Biophan die Fakten ( Seite 34)

Form 10-Q for BIOPHAN TECHNOLOGIES INC


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14-Oct-2008

Quarterly Report



ITEM 2 . MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements

This report on Form 10-Q contains statements that are considered forward-looking statements. Forward-looking statements give the Company's current expectations and forecasts of future events. All statements other than statements of current or historical fact contained in this annual report, including statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words "anticipate," "believe," "continue," "estimate," "expect," "intend," "may," "plan," and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. These statements are based on the Company's current plans, and the Company's actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this report may turn out to be inaccurate. The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that it believes may affect its financial condition, results of operations, business strategy and financial needs. The forward-looking statements can be affected by inaccurate assumptions or by known or unknown risks, uncertainties and assumptions. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events occurring after the date hereof. All subsequent written and oral forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by the cautionary statements contained in this report.

GENERAL

Our primary mission is to develop and commercially exploit novel medical device technologies to improve the delivery of healthcare. We do not currently employ our own manufacturing or distribution channels but rather rely on relationships with sub-contractors and/or partner companies. We develop technology protected by strong intellectual property targeted at specific markets within the medical technology sector.



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COMPANY BUSINESS

During the six-month period ended August 31, 2008:

? We recognized approximately $329,000 in revenue from licensing, development payments, MRI testing, and consulting fees.

? We have continued our efforts to seek marketing and development partners for both the Myotech Circulatory Support System (CSS), a lifesaving device that provides benefits and competitive advantages not possible with other circulatory support devices, and the MRI compatible devices and technologies developed by our Biophan Europe subsidiary

? We have continued working under a Cooperative Research and Development Agreement (CRADA) with the FDA's Office of Science and Engineering Laboratories (OSEL) to research and define methods for measuring MRI safety of medical implants by examining the leads of cardiac rhythm management and neurostimulation devices.

? We have filed additional grants applications related to our other technologies, including technologies to employ patented pulsewidth modulation techniques to improve the battery life of implantable devices such as pacemakers, and patented technologies to employ chaos theory calculations to improve the diagnosis and treatment of atrial fibrillation. So far, we have filed over $2 million in grant applications this year.

? Biophan's Board approved the purchase of the patent assets of Nanoset LLC that had previously been exclusively licensed for medical applications. The purchase allows Biophan to exploit the technology disclosed in these patents and applications in non-medical markets and eliminates annual minimum royalty payments. The Nanoset patents cover the compositions of matter, manufacturing methods, and device designs that employ nanomagnetic materials that can potentially be used to shield against unwanted electromagnetic energy, enhance the quality of magnetic resonance images of implanted devices such as stents, or be used as contrast media for MRI procedures.

RESULTS OF OPERATIONS

The following comments discuss the significant factors affecting the consolidated operating results of the Company comparing the three months ended August 31, 2008 to the three months ended August 31, 2007 and the six months ended August 31, 2008 to the six months ended August 31, 2007.

Comparison of the Three Months Ended August 31, 2008 to the Three Months Ended August 31, 2007.

Revenues:
Revenues were $108,000 for the three months ended August 31, 2008 as compared to $160,000 for the three months ended August 31, 2007. The net decrease of $52,000 was due to a $25,000 decrease in grant revenue from the same period in 2007 related to the Biothermal Power Source technology. There was also a decrease of $72,000 in consulting services performed by both Biophan Europe and MR Comp, offset by an increase of $45,000 in transition service revenue provided to Medtronic, Inc. in connection with the sale of intellectual property rights to Medtronic in the Fall of 2007. The Company plans to continue to generate revenue under the existing licensing agreement with Boston Scientific, the transitional services arrangement with Medtronic, and will continue to seek other sources of grant revenues.

Research and Development Expenses:
Research and development expenses decreased by 52%, or $786,000. After factoring out the decrease in non-cash stock-based compensation expense from 2007 to 2008 of $487,000 and the decrease in depreciation and amortization of $75,000, the overall decrease is attributable generally to our planned reductions in spending on our research and development projects ($172,000) and research and development salaries ($97,000), offset by increases in patent legal expenses ($40,000), and overhead ($5,000) Further cost reduction measures in the research and development area will be dependent upon how successful the Company is in securing additional funding through research grants.

General and Administrative Expenses:
General and administrative expenses decreased by 42%, or $756,000. After factoring out the decrease in non-cash stock-based compensation expense from 2007 to 2008 of $1,046,000 and a decrease in depreciation and amortization of $7,000, there was a decrease in overhead expenses of $23,000, offset by increases in legal$242,000,consulting $65,000, and general and administrative salaries $13,000. The Company does not anticipate the same level of consulting and legal expenses to continue through the remainder of fiscal 2008.



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Other Income (Expense):

Other Income (Expenses) consisted of the following during the three months ended
August 31, 2008 and August 31, 2007, respectively:

2008 2007
Interest income $ 22,000 $ 5,000
Interest expense (679,000 ) (1,235,000 )
Change in warrant liability (501,000 ) 0
Debt settlement 0 198,000
Other income and expense 33,000 6,000
Total: $ (1,125,000 ) $ (1,026,000 )




The major component of this category is interest expense, accounting for $679,000 of a net total of $1,125,000 for the three months ended August 31, 2008 compared with $1,235,000 of a net total of $1,026,000 for the three months ended August 31, 2007. Interest expense decreased by $556,000 in 2008 as compared to the same period in 2007, due to amortization in 2007 of a beneficial conversion feature related to the Senior Secured Convertible Notes. In fiscal 2008, the Company recorded the change in the fair value of a warrant liability ($501,000). And, during the three months ended August 31, 2007, the Company negotiated $198,000 in debt settlement agreements with several vendors. Interest income was $17,000 greater during this period in 2008 as the Company maintained a greater balance of cash compared to the same period in the previous year. Finally, other income and expense increased by $27,000 over the same period in 2007 as a result of increased fees for shared administrative services provided to other businesses (former related-party entities).

Minority Interest in Subsidiaries:
The decrease in minority interest in subsidiaries is a result of the increase in ownership of Myotech, LLC between comparable periods, plus the impact of the sale of MR Comp by Biophan Europe on June 1, 2008, relative to the allocation of losses incurred by Biophan Europe..

The following comments discuss the significant factors affecting the consolidated operating results, financial condition and liquidity and cash flows of the Company for the six months ended August 31, 2008 as compared to the six months ended August 31, 2007.

Comparison of the Six Months Ended August 31, 2008 to the Six Months Ended August 31, 2007

Revenues:
Revenues were $329,000 for the six months ended August 31, 2008 as compared to $332,000 for the six months ended August 31, 2007. The decrease of $3,000 was due principally to a $75,000 decrease in grant revenue associated with the Biothermal Power Sources, a $18,000 net decrease in consulting fees provided by Biophan Europe and its majority owned subsidiary MRComp, offset by a $90,000 increase in transition service revenue provided to Medtronic, Inc. in connection with the $11,000,000 sale of intellectual property rights that occurred in October 2007. The Company plans to continue to generate revenue under the existing license agreement with Boston Scientific, the transitional services arrangement with Medtronic Inc., and will continue to seek other sources of grant revenues.

Research and Development Expenses:
Research and development expenses decreased by 44%, or $1,249,000. After factoring out the decrease in non-cash stock-based compensation expense from 2007 to 2008 of $420,000 and the decrease in depreciation and amortization ($150,000), the overall decrease is attributable generally to our planned reductions in spending on research and development projects ($386,000), a decrease in salaries ($222,000), consulting ($100,000), and overhead ($9,000), offset by an increase in patent legal expenses ($38,000). Any further cost reduction measures in the research and development area will be dependent upon how successful the Company is in securing additional funding through research grants.

General and Administrative Expenses:
General and administrative expenses decreased by 38%, or $1,253,000. After factoring out the decrease in non-cash stock-based compensation expense from the same periods in 2007 and 2008 of $1,267,000 and a decrease in depreciation and amortization ($14,000), the decrease is attributable to our planned reductions in spending, including decreases in salaries ($115,000), overhead ($117,000), offset by increases in consulting ($200,000) and legal expenses ($60,000). The Company does not anticipate the same level of consulting and legal expenses to continue through the remainder of fiscal 2008.



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Other Income (Expense):

Other Income (Expenses) consisted of the following during the six months ended
August 31, 2008 and August 31, 2007, respectively:

2008 2007
Interest income $ 55,000 $ 20,000
Interest expense (1,441,000 ) (1,714,000 )
Change in warrant liability (501,000 ) 3,434,000
Debt settlement 0 198,000
Liquidating damages 0 (653,000 )
Other income and expense 73,000 34,000
Total: $ (1,814,000 ) $ 1,319,000




The major component of this category is interest expense, accounting for $1,441,000 of a net total of $1,814,000 for the six months ended August 31, 2008 compared with $1,714,000 of a net total other income equal to $1,319,000 for the six months ended August 31, 2007. Interest expense decreased by $273,000 during the same period in 2008 from 2007, as the Company amortized a beneficial conversion feature related to the Senior Secured Convertible Notes in 2007. In fiscal 2008, the Company recorded a change in fair value of a warrant liability ($501,000) however this was significantly less than the income recognized in 2007 equal to $3,434,000, which was related to a similar change in the fair value of a warrant liability. Also during the six months ended August 31, 2007, the Company negotiated $198,000 in debt settlements with several vendors and was required to pay $653,000 in liquidating damages related to the failure to meet certain requirements under the terms of the Senior Secured Convertible Notes. Interest income was $35,000 greater during this period in 2008 as the Company maintained a greater cash balance as compared to the same period in the previous year. And finally, other income and expense increased overall by $39,000 as a result of increased professional service fees rendered to other businesses (former related-parties).

Minority Interest in Subsidiaries:
The decrease in this line-item is a result of the increase in ownership of Myotech, LLC between comparable periods, plus the impact of the sale of MR Comp by Biophan Europe on June 1, 2007,, relative to the allocation of losses incurred by Biophan Europe.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

On October 3, 2007, we entered into Amendment No. 1 to the Securities Purchase Agreement, Senior Secured Convertible Notes, Warrants and Security Agreement with ten independent private investors led by Iroquois Master Fund Ltd ("Iroquois"). Pursuant to the Amendment and related agreements, certain events of default were cured and the investors released certain intellectual property for the Security Agreement, allowing the Company to transfer and sell certain intellectual property to Medtronic, Inc. Further, in the Amendment, we agreed to certain spending covenants in connection with the proceeds we received 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. On October 5, 2007, we 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.

On September 24, 2008, Biophan Technologies, Inc. (the "Company") announced execution of a prepayment agreement with the holders of its Senior Secured Convertible Notes. Pursuant to the prepayment agreement, the holders of the Secured Convertible Notes accepted a prepayment of the remaining $2.3 million in senior debt, in exchange for an aggregate cash payment of $2.15 million plus delivery of 18 million shares of the Company's common stock. In connection with this transaction, note holders were offered additional shares in exchange for surrendering their warrants to purchase the Company's common stock, issued in connection with the Senior Secured Convertible Notes. Warrants to purchase 17 million shares of common stock were redeemed leaving outstanding warrants to purchase 23 million shares of the Company's common stock. All of the remaining warrants have an exercise price of $0.23 per share.

In addition to repaying the Senior Secured Convertible Notes, the Company announced entry into an agreement with Biomed Solutions, LLC ("Biomed") on September 23, 2008, amending the Company's subordinated Line of Credit Agreements. The amendment extends the terms of the Line of Credit Agreements with Biomed until December 31, 2012, in exchange for monthly cash payments equal to $15,000.



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In the Fall of 2007, we reorganized our efforts on funding the development of the Myotech Cardiac Support System device. On October 2, 2007, we entered into a revised Securities Purchase Agreement with Myotech, LLC. Pursuant to the Agreement, we agreed to purchase from Myotech up to an aggregate of 15,496,547 membership units for an aggregate purchase price of $3,200,000. We received an additional 5,000,000 Class A Membership Units and an additional 4,316,547 Class A Membership Units upon the payment of an aggregate initial purchase price of $1,200,000. Thereafter, Biophan elected to invest an additional $600,000 for an additional 1,854,000 Class A Membership Units of Myotech against the 6,180,000 available under the amendment to the Securities Purchase Agreement dated June 30, 2008. As of August 31, 2008, 1,854,000 of the 6,180,000 Class A Membership Units had been purchased, bringing Biophan's ownership interest in Myotech to 70.6%..

At August 31, 2008, the Company has cash and cash equivalents of approximately $4.8 million and positive working capital of approximately $2.3 million. We believe the Company has adequate working capital resources for the upcoming ten to twelve months of operations, however we can make no assurances as to the Company's ability to obtain sufficient financing or attain future profitable operations.

Capital Resources

Our current strategic plan does not indicate a need for material capital expenditures in the conduct of research and development activities.

We currently employ nine full-time individuals, all in the U.S.