC and Technology Innovations LLC. Also includes 1,600,000 shares issuable upon exercise of currently-exercisable options held by Mr. Weiner.

 

Plan category		Number of securities to be issued upon exercise of outstanding options, warrants and rights			Weighted average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)
		(a)			(b)			(c)
Equity compensation plans approved by security holders			9,428,062		$	.96			7,862,984
Equity compensation plans not approved by security holders			-0-			-0-			-0-
Total			9,428,062		$	.96			7,862,984

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

 

 

Service		Fee
Assistance with audit of Biophan Europe GmbH		$	7,500
Assistance with acquisition of interest in Myotech LLC			32,500
Assistance with October 2006 convertible note and warrant financing			131,000
General management assistance			12,500

 

 

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As further consideration to the investors, we issued one-year warrants to purchase an aggregate of 10,820,896 shares of our common stock at a price of $0.67 per share. If the investors elect to exercise these one-year warrants, they will also receive additional five-year warrants to purchase shares of our common stock equal to the number of shares purchased under the one-year warrants, with 50% of the additional warrants having an exercise price of $0.85 per share, and the remaining 50% of the additional five-year warrants having an exercise price of $0.92 per share. We also issued to the investors two series of five-year warrants to purchase an aggregate of 10,820,896 shares of our common stock. The first five-year warrants allow for the purchase of 5,410,448 shares of our common stock at an exercise price of $0.81 per share, and the second five-year warrants allow for the purchase of 5,410,448 shares of our common stock at an exercise price of $0.89 per share. The warrants contain anti-dilution protection that, should we issue equity or equity-linked securities at a price per common share below the exercise price of the five-year warrants, will automatically adjust the exercise price of the warrants to the price at which we issue such equity or equity-linked securities.

 

On February 21, 2007, we entered into a Forbearance Agreement (the "Forbearance Agreement") with the selling investors pursuant to which the investors agreed that, during the period commencing on February 16, 2007 and ending on the earlier of (i) March 31, 2007 or (ii) the date on which any Termination Event (as defined in the Forbearance Agreement) first occurs (the "Forbearance Period"), they will forbear from exercising any and all of the rights and remedies which they may have against us or any of our assets under the Notes or the Purchase Agreement or at law or in equity as a result of any default under the Notes or as a result of the occurrence of certain events with respect to the Purchase Agreement. In exchange for entering into the Forbearance Agreement, we issued pro rata to the investors three-year warrants for the purchase of an aggregate of 60,000 shares of our common stock at an exercise price of $0.51 per share (the "Fee Warrants").

 

Upon the issuance of the Fee Warrants, the exercise prices of five-year warrants issued to the investors pursuant to the Purchase Agreement to the Note Holders (the "Original Warrants") for the purchase of an aggregate of 10,820,896 shares of our common stock were automatically adjusted from $0.81 per share and $0.89 per share, respectively, to $0.51 per share, and the number of shares of Common Stock issuable upon exercise of the Original Warrants was automatically adjusted, proportionately, to an aggregate of 18,034,830 shares. In the Forbearance Agreement, the investors waived, with respect to the issuance of the Fee Warrants, application of similar anti-dilution adjustments contained in the Notes and in a third series of warrants for the purchase, on or before October 12, 2007, of an aggregate of 10,820,896 additional shares of our common stock at an exercise price of $0.67 per share (the "One Year Warrants").

 

Pursuant to the Forbearance Agreement, we also agreed that we would not, without the prior written consent of investors then holding Notes representing, in the aggregate, at least sixty percent (60%) of the face amount of all outstanding Notes, incur expenses (other than the accrual of interest, penalties and liquidated damages on the Notes or under the Purchase Agreement) in excess of $500,000 during any thirty-day period commencing on February 16, 2007 and terminating on the date on which the Registration Statement to which this prospectus relates was declared effective by the Securities and Exchange Commission.

 

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C.E. Unterberg, Towbin acted as the exclusive placement agent in the offering. We paid the placement agent a cash fee of $580,000 and issued to it a five-year warrant to purchase an aggregate of 865,672 shares of our common stock at a price of $0.67 per share. The placement agent is a selling stockholder in this offering.

 

In connection with the Forbearance Agreement, C.E. Unterberg Towbin separately agreed to waive, with respect to the issuance of the Fee Warrants, application of the anti-dilution provisions set forth in its warrant.

 

On October 3, 2007, the Company entered into Amendment No. 1 to the Securities Purchase Agreement, Senior Secured Convertible Notes, Warrants and Security Agreement (the “Amendment”). Pursuant to the Amendment, the Company agreed to amend the Notes to provide that even if the Company elects to make a monthly payment in cash, the holder will have the right to convert any portion of the Note into common stock of the Company and apply the number of shares the holder would have received had the Company elected to make payment in common stock. In addition, the Conversion Price was reduced to $0.15. The Amendment also amended the warrants to reduce the exercise prices of the various warrants to $0.23. In exchange for the foregoing the investors released certain intellectual property, allowing the Company to transfer and sell such intellectual property.

 

Pursuant to the Amendment the Company also agreed to certain spending covenants in connection with the proceeds it will receive from the sale of the intellectual property under the Intellectual Property Assignment Agreement dated as of August 6, 2007 by and between Biophan and Medtronic, Inc. The Amendment also granted certain additional rights to the investors related to Biophan’s majority owned subsidiary Myotech including the right to consent to the appointment of Biophan’s representatives to the Board of Directors.

The Registration Statement to which this prospectus relates was filed by us pursuant to an agreement with the selling stockholders to register for resale under the Securities Act the common stock issuable upon the exercise of all of the warrants and any shares of common stock that we may issue at our option to the holders of the Notes in connection with payments of interest and principal, or that we are obligated to issue upon any conversion of the Notes at the option of the holders. We further agreed to propose to our shareholders an amendment to our Articles of Incorporation in order to increase to at least 250,000,000 the number of authorized shares of our common stock (the "Charter Amendment") in order to make available a sufficient number of shares to permit the exercise if full of the warrants issued to the investors under the Purchase Agreement and the conversion in full of the Notes.

 

SELLING STOCKHOLDERS

 

The following table sets forth the beneficial ownership information of our common stock at October 22, 2007, and as adjusted to reflect the sale of the shares of common stock in this offering, for each selling stockholder.

 

Certain selling stockholders may be affiliates of broker-dealers. To our knowledge, each selling stockholder purchased the shares of our stock in the ordinary course of business and, at the time of acquiring the securities to be resold, the selling stockholder had no agreements or understandings, directly or indirectly, with any person to distribute the securities.

 

 

 

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	Shares Beneficially Owned			Shares Beneficially Owned
	Prior to the Offering		Shares Offered	After the Offering
Beneficial Owner	Number	Percent		Number	Percent
BridgePoint Master Fund Ltd (2)
1125 Sanctuary Parkway, Suite 275	11,595,174	4.99%	4,191,172	7,404,002	4.99%
Alpharetta, GA 30004
CAMOFI Master LDC (3)
c/o Centrecourt Asset Management LLC
550 Madison Avenue, 8th Floor	15,460,240	4.99%	5,588,238	9,872,002	4.99%
New York, New York 10017
Castlerigg Master Investments (4)
c/o Sandell Asset Management Corp.
40 W. 57th Street, 26th Floor	15,460,240	4.99%	5,588,238	9,872,002	4.99%
New York, New York 10019
Cranshire Capital, L.P.(5)
3100 Dundee Rd., Suite 703	11,595,174	4.99%	4,191,172	7,404,002	4.99%
Northbrook, IL 60062
Crescent International Ltd. (6)
c/o Cantara (Switzerland) S.A.
84 Avenue Louis-Casai	7,730,107	4.99%	2,794,106	4,936,001	4.87%
CH-1216 Cointrin/Geneva, Switzerland
Harborview Master Fund LP (7)
Harbour House, Second Floor	7,730,107	4.99%	2,794,106	4,936,001	4.87%
Waterfront Drive, Road Town
Tortola, British Virgin Islands
Highbridge International LLC (8)
c/o Highbridge Capital Management, LLC
9 West 57th Street, 27th Floor	7,511,391	4.99%	2,575,390	4,936,001	4.87%
New York, New York 10019
Iroquois Master Fund Ltd (9)
641 Lexington Avenue, 28th Floor	17,363,607	4.99%	5,023,604	12,340,003	4.99%
New York, New York 10022
Rockmore Investment Master Fund Ltd. (10)
150 East 58th Street, 28th Floor	7,498,737	4.99%	2,562,736	4,936,001	4.87%
New York, New York 10155
Truk Opportunity Fund, Ltd, LLC (11)
One East 52nd Street, 6th Floor	7,730,107	4.99%	2,794,106	4,936,001	4.87%
New York, New York 10022
	109,674,884		38,102,868	71,572,016

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(1) Includes shares of common stock issuable upon exercise of warrants which, by their terms, may not be exercised if and to the extent that the total number of shares of our common

stock then beneficially owned by the holder of such warrants and its affiliates and any other persons whose beneficial ownership of common stock would be aggregated with such holder's for purposes of Section 13(d) of the Exchange Act, would exceed 4.999% of the total number of shares of our common stock then outstanding.

 

(2) Eric S. Swartz, in his capacity as manager of Roswell Capital Partners, LLC, the investment advisor to BridgePointe Master Fund Ltd., has voting control and investment discretion over the shares owned by BridgePointe Master Fund Ltd. Mr. Swartz disclaims beneficial ownership of such shares.

 

(3) Richard Smithline exercises investment and voting control over the securities owned by CAMOFI Master LDC. Mr. Smithline disclaims beneficial ownership of the securities owned by CAMOFI Master LDC.

 

(4) Sandell Asset Management Corp.("SAMC"), is the investment manager of Castlerigg Master Investments Ltd ("Master"). Thomas Sandell is the controlling person of SAMC and may be deemed to share beneficial ownership of the shares beneficially owned by Master. Castlerigg International Ltd. ("Castlerigg International") is the controlling shareholder of Castlerigg International Holdings Limited ("Holdings"). Holdings is the controlling shareholder of Master. Each of Holdings and Castlerigg International may be deemed to share beneficial ownership of the shares beneficially owned by Castlerigg Master Investments. SAMC, Mr. Sandell, Holdings and Castlerigg International each disclaims beneficial ownership of the securities with respect to which indirect beneficial ownership is described.

 

(5) Mitchell P. Kopin, the president of Downview Capital, Inc., the general partner of Cranshire Capital, L.P, has sole voting control and investment discretion over securities held by Cranshire Capital, L.P. Each of Mitchell P. Kopin and Downview Capital, Inc. disclaims beneficial ownership of the shares held by Cranshire Capital, L.P.

 

(6) Maxi Brezzi and Bachir Taleb-Ibrahimi, in their capacity as managers of Cantara (Switzerland) SA, the investment advisor to Crescent International Ltd., have voting control and investment discretion over the shares owned by Crescent International Ltd. Messrs. Brezzi and Taleb-Ibrahimi disclaim beneficial ownership of such shares.

 

(7) Harborview Master Fund L.P. is a master fund in a master-feeder structure whose general partner is Harborview Advisors LLC. Richard Rosenblum and David Stefansky are the managers of Harborview Advisors LLC and have ultimate responsibility for trading with respect to Harborview Master Fund L.P. Messrs. Rosenblum and Stefansky disclaim beneficial ownership of the shares being registered hereunder.

 

(8) Highbridge Capital Management, LLC is the trading manager of Highbridge International LLC and consequently has voting control and investment discretion over securities held by Highbridge International LLC. Glenn Dubin and Henry Swieca control Highbridge Capital Management, LLC and have voting control and investment discretion over the securities held by Highbridge International LLC. Each of Highbridge Capital Management, LLC, Glenn Dubin and Henry Swieca disclaims beneficial ownership of the securities held by Highbridge International LLC.

 

(9) Joshua Silverman has voting control and investment decision over securities held by Iroquois Capital, LP. Mr. Silverman disclaims beneficial ownership of the shares held by Iroquois Capital, LP.

 

(10) Rockmore Capital, LLC ("Rockmore Capital") and Rockmore Partners, LLC ("Rockmore Partners"), each a limited liability company formed under the laws of the State of Delaware, serve as the investment manager and general partner, respectively, to Rockmore Investments (US) LP, a Delaware limited partnership, which invests all of its assets through Rockmore Investment Master Fund Ltd., an exempted company formed under the laws of Bermuda ("Rockmore Master Fund"). By reason of such relationships, Rockmore Capital and Rockmore Partners may be deemed to share dispositive power over the shares of our common stock owned by Rockmore Master Fund. Rockmore Capital and Rockmore Partners disclaim beneficial ownership of such shares of our common stock. Rockmore Partners has delegated authority to Rockmore Capital regarding the portfolio management decisions with respect to the shares of common stock owned by Rockmore Master Fund and, as of December 8, 2006, Bruce T. Bernstein and Brian Daly, as officers of Rockmore Capital, are responsible for the portfolio management decisions of the shares of common stock owned by Rockmore Master Fund. By reason of such authority, Messrs. Bernstein and Daly may be deemed to share dispositive power over the shares of our common stock owned by Rockmore Master Fund. Messrs. Bernstein and Daly disclaim beneficial ownership of such shares and neither of such persons has any legal right to maintain such authority. No other person has sole or shared voting or dispositive power with respect to the shares of our common stock owned by Rockmore Master Fund (as those terms are used for purposes under Regulation 13D-G of the Securities Exchange Act of 1934, as amended). No person or "group" (as that term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended, or the SEC's Regulation 13D-G) controls Rockmore Master Fund.

 

55

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(11) Michael E. Fein and Stephen E. Saltzstein, as principals of Atoll Asset Management, LLC, the Managing Member of Truk Opportunity Fund, LLC, exercise investment and voting control over the securities owned by Truk Opportunity Fund, LLC. Both Mr. Fein and Mr. Saltzstein disclaim beneficial ownership of the securities owned by Truk Opportunity Fund, LLC.

 

 

PLAN OF DISTRIBUTION

 

The selling stockholders may, from time to time, sell any or all of their shares of common stock on any stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:

 

o ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

o block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

o purchases by broker-dealer as principal and resale by the broker-dealer for its account;

 

o an exchange distribution in accordance with the rules of the applicable exchange;

 

o privately negotiated transactions;

 

o settlement of short sales;

 

o broker-dealer may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;

 

o a combination of any such methods of sale; and

 

o any other method permitted pursuant to applicable law.

 

The selling stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.

 

The selling stockholders may also engage in short sales against the box, puts and calls and other transactions in our securities or derivatives of our securities and may sell or deliver shares in connection with these trades.

 

Broker-dealers engaged by the selling stockholders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated. The selling stockholders do not expect these commissions or discounts to exceed what is customary in the types of transactions involved. Any profits on the resale of shares of common stock by the broker-dealer acting as principal might be deemed to be underwriting discounts or commissions under the Securities Act. Discounts, concessions, commissions and similar selling expenses, if any, attributable to the sale of shares will be borne by a selling stockholder. The selling stockholders may agree to indemnify any agent, dealer or broker-dealer that participates in transactions involving sales of the shares if liabilities are imposed on that person under the Securities Act.

 

56

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The selling stockholders may from time to time pledge or grant a security interest in some or all of the shares of common stock owned by them and, if they default in the performance of their secured obligations, the pledgees or secured parties may offer and sell the shares of common stock from time to time under this prospectus after we have filed an amendment to this prospectus under Rule 424(b)(3) or other applicable provision of the Securities Act of 1933 amending the list of selling stockholders to include the pledgee, transferee or other successors in interest as selling stockholders under this prospectus.

 

 

The selling stockholders and any broker-dealer or agents that are involved in selling the shares of common stock may be deemed to be "underwriters" within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of common stock purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act.

 

We are required to pay all fees and expenses incident to the registration of the shares of common stock. We have agreed to indemnify the selling stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

 

The selling stockholders have advised us that they have not entered into any agreements, understandings or arrangements with any underwriters or broker-dealers regarding the sale of their shares of common stock, nor is there an underwriter or coordinating broker acting in connection with a proposed sale of shares of common stock by any selling stockholder. If we are notified by any selling stockholder that any material arrangement has been entered into with a broker-dealer for the sale of shares of common stock, if required, we will file a supplement to this prospectus.

 

The anti-manipulation rules of Regulation M under the Securities Exchange Act of 1934 may apply to sales of our common stock and activities of the selling stockholders.

 

DESCRIPTION OF CAPITAL STOCK

 

General

 

As of October 22, 2007, our authorized capital consists of 250,000,000 shares of common stock, par value $.005 per share.

 

Common Stock

 

As of October 22, 2007, we had 103,123,656 shares of common stock outstanding. Each share of our common stock is entitled to one vote at all meetings of our stockholders. Our stockholders are not permitted to cumulate votes in the election of directors. All shares of our common stock are equal to each other with respect to liquidation rights and dividend rights. There are no preemptive rights to purchase any additional shares of our common stock. In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to receive, on a pro rata basis, all of our assets remaining after satisfaction of all liabilities and preferences of outstanding preferred stock, if any. Neither our Articles of Incorporation nor our Bylaws contain any provisions which limit or restrict the ability of another person to take over our company; however, our Bylaws do permit our Board of Directors to be classified.

 

57

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Options and Warrants

 

As of October 22, 2007, we had outstanding options to purchase an aggregate of 8,601,565 shares of our common stock pursuant to our 2001 Stock Option Plan (as amended) and outstanding options to purchase an aggregate of 6,472,328 shares of our common stock pursuant to our 2006 Incentive Stock Plan. The exercise prices for these options range from $.10 per share to $2.97 per share, and the weighted-average exercise price for all of the options is $.96 per share. These options are held by directors, officers, key employees and consultants. As of October 22, 2007, options to purchase 13,718,060 shares were exercisable.

 

As of October 22, 2007, we also had outstanding warrants to purchase 75,177,609 shares of our common stock. The exercise prices for these warrants range from $.10 per share to $2.49 per share, and the weighted-average exercise price for all of the warrants is $0.264 per share.

 

Certain Statutory Provisions of the Nevada Revised Statutes

 

Sections 78.411 through 78.444 of the Nevada Revised Statutes provide, in general, that a stockholder acquiring more than 10% of the outstanding voting shares of a publicly-held Nevada corporation subject to the statutes "Interested Stockholder" may not engage in certain "Combinations" with the corporation for a period of three years subsequent to the date on which the stockholder became an Interested Stockholder.

 

Section 78.416 defines the term "Combination" to encompass a wide variety of transactions with or caused by an Interested Stockholder in which the Interested Stockholder receives or could receive a benefit on other than a pro rata basis with other stockholders, including mergers, certain asset sales, certain issuances of additional shares to the Interested Stockholder or transactions in which the Interested Stockholder receives certain other benefits.

 

These provisions could have the effect of delaying, deferring or preventing a change of control of our company. Our stockholders, by adopting an amendment to our Articles of Incorporation or Bylaws, may elect not to be governed by these provisions. Neither our Articles of Incorporation nor Bylaws currently excludes us from these restrictions.

 

 

Nasdaq Trading Symbol

 

 

Transfer Agent and Registrar

 

 

58

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LEGAL MATTERS

 

 

EXPERTS

 

CHANGE IN ACCOUNTANTS

On September 10, 2007, we dismissed Goldstein Golub Kessler LLP as our principal independent accountants effective as of that date and engaged Freed Maxick & Battaglia, CPAs, PC as our new principal independent accountants.

No accountant's report issued by Goldstein Golub Kessler LLP on our financial statements for either of the past two fiscal years or any subsequent interim period contained an adverse opinion or a disclaimer of opinion, or was qualified or modified as to uncertainty, audit scope, or accounting principles, except for the following:

a) an explanatory paragraph was included in Goldstein Golub Kessler LLP's report dated May 4, 2007 regarding our ability to continue as a going concern as referenced to Note 2 of our financial statements for the year ended February 28, 2007.

 

b) our financial statements at February 28, 2006 and for the year then ended were restated and a paragraph noting this restatement was included in Goldstein Golub Kessler LLP's report dated April 26, 2006, except for Note 8 as to which the date was May 12, 2006 and Note 7 as to which the date was January 23, 2007. In addition, Goldstein Golub Kessler's report dated January 23, 2007 (as restated) on the effectiveness of our internal control over financial reporting as of February 28, 2006, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, expressed an adverse opinion thereon.

The decision to retain Freed Maxick & Battaglia, CPAs, PC was unanimously approved by our Board of Directors.

During the last two fiscal years ended February 28, 2007 and 2006 and through September 10, 2007, there were no disagreements, whether or not resolved, between us and Goldstein Golub Kessler LLP on any matter of accounting principles or practices, financial statement disclosures, or auditing scope or procedures, which, if not resolved to Goldstein Golub Kessler LLP's satisfaction, would have caused Goldstein Golub Kessler LLP to make reference to the subject matter of the disagreement in connection with its report.

Prior to engaging Freed Maxick & Battaglia, CPAs, PC, Freed Maxick & Battaglia, CPAs, PC has not provided us with either written or oral advice that was an important factor considered by our company in reaching a decision to change our company's new principal independent accountants from Goldstein Golub Kessler LLP to Freed Maxick & Battaglia, CPAs, PC.

 

WHERE YOU CAN FIND MORE INFORMATION

 

We have filed with the SEC a registration statement on Form S-1 (File Number 333-138632) under the Securities Act with respect to the shares of common stock we and the selling stockholders are offering by this prospectus. This prospectus does not contain all of the information included in the registration statement. For further information pertaining to us and our common stock, you should refer to the registration statement and to its exhibits. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document.

 

59

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We are subject to the informational requirements of the Securities Exchange Act of 1934 and file annual, quarterly and current reports, proxy statements and other information with the SEC. You can read our SEC filings, including the registration statement, over the Internet at the SEC's website at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facility at 100 F Street, N.E., Room 1580, Washington, D.C. 20549.

 

You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.

60

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BIOPHAN TECHNOLOGIE, INC.

INDEX TO FINANCIAL STATEMENTS

 

Quarterly Financial Information

Condensed Consolidated Balance Sheets, August 31, 2007 (Unaudited) and February 28, 2007		F-1
Condensed Consolidated Statement of Operations, Three Months and Six Months Ended August 31, 2007 and 2006 (Unaudited), and from August 1, 1968 (Date of Inception) through August 31, 2007 (Unaudited)		F-2
Condensed Consolidated Statement of Cash Flows Six Months Ended August 31, 2007 and 2006 (Unaudited), and from August 1, 1968 (Date of Inception) through August 31, 2007 (Unaudited)		F-3
Notes to Condensed Consolidated Financial Statements		F-6

Annual Financial Information

Report of Independent Registered Public Accounting Firm		F-1
Consolidated Balance Sheets, February 28, 2007 and 2006		F-2
Consolidated Statement of Operations, Year Ended February 28, 2007, 2006 and 2005, and from August 1, 1968 (Date of Inception) through February 28, 2007		F-3
Consolidated Statement of Stockholders' Equity from August 1, 1968 (Date of Inception) through February 28, 2007		F-4
Consolidated Statement of Cash Flows, Year Ended February 28, 2007, 2006 and 2005, and from August 1, 1968 (Date of Inception) through February 28, 2007		F-8
Notes to Consolidated Financial Statements		F-11

Pro Forma Information

Unaudited Pro Forma Condensed Consolidated Balance Sheet		F-1
Unaudited Pro Forma Condensed Consolidated Statement of Operations		F-2

 

61

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---

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders
Biophan Technologies, Inc.

We have audited the accompanying consolidated balance sheets of Biophan
Technologies, Inc. and Subsidiaries (a development stage company) as of February
28, 2007 and 2006 and the related consolidated statements of operations,
stockholders' equity (deficiency), and cash flows for each of the three years in
the period ended February 28, 2007, and the amounts in the cumulative column in
the consolidated statements of operations, stockholders' equity (deficiency),
and cash flows for the period from March 1, 2000 to February 28, 2007. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Biophan
Technologies, Inc. and Subsidiaries as of February 28, 2007 and 2006 and the
results of its operations and its cash flows for each of the three years in the
period ended February 28, 2007 in conformity with United States generally
accepted accounting principles. Additionally, the amounts included in the
cumulative column in the consolidated statements of operations and cash flows
for the period from March 1, 2000 to February 28, 2007 are fairly presented, in
all material respects, in conformity with United States generally accepted
accounting principles.

The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plan in regard to these matters is
also described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

As discussed in Notes 1 and 17 to the consolidated financial statements,
effective March 1, 2006, the Company adopted the fair value method of accounting
for stock-based compensation as required by Statement of Financial Accounting
Standards No. 123(R), Share-Based Payment.

We have also audited, in accordance with the standards of the Public Company
Accounting Oversight Board (United States), the effectiveness of the Company's
internal control over financial reporting as of February 28, 2007, based on
criteria established in Internal Control - Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission and our report
dated May 4, 2007 expressed an unqualified opinion thereon.


                              /S/ Goldstein Golub Kessler LLP
                              GOLDSTEIN GOLUB KESSLER LLP
                              New York, New York
                              May 4, 2007, except for Note 11 as to which the
                              date is October 22, 2007




                                      F-1

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                           CONSOLIDATED BALANCE SHEET





                                                                February 28,
                                                        ---------------------------
                                                            2007           2006
                                                        ------------   ------------
                        ASSETS

Current assets:
  Cash and cash equivalents                             $  2,418,551   $  1,477,716
  Accounts receivable                                         21,448        170,058
  Due from related parties                                        --          4,801
  Prepaid expenses                                           166,171        147,203
  Other current assets                                        25,350         81,048
                                                        ------------   ------------
    Total current assets                                   2,631,520      1,880,826
Property and equipment, net                                  418,362        126,341
Other assets:
  Intangible assets, net of amortization:
    Myotech, LLC                                          23,074,028     24,451,580
    Other                                                  1,322,777      1,403,270
  Deferred financing costs, net of amortization
    of $186,350                                            1,345,860             --
  Investment in New Scale Technologies, Inc.                 100,000        100,000
  Deposits                                                     3,704          6,049
  Deferred tax asset, net of valuation allowance
    of $12,784,000 and $7,560,000, respectively                   --             --
                                                        ------------   ------------
                                                          25,846,369     25,960,899
                                                        ------------   ------------
Total Assets                                            $ 28,896,251   $ 27,968,066
                                                        ============   ============
  LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
  Current portion of capital lease obligation           $      7,445   $         --
  Current portion of senior secured convertible notes
    payable, net of discount of $2,183,580                   672,481             --
  Accounts payable and accrued expenses                    1,942,033      1,191,812
  Note payable                                                78,007         15,886
  Line of credit - related party, net of discount
    of $-0- and $1,323,921, respectively                   4,430,000      1,476,079
  Due to related parties                                      80,280         26,548
  Deferred revenue                                           208,333        520,833
                                                        ------------   ------------
      Total current liabilities                            7,418,579      3,231,158
Long-term debt:
  Capital lease obligation                                    19,604             --
  Senior secured convertible notes payable, less
    discount of $3,359,354                                 1,034,585             --
  Fair value of warrant liability                         10,494,006             --
                                                        ------------   ------------
    Total liabilities                                     18,966,774      3,231,158

Minority interest                                         13,139,882     15,189,109

Stockholders' equity (deficiency):
Common stock, $.005 par value:
  Authorized, 125,000,000 shares
  Issued, 83,431,699 and
    81,805,243 shares, respectively                          417,158        409,026
Additional paid-in capital                                54,532,204     49,576,129
                                                        ------------   ------------
                                                          54,949,362     49,985,155
Less treasury stock, 4,923,080 shares                     (8,467,698)    (8,467,698)
                                                        ------------   ------------
                                                          46,481,664     41,517,457
Deficit accumulated during the development stage         (49,692,069)   (31,969,658)
                                                        ------------   ------------
Total stockholders' equity (deficiency)                   (3,210,405)     9,547,799
                                                        ------------   ------------
Total liabilities and stockholders'
  equity (deficiency)                                   $ 28,896,251   $ 27,968,066
                                                        ============   ============




The accompanying notes should be read in conjunction with the consolidated
financial statements


                                      F-2

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENT OF OPERATIONS





                                                                                   Period from August
                                                Year Ended February 28,             1, 1968 (date of
                                       -----------------------------------------      inception) to
                                           2007           2006          2005        February 28, 2007
                                       ------------   ------------   -----------   ------------------
Revenues:
    Development payments               $         --   $    225,000   $        --      $    300,000
    License fees                            562,500        479,166            --         1,041,666
    Testing services and
      consulting fees                       427,029        340,695            --           767,724
                                       ------------   ------------   -----------      ------------
                                            989,529      1,044,861            --         2,109,390
Operating expenses:
    Research and development              7,190,975      6,829,142     2,629,980        20,210,394
    General and administrative            6,824,945      8,451,886     3,337,185        24,766,317
    Write-down of intellectual
      property rights                            --             --            --           530,000
                                       ------------   ------------   -----------      ------------
                                         14,015,920     15,281,028     5,967,165        45,506,711
                                       ------------   ------------   -----------      ------------
Operating loss                          (13,026,391)   (14,236,167)   (5,967,165)      (43,397,321)
                                       ------------   ------------   -----------      ------------
Other income(expense):
    Interest income                          82,224         70,701        11,869           211,372
    Interest expense                     (4,303,543)    (1,140,866)           --        (7,175,332)
    Additional expense related to
      warrants                           (7,304,105)            --            --        (7,304,105)
    Change in fair value of warrant
      liability                           5,318,064             --            --         5,318,064
    Loss on extinguishment of debt -
      related party                        (670,053)            --            --          (670,053)
    Other income                            161,196        215,789       161,749           853,393
    Other expense                            (5,442)            --            --           (70,528)
                                       ------------   ------------   -----------      ------------
                                         (6,721,659)      (854,376)      173,618        (8,837,189)
                                       ------------   ------------   -----------      ------------
Loss from continuing operations
  before minority interest in
  Myotech, LLC                          (19,748,050)   (15,090,543)   (5,793,547)      (52,234,510)
Minority interest in
  Myotech, LLC                            2,025,639        606,159            --         2,631,798
                                       ------------   ------------   -----------      ------------
Loss from continuing operations         (17,722,411)   (14,484,384)   (5,793,547)      (49,602,712)
Loss from discontinued operations                --             --            --           (89,357)
                                       ------------   ------------   -----------      ------------
Net loss                               $(17,722,411)  $(14,484,384)  $(5,793,547)     $(49,692,069)
                                       ============   ============   ===========      ============
Loss per common share - basic
  and diluted                          $      (0.23)  $      (0.19)  $     (0.08)
                                       ============   ============   ===========
Weighted average shares
  outstanding                            77,864,738     75,787,052    69,263,893
                                       ============   ============   ===========




The accompanying notes should be read in conjunction with the consolidated
financial statements


                                      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 28, 2007





                                                                                                         Deficit
                                                                                                       Accumulated
                                               Number              Additional                Stock      During the  Stockholders'
                                             of Shares    Common     Paid-in   Treasury  Subscription  Development      Equity
                                            Outstanding    Stock     Capital    Stock     Receivable      Stage      (Deficiency)
                                            -----------  --------  ----------  --------  ------------  -----------  -------------
1969-1993 - 382,130 shares issued for
  services for $.05 per share                  382,130   $  1,911  $   17,196                                         $   19,107
1970 - 1,405,000 shares issued for
  mining rights for $.05 per share           1,405,000      7,025      63,225                                             70,250
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
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)



                           CONTINUED ON FOLLOWING PAGE


                                      F-4

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

       PERIOD FROM AUGUST 1, 1968 (DATE OF INCEPTION) TO FEBRUARY 28, 2007





                                                                                                         Deficit
                                                                                                       Accumulated
                                                Number             Additional                Stock      During the  Stockholders'
                                              of Shares    Common    Paid-in   Treasury  Subscription  Development      Equity
                                             Outstanding   Stock     Capital    Stock     Receivable      Stage      (Deficiency)
                                             ----------   -------  ----------  --------  ------------  -----------  -------------
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



                           CONTINUED ON FOLLOWING PAGE


                                      F-5

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

       PERIOD FROM AUGUST 1, 1968 (DATE OF INCEPTION) TO FEBRUARY 28, 2007





                                                                                                           Deficit
                                                                                                         Accumulated
                                                  Number             Additional               Stock       During the  Stockholders'
                                                of Shares    Common    Paid-in   Treasury  Subscription  Development      Equity
                                               Outstanding   Stock     Capital     Stock    Receivable      Stage      (Deficiency)
                                               -----------  -------  ----------  --------  ------------  -----------  -------------
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 the year                                     565,000                                           565,000
Intrinsic value of beneficial conversion
  feature of note payable                                               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
2004 - Shares issued for option exercise
  at $.32 per share                                 70,000      350      22,050                                            22,400
2004 - Shares issued for option exercise
  at $.50 per share                                 24,999      125      12,375                                            12,500
2004 - Shares issued upon exercise of
  warrants at $.25 per share                       868,700    4,343     212,832                                           217,175
2004 - Shares issued upon exercise of
  warrants at $.50 per share                       926,700    4,634     458,716                                           463,350
2004 - Shares issued upon exercise of
  warrants at $1.00 per share                      108,375      542     107,833                                           108,375
2004 - Shares issued upon cashless exercise
  of warrants                                       74,047      370        (370)                                               --
2004 - 2005 - Shares issued for cash pursuant
  to stock purchase agreement at prices from
  $.60 to $.70 per share                         6,000,000   30,000   3,870,000                                         3,900,000
2005 - Restricted shares issued in connection
  with employment agreements at
  $1.34 per share                                  200,000    1,000     267,000                                           268,000
2005 - Restricted shares issued in
  connection with acquisition of Biophan
  Europe at $1.34 per share                        100,000      500     133,500                                           134,000
Offering costs                                                          (41,998)                                          (41,998)



                           CONTINUED ON FOLLOWING PAGE


                                      F-6

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

       PERIOD FROM AUGUST 1, 1968 (DATE OF INCEPTION) TO FEBRUARY 28, 2007





                                                                                                          Deficit
                                                                                                         Accumulated
                                           Number of             Additional                  Stock       During the   Stockholders'
                                            Shares     Common     Paid-in      Treasury   Subscription   Development      Equity
                                         Outstanding    Stock     Capital       Stock      Receivable       Stage     (Deficiency)
                                         -----------  --------  -----------  -----------  ------------  ------------  -------------
  Grant of stock options for services                               201,000                                                201,000
  Section 16(b) short swing profits                                 400,725                                                400,725
  Stock subscription receivable                                                             (150,000)                     (150,000)
  Net loss for the year ended February
    28, 2005                                                                                              (5,793,547)   (5,793,547)
                                         -----------  --------  -----------  -----------    --------    ------------  ------------
  Balance at February 28, 2005            74,317,832   371,589   18,982,952                 (150,000)    (17,485,274)    1,719,267
  2005 - Shares issued for option
    exercise at $.50 per share                74,998       375       66,206                                                 66,581
  2005 - Shares issued for option
    exercise at $.67 per share                12,500        63        8,312                                                  8,375
  2005 - Shares issued for option
    exercise at $1.00 per share              136,667       683      106,901                                                107,584
  2005 - Shares issued upon exercise of
    warrants at $.16 per share                54,054       270        8,379                                                  8,649
  2005 - Shares issued upon exercise of
    warrants at $.39 per share                12,500        62        4,813                                                  4,875
  2005 - Shares issued upon exercise of
    warrants at $.41 per share                17,520        88        7,095                                                  7,183
  2006 - Restricted shares issued in
    connection with acquisition of
    Biophan Europe at $1.34 per share        100,000       500      133,500                                                134,000
  2005 - Shares issued for acquisition
    of minority interest in Myotech,
    LLC at $1.72 per share                 4,923,080    24,615    8,443,083                                              8,467,698
  2005 - Treasury shares                  (4,923,080)       --    8,467,698   (8,467,698)                                       --
  2006 - Shares issued pursuant to
    investment agreement with Boston
    Scientific at $3.02 per share          1,653,193     8,266    4,991,734                                              5,000,000
  2006 - 22,000 Restricted shares
    issued for services at $1.72 per
    share                                     22,000       110       37,730                                                 37,840
  2006 - Shares issued upon conversion
    of related party loans at $2.12 per
    share                                    480,899     2,405    1,017,101                                              1,019,506
  Beneficial conversion feature of
    note payable                                                  2,395,485                                              2,395,485
  Stock options issued for services                               4,609,778                                              4,609,778
  Section 16(b) short swing profits                                 295,362                                                295,362
  Stock subscription receivable                                                              150,000                       150,000
  Net loss for the year ended
    February 28, 2006                                                                                    (14,484,384)  (14,484,384)
                                          ----------   -------  -----------  -----------    --------    ------------  ------------
  Balance at February 28, 2006            76,882,163   409,026   49,576,129   (8,467,698)         --     (31,969,658)    9,547,799

Shares issued for option exercises
  in the range of $.18 to $.67 per
  share                                       38,956       195       12,984           --          --              --        13,179
Shares issued for cash pursuant to
  stock purchase agreement with SBI at
  $2.00 per share                          1,587,500     7,937    3,167,063           --          --              --     3,175,000
Extinguishment of debt on related
  party notes payable                             --        --      670,053           --          --              --       670,053
Allocation of beneficial conversion
  feature of related party notes
  payable                                         --        --      417,070           --          --              --       417,070
Allocation of proceeds to warrants                --        --    7,250,000           --          --              --     7,250,000
Reclassification of warrants                      --        --   (8,005,875)          --          --              --    (8,005,875)
Stock options expense                             --        --    1,444,780           --          --              --     1,444,780
Net loss for the year ended
  February 28, 2007                               --        --           --           --          --     (17,722,411)  (17,722,411)
                                          ----------  --------  -----------  -----------    --------    ------------  ------------
Balance at February 28, 2007              78,508,619  $417,158  $54,532,204  $(8,467,698)         --    $(49,692,069) $ (3,210,405)
                                          ==========  ========  ===========  ===========    ========    ============  ============




The accompanying notes should be read in conjunction with the consolidated
financial statements


                                      F-7

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                      CONSOLIDATED STATEMENT OF CASH FLOWS





                                                                                                        Period from
                                                                                                         August 1,
                                                                                                      1968 (date of
                                                                    Year Ended February 28,            inception) to,
                                                          -----------------------------------------     February 28,
                                                              2007          2006          2005              2007
                                                          ------------   ------------   -----------   ---------------
Cash flows used for operating activities:
  Net loss                                                $(17,722,411)  $(14,484,384)  $(5,793,547)    $(49,692,069)
  Adjustments to reconcile net loss to net cash
    used in operating activities:
      Amortization of intangible assets                      1,458,045        405,441            --        1,863,486
      Amortization of deferred financing costs                 186,350             --            --          186,350
      Depreciation and amortization                             95,368         47,241        28,020          234,802
      Loss on disposal of equipment                              9,094          1,505            --           10,599
      Additional expenses related to warrants                7,304,105             --            --        7,304,105
      Change in fair value of derivative liability          (5,318,064)            --            --       (5,318,064)
      Realized and unrealized losses on marketable
        securities                                                  --             --            --           66,948
      Loss on debt extinguishment of debt-related party        670,053             --            --          670,053
      Accrued interest on note converted to common
        stock                                                       --         19,506            --           31,504
      Amortization of discount on convertible notes
        payable                                              1,707,066             --            --        2,758,016
      Write-down of intellectual property rights                    --             --            --          530,000
      Amortization of discount on payable to related
        party                                                1,740,991      1,071,564            --        2,887,555
      Issuance of common stock for services                         --         37,840       268,000          406,948
      Issuance of common stock for interest                         --             --            --          468,823
      Grant of stock options for services                    1,444,780      4,609,778       201,000        8,008,358
      Expenses paid by stockholder                                  --             --            --            2,640
      Minority interest                                     (2,049,227)      (536,616)           --       (2,585,843)
  Changes in operating assets and liabilities:
    (Increase) decrease in accounts receivable                 148,610       (162,558)           --          (13,948)
    (Increase) decrease in due from related parties              4,801        156,858      (186,737)         (59,300)
    (Increase) decrease in prepaid expenses                    (18,968)       (55,607)      (22,411)        (166,171)
    (Increase) decrease in other current assets                 55,698        (39,710)           --           15,988
    (Increase) decrease in deposits                              2,345           (867)          --            (1,455)
    Increase (decrease) in accounts payable and
      accrued expenses                                         750,221        (14,742)      405,821        1,382,027
    Increase (decrease) in due to related parties               53,732         26,548            --           36,784
    Increase (decrease) in deferred revenues                  (312,500)       295,833       225,000          208,333
                                                          ------------   ------------   -----------     ------------
Net cash used in operating activities                       (9,789,911)    (8,622,370)   (4,874,854)     (30,763,531)



                                      F-8

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)





                                                                                                 Period from
                                                                                                  August 1,
                                                                                                1968 (date of
                                                              Year Ended February 28,           inception) to,
                                                      --------------------------------------     February 28,
                                                          2007          2006          2005          2007
                                                      -----------   -----------   ----------   ---------------
Cash flows used for investing activities:
  Purchases of property and equipment                    (369,434)      (70,521)     (39,302)       (604,644)
  Sales of marketable securities                               --            --    1,150,000       2,369,270
  Purchase of investment                                       --            --     (100,000)       (100,000)
  Acquisition costs of intangible assets                       --      (466,583)          --        (466,583)
  Cash paid for investment in Myotech,
    net of cash received of $19,408                            --      (280,594)          --        (280,594)
  Cash paid for acquisition of Biophan Europe,
    net of cash received of $107,956                           --            --     (258,874)       (258,874)
  Purchases of marketable securities                           --            --           --      (2,436,218)
                                                      -----------   -----------   ----------     -----------
Net cash provided by (used in) investing activities      (369,434)     (817,698)     751,824      (1,777,643)

Cash flows provided by financing activities:
  Proceeds of bridge loans                                     --            --           --         986,500
  Loan from stockholder                                        --            --           --         143,570
  Line of credit borrowing from related party           3,130,000     4,300,000           --       7,980,950
  Line of credit payments                              (1,500,000)     (500,000)          --      (2,072,500)
  Proceeds of convertible notes payable                 7,250,000            --           --       7,250,000
  Notes payable                                            62,121      (184,114)          --        (121,993)
  Proceeds from sales of capital stock                  3,175,000     6,050,000    2,850,000      19,438,849
  Exercise of options                                      13,179       182,541       34,900         658,467
  Exercise of warrants                                         --        20,707      788,900       1,142,451
  Swing profits                                                --       295,362      400,725         696,087
  Deferred financing costs                             (1,030,120)           --           --      (1,030,120)
  Deferred equity placement costs                              --            --      (22,107)       (112,536)
                                                      -----------   -----------   ----------     -----------
Net cash provided by financing activities              11,100,180    10,164,496    4,052,418      34,959,725
                                                      -----------   -----------   ----------     -----------
Net increase (decrease) in cash and equivalents           940,835       724,428      (70,612)      2,418,551
Cash and equivalents, beginning                         1,477,716       753,288      823,900              --
                                                      -----------   -----------   ----------     -----------
Cash and equivalents, ending                          $ 2,418,551   $ 1,477,716   $  753,288     $ 2,418,551
                                                      ===========   ===========   ==========     ===========
Supplemental schedule of cash paid for:
    Interest                                          $    30,000   $     9,800   $       --     $    39,800
                                                      ===========   ===========   ==========     ===========



                           CONTINUED ON FOLLOWING PAGE


                                      F-9

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                CONSOLIDATED STATEMENT OF CASH FLOWS (CONTINUED)





                                                                                                        Period from
                                                                                                         August 1,
                                                                                                       1968 (date of
                                                                       Year Ended February 28,        inception) to,
                                                               ------------------------------------    February 28,
                                                                  2007         2006         2005           2007
                                                               ----------   ----------   ----------   --------------
Supplemental schedule of non-cash investing and
  financing activities:
  Allocation of proceeds from line of credit - related party
    to beneficial conversion feature and warrants              $  417,070   $ 2,395,485   $       --     $2,812,555
                                                               ==========   ===========   ==========     ==========
  Allocation of proceeds from notes payable and warrants       $7,250,000   $        --   $       --     $7,250,000
                                                               ==========   ===========   ==========     ==========
  Change in fair value of warrants reclassified from equity
    to warrants liability                                      $  755,876   $        --   $       --     $  755,876
                                                               ==========   ===========   ==========     ==========
  Capital lease obligation                                     $   27,049   $        --   $       --     $   27,049
                                                               ==========   ===========   ==========     ==========
  Issuance of common stock upon conversion
    of  LOC loans                                              $       --   $ 1,000,000   $       --     $1,978,450
                                                               ==========   ===========   ==========     ==========
  Issuance of common stock for the acquisition of
    initial 35% interest in Myotech, LLC                       $       --   $ 8,467,698   $       --     $8,467,698
                                                               ==========   ===========   ==========     ==========
  Issuance of common stock in satisfaction
    of accounts payable                                        $       --   $   134,000   $       --     $  134,000
                                                               ==========   ===========   ==========     ==========
  Common stock issued for subscription receivable              $       --   $(1,050,000)  $1,050,000     $       --
                                                               ==========   ===========   ==========     ==========
  Liabilities assumed in conjunction with acquisition of 51%
    interest in Biophan Europe and certain intellectual
    property rights:
      Fair value of assets acquired                                                       $1,105,714
      Cash paid                                                                             (366,830)
      Promissory note issued                                                                (200,000)
      Restricted stock issued                                                               (134,000)
      Payables incurred                                                                     (226,500)
                                                                                          ----------
        Liabilities assumed                                    $       --   $        --   $  178,384     $  178,384
                                                               ==========   ===========   ==========     ==========
  Issuance of common stock upon conversion
    of bridge loans                                            $       --   $        --   $       --     $1,142,068
                                                               ==========   ===========   ==========     ==========
  Acquisition of intellectual property                         $       --   $        --   $       --     $  425,000
                                                               ==========   ===========   ==========     ==========
  Intellectual property acquired through issuance of
    capital stock and assumption of related party payable      $       --   $        --   $       --     $  175,000
                                                               ==========   ===========   ==========     ==========




The accompanying notes should be read in conjunction with the consolidated
financial statements


                                      F-10

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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"), its wholly owned subsidiaries, LTR Antisense
Technology, Inc.("Antisense") and Nanolution, LLC, formerly MRIC Drug Delivery
Systems, LLC, ("Nanolution"), its majority owned subsidiaries Biophan Europe
GmbH ("Biophan Europe"), formerly aMRIs GmbH, and TE Bio LLC ("TE Bio"), and
Myotech, LLC ("Myotech"), a variable interest entity, collectively referred to
as the "Company". All significant inter-company accounts and transactions have
been eliminated in consolidation.

COMPANY HISTORY:

The Company was incorporated under the laws of the State of Idaho on August 1,
1968 and on January 12, 2000, changed its domicile to Nevada by merging into a
Nevada corporation, and on July 19, 2001, changed its name to Biophan
Technologies, Inc. From the inception of the current line of business on
December 1, 2000, the Company has not generated any material revenues and
operating profits. Therefore, the Company is in the development stage and will
remain so until the realization of significant revenues and operating profits.
The Company's ability to continue in business is dependent upon maintaining
sufficient financing or attaining future profitable operations.

PRINCIPAL BUSINESS ACTIVITIES:

The primary mission is to develop and commercially exploit technologies for
improving the performance, and as a result, the competitiveness of biomedical
devices manufactured by third party companies. The Company possesses
technologies for enabling biomedical devices, both implantable and those used in
diagnostic and interventional procedures, to be safe (do not harm the patient or
physician) and image compatible (allow effective imaging of the device and its
surrounding tissue) with MRI (magnetic resonance imaging). The Company is also
developing and marketing an image compatible ceramic motor; a system for
generating power for implantable devices from body heat, and a series of
implantable devices including MRI-visible vascular implants such as a vena cava
filter, a heart valve and an occluder for the treatment of atrial septal
defects, a hole in the wall separating the left and right chambers of the heart.
The Company's first licensee for several of these technologies is Boston
Scientific (NYSE: BSX). The Company is also an owner of a substantial minority
interest, with rights to take a majority interest, in Myotech,(accounted for as
a variable interest entity) developer of the MYO-VAD, a cardiac assist device
that does not contact circulating blood and utilizes technology that has the
potential to become a standard of care in the device market for treating
multiple types of acute and chronic heart failure including congestive heart
failure and sudden cardiac arrest.

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. The Company places its temporary cash investments with high credit
quality financial institutions. At times such investments may be in excess of
the Federal Deposit Insurance Corporation (FDIC) insurance limit.

CONCENTRATION OF CREDIT RISK

Financial instruments that potentially subject the Company to concentrations of
credit risk consist principally of cash deposits. Accounts are insured by the
Federal Deposit Insurance Corporation (FDIC) up to $100,000. At times throughout
the year, the Company has balances on account in excess of insured limits.


                                      F-11

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

ACCOUNTS RECEIVABLE

Accounts receivable are reported at their outstanding unpaid principal balances.
The Company writes off accounts receivable when they are deemed uncollectible.
The Company has historically experienced insignificant amounts of bad debts.

PROPERTY AND EQUIPMENT

Property and equipment are recorded at cost. Expenditures for major additions
and improvements are capitalized, and minor replacements, maintenance, and
repairs are charged to expense as incurred. When property and equipment are
retired or otherwise disposed of, the cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in the
results of operations for the respective period. Depreciation is provided over
the estimated useful lives of the related assets using the straight-line method.
Leasehold improvements are amortized over the lesser of the assets' useful lives
or the remaining term of the lease.

The estimated useful lives for significant property and equipment categories are
as follows:

Computers                 5 year
Furniture and equipment   5 to 7 years
Internet website          7 years
Leasehold improvements    15 years

INTANGIBLE ASSETS

The Company evaluates the recoverability of identifiable intangible assets
whenever events or changes in circumstances indicate that an intangible asset's
carrying amount may not be recoverable. Such circumstances could include, but
are not limited to: (1) a significant decrease in the market value of an asset,
(2) a significant adverse change in the extent or manner in which an asset is
used, or (3) an accumulation of costs significantly in excess of the amount
originally expected for the acquisition of an asset. The Company measures the
carrying amount of the asset against the estimated undiscounted future cash
flows associated with it. Should the sum of the expected future net cash flows
be less than the carrying value of the asset being evaluated, an impairment loss
would be recognized. The impairment loss would be calculated as the amount by
which the carrying value of the asset exceeds its fair value. The fair value is
measured based on quoted market prices, if available. If quoted market prices
are not available, the estimate of fair value is based on various valuation
techniques, including the discounted value of estimated future cash flows. The
evaluation of asset impairment requires the Company to make assumptions about
future cash flows over the life of the asset being evaluated. These assumptions
require significant judgment and actual results may differ from assumed and
estimated amounts. Also, at each balance sheet date, the Company evaluates the
period of amortization of intangible assets.

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.


                                      F-12

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK OPTION PLANS

On March 1, 2006 the Company adopted the fair value based method of accounting
prescribed in FASB Statement of Financial Accounting Standards No. 123R
(Share-Based Payment) for its employee stock option plans.

REVENUE RECOGNITION:

The Company earns and recognizes revenue under development agreements when the
phase of the agreement to which amounts relate is completed and the Company has
no further performance obligation. Completion is determined by the attainment of
specified milestones, such as a written progress report. Advance fees received
on such agreements are deferred until recognized.

The Company recognizes initial license fees over the term of the related
agreement. Revenue related to a performance milestone is recognized upon the
achievement of the milestone, as defined in the respective agreements.

The Company recognizes revenues from testing services and consulting fees as
services are performed.

ESTIMATES

Preparing the Company's financial statements in conformity with accounting
principles generally accepted in the United States of America ("GAAP") requires
management to make estimates and assumptions that affect reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.

RECLASSIFICATION

For comparative purposes, certain amounts in the accompanying statement of
operations for fiscal 2005 have been reclassified to conform to the presentation
used for fiscal 2007 and 2006. These reclassifications had no effect on
previously reported results of operations or accumulated deficit.

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2006, the Financial Accounting Standards Board ("FASB") issued FASB
Interpretation No. 48, "Accounting for Uncertainty in Income Taxes - an
interpretation of FASB Statement No. 109" ("FIN 46"). FIN 46 clarifies the
accounting for uncertainty in income taxes recognized in a company's financial
statements in accordance with SFAS No. 109, "Accounting for Income Taxes." FIN
48 prescribes a recognition threshold and measurement attribute for the
financial statement recognition and measurement of a tax position taken or
expected to be taken in a tax return. FIN 46 is effective for fiscal years
beginning after December 15, 2006. The Company is currently evaluating the
effect, if any, that FIN 46 will have on its consolidated financial position or
results of operations.

In September 2006, the FASB issued SFAS No. 157, "Fair Value Measurements"
("SFAS No. 157"). SFAS No. 157 defines fair value, establishes a framework for
measuring fair value in generally accepted accounting principles, and expands
disclosures about fair value measurements. SFAS No. 157 applies under other
accounting standards that require or permit fair value measurements.
Accordingly, SFAS No. 157 does not require any new fair value measurement. SFAS
No. 157 emphasizes that fair value is a market-based measurement that should be
determined based on the assumptions that market participants would use in
pricing an asset or liability. Companies will be required to disclose the extent
to which fair value is used to measure assets and liabilities, the inputs used
to develop the measurements and the effect of certain of the measurements on
earnings (or changes in net assets) for the period. SFAS No. 157 is effective
for financial statements issued for fiscal years beginning after November 15,
2007, and interim periods within those fiscal years. The Company is currently
evaluating the effect, if any, that SFAS No. 157 will have on its consolidated
financial position or results of operations.

In February 2007, the FASB issued SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities". SFAS No. 159 permits entities to
choose to measure many financial instruments and certain other items at fair
value. Most of the provisions of SFAS No. 159 apply only to entities that elect
the fair value option. We do not believe the adoption of this standard will have
a material impact on our Consolidated Financial Statements. This standard will
become effective for us in the first fiscal quarter of 2008.

In September 2006, the SEC issued Staff Accounting Bulletin No. 108 "Considering
the Effects of Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements" ("SAB No. 108"). SAB No. 108 provides
guidance on the consideration of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of determining whether
the current year's financial statements are materially misstated. SAB No. 108 is
effective as of the end of the Company's 2006 fiscal year, allowing a one-time
transitional cumulative effect adjustment to beginning retained earnings as of
January 1, 2006, for errors that were not previously deemed material, but are
material under the guidance in SAB No. 108. The Company does not believe that
SAB No. 108 had a material effect on its consolidated financial position or
results of operations for the year ended February 28, 2007.

In December 2006, the FASB issued Staff Position No. EITF 00-19-2. This FSP
addresses an issuer's accounting for registration payment arrangements and
specifies that the contingent obligation to make future payments or otherwise
transfer consideration under a registration payment arrangement should be
separately recognized and measured in accordance with FASB No. 5. The guidance
in this FSP amends FASB Statements 133 and 150 and FASB Interpretation No. 45 to
include scope exceptions for registration payment arrangements. This FSP further
clarifies that a financial instrument subject to a registration payment
arrangement should be accounted for without regard to the contingent obligation
to transfer consideration pursuant to the registration payment arrangement. This
guidance is effective for financial statements issued for fiscal years beginning
after December 15, 2006. The Company will adopt this FSP in the first quarter of
fiscal 2008 in connection with the issuance of the Senior Secured Convertible
Notes and related warrants. See Note 11, "Senior Secured Convertible Notes."

Management does not believe that any other recently issued, but not yet
effective, accounting standards if currently adopted would have a material
effect on the accompanying financial statements.

2. GOING CONCERN:

As presented in the accompanying financial statements, the Company has been in
the development stage since inception, incurring recurring losses from
operations, and as of February 28, 2007, the Company's current liabilities
exceeded its current assets by $4,787,059 and the Company has a stockholders'
deficiency of $3,210,045. These factors raise potential doubt about the
Company's ability to continue as a going concern. Management is taking several
actions to ensure that the Company will continue as a going concern.

The Company is in regular contact with its current investors and prospective new
investors, and believes that it will be able to raise additional capital on the
warrants that are currently being registered with the Securities and Exchange
Commission and that it will be able to service its debt using the warrant shares
that are being registered for this purpose.

Further, in order to address the current situation, management has instituted a
cost reduction program that included a reduction in monthly costs from
approximately $1,100,000 at this time last year to under $500,000 per month
currently. In addition, the Company has reduced its investments in several
product lines and pursued alternative funding vehicles. The Company has
reorganized its efforts on the Myotech cardiac assist device development while
keeping core functions operational and maintaining intellectual property and
designs.

Management believes these factors and actions will contribute toward obtaining
sufficient financing for the near term and ultimate profitability. The
accompanying financial statements do not include any adjustments that might be
necessary if the Company is unable to continue as a going concern.

3. BUSINESS COMBINATIONS

Effective June 3, 2004, the Company executed final agreements for the
acquisition of a 51% ownership interest in TE Bio, LLC ("TE Bio"), a newly
formed limited liability company that acquired an exclusive license to certain
technology from Biomed Solutions LLC ("Biomed"), a related party. TE Bio is also
owned 46.5% by Biomed, a related company, and 2.5% by Stuart G. MacDonald,
Vice-President of Research and Development for the Company. The primary reason
for the acquisition was the development of an implantable biothermal battery
using body heat gradients to power medical devices. The Payment Agreement (the
"Agreement") provides for the investment in TE Bio of $300,000 per year for
three years from the Company's working capital. In addition, the Company will
provide certain administrative, marketing, and research and development services
to TE Bio. The results of operations of TE Bio beginning June 3, 2004 are
included in the accompanying consolidated statement of operations. TE Bio had no
significant assets, liabilities or operations at time of acquisition.

On February 24, 2005, the Company entered into an agreement for the purchase of
a 51% ownership interest in aMRIs GmbH, a German company formed November 2004.
Concurrently, aMRIs acquired a 58.4% interest in MR:comp GmbH. The name of aMRIs
was subsequently changed to Biophan Europe GmbH. For accounting purposes, the
acquisition is treated as a purchase as of February 28, 2005. Operating results
of the subsidiary for the period from February 25 through February 28, 2005 were
not material and are not included.


                                      F-13

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The principal reasons for the acquisition, in addition to obtaining a European
market presence, were to add complementary intellectual property to the
Company's existing technologies, further expertise to its management team, and
additional research and development capabilities. Accordingly, in connection
with the purchase, the Company executed an exclusive license agreement for
certain patents related to the Company's own proprietary technologies in the
area of MRI safety and compatibility, employment agreements with key executives
of aMRIs and agreed to contribute to aMRIs $2,000,000 over four years for
funding specific salaries and research and development expenses.

Total consideration for the 51% interest in aMRIs and for intellectual property
rights was $1,105,714, consisting of the following:



Cash paid                                  $  132,500
Promissory note issued                        200,000
Amount payable in cash                         92,500
Amount payable in restricted stock            134,000
Restricted stock issued (100,000 shares)      134,000
Direct acquisition costs                      234,330
Liabilities assumed                           178,384
                                           ----------
  Total purchase price                     $1,105,714
                                           ==========



The allocation of the purchase price is as follows:



Intellectual property rights (estimated
  useful life of 17 years)                 $  927,738
Current assets                                176,954
Equipment                                       1,022
                                           ----------
  Total                                    $1,105,714



The following summarized pro forma consolidated statement of operations
(unaudited) for the year ended February 28, 2005, assumes the acquisition of
aMRIs as if it had occurred on March 1, 2004:



Operating expenses:
  Research and development                 $ 2,737,038
  General and administrative                 3,505,300
                                           -----------
                                             6,242,338
                                           -----------
Operating loss                              (6,242,338)
Other income                                   246,745
                                           -----------
Net loss                                   $(5,995,593)
                                           ===========
Loss per common share-basic and diluted    $     (0.09)
                                           ===========
Weighted average shares outstanding         69,263,893
                                           ===========



Effective November 30, 2005, we entered into a Securities Purchase Agreement for
the acquisition of an initial 35% interest in Myotech, LLC ("Myotech"), a New
York limited liability company, whereby we exchanged 4,923,080 shares of our
common stock, par value $.005, for 3,768,488 Class A (voting) units of Myotech.

Based upon the terms of the Securities Purchase Agreement, we were obligated to
purchase for cash consideration of $2.225 million an additional 811,037 Class A
units. We may elect to acquire up to an additional 3,563,097 Class A units for
further cash consideration of up to $9.775 million, over a 24-month period,
which may result in the Company owning a majority interest in Myotech. During
the three month period ended February 28, 2006, Biophan provided $1,185,000 of
additional funding for 431,946 newly issued Class A units of Myotech. During the
year ended February 28, 2007, Biophan has provided $1,040,000 of additional
funding satisfying the cash consideration of $2.225 million cited above, for
379,091 newly issued Class A units of Myotech. In addition, Biophan has also
provided an additional investment of $1,994,349 to Myotech against milestone 2
in the year ended February 28, 2007 for 726,963 newly issued Class A units,
which increased our ownership to 43.7%. Additional investments of $105,175
against milestone 2 have been made since February 28, 2007 for 38,337 additional
newly issued Class A units, which raised our ownership percentage to 43.8% to
date.


                                      F-14

---

We have determined that Myotech is a Variable Interest Entity within the meaning
of FIN 46(R) and that we are the primary beneficiary (as defined in FIN 46(R)).
Consequently, the financial statements of Myotech have been consolidated with
our consolidated financial statements for all periods ending on or after
November 30, 2005, the date of our initial investment in Myotech.

The following is selected financial data for Myotech, LLC at February 28, 2007
and 2006, respectively:



                                              For the           For the Three
                                            Year Ended           Months Ended
                                         February 28, 2007    February 28, 2006
                                         -----------------    -----------------
Total current assets                     $         338,548    $          59,608
Intangible assets, net of amortization          23,074,028           24,451,580
Other assets                                       196,915               37,156
                                         -----------------    -----------------
Total assets                             $      23,609,491    $      24,548,344
                                         =================    =================
Current liabilities                      $         352,072    $         169,948
Equity                                          23,257,419           24,378,396
                                         -----------------    -----------------
                                         $      23,609,491    $      24,548,344
                                         =================    =================
Net loss from operations                 $      (4,163,326)   $        (992,026)
                                         =================    =================


                                      F-15

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. PREPAID EXPENSES:

Prepaid expenses consist of the following:



                                             February 28,
                                         -------------------
                                           2007       2006
                                         --------   --------
Prepaid insurance                        $ 36,812   $ 33,403
Prepaid license fees - related company     10,000     15,000
Prepaid legal fees                         30,000     30,000
Prepaid rent                               22,492         --
Prepaid royalties - related company        35,000     35,000
Prepaid conference fees                        --     29,400
Other                                      31,867      4,400
                                         --------   --------
                                         $166,171   $147,203
                                         ========   ========



5. PROPERTY AND EQUIPMENT:

Property and equipment, at cost, consists of the following:



                                              February 28,
                                         ---------------------
                                            2007        2006
                                         ---------   ---------
Furniture and Equipment                  $ 349,298   $ 123,664
Computers                                  143,543      85,843
Internet Website                            54,159      54,159
Leasehold Improvements                      75,700          --
                                         ---------   ---------
                                           622,700     263,666
Less accumulated depreciation             (204,338)   (137,325)
                                         ---------   ---------
                                         $ 418,362   $ 126,341
                                         =========   =========

Property and equipment includes amounts acquired under capital leases of $27,049
and $0 at February 28, 2007 and 2006, respectively, with accumulated
depreciation of approximately $5,400 and $0, respectively.

Depreciation and amortization expense for the years ended February 28, 2007,
2006, and 2005 amounted to $95,368, $47,241 and $28,020, respectively.
Depreciation expense for the period from August 1, 1968 (date of inception) to
February 28, 2007 was $234,802.

6. INTANGIBLE ASSETS:

Certain intellectual property rights were acquired on December 1, 2000 in
connection with the merger that established the Company in its present form.
Additional intangible assets were acquired on February 24, 2005 in connection
with the acquisition of Biophan-Europe and on November 30, 2005 in connection
with the investment in Myotech, LLC. Such rights 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 and the development of a cardiac assist device.
These assets are amortized over the estimated 17 to 18 year economic lives of
the underlying patents and core technology. Estimated amortization expense for
the next five years is as follows:



Fiscal year ending February,     Amount
----------------------------   ----------
2008                           $1,458,045
2009                            1,458,045
2010                            1,458,045
2011                            1,458,045
2012                            1,458,045



Amortization expense for the year ended February 28, 2007 and 2006 was
$1,458,045 and $405,441, respectively. Amortization expense for the period from
August 1, 1968 (date of inception) to February 28, 2007 was $1,863,486.


                                      F-16

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. INVESTMENT:

The investment in New Scale Technologies, Inc. represents a 10% investment in
it's common stock, a non-public company, stated at cost.

8. LINE OF CREDIT AGREEMENTS:

On May 27, 2005, we entered into a Line of Credit Agreement with Biomed
Solutions, LLC, a related party, whereby Biomed agreed to provide a line of
credit facility of up to $2 million. Borrowings under the line, bear interest at
8% per annum, are payable on demand and are convertible at Biomed's election,
into the Company's common stock at 90% of the average closing price for the 20
trading days preceding the date of borrowings under the line. In June 2005, the
Company borrowed the entire $2 million under the line in two separate draws of
$1 million each. In accordance with the agreement, Biomed received warrants to
purchase 500,000 shares of the Company's common stock at an exercise price of
110% of the average closing price for the 20 trading days preceding the date of
execution of the credit agreement. The Company recorded a discount on the
borrowings of $958,160 due to the beneficial conversion feature of the note as
well as for the value of the warrants. The discount was amortized as additional
interest expense over the term of the note. In August 2005, Biomed elected to
convert $1 million of the note plus accrued interest into 480,899 shares of
common stock at which time, the remaining discount related to the $1 million
portion of the loan was fully expensed. On October 7, 2005, we repaid $500,000
of principal and all accrued interest on the loan. The balance of borrowings on
the line was $500,000 at February 28, 2007.

On January 24, 2006, we entered into an additional Line of Credit Agreement (the
"Line of Credit Agreement") with Biomed Solutions, LLC, pursuant to which Biomed
committed to make advances to us, in an aggregate amount of up to $5,000,000.
Under the Line of Credit Agreement, advances may be drawn down in such amounts
and at such times as we determine upon 15 days prior notice to Biomed, except
that we may not draw down more than $1,500,000 in any 30-day period. Amounts
borrowed bear interest at the rate of 8% per annum and were convertible into
shares of our Common Stock at the rate of $1.46 per share. Biomed's obligation
to lend to us under the Line of Credit Agreement expires on June 30, 2007, on
which date the entire amount borrowed by us (and not converted into shares of
our Common Stock) becomes due and payable. In connection with the establishment
of the credit facility, we issued to Biomed a warrant to purchase up to
1,198,630 shares of our Common Stock at an exercise price of $1.89 per share.
The Company recorded a discount on the borrowings of $1,678,425 due to the
beneficial conversion feature of the note as well as for the value of the
warrant.

On October 11, 2006, in connection with our Securities Purchase Agreement dated
October 11, 2006 with Iroquois Master Fund Ltd and other private investors (the
"Purchase Agreement"), we amended our January 24, 2006 Line of Credit Agreement
(the "Biomed Line of Credit Agreement") with Biomed and the Convertible
Promissory Note in the original principal amount of $5,000,000 issued by us to
Biomed on January 24, 2006 pursuant to the Biomed Line of Credit Agreement (the
"$5,000,000 Biomed Note"). The amendment reduced the price at which the
$5,000,000 Biomed Note is convertible into shares of our Common Stock from $1.46
per share to a conversion price of $0.67. In connection with the Purchase
Agreement, we also entered into a Subordination and Standstill Agreement (the
"Subordination Agreement") with Biomed and the investors who are parties to the
Purchase Agreement, pursuant to which Biomed agreed (i) to subordinate its
rights to payment under the $5,000,000 Biomed Note and the Convertible
Promissory Note in the original principal amount of $2,000,000 issued by us to
Biomed on May 27, 2005 to the rights of the investors under the Notes and (ii)
to convert the entire outstanding amount of principal and interest due under the
$5,000,000 Biomed Note in excess of $700,000 into shares of our common stock
upon the effectiveness of an amendment to our Articles of Incorporation to
increase the number of our authorized shares which we have agreed, in the
Purchase Agreement, to propose to our stockholders. For accounting purposes,
these amendments have been treated, in substance, as an extinguishment of the
old debt. Accordingly, the remaining unamortized discount on the old debt of
$1,098,442 was written off, a loss on extinguishment of $670,053 on the old debt
was recognized, and a discount was recorded and fully amortized on the new debt
of $175,970 during the year ended February 28, 2007. The balance of the
borrowings of the line was $3,930,000 at February 28, 2007. The fair value of
the note is not readily determinable as there is a limited market for such
related party debt.


                                      F-17

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. ACCOUNTS PAYABLE AND ACCRUED EXPENSES:

Accounts payable and accrued expenses consist of the following:



                                             February 28,
                                       -----------------------
                                          2007         2006
                                       ----------   ----------
Accounts payable                       $1,010,060   $  793,873
Bonuses - Biophan-Europe                   75,000      150,000
Accrued payroll and related expenses      152,395       76,977
Accounting fees                            75,000           --
Consulting fees                            30,000           --
Interest payable                          504,078       34,112
License fees                                   --       70,000
Other                                      95,500       66,850
                                       ----------   ----------
                                       $1,942,033   $1,191,812
                                       ==========   ==========



10. CAPITAL LEASE OBLIGATION:

The Company leases equipment under a capital lease that expires in 2010. The
lease requires monthly payments of $934 including interest at 14.75% per annum.

Future minimum lease payments required under the capital lease are as follows:



Year Ending
February 28,                         Amount
------------                        --------
    2008                            $ 11,212
    2009                              11,212
    2010                              11,212
                                    --------
                                    $ 33,636
                                    ========
Less amount representing interest     (6,587)
                                    --------
                                      27,049
Less current maturities               (7,445)
                                    --------
Long-term debt, less maturities     $ 19,604
                                    ========



11. SENIOR SECURED CONVERTIBLE NOTES:

On October 11, 2006, we entered into a Securities Purchase Agreement (the
"Purchase Agreement") with 10 private investors led by Iroquois Master Fund Ltd
("Iroquois"). Pursuant to the Purchase Agreement, on October 12, 2006 we issued
$7,250,000 of Senior Secured Convertible Notes (the "Notes") to the investors
and received proceeds of $6,219,880 after paying estimated fees and expenses of
$1,030,120 related to the transaction. The holders of the Notes may elect to
convert the Notes at any time into shares of our common stock based upon a price
of $0.67 per share (the "Conversion Price"). Interest on the outstanding
principal amount under the Notes is payable quarterly at a rate equal to the
six-month London InterBank Overnight Rate plus 500 basis points, with a minimum
rate of 10% per annum and a maximum rate of 12% per annum, payable at our option
in cash or shares of our common stock registered for resale under the Securities
Act of 1933, as amended (the "Securities Act"). If we elect to make an interest
payment in common stock, the number of shares issuable by us will be based upon
the lower of (i) 90% of the 20-day trailing average volume weighted average
price per share as reported on Bloomberg LP (the "VWAPS") or (ii) the Conversion
Price. Principal on the Notes amortizes and payments are due in 33 equal monthly
installments commencing four months following issuance of the Notes, and may be
made at our option in cash or shares of our common stock registered for resale
under the Securities Act. If we elect to make a principal payment in common
stock, the number of shares issuable by us will be based upon the lower of (i)
87.5% of the 15-day trailing VWAPS prior to the principal payment date or (ii)
the Conversion Price. Our obligations under the Notes are secured by a first
priority security interest in substantially all of our assets pursuant to a
Security Agreement dated as of October 11, 2006 among us, the investors and
Iroquois, as agent for the investors (the "Security Agreement").


                                      F-18

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As further consideration to the investors, we issued to the investors one-year
warrants to purchase an aggregate of 10,820,896 shares of our common stock at a
price of $0.67 per share. If the investors elect to exercise these one-year
warrants, they will also receive additional five-year warrants to purchase the
shares of our common stock equal to the number of shares purchased under the
one-year warrants, with 50% of the additional warrants having an exercise price
of $.85 per share, and the remaining 50% of the additional
five-year warrants having an exercise price of $.92 per share.
We also issued to the investors five-year warrants to purchase an
aggregate of 10,820,896 shares of our common stock. The first five-year warrants
allow for the purchase of 5,410,448 shares of our common stock at an exercise
price of $0.81 per share, and the second five-year warrants allow for the
purchase of 5,410,448 shares of our common stock at an exercise price of $0.89
per share. The warrants contain anti-dilution protection that, should we issue
equity or equity-linked securities at a price per common share below the
exercise price of the five-year warrants, it will automatically adjust the
exercise price of the warrants to the price at which we issue such equity or
equity-linked securities. The total fair value of the warrants was $14,554,105.
The Company recorded a discount on the Notes of $7,250,000 for the fair value of
the related warrants. This discount on the Notes is being amortized over the
life of the Notes using the effective interest method. The discount amortization
through February 28, 2007 amounted to $1,707,066 and has been included in
interest expense. In addition, the excess of the fair value of the warrants over
the carrying value of the notes, which amounted to $7,304,105, was recognized as
additional expense related to warrants in the accompanying 2007 statement of
operations.

We further agreed to register for resale under the Securities Act the common
stock issuable upon the exercise of the warrants and any shares of common stock
we may issue to the holders of the Notes in connection with payments of interest
and principal, or which we are obligated to issue upon any conversion of the
Notes at the option of the holders.

On February 21, 2007, we entered into a Forbearance Agreement (the "Forbearance
Agreement") with the investors pursuant to which the investors agreed that,
during the period commencing on February 16, 2007 and ending on the earlier of
(i) March 31, 2007 or (ii) the date on which any Termination Event (as defined
in the Forbearance Agreement) first occurs (the "Forbearance Period"), they will
forbear from exercising any and all of the rights and remedies which they may
have against us or any of our assets under the Notes or the Purchase Agreement
or at law or in equity as a result of any default under the Notes or as a result
of the occurrence of certain events with respect to the Purchase Agreement. In
exchange for entering into the Forbearance Agreement, we issued pro rata to the
investors three-year warrants for the purchase of an aggregate of 60,000 shares
of our common stock at an exercise price of $0.51 per share (the "Fee
Warrants").

Upon the issuance of the Fee Warrants, the exercise prices of the five-year
warrants issued to the investors pursuant to the Purchase Agreement (the
"Original Warrants") for the purchase of an aggregate of 10,820,896 shares of
our common stock were automatically adjusted from $0.81 per share and $0.89 per
share, respectively, to $0.51 per share, and the number of shares of our common
stock issuable upon exercise of the Original Warrants was automatically
adjusted, proportionately, to an aggregate of 18,034,830 shares. In the
Forbearance Agreement, the investors waived, with respect to the issuance of the
Fee Warrants, application of similar anti-dilution adjustments contained in the
Notes and in a third series of warrants for the purchase, on or before October
12, 2007, of an aggregate of 10,820,896 additional shares of our common stock at
an exercise price of $0.67 per share (the "One Year Warrants"). C.E. Unterberg
Towbin, which holds a warrant for the purchase of 865,672 shares of our common
stock at an exercise price of $0.67 per share, issued to it in connection with
its services as exclusive placement agent under the Purchase Agreement,
separately agreed to waive, with respect to the issuance of the Fee Warrants,
application of the anti-dilution provisions set forth in that warrant. Because
the anti-dilution adjustment to the Original Warrants is accounted for as a
modification of the Original Warrants, we recorded an expense for this
modification in the period ended February 28, 2007 of which is included in the
caption "Change in fair value of warrant liability" in the statement of
operations for the year ended February 28, 2007.

12. FAIR VALUE OF WARRANT LIABILITY

In accordance with the guidance provided by EITF 00-19, Accounting for
Derivative Financial Instruments Indexed to and Potentially Settled in, a
Company's Own Stock, we have recorded a liability of $10,157,937 for the fair
value of the warrants related to the Senior Secured Convertible Notes at
February 28, 2007 in order to provide for the possibility that we may be unable
to comply with the registration rights of the lenders as contained in the
Securities Purchase Agreement and we currently do not have sufficient available
authorized shares to execute a potential conversion of the Notes and related
warrants and thus we would be required to settle the contract in cash. In
addition, since we currently do not have sufficient available authorized shares
to execute a potential conversion of other outstanding warrants if requested to
do so by the grantees, we could be required to settle any conversion requests in
cash. Therefore, we reclassified warrants with an approximate value of $756,000
from equity to the warrant liability. The fair value of this amount was $336,069
at February 28, 2007. The Company expects to seek stockholder approval to
increase the authorized shares at a Special Meeting to be scheduled on May 8,
2007. The total fair value of derivative liability, originally recorded at
$15,309,980 on October 12, 2006, was adjusted by $4,815,974 to $10,494,006 at
February 28, 2007 resulting in a net non-cash income adjustment of $1,986,041
during the year ended February 28, 2007.


                                      F-19

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The warrants subject to the Stand-Still Agreement were not reclassified because
they are not exercisable until the increase in the number of authorized shares
and the investors have agreed not to require a cash settlement in the event the
number of authorized shares is not increased.

As noted above, the fair value of the derivative liability pertaining to the
warrants related to the Senior Secured Convertible Notes is volatile. Several
factors and underlying assumptions are included in the Black-Scholes model to
derive the fair value of the warrants. The factors and the assumptions are as
follows:

1. Number of warrants: varies from time to time dependent upon current period
grants, conversions, forfeitures, and expirations,

2. Term to expiration: expiration dates vary by grant and currently range from
1-5 years,

3. Market price at the valuation date: $0.70/share at October 12, 2006;
$0.41/share at February 28, 2007,

4. Exercise price of the warrants: varies by grant,

5. Dividend yield - assumed to be zero,

6. Interest rate - we use the US Federal Reserve - "Treasury constant maturities
rates" at the measurement date matched to the maturities of the warrants. The
rates change over time and the maturities of the warrants change over time.

7. Company stock price volatility on a look-back basis as a proxy for expected
future volatility in stock price. We use the look-back approach because the
stock has a relatively short trading history as a publicly traded security.

While most of these factors changed during the period of October 12, 2006 to
February 28, 2007, the most significant factor impacting the change in fair
value were the change in stock price and the repricing of the original warrants
to $0.51 per share as further described in Note 11.

13. STOCKHOLDERS' EQUITY:

On February 5, 2004 the Company entered into a stock purchase agreement with SBI
Brightline Consulting, LLC ("SBI") that obligated SBI to purchase, upon the
Company's election, up to 17,750,000 shares of common stock for an aggregate
purchase price of $25 million. Only 6,000,000 shares covered by this stock
purchase agreement were registered for resale. SBI was not obligated to purchase
the remaining shares covered by the stock purchase agreement unless and until
the Company had registered the resale of such shares by SBI. During the year
ended February 28, 2005, the Company elected to sell the 6,000,000 shares to SBI
for an aggregate of $3,900,000. On May 27, 2005, this stock purchase agreement
was cancelled and a new agreement was executed with SBI. The agreement provides
a $30 million fixed price financing for up to 10,000,000 shares at prices
ranging from $2 to $4 a share. The sales of stock must be taken in tranches of 1
million shares each and the financing agreement requires the shares to be
registered for resale by SBI. There are no resets, warrants, finder's fees or
commissions associated with this financing transaction. Registration of the
shares for resale by SBI was effective on May 18, 2006. The Company elected to
put the first tranche of 1 million shares at $2 per share on May 23, 2006 and
received the entire proceeds. The Company elected to put the second tranche of 1
million shares at $2 per share on July 21, 2006. Under this second tranche, only
$1,175,000 has been received to date and only 587,500 additional shares have
been issued to SBI. On October 11, 2006, the Company elected to put the entire
remaining tranches, at a weighted average price of $2.60 per share, to SBI. To
date, SBI has failed to meet its obligation to purchase these shares and the
Company has not issued the shares.

We believe that SBI's failure to purchase all of the shares which we elected to
sell to them on July 21, 2006 or any of the shares which we elected to sell to
them on October 11, 2006 constitutes a breach of SBI's contractual obligations
under the SBI Agreement. Under the SBI Agreement, SBI is irrevocably bound to
purchase the shares in the amounts and at the times determined by us. We have
been engaged in discussions with SBI in an effort to address SBI's default. In
our Purchase Agreement with Iroquois Master Fund Ltd and other investors
(See Note 11) we agreed (i) to enforce all of our rights and remedies under
the SBI Agreement in connection with the breach by SBI, and (ii) not to agree to
any settlement, amendment, waiver or consent under the SBI Agreement without the
prior written consent of Iroquois.

SBI has alleged that in September 2006 the Company and SBI entered into an oral
settlement agreement pursuant to which the Stock Purchase Agreement was
terminated and SBI's obligation to purchase the shares was extinguished. The
Company believes that SBI's claim is without basis in fact.

On February 24, 2005, in connection with the acquisition of Biophan Europe (see
Note 3), 100,000 shares of restricted stock, valued at $134,000, were issued,
fully charged and accrued to intellectual property rights; and in connection
with Employment Agreements of the same date, 200,000 shares of restricted stock
valued at $268,000 were issued to two key executives of the German subsidiary
company aMRIs GmbH and fully charged to operating expenses in the year ended
February 28, 2005.


                                      F-20

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On August 2, 2005, the Company entered into an investment agreement with Boston
Scientific Scimed. At that time, 1,653,193 shares of common stock were issued
for $5,000,000.

On November 30, 2005, the Company issued 4,923,080 shares of common stock,
valued at $8,467,698 for the acquisition of a 35% minority ownership in Myotech,
LLC. Under EITF 98-2, Accounting by a Subsidiary or Joint Venture for an
Investment in the Stock of its Parent Company, these shares are accounted for as
treasury stock.

On December 6, 2005, in connection with the acquisition of Biophan Europe (see
Note 3), 100,000 shares of restricted stock, valued at $134,000, were issued in
satisfaction of accounts payable in the accompanying consolidated balance sheet
at February 28, 2006.

Also, on December 6, 2005, the Company issued 22,000 restricted shares of common
stock valued at $37,840 for certain services.

During the years ended February 28, 2007, 2006 and 2005, the Company issued no
shares, 84,074 and 1,903,775 shares of stock upon the exercise of warrants for
total proceeds of $0, $20,707 and $788,900, respectively. As of February 28,
2007 and 2006, warrants to purchase 33,229,318 and 3,247,920 shares of our
common stock were outstanding, respectively. The exercise prices for these
warrants range from $.15 per share to $2.49 per share, and the weighted-average
exercise price for all of the outstanding warrants is $.64 per share. In
addition, during the years ended February 28, 2007, 2006 and 2005, 38,956,
224,165 and 94,999 shares of stock were issued upon the exercise of options for
total proceeds of $13,179, $182,541 and $34,900, respectively.

Additional paid-in capital was further increased by $1,444,780, $4,609,778 and
$201,000 of expense related to stock options issued for services during the
years ended February 28, 2007, 2006 and 2005, respectively. Also, $-0-, $295,362
and $400,725 of profits were received during the years ended February 28, 2007,
2006 and 2005, respectively, from a related company owed pursuant to the "short
swing profit" rules of the Securities Exchange Act of 1934.

14. RESEARCH AND DEVELOPMENT COSTS:

Expenditures for research activities relating to intellectual property
development and improvement are charged to expense as incurred. Such
expenditures amounted to $7,190,975, $6,829,142, and $2,629,980 for the years
ended February 28, 2007, 2006, and 2005, respectively.

15. COMMITMENTS:

Lease Obligation

The Company was obligated under operating leases for office space originally
expiring January 30, 2008, which the Company had the right to terminate upon
ninety days prior written notice to the landlord. The notice of termination was
given to the landlord and the Company continued on a month-to-month basis until
it vacated the premises on February 9, 2007. The Company has entered into new
operating leases for office space commencing March 2007 and expiring April 30,
2022, subject to our right to terminate at any time after December 31, 2008 upon
90 days' notice.

The following is a schedule of future minimum rental payments, included annual
increases, required under the operating lease agreements:



Year Ending
February 28,     Amount
------------   ----------
    2008       $  102,891
    2009          139,558
    2010          146,536
    2011          153,636
    2012          157,990
 Thereafter     1,600,939
               ----------
               $2,301,550
               ==========



Rent expense, net of subrentals, charged to operations under these operating
lease aggregated $113,161, $70,775 and $58,546 for the years ended February 28,
2007, 2006, and 2005, respectively. Rent expense, net of subrentals, charged to
operations for the period from August 1, 1968 (Date of Inception) to February
28, 2006 was $368,626.

Cooperative Research and Development Agreement (CRADA):

In March 2006, the Company entered into a Cooperative Research and Development
Agreement (CRADA) with the Food and Drug Administration to evaluate the safety
of medical implants in the presence of electromagnetic fields from magnetic
resonance imaging for a term of 2.5 years. Pursuant to the Agreement, the
Company is committed to a total of $187,500 of which $75,000 has been paid at
February 28, 2007.


                                      F-21

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

License Agreements

The Company is obligated under seven license or royalty agreements for patents
that expire at various dates through 2025. These agreements may be terminated by
the Company with 60 days written notice. Aggregate minimum future payments over
the remaining life of the patents under these agreements total $5,447,500.
License/royalty expense charged to operations was $152,410, $594,890 and $89,880
for the years ended February 28, 2007, 2006 and 2005, respectively.

Employment Agreements

Biophan has employment agreements with its executive officers that renew
annually unless terminated by either party. Such agreements, which have been
revised from time to time, provide for minimum salary levels, adjusted annually
for cost-of-living changes, as well as for incentive bonuses that are payable if
specified management goals are attained.

Also, Biophan has an employment contract with an officer that expires November
9, 2007, and Biophan Europe has an employment agreement with a key employee that
expires on February 24, 2009. These agreements provide for base salaries,
bonuses based on attaining certain milestones, a restricted stock grant and
stock options. The aggregate commitment for future base salaries at February 28,
2007, excluding bonuses and other awards approximates $313,750.

16. RELATED PARTY TRANSACTIONS:

The Company has affiliations with three entities, Biomed, Technology
Innovations, and Myotech (through November 30, 2005) that are related by virtue
of common senior management personnel and stock ownership. During the years
ended February 28, 2007, 2006, and 2005, the Company charged Biomed and Myotech
(through November 30, 2005) for services of certain Company personnel. The total
of these charges was $197,362, $156,647 and $161,014, respectively. The Company
also charges Biomed, TI and Myotech (through November 30, 2005) for expenses
allocable to and paid on their behalf. During the years ended February 28, 2007,
2006, and 2005, expenses paid by the Company on their behalf was approximately
$175,220, $647,000, and $240,000, respectively. At February 28, 2007, the
combined balances due from these related parties was $16,301. The amounts do not
bear interest and the Company received payment within forty-five days.

During the years ended February 28, 2007, 2006 and 2005, the Company was billed
$35,290, $93,000 and $9,000, respectively, for legal services provided by
Bramson & Pressman of which Robert S. Bramson, a former director of the Company,
is a partner. Mr. Bramson resigned July 18, 2006.

Steven Katz & Associates, Inc. of which Steven Katz, a former director of the
Company is an owner, billed the Company $183,500 and $110,500 during the years
ended February 28, 2007 and 2006, respectively, for consulting services. The
firm did not bill us for services during the year ended February 28, 2005. Mr.
Katz resigned March 9, 2007.

17. SHARE-BASED COMPENSATION PLAN:

The Company has two stock-based compensation plans, entitled Biophan
Technologies, Inc. 2001 Stock Option Plan and Biophan Technologies, Inc. 2006
Incentive Stock Plan (the "Plans") which are stockholder approved. The Plans
provide for the grant of incentive and non-qualified stock options to selected
employees, and the grant of non-qualified options to selected consultants and to
directors and advisory board members. In addition, various other types of
stock-based awards may be granted. The Plans are administered by the
Compensation Committee of the Board and authorizes the grant of options or
restricted stock awards for 13,000,000 shares under the 2001 Plan and 7,500,000
shares under the 2006 Plan. The Compensation Committee determines which eligible
individuals are to receive options or other awards under the Plans, the terms
and conditions of those awards, the applicable vesting schedule, the option
price and term for any granted options, and all other terms and conditions
governing the option grants and other awards made under the Option Plan.
Non-employee directors also receive periodic option grants pursuant to the
automatic grant program in effect for them under the 2006 Plan.


                                      F-22

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Effective March 1, 2006, the Company adopted SFAS No. 123 (revised),
"Share-Based Payment" (SFAS 123(R)) utilizing the modified prospective approach.
Prior to the adoption of SFAS 123(R), stock option grants to employees and
directors were accounted for in accordance with APB Opinion No. 25, "Accounting
for Stock Issued to Employees" (the intrinsic value method) and the
disclosure-only provisions of SFAS 123, "Accounting for Stock-Based
Compensation". Accordingly, employee compensation expense was recognized only to
the extent that the fair value of our common stock on the date of grant exceeded
the stock option exercise price.

Under the modified prospective approach, SFAS 123(R) applies to new grants and
to grants that were outstanding on February 28, 2006 that are subsequently
modified, repurchased or cancelled. Under the modified prospective approach,
compensation cost recognized in fiscal 2007 includes compensation cost for all
share-based payments granted prior to, but not yet vested as of February 28,
2006, based on the grant-date fair value estimated in accordance with the
original provisions of SFAS 123, and compensation cost for all share-based
payments granted subsequent to February 28, 2006, based on the grant-date fair
value estimated in accordance with the provisions of SFAS 123(R). Prior periods
were not restated to reflect the impact of adopting the new standard.

As a result of adopting SFAS 123(R) on March 1, 2006, our net loss and basic and
diluted loss per share for the year ended February 28, 2007 were $1,206,640
($.015 per share) higher than if we had continued to account for stock-based
compensation under APB Opinion No. 25 for our stock option grants.

The following table illustrates the effect on operating results and per share
information had the Company accounted for stock-based compensation in accordance
with SFAS 123(R) for the years ended February 28:



                                                      2006          2005
                                                 ------------   -----------
Net loss - as reported                           $(14,484,384)  $(5,793,547)
Add: Stock-based employee compensation
  expense included in reported net loss,
  net of related tax effects                        4,384,530       201,000
Deduct: Total stock-based employee
  compensation expense determined
  under fair value based method for
  all awards, net of related tax effects           (6,520,862)     (342,000)
                                                 ------------   -----------
Net loss - pro forma                             $(16,620,716)  $(5,934,547)
                                                 ============   ===========
Basic and diluted loss per share - as reported   $      (0.19)  $     (0.08)
                                                 ============   ===========
Basic and diluted loss per share - pro forma     $      (0.22)  $     (0.08)
                                                 ============   ===========



We use the Black-Scholes option pricing model to estimate the fair value of
stock-based awards with the following weighted-average assumptions for the years
ended February 28:



                                       2007           2006          2005
                                   ------------   -----------   -----------
Expected volatility                  71%-122%       60%-103%      88%-150%
Risk-free interest rate             4.54%-5.35%   4.50%-4.60%   4.04%-4.50%
Expected life of options (years)   3.75-8 years    5-10 years    5-10 years
Expected dividends                      -0-           -0-           -0-


                                      F-23

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The assumptions above are based on multiple factors, including historical
exercise patterns of employees in relatively homogeneous groups with respect to
exercise and post-vesting employment termination behaviors, expected future
exercising patterns for these same homogeneous groups and the implied volatility
of our stock price.

At February 28, 2007, there was $1,249,419 of unrecognized compensation cost
related to stock-based payments which is expected to be recognized over a
weighted-average period of 1.23 years.

The following table represents stock option activity for the years ended
February 28, 2005 through 2007:



                                                               Weighted-
                                                 Weighted-      Average
                                       Number     Average      Remaining
                                        of       Exercise      Contract
                                       Shares      Price     Life (years)
                                     ---------   ---------   ------------
Outstanding options at 2/28/04       3,869,993     $ .39
Granted                              4,149,859     $ .96
Exercised                              (94,999)    $ .37
                                     ---------
Outstanding options at 2/28/05       7,924,853     $ .69
Granted                              1,968,331     $1.88
Forfeited                              (74,999)    $ .83
Exercised                             (224,165)    $ .81
                                     ---------
Outstanding options at 2/28/06       9,594,020     $ .95
Granted                                354,997     $ .96
Exercised                              (38,956)    $ .34
Forfeited                             (367,000)    $ .47
Expired                               (114,999)    $ .50
                                     ---------
Outstanding options at 2/28/07       9,428,062     $ .96         6.74
                                     =========     =====         ====
Outstanding exercisable at 2/28/07   7,433,479     $ .86         6.39
                                     =========     =====         ====



At February 28, 2007, shares available for future stock option grants to
employees and others under our 2001 Stock Option Plan were 597,981 and shares
available for future stock option grants to employees and others under our 2006
Incentive Stock Plan were 7,265,003.

At February 28, 2007, the aggregate intrinsic value of shares outstanding was
$302,550, and the aggregate intrinsic value of options exercisable was $302,550.
Total intrinsic value of options exercised was $ 17,223 for the year ended
February 28, 2007.

The following table summarizes our non-vested stock option activity for the year
ended February 28, 2007:



                                                   Weighted-Average
                                       Number of    Grant-Date Fair
                                        Shares           Value
                                      ----------   ----------------
Non-vested stock options at 2/28/06    3,048,750         $1.31
Granted                                  160,000         $ .86
Vested                                (1,032,167)        $1.09
Forfeited/Expired                       (182,000)        $ .93
                                      ----------
Non-vested stock options at 2/28/07    1,994,583         $ .62
                                      ==========



18. 401(K) SAVINGS PLAN

The Company maintains a tax-qualified retirement plan that provides all eligible
employees with an opportunity to save for retirement on a tax-advantaged basis.
Under the 401(k) Plan, participants may elect to defer a portion of their
compensation on a pre-tax basis and have it contributed to the Plan subject to
applicable annual Internal Revenue Code limits. Pre-tax contributions are
allocated to each participant's individual account and are then invested in
selected investment alternatives according to the participants' directions.
Employee elective deferrals are 100% vested at all times. The 401(k) Plan allows
for matching contributions to be made by the Company. As a tax-qualified
retirement plan, contributions to the 401(k) Plan and earnings on those
contributions are not taxable to the employees until distributed from the 401(k)
Plan and all contributions are deductible by the Company when made.


                                      F-24

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For eligible employees, our Investing Plans likewise use base and lump-sum merit
pay as components of "eligible compensation" under the applicable plans
(incentive plan awards are not part of "eligible compensation"). In addition,
our "qualified" plans are subject to applicable IRS limits.

Company matching contributions to the Plan totaled $51,892, $53,242 and $6,240
for the years ended February 28, 2007, 2006, and 2005, respectively. No
discretionary contributions were made in 2007, 2006 or 2005.

19. INCOME TAXES:

As of February 28, 2007, the Company had net operating loss carryforwards of
approximately $22,124,000 for federal income tax purposes, which expire through
2027.

The reconciliation of income tax computed at the U.S. federal statutory tax
rates to income tax expense is as follows:



                                       For the Years Ended
                                      --------------------
                                          February 28,
                                      -------------------
                                      2007    2006    2005
                                      ----    ----    ----
Tax benefit at U.S. statutory rates   (34%)   (34%)   (34%)
Increase in valuation allowance        34%     34%     34%
                                      ---     ---     ---
                                        0%      0%      0%
                                      ===     ===     ===



                                                            February 28,
                                                    ---------------------------
                                                         2007           2006
                                                    ------------    -----------
Deferred tax asset is comprised of the following:
  Net operating loss carryforwards                  $ 10,224,000    $ 7,400,000
  Write-down of intellectual property rights             160,000        160,000
  Stock option expense                                 2,400,000             --
                                                    ------------    -----------
  Total deferred tax asset                            12,784,000      7,560,000
  Valuation allowance                               $(12,784,000)   $(7,560,000)
                                                    ============    ===========



20. CONTINGENCIES:

We are not a party to any material legal proceedings and there are no material
legal proceedings pending with respect to our property, except as noted below.
We are not aware of any legal proceedings contemplated by any governmental
authorities involving either us or our property. None of our directors, officers
or affiliates is an adverse party in any legal proceedings involving us or our
subsidiaries, or has an interest in any proceeding which is adverse to us or our
subsidiaries.

The Company is pursuing legal claims against one of its former law firms and
certain of its attorneys. Review of the firm's work product and bills recently
revealed questions about the firm's billing practices and other activities. The
amount of potential damages has not yet been quantified. Also, the law firm has
asserted claims seeking payment of additional legal fees, which claims the
Company has denied. The litigation is in an early stage. While, as with any
legal proceedings, no assurance can be given as to ultimate outcome, management
believes that the outcome of the litigation will not have a material adverse
effect upon the Company's financial condition. Accordingly, adjustments, if any
that might result from the resolution of this matter have not been reflected in
the financial statements.

On April 5, 2007, SBI Brightline LLC and SBI Brightline XI, LLC brought suit
against us and Biomed Solutions, LLC in the Superior Court of Orange County,
California. The suit alleges, among other things, that in September 2006 we
entered into an oral agreement to terminate the Stock Purchase Agreement dated
as of May 27, 2005 and amended on January 8, 2006, between us and SBI Brightline
XI, LLC, and seeks unspecified monetary damages and an order by the Court
deeming the Stock Purchase Agreement to be terminated. We believe the
allegations made by SBI are without basis in fact and we intend to defend the
lawsuit vigorously. Because of the potential costs of litigation and the
anticipated demands that our defense may place on the time and attention of our
management our defense of this matter, regardless of the outcome, could have a
material adverse effect on our business and operations.


                                      F-25

---

                   BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES
                          (A DEVELOPMENT STAGE COMPANY)

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

21. QUARTERLY STATEMENTS OF OPERATIONS (UNAUDITED)





                                                         Year Ended February 28, 2007*
                                            -----------------------------------------------------
                                               May 31      August 31    November 30   February 28
                                            -----------   -----------   -----------   -----------
Quarter ended:
Revenues                                    $   344,922   $   310,099   $   226,094   $   108,414
Research and development expenses             2,588,408     1,941,513     1,737,351       923,703
General and administrative expenses           2,086,191     1,573,434     1,264,228     1,901,092
Other income (expense)                         (249,592)     (329,508)   (3,061,966)   (3,080,593)
Minority interest in Myotech, LLC               695,825       520,095       470,674       339,045
                                            -----------   -----------   -----------   -----------
Net loss                                    $(3,883,444)  $(3,014,261)  $(5,366,777)  $(5,457,929)
                                            ===========   ===========   ===========   ===========
Loss per common share - basic and diluted   $      (.05)  $      (.04)  $      (.07)  $      (.07)
Weighted average shares outstanding          76,893,764    77,893,673    77,654,013    77,864,738





                                                         Year Ended February 28, 2006*
                                            -----------------------------------------------------
                                               May 31      August 31    November 30   February 28
                                            -----------   -----------   -----------   -----------
Quarter ended:
Revenues                                    $        --   $    62,500   $   466,935   $   515,426
Research and development expenses             1,599,742     2,291,762     1,212,239     1,725,399
General and administrative expenses           1,895,984     3,123,641     1,548,299     1,883,962
Other income (expense)                           85,887      (670,575)      (81,098)     (188,590)
Minority interest in Myotech, LLC                    --            --            --       606,159
                                            -----------   -----------   -----------   -----------
Net loss                                    $(3,409,839)  $(6,023,478)  $(2,374,701)  $(2,676,366)
                                            ===========   ===========   ===========   ===========
Loss per common share - basic and diluted   $      (.05)  $      (.08)  $      (.03)  $      (.03)
Weighted average shares outstanding          74,417,378    75,129,518    76,760,163    76,874,030



22. VALUATION AND QUALIFYING ACCOUNTS





                                                    Years ended February 28, 2007, 2006 and 2005
                                          ----------------------------------------------------------------
                                              Balance at      Additions charged                 Balance at
Description                               beginning of year     to expense (*)    Deductions   end of year
---------------------------------------   -----------------   -----------------   ----------   -----------

Year ended February 28, 2007:
Valuation allowance- deferred tax asset       $7,560,000          $5,224,000         $-0-      $12,784,000
Year ended February 28, 2006:
Valuation allowance- deferred tax asset       $4,787,000          $2,773,000         $-0-      $ 7,560,000
Year ended February 28, 2005:
Valuation allowance-deferred tax asset        $2,926,000          $1,861,000         $-0-      $ 4,787,000




(*) Offset to tax benefit of net operating losses.

                                      F-26

---

Pro Forma Information

On August 6, 2007, the Company entered into an Intellectual Property Assignment Agreement with Medtronic, Inc., a Minnesota corporation, pursuant to which the Company agreed to transfer and sell to Medtronic all of its interest in and to certain intellectual property owned by the Company for an aggregate purchase price of $11,000,000, which amount would have reduced to $10,500,000 if the closing did not occur within 60 days of the execution of the agreement. The intellectual property which the Company agreed to transfer and sell consists of the Company’s patents related to MRI safety of implantable medical devices, including pacemakers. On October 5, 2007, the Company closed the transaction contemplated by the Intellectual Property Assignment Agreement, sold the foregoing intellectual property to Medtronic and received an aggregate of $11,000,000 as the sale price.

The following information depicts the effects of the sale of the intellectual property rights as described above as if the transaction were consummated on March 1, 2007, the beginning of the six-month period ended August 31, 2007, the latest date for which financial statements have been filed with the Securities and Exchange Commission:

 

---

Condensed Consolidated Pro Forma Balance Sheet

		Historical			Pro Forma			Pro Forma
		August 31, 2007			Adjustments			August 31, 2007
Assets
Current assets:
Cash and cash equivalents		$	268,716	(1)	$	10,500,000		$	10,768,716
Accounts receiveable			40,325						40,325
Prepaid expenses			197,344						197,344
Other current assets			46,384						46,384
Total current assets			552,769			10,500,000			11,052,769
Property and equipment, net			369,322						369,322
Other assets:
Intangible assets, net of amortization
Myotech, LLC			22,385,252						22,385,252
Other			1,275,531	(2)		(63,000	)		1,212,531
Deferred financing costs, net amortization			1,097,394						1,097,394
Investment in New Scale Technologies, Inc.			100,000						100,000
Deposits			206						206
Deferred tax asset, net of valuation allowance				(3)					0
			24,858,383			(63,000	)		24,795,383
		$	25,780,474		$	10,437,000		$	36,217,474
Liabilities and Stockholders' Equity
Current Liabilities:
Current portion of capital lease obligation		$	14,680					$	14,680
Current portion of senior secured convertible notes, net of discount			1,090,294						1,090,294
Accounts payableand accrued expenses			1,965,020						1,965,020
Liquidated damages payable			652,500						652,500
Note payable			57,969						57,969
Line of credit - related party			2,250,000						2,250,000
Due to related parties			62,894						62,894
Deferred revenues			583,333	(1)		(500,000	)		83,333
Total current liabilities			6,676,690			(500,000	)		6,176,690
Long -term debt:
Capital lease obligation			15,534						15,534
Senior secured convertible notes payable, less discount			1,278,621						1,278,621
Total liabilities			7,970,845						7,470,845
Minority interest			12,367,582						12,367,582
Stockholders' equity:
Common stock			491,878						491,878
Additional paid-in capital			66,841,444						66,841,444
			67,333,322						67,333,322
Less treasury stock			(8,467,698	)					(8,467,698	)
			58,865,624						58,865,624
Deficit accumulated during the development stage			(53,423,577)	(1)(2)		10,937,000			(42,486,577	)
Total stockholders' equity			5,442,047			10,937,000			16,379,047
		$	25,780,474		$	10,437,000		$	36,217,474

 

F-1

---

Condensed Consolidated Pro Forma Statement of Operations

		Historical						Pro Forma
		Six Months			Pro Forma			Six Months
		August 31, 2007			Adjustments			August 31, 2007
Revenues:
Sale of intellectual property rights		$	-	(1)		11,000,000		$	11,000,000
License fees			125,000						125,000
Grant revenues			75,000						75,000
Consulting fees			132,351						132,351
			332,351			11,000,000			11,332,351
Operating expenses:
Research and development			2,817,784	(2)		(7,000	)		2,810,784
General and administrative			3,290,423						3,290,423
Write-off of intellectual property rights			-	(2)		70,000			70,000
			6,108,207			63,000			6,171,207
Operating income (loss):			(5,775,856	)		10,937,000			5,161,144
Other income (expense):
Interest income			20,431						20,431
Interest expense			(1,714,326	)					(1,714,326	)
Change in fair value of warrant liability			3,434,017						3,434,017
Debt forgiveness			197,614						197,614
Liquidated damages			(652,500	)					(652,500	)
Other income			33,939						33,939
			1,319,175			0			1,319,175
Loss from continuing operations before minority interest in Myotech,LLC			(4,456,681	)		10,937,000			6,480,319
Minority interest in Myotech, LLC			725,173						725,173
Income (loss) before income taxes			(3,731,508	)		10,937,000			7,205,492
Income tax provision			-	(3)		-			-
Net income (loss)		$	(3,731,508	)	$	10,937,000		$	7,205,492
Net income (loss) per common share:
Basic		$	(0.046	)				$	0.089
Diluted		$	(0.046	)				$	0.089
Weighted average shares outstanding:
Basic			81,167,908						81,167,908
Diluted			81,167,908						81,392,352

Pro Forma Adjustments:

(1) Receipt of cash consideration

(2) Write off unamortized cost of intellectual property rights sold

(3) Income tax provision reflects the reversal of the deferred tax valuation allowance of approximately $2.7 million offset entirely by the recognition of a defeered tax expense of approximately $2.7 million attributed to the utilization of net operating loss carryforwards, to reduce taxable income to zero.

 

F-2

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the estimated costs and expenses to be incurred in connection with the issuance and distribution of the securities registered under this Registration Statement. All amounts are estimates except the Securities and Exchange Commission registration fee. The following expenses will be borne solely by the registrant.

 

SEC registration fee		$	169.61
Printing and engraving expenses		$	500.00
Legal fees and expenses		$	20,000.00
Accounting fees and expenses		$	7,000.00
Miscellaneous expenses		$	1,000.00
Total		$	28,669.61

 

The Registrant has agreed to bear expenses incurred by the selling stockholders that relate to the registration of the shares of common stock being offered and sold by the selling stockholders.

ITEM 14. 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.

 

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 the 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 Biophan against expenses, judgments, fines and amounts paid in settlement of claims against the director or officer arising from the fact that he was a director or officer, provided that the director or officer acted in good faith and in a manner he believed to be in or not opposed to the best interests of Biophan. 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.

 

II-1

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II-4

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ITEM 16. EXHIBITS.

 

ITEM 17. UNDERTAKINGS.

The undersigned Company hereby undertakes to:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i) To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement, and

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement.

(2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 

Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has 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. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.

 

The undersigned registrant hereby undertakes:

 

That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

 

II-5

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That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:

 

The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:

 

(i) Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;

(ii) Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;

 

(iii) The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and

(iv) Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.

 

II-6

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SIGNATURES

Pursuant to the requirements of the Securities Act of 1933, as amended, the registrant has duly caused this Registration Statement on Form S-1 to be signed on its behalf by the undersigned, thereunto duly authorized, in the Town of Pittsford, New York, on October 25, 2007.

 

	BIOPHAN TECHNOLOGIES, INC.
	By:	/s/ John F. Lanzafame
		John F. Lanzafame
		Chief Executive Officer (Principal Executive Officer)
	By:	/s/ Robert J. Wood
		Robert J. Wood
		Chief Financial Officer
		(Principal Accounting Officer and Principal Financial Officer)

II-7

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(1) Incorporated by reference to Exhibit 3.1 to Form 10-KSB for the year ended February 29, 2000 (the "2000 10-KSB").

 

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(2) Incorporated by reference to Exhibit 3.1(i) to Form 8-K filed on December 15, 2000.

 

(3) Incorporated by reference to Exhibit 3.1(i) to Form 8-K filed on August 27, 2001.

 

(4) Incorporated by reference to Exhibit 3.4 to Form S-1/A filed on May 24, 2007.

 

(5) Incorporated by reference to Exhibit 3.2 to Form 10-SB filed on May 13, 1999.

 

(6) Incorporated by reference to Exhibit 4.21 to Form 10-KSB/A for the year ended February 28, 2005 (the "2005 10-KSB").

 

(7) Incorporated by reference to Exhibit 4.1 to Form 8-K filed January 9, 2006.

 

(8) Incorporated by reference to Exhibit 10.50 to the 2005 10-KSB.

 

(9) Incorporated by reference to Exhibit 4.2 to Form 10-Q for the period ended November 30, 2005 (the "Q3'05 10-Q").

 

(10) Incorporated by reference to Exhibit 4.22 to the 2005 10-KSB.

 

(11) Incorporated by reference to Exhibit 4.3 to the Q3'05 10-Q.

 

(12) Incorporated by reference to Exhibit 4.23 to the 2005 10-KSB.

 

(13) Incorporated by reference to Exhibit 4.1 to the Q3'05 10-Q.

 

(14) Incorporated by reference to Exhibit 4.1 to Form 8-K filed January 25, 2006 (the "January 25, 2006 8-K").

 

(15) Incorporated by reference to Exhibit 10.2 to Form 8-K filed October 13, 2006 (the "October 13, 2006 8-K").

 

(16) Incorporated by reference to Exhibit 4.2 to the January 25, 2006 8-K.

 

(17) Incorporated by reference to Exhibit 10.3 to the October 13, 2006 8-K.

 

(18) Incorporated by reference to Exhibit 4.3 to the January 25, 2006 8-K.

 

(19) Incorporated by reference to Exhibit 10.4 to the October 13, 2006 8-K.

 

(20) Incorporated by reference to Exhibit 4.2 to the October 13, 2006 8-K.

 

(21) Incorporated by reference to Exhibit 4.3 to the October 13, 2006 8-K.

 

(22) Incorporated by reference to Exhibit 4.4 to the October 13, 2006 8-K.

 

(23) Incorporated by reference to Exhibit 4.1 to Form 8-K filed February 27, 2007 (the "february 27,2007 8-K")

 

(24) Incorporated by reference to Appendix A to Proxy Statement filed on Schedule 14A on June 28, 2005.

 

(25) Incorporated by reference to Appendix A to Proxy Statement filed on Schedule 14A on June 21, 2006.

 

(26) Incorporated by reference to Exhibit 2.4 to the 2005 10-KSB.

 

(27) Incorporated by reference to Exhibit 4.10 to the 2005 10-KSB.

 

 

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(29) Incorporated by reference to Exhibit 4.5 to Form 10-Q for the period ended August 31, 2005.

 

(30) Incorporated by reference to Exhibit 4.1 to the October 13, 2006 8-K.

 

(31) Incorporated by reference to Exhibit 10.1 to the October 13, 2006 8-K.

 

(32) Incorporated by reference to Exhibit 10.1 to the February 27, 2007 8-K.

 

(33) Incorporated by reference to Exhibit 10.50 to Registration Statement on Form SB-2 (File No. 333-109592) filed on October 9, 2003.

 

(34) Incorporated by reference to Exhibit 10.28 to Amendment No. 2 to Registration Statement on Form SB-2/A (File No. 333-102526) filed on May 1, 2003.

 

(35) Incorporated by reference to Exhibit 10.23 to Amendment No. 1 to Registration Statement on Form SB-2/A (File No. 333-102526) filed on March 14, 2003.

 

(36) Incorporated by reference to Exhibit 10.46 to the amended 2005 10-KSB.

 

(37) Incorporated by reference to Exhibit 10.2 to Amended Form 10-Q for the period ended August 31, 2005, filed January 9, 2006.

 

(38) Incorporated by reference to Exhibit 10.48 to the 2005 10-KSB.

 

(39) Incorporated by reference to Exhibit 10.1 to the Q3'05 10-Q.

 

(40) Incorporated by reference to Exhibit 10.2 to the Q3'05 10-Q.

 

(41) Incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 8, 2006.

 

(42) Incorporated by reference to Exhibit 10.54 to Amendment No. 2 to Registration Statement on Form SB-2 (File No. 333-112678) filed on April 9, 2004.

 

(43) Incorporated by reference to Exhibit 99.1 to Form 8-K filed on June 3, 2004.

 

(44) Incorporated by reference to Exhibit 10.19 to Amendment No. 1 to Registration Statement on Form SB-2/A (File No. 333-102526) filed on March 14, 2003.

 

(45) Incorporated by reference to Exhibit 10.1 to Form 8-K filed on November 9, 2006.

 

(46) Incorporated by reference to Exhibit 10.1 to the Form 8-K filed October 8, 2007.

 

(47) Incorporated by reference to Exhibit 10.7 to Form 10-QSB for the period ended May 31, 2002 (the "Q1'02 10-QSB").

 

(48) Incorporated by reference to Exhibit 10.8 to the Q1'02 10-QSB.

 

(48) Incorporated by reference to Exhibit 10.9 to the Q1'02 10-QSB.

 

(49) Incorporated by reference to Exhibit 10.49 to the 2005 10-KSB.

 

(50) Incorporated by reference to Exhibit 10.2 to Form 8-K filed September 13, 2007.

 

(51) Incorporated by reference to Exhibit 10.2 to Form 8-K filed January 26, 2006.

 

(52) Incorporated by reference to Exhibit 10.47 to the 2005 10-KSB.

 

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(53) Incorporated by reference to Exhibit 10.1 to Form 8-K filed August 9, 2007.

 

(54) Incorporated by reference to Exhibit 10.2 to Form 8-K filed September 13, 2007.

 

(55) Incorporated by reference to Exhibit 4.5 and 4.6 to Form 8-K filed October 5, 2007.

 

(56) Incorporated by reference to Exhibit 10.1 to Form 8-K filed October 5, 2007.

 

(57) Incorporated by reference to Exhibit 10.1 to Form 8-K filed October 9, 2007.

 

(58) Incorporated by reference to Exhibit 10.16 to Form S-1 filed November 13, 2006.

(59) Incorporated by reference to Exhibit 21.1 to Form 10-K for the year ended February 28, 2007 filed on May 8, 2007.

 

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