UNITED
STATES


SECURITIES
AND EXCHANGE COMMISSION


WASHINGTON, D.C.
20549




FORM
10-Q




x  QUARTERLY REPORT
UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT


OF
1934




For the
quarterly period ended: November 30, 2008




OR




o TRANSITION REPORT UNDER
SECTION 13 OR 15(D) OF THE EXCHANGE ACT OF 1934




For the
transition period from ________________ to ________________




Commission
File No. 0-26057




BIOPHAN
TECHNOLOGIES, INC.


(Exact
name of registrant as specified in its charter)





Nevada
              82-0507874(State or other jurisdiction of
              (I.R.S. Employer Identification No.)incorporation or organization)





15 Schoen
Place


Pittsford,
New York 14534


(Address
of principal executive offices) (Zip Code)




(585)
267-4800


(Registrant's
telephone number, including area code)




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.




Yes x No o




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer or a non-accelerated filer. See definition of "accelerated
filer and large accelerated filer" in Rule 12b-2 of the Exchange Act. (Check
one).




Large Accelerated Filer o Accelerated Filer o Non-Accelerated Filer o Smaller Reporting Company
x




Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).




Yes o No x




Indicate
the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date.




Class
outstanding as of January 16, 2009 - Common Stock, $.005 par value: 243,285,264
shares







INDEX





PART
      I. FINANCIAL INFORMATIONITEM
      1. Financial StatementsCondensed
      Consolidated Balance Sheets, November 30, 2008 (Unaudited) and February
      29, 2008
                  
                  1Condensed
      Consolidated Statements of Operations, Three Months and Nine Months Ended
      November 30, 2008 and 2007 (Unaudited), and from August 1, 1968 (Date of
      Inception) through November 30, 2008 (Unaudited)
                  
                  2Condensed
      Consolidated Statements of Cash Flows, Nine Months Ended November 30, 2008
      and 2007 (Unaudited), and from August 1, 1968 (Date of Inception) through
      November 30, 2008 (Unaudited)
                  
                  3Notes
      to Condensed Consolidated Financial Statements
                  
                  6ITEM
      2. Management's Discussion and Analysis of Financial Condition and Results
      of Operations
                  
                  17ITEM
      3. Quantitative and Qualitative Disclosures About Market
    Risk
                  
                  21ITEM
      4. Controls and Procedures
                  
                  21PART
      II. OTHER INFORMATIONITEM
      1. Legal Proceedings
                  
                  23ITEM
      1A. Risk Factors
                  
                  23ITEM
      2. Unregistered Sales of Equity Securities and Use of
    Proceeds
                  
                  23ITEM
      3. Defaults Upon Senior Securities
                  
                  23ITEM
      4. Submission of Matters to a Vote of Security Holders
                  
                  23ITEM
      5. Other Information
                  
                  23ITEM
      6. Exhibits
                  
                  23SIGNATURES
                  
                  27







PART
I. FINANCIAL INFORMATION




ITEM 1. FINANCIAL
STATEMENTS




BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES


(A
DEVELOPMENT STAGE COMPANY)




CONDENSED
CONSOLIDATED BALANCE SHEETS




November 30,
                                                      
                                                      
                                                      February 29,2008
                                                      
                                                      
                                                      2008(Unaudited)ASSETSCurrent
      assets:Cash
      and cash equivalents
                                                      
                                                      $
                                                      1,426,652
                                                      
                                                      
                                                      $
                                                      6,970,205Accounts
      receivable, net
                                                      
                                                      
                                                      200,700
                                                      
                                                      
                                                      
                                                      114,566Prepaid
      expenses
                                                      
                                                      
                                                      35,261
                                                      
                                                      
                                                      
                                                      103,212Other
      current assets
                                                      
                                                      
                                                      16,498
                                                      
                                                      
                                                      
                                                      44,437Total
      current assets
                                                      
                                                      
                                                      1,679,111
                                                      
                                                      
                                                      
                                                      7,232,420Property
      and equipment, net
                                                      
                                                      
                                                      116,292
                                                      
                                                      
                                                      
                                                      309,692Other
      assets:Intangible
      assets, net of amortization:Myotech
      circulatory support system intellectual property
                                                      
                                                      
                                                      1,780,328
                                                      
                                                      
                                                      
                                                      17,120,242Other
                                                      
                                                      
                                                      863,176
                                                      
                                                      
                                                      
                                                      1,320,128Deferred
      financing costs, net of amortization of $0 and $683,283,
      respectively
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      848,927Deposits
                                                      
                                                      
                                                      206
                                                      
                                                      
                                                      
                                                      2062,643,710
                                                      
                                                      
                                                      
                                                      19,289,503Total
      assets
                                                      
                                                      $
                                                      4,439,113
                                                      
                                                      
                                                      $
                                                      26,831,615LIABILITIES
      AND STOCKHOLDERS' EQUITYCurrent
      liabilities:Current
      portion of capital lease obligation
                                                      
                                                      $
                                                      14,680
                                                      
                                                      
                                                      $
                                                      10,885Current
      portion of senior secured convertible notes payable, net of discount of $0
      and$1,297,913
      respectively
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      1,428,251Accrued
      interest
                                                      
                                                      
                                                      143,963
                                                      
                                                      
                                                      
                                                      331,548Accounts
      payable and other accrued expenses
                                                      
                                                      
                                                      1,283,975
                                                      
                                                      
                                                      
                                                      779,132Note
      payable
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      58,864Line
      of credit – related party
                                                      
                                                      
                                                      180,000
                                                      
                                                      
                                                      
                                                      1,200,000Due
      to related parties
                                                      
                                                      
                                                      127,737
                                                      
                                                      
                                                      
                                                      126,717Deferred
      revenue
                                                      
                                                      
                                                      20,833
                                                      
                                                      
                                                      
                                                      208,333Other
      current liabilities
                                                      
                                                      
                                                      33,400
                                                      
                                                      
                                                      
                                                      -Total
      current liabilities
                                                      
                                                      
                                                      1,804,588
                                                      
                                                      
                                                      
                                                      4,143,730Long-term
      liabilites:Capital
      lease obligation
                                                      
                                                      
                                                      2,758
                                                      
                                                      
                                                      
                                                      14,795Line
      of credit – related party, net of current portion
                                                      
                                                      
                                                      538,807
                                                      
                                                      
                                                      
                                                      -Senior
      secured convertible notes payable, net of discount of $0 and
      $853,599
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      345,628Fair
      value of warrant liability
                                                      
                                                      
                                                      269,487
                                                      
                                                      
                                                      
                                                      -Other
      long-term liabilities
                                                      
                                                      
                                                      22,867
                                                      
                                                      
                                                      
                                                      -Total
      liabilities
                                                      
                                                      
                                                      2,638,507
                                                      
                                                      
                                                      
                                                      4,504,153Minority
      interest
                                                      
                                                      
                                                      -
                                                      
                                                      
                                                      
                                                      7,053,950Stockholders'
      equity:Common
      stock, $.005 par value:Authorized,
      250,000,000 issued, 243,285,264 and 119,128,504 shares,
      respectively
                                                      
                                                      
                                                      1,216,426
                                                      
                                                      
                                                      
                                                      595,643Additional
      paid-in capital
                                                      
                                                      
                                                      72,082,974
                                                      
                                                      
                                                      
                                                      78,015,52773,299,400
                                                      
                                                      
                                                      
                                                      78,611,170Less
      treasury stock, 4,923,080 shares, at cost
                                                      
                                                      
                                                      (68,923
                                                      )
                                                      
                                                      
                                                      (8,467,698
                                                      )73,230,477
                                                      
                                                      
                                                      
                                                      70,143,472Deficit
      accumulated during the development stage
                                                      
                                                      
                                                      (71,429,871
                                                      )
                                                      
                                                      
                                                      (54,869,960
                                                      )Total
      stockholders' equity
                                                      
                                                      
                                                      1,800,606
                                                      
                                                      
                                                      
                                                      15,273,512Total
      liabilities and stockholders' equity
                                                      
                                                      $
                                                      4,439,113
                                                      
                                                      
                                                      $
                                                      26,831,615




See
Notes to Condensed Consolidated Financial Statements


1




BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES


(A
DEVELOPMENT STAGE COMPANY)




CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS


(Unaudited)





Three Months Ended
                          November 30,
                        
                        
                        Nine Months Ended
                          November 30,
                        
                        
                        Period from
                          August 1, 1968
                          (date of
                          inception) to2008
                        
                        
                        2007
                        
                        
                        2008
                        
                        
                        2007
                        
                        
                        November 30, 2008Revenues:Sale
      of intellectual property
                        
                        $
                        —
                        
                        
                        $
                        11,000,000
                        
                        
                        $
                        —
                        
                        
                        $
                        11,000,000
                        
                        
                        $
                        11,000,000Development
      payments
                        
                        
                        —
                        
                        
                        
                        30,000
                        
                        
                        
                        45,000
                        
                        
                        
                        30,000
                        
                        
                        
                        375,000License
      fees
                        
                        
                        62,500
                        
                        
                        
                        62,500
                        
                        
                        
                        187,500
                        
                        
                        
                        187,500
                        
                        
                        
                        1,479,166Grant
      revenues
                        
                        
                        —
                        
                        
                        
                        25,000
                        
                        
                        
                        —
                        
                        
                        
                        100,000
                        
                        
                        
                        100,000Testing
      services & consulting fees
                        
                        
                        59,555
                        
                        
                        
                        42,206
                        
                        
                        
                        218,769
                        
                        
                        
                        174,557
                        
                        
                        
                        1,292,177122,055
                        
                        
                        
                        11,159,706
                        
                        
                        
                        451,269
                        
                        
                        
                        11,492,057
                        
                        
                        
                        14,246,343Operating
      expenses:Research
      and development
                        
                        
                        264,060
                        
                        
                        
                        457,711
                        
                        
                        
                        876,281
                        
                        
                        
                        2,101,399
                        
                        
                        
                        19,030,450General
      and administrative
                        
                        
                        1,011,760
                        
                        
                        
                        1,582,984
                        
                        
                        
                        2,827,144
                        
                        
                        
                        4,614,719
                        
                        
                        
                        31,440,667Write-down
      of intellectual property rights
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        530,0001,275,820
                        
                        
                        
                        2,040,695
                        
                        
                        
                        3,703,425
                        
                        
                        
                        6,716,118
                        
                        
                        
                        51,001,117Operating
      (loss) income
                        
                        
                        (1,153,765
                        )
                        
                        
                        9,119,011
                        
                        
                        
                        (3,252,156
                        )
                        
                        
                        4,795,939
                        
                        
                        
                        (36,754,774
                        )Other
      income (expense):Interest
      income
                        
                        
                        8,235
                        
                        
                        
                        52,590
                        
                        
                        
                        62,206
                        
                        
                        
                        73,021
                        
                        
                        
                        410,668Interest
      expense
                        
                        
                        (250,135
                        )
                        
                        
                        (7,301,398
                        )
                        
                        
                        (1,691,177
                        )
                        
                        
                        (9,920,922
                        )
                        
                        
                        (19,288,061
                        )Additional
      expense related to warrants
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (7,304,105
                        )Change
      in fair value of warrant liability
                        
                        
                        255,467
                        
                        
                        
                        —
                        
                        
                        
                        (245,590
                        )
                        
                        
                        4,339,214
                        
                        
                        
                        9,411,688Gain
      on sale of investment
                        
                        
                        —
                        
                        
                        
                        124,500
                        
                        
                        
                        —
                        
                        
                        
                        124,500
                        
                        
                        
                        328,141Loss
      on extinguishment of debt
                        
                        
                        (2,057,804
                        )
                        
                        
                        (3,189,187
                        )
                        
                        
                        (2,057,804
                        )
                        
                        
                        (3,189,187
                        )
                        
                        
                        (5,926,794
                        )Gain
      on disposal of assets
                        
                        
                        —
                        
                        
                        
                        1,500
                        
                        
                        
                        —
                        
                        
                        
                        11,238
                        
                        
                        
                        14,419Liquidated
      damages
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        —
                        
                        
                        
                        (652,500
                        )
                        
                        
                        (652,500
                        )Other
      income
                        
                        
                        14,901
                        
                        
                        
                        72,460
                        
                        
                        
                        104,564
                        
                        
                        
                        296,406
                        
                        
                        
                        1,404,719Other
      expense
                        
                        
                        (1,064
                        )
                        
                        
                        —
                        
                        
                        
                        (16,673
                        )
                        
                        
                        —
                        
                        
                        
                        (87,201
                        )(2,030,400
                        )
                        
                        
                        (10,239,535
                        )
                        
                        
                        (3,844,474
                        )
                        
                        
                        (8,918,230
                        )
                        
                        
                        (21,689,026
                        )Loss
      from continuing operations
                        
                        
                        (3,184,165
                        )
                        
                        
                        (1,120,524
                        )
                        
                        
                        (7,096,630
                        )
                        
                        
                        (4,142,291
                        )
                        
                        
                        (58,443,800
                        )Loss
      from operations of discontinued operations
                        
                        
                        (8,635,464
                        )
                        
                        
                        (126,305
                        )
                        
                        
                        (9,463,281
                        )
                        
                        
                        (836,046
                        )
                        
                        
                        (12,986,071
                        )Net
      loss
                        
                        $
                        (11,819,629
                        )
                        
                        $
                        (1,246,829
                        )
                        
                        $
                        (16,559,911
                        )
                        
                        $
                        (4,978,337
                        )
                        
                        $
                        (71,429,871
                        )Net
      loss per common share –basic and diluted:Continuing
      operations
                        
                        $
                        (0.014
                        )
                        
                        $
                        (0.012
                        )
                        
                        $
                        (0.039
                        )
                        
                        $
                        (0.047
                        )Discontinued
      operations
                        
                        
                        (0.036
                        )
                        
                        $
                        (0.001
                        )
                        
                        $
                        (0.052
                        )
                        
                        $
                        (0.010
                        )Net
      Loss
                        
                        $
                        (0.050
                        )
                        
                        $
                        (0.013
                        )
                        
                        $
                        (0.091
                        )
                        
                        $
                        (0.057
                        )Weighted
      average shares outstanding
                        
                        
                        237,521,887
                        
                        
                        
                        97,649,310
                        
                        
                        
                        182,205,454
                        
                        
                        
                        86,621,754


See Notes to Condensed Consolidated
Financial Statements


2




BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES


(A
DEVELOPMENT STAGE COMPANY)




CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)





Nine Months Ended November 30,
                        
                        
                        Period from
                          August 1, 1968
                          (date of inception)
                          to November 30,2008
                        
                        
                        2007
                        
                        
                        2008Cash
      flows from operating activities:Net loss
                        
                        $
                        (16,559,911
                        )
                        
                        $
                        (4,978,337
                        )
                        
                        $
                        (71,429,871
                        )Adjustments to reconcile net loss to net cash provided by (used in)
      operating activities:Amortization of intangible assets
                        
                        
                        711,338
                        
                        
                        
                        1,044,853
                        
                        
                        
                        3,913,707Amortization of deferred financing costs
                        
                        
                        278,834
                        
                        
                        
                        372,700
                        
                        
                        
                        962,117Depreciation and amortization
                        
                        
                        57,228
                        
                        
                        
                        95,974
                        
                        
                        
                        433,886Loss (gain) on disposal of equipment
                        
                        
                        57,072
                        
                        
                        
                        -
                        
                        
                        
                        74,753Loss (gain) on sale of investments
                        
                        
                        (105,120
                        )
                        
                        
                        -
                        
                        
                        
                        (442,370
                        )Non-cash charge related to notes and related warrants
                        
                        
                        -
                        
                        
                        
                        5,657,809
                        
                        
                        
                        7,304,105Change in fair value of (derivative) warrant
liability
                        
                        
                        245,590
                        
                        
                        
                        (4,339,214
                        )
                        
                        
                        (9,411,688
                        )Realized and unrealized losses on marketable securities
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        66,948Loss (gain) on extinguishment of debt
                        
                        
                        2,057,804
                        
                        
                        
                        3,189,187
                        
                        
                        
                        5,917,044Accrued interest on note converted to common stock
                        
                        
                        -
                        
                        
                        
                        855,722
                        
                        
                        
                        887,226Amortization of discount on convertible notes payable
                        
                        
                        704,002
                        
                        
                        
                        3,138,290
                        
                        
                        
                        9,490,053Write-down of intellectual property rights
                        
                        
                        14,564,958
                        
                        
                        
                        -
                        
                        
                        
                        15,094,958Amortization of discount on payable to related party
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2,887,555Issuance of common stock for services
                        
                        
                        94,662
                        
                        
                        
                        298,398
                        
                        
                        
                        758,964Fair value of beneficial conversion feature of debt
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        3,021,197Issuance of common stock for interest
                        
                        
                        544,873
                        
                        
                        
                        -
                        
                        
                        
                        1,080,349Grant of stock options for services
                        
                        
                        138,031
                        
                        
                        
                        2,182,148
                        
                        
                        
                        9,459,290Expenses paid by stockholder
                        
                        
                        -
                        
                        
                        
                        -
                        
                        
                        
                        2,640Minority interest and change in investment in subsidiary,
      net
                        
                        
                        (6,740,920
                        )
                        
                        
                        (1,114,081
                        )
                        
                        
                        (10,645,143
                        )Change in operating assets and liabilities:(Increase)
      in accounts receivable
                        
                        
                        (113,760
                        )
                        
                        
                        (35,552
                        )
                        
                        
                        (220,826
                        )(Increase)
      in due from related parties
                        
                        
                        -
                        
                        
                        
                        (63,899
                        )
                        
                        
                        (59,300
                        )Decrease
      (increase) in prepaid expenses
                        
                        
                        67,951
                        
                        
                        
                        35,117
                        
                        
                        
                        (35,261
                        )(Increase)
      decrease in other current assets
                        
                        
                        (42,698
                        )
                        
                        
                        (6,521
                        )
                        
                        
                        (45,797
                        )Decrease
      in deposits
                        
                        
                        -
                        
                        
                        
                        3,498
                        
                        
                        
                        2,043Increase
      (decrease) in accounts payable and accrued expenses
                        
                        
                        761,720
                        
                        
                        
                        (433,891
                        )
                        
                        
                        1,312,394Increase
      (decrease) in due to related parties
                        
                        
                        10,334
                        
                        
                        
                        (36,823
                        )
                        
                        
                        93,555(Decrease)
      increase in deferred revenues
                        
                        
                        (187,500
                        )
                        
                        
                        (187,500
                        )
                        
                        
                        20,833Net
      cash (used in) provided by operating activities
                        
                        
                        (3,455,512
                        )
                        
                        
                        5,679,678
                        
                        
                        
                        (29,506,639
                        )




See
Notes to Condensed Consolidated Financial Statements


3





BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES


(A
DEVELOPMENT STAGE COMPANY)




CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)




Nine Months Ended November 30,
                                  
                                  
                                  Period from
                                    August 1, 1968
                                    (date of
                                    inception) to
                                    November 30,2008
                                  
                                  
                                  2007
                                  
                                  
                                  2008Cash
      flows from investing activities:Purchases of property and equipment
                                  
                                  
                                  (1,069
                                  )
                                  
                                  
                                  (11,363
                                  )
                                  
                                  
                                  (645,986
                                  )Sales of marketable securities
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  2,369,270Sale (purchase) of investments
                                  
                                  
                                  -
                                  
                                  
                                  
                                  63,000
                                  
                                  
                                  
                                  (100,000
                                  )Net proceeds from sale of investments
                                  
                                  
                                  91,773
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  529,023Acquisition costs of intangible assets
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (616,583
                                  )Cash paid for investment in Myotech,  net of cash received of
      $19,408
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (280,594
                                  )Cash paid for acquisition of Biophan Europe,  net of cash received of
      $107,956
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (258,874
                                  )Purchases of marketable securities
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (2,436,218
                                  )Net
      cash used in investing activities
                                  
                                  
                                  90,704
                                  
                                  
                                  
                                  51,637
                                  
                                  
                                  
                                  (1,439,962
                                  )Cash
      flows from financing activities:Proceeds of bridge loans
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  986,500Loan from stockholder
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  143,570Line of credit borrowing from related party
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  7,980,950Line of credit payments
                                  
                                  
                                  (20,503
                                  )
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (2,093,003
                                  )Proceeds
      (repayments) of convertible notes payable
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (17,188
                                  )
                                  
                                  
                                  7,250,000(Repayment) of convertible notes payable
                                  
                                  
                                  (2,150,000
                                  )
                                  
                                  
                                  (50,372
                                  )
                                  
                                  
                                  (2,678,351
                                  )Principal payments on capital lease obligation, net
                                  
                                  
                                  (8,242
                                  )
                                  
                                  
                                  (5,564
                                  )
                                  
                                  
                                  (9,611
                                  )Proceeds from sales of capital stock
                                  
                                  
                                  -
                                  
                                  
                                  
                                  40,049
                                  
                                  
                                  
                                  19,438,849Exercise of options
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  658,467Exercise of warrants
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  1,142,451Swing profits
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  696,087Deferred financing costs
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (1,030,120
                                  )Deferred equity placement costs
                                  
                                  
                                  -
                                  
                                  
                                  
                                  -
                                  
                                  
                                  
                                  (112,536
                                  )Net
      cash (used in) provided by financing activities
                                  
                                  
                                  (2,178,745
                                  )
                                  
                                  
                                  (33,075
                                  )
                                  
                                  
                                  32,373,253Net
      (decrease) increase in cash and equivalents
                                  
                                  
                                  (5,543,553
                                  )
                                  
                                  
                                  5,698,240
                                  
                                  
                                  
                                  1,426,652Cash
      and equivalents, beginning
                                  
                                  
                                  6,970,205
                                  
                                  
                                  
                                  2,418,551
                                  
                                  
                                  
                                  -Cash
      and equivalents, ending
                                  
                                  $
                                  1,426,652
                                  
                                  
                                  $
                                  8,116,791
                                  
                                  
                                  $
                                  1,426,652




See
Notes to Condensed Consolidated Financial Statements


4





BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES


(A
DEVELOPMENT STAGE COMPANY)




CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS


(Unaudited)




Nine Months Ended November 30,
                        
                        
                        Period from
                          August 1, 1968
                          (date of
                          inception) to
                          November 30,2008
                        
                        
                        2007
                        
                        
                        2008Supplemental schedule of cash
      paid for:Interest
                        
                        $
                        42,901
                        
                        
                        $
                        3,931
                        
                        
                        $
                        288,950Supplemental schedule of non-cash
      investing and financing activities:
                        
                        
                        
                        
                        
                        $
                        
                        
                        
                        $Allocation of proceeds from line
      of credit - related party to beneficial conversion feature and
      warrants
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        2,812,555Allocation of proceeds from notes
      payable and warrants
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        7,250,000Gain
      on sale of investment
                        
                        $
                        -
                        
                        
                        $
                        124,500
                        
                        
                        $
                        124,500Change in fair value of warrants
      reclassified from equity to warrants liability
                        
                        $
                        23,897
                        
                        
                        $
                        6,154,792
                        
                        
                        $
                        779,773Capital lease obligation
                        
                        $
                        -
                        
                        
                        $
                        6,318
                        
                        
                        $
                        34,235Change in fair value of warrant
      liability
                        
                        $
                        245,590
                        
                        
                        $
                        -
                        
                        
                        $
                        6,400,382Discount on senior secured
      convertible notes
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        2,636,612Forgiveness of debt - line of
      credit
                        
                        $
                        732,166
                        
                        
                        $
                        -
                        
                        
                        $
                        1,782,166Issuance of common stock upon
      conversion of line of credit loans
                        
                        $
                        -
                        
                        
                        $
                        2,180,000
                        
                        
                        $
                        4,158,450Issuance of common stock for
      principal payments for senior secured convertible notes
                        
                        $
                        1,818,420
                        
                        
                        $
                        3,143,231
                        
                        
                        $
                        4,755,814Issuance of common stock for the
      acquisition of initial 35% interest in Myotech, LLC
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        8,467,698Transfer
      of treasury stock in connection with dissolution of Myotech,
      LLC
                        
                        $
                        8,398,775
                        
                        
                        
                        -
                        
                        
                        $
                        8,398,775Issuance of common stock in
      satisfaction of accounts payable
                        
                        $
                        -
                        
                        
                        $
                        168,854
                        
                        
                        $
                        302,854Liabilities assumed in
      conjunction with acquisition of 51% interest in Biophan Europe and certain
      intellectual property rights
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        178,384Issuance of common stock upon of
      bridge loans
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        1,142,068Acquisition of intellectual
      property
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        425,000Intellectual property acquired
      through issuance of capital stock and assumption of related party
      payable
                        
                        $
                        -
                        
                        
                        $
                        -
                        
                        
                        $
                        175,000




See
Notes to Condensed Consolidated Financial Statements.


5





BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES


(A
DEVELOPMENT STAGE COMPANY)




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


November 30,
2008




INTERIM
FINANCIAL STATEMENTS:




The
condensed consolidated financial statements as of November 30, 2008 and for the
nine months ended November 30, 2008 and 2007 are unaudited. However, in the
opinion of management of the Company, these financial statements reflect all
adjustments, consisting solely of normal recurring adjustments, necessary to
present fairly the financial position and results of operations for such interim
periods. The results of operations for the interim periods presented are not
necessarily indicative of the results to be obtained for a full year. These
unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes thereto
included in the Company's Annual Report on Form 10-K for the fiscal year ended
February 29, 2008.




Certain
amounts for prior periods have been reclassified to conform to the current
period presentation of discontinued operations.





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 Technologies, Inc., 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"), collectively referred to as the "Company". During the
nine months ended November 30, 2008, MR:Comp GmbH (“MR Comp”) was divested from
Biophan Europe. The accounts of MR Comp are immaterial to the Company’s
condensed consolidated financial statements. The Company does not anticipate
incurring any future losses from MR Comp.  Another majority owned
subsidiary, Myotech, was dissolved effective October 17, 2008. See the
Investment in Myotech LLC and Discontinued Operations footnotes for further
details. 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 obtaining sufficient
financing or attaining future profitable operations.




PRINCIPAL
BUSINESS ACTIVITIES:




The
primary mission is to develop and commercially exploit technologies for
improving the performance of biomedical devices. The Company possesses
technologies for enabling biomedical devices, both implantable and those used in
diagnostic and interventional procedures, to be image compatible (to allow
effective imaging of the device and its surrounding tissue) with MRI (magnetic
resonance imaging). The Company also possesses technology 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 also owns all rights to develop the Myotech Circulatory Support System
(CSS). The Myotech CSS has the potential to become a standard of care for
treating acute heart failure including sudden cardiac arrest.  See
intangible assets below.





INTANGIBLE
ASSETS:




In
accordance with SFAS No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets, the Company periodically evaluates whether current facts or
circumstances indicate that the carrying value of its depreciable assets to be
held and used may not be recoverable. If such circumstances are determined to
exist, an estimate of undiscounted future cash flows produced by the long-lived
asset, or the appropriate grouping of assets, is compared to the carrying value
to determine whether impairment exists. If an asset is determined to be
impaired, the loss is measured based on the difference between the asset’s fair
value and its carrying value. An estimate of the asset’s fair value is based on
quoted market prices in active markets, if available. If quoted market prices
are not available, the estimate of fair value is based on various valuation
techniques, including a discounted value of estimated future cash flows. The
Company reports an asset to be disposed of at the lower of its carrying value or
its estimated net realizable value.





In
accordance with SFAS No. 142, Goodwill and Other Intangible Assets,
goodwill is tested at least annually for impairment using a two-step process.
The first step is to identify a potential impairment, and the second step
measures the amount of the impairment loss, if any. Goodwill is deemed to be
impaired if the carrying amount of a reporting unit’s goodwill exceeds its
estimated fair value. SFAS No. 142 requires that indefinite-lived
intangible assets be tested for impairment using a one-step process, which
consists of a comparison of the fair value to the carrying value of the
intangible asset. Such intangible assets are deemed to be impaired if their net
book value exceeds their estimated fair value.





All other
intangible assets are evaluated for impairment in accordance with SFAS
No. 144 as described above.  The estimates of future cash flows,
based on reasonable and supportable assumptions and projections, require
management’s judgment. Any changes in key assumptions about the Company’s
businesses and their prospects, or changes in market conditions, could result in
an impairment charge.





During
the three months ended November 30, 2008, management performed a test for
impairment of the Myotech circulatory support system (“Myotech CSS”)
intellectual property which indicated an impairment to its carrying
value.  The Company then performed a valuation of the intellectual
property utilizing the income approach methodology of valuation.  This
approach utilized estimated discounted cash flows from future royalty payments,
assuming current market conditions and considering probabilities under several
scenarios.  As a result, the Company recorded a charge for impairment
of approximately $14,565,000 which is included in the Company’s loss from
discontinued operations.  The fair value of the Myotech CSS
intellectual property is being amortized over the remaining life of the
patents.  See the Investment in Myotech LLC and Discontinued
Operations footnotes for more details.





INCOME
TAXES:





Deferred
tax assets and liabilities are recognized for 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. Deferred tax assets are reduced by
a valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
Realization of the deferred income tax asset is dependent on generating
sufficient taxable income in future years. The Company has recorded a 100%
valuation allowance against net deferred tax assets due to uncertainty of their
ultimate realization.


6





BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES


(A
DEVELOPMENT STAGE COMPANY)




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


November 30,
2008




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 48"). FIN 48 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. The Company adopted FIN 48 effective March 1, 2007. The
adoption of FIN48 did not have a material effect on it’s consolidated financial
position or results of operations as the Company has no unrecognized tax
liabilities and has not incurred any interest or penalties in any of its tax
jurisdictions. It is the Company policy to charge interest and penalties
incurred on the underpayment of income taxes to interest expense and
other expense, respectively. The Company has open tax years beginning in
fiscal years ended February 28, 2005 through February 29, 2008.





RECENT
ACCOUNTING PRONOUNCEMENTS:




In
September 2006, the FASB issued SFAS No. 157 ("SFAS 157"), "Fair
Value Measurements." SFAS 157, as amended, defines fair value, establishes a
framework for measuring fair value and expands disclosures regarding fair value
measurements. SFAS 157 does not require any new fair value measurements but
rather eliminates inconsistencies in guidance found in various prior accounting
pronouncements. SFAS 157 is effective for fiscal years beginning after
November 15, 2007. However, on December 14, 2007, the FASB
issued  FSP FAS 157-2 which delays the Effective Date of FASB
Statement  157 for all nonfinancial assets and nonfinancial liabilities,
except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis (at least annually). This FSP partially defers
the effective date of Statement 157 to fiscal years beginning after
November 15, 2008, and accordingly, the Company’s adoption of this standard
is limited to financial assets and liabilities and did not have a material
effect on the Company’s financial condition or results of operations. The
Company is currently evaluating the impact of this standard with respect to its
effect on nonfinancial assets and liabilities and has not yet determined the
impact that it will have on the consolidated financial statements upon full
adoption.





In
October 2008, the FASB issued and made effective FASB Staff Position (FSP) SFAS
157-3, Determining the Fair
Value of a Financial Asset when the Market for That Asset is Not
Active.  FSP 157-3 clarifies the application of SFAS No. 157 in
a market that is not active and provides an example to illustrate key
considerations in determining the fair value of a financial asset when the
market for that financial asset is not active.  The adoption of FSP
157-3 did not have a material effect on the Company’s financial
statements.





In
February 2007, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 159, “The Fair Value Option for Financial
Assets and Financial Liabilities” ("SFAS No. 159"). SFAS No. 159 permits
companies to elect to follow fair value accounting for certain financial assets
and liabilities in an effort to mitigate volatility in earnings without having
to apply complex hedge accounting provisions. The standard also establishes
presentation and disclosure requirements designed to facilitate comparison
between entities that choose different measurement attributes for similar types
of assets and liabilities. SFAS No. 159 is effective for fiscal years beginning
after November 15, 2007. The Company has not adopted the fair value option
method permitted by SFAS No. 159.




In June 2007, the Financial Accounting
Standards Board ratified EITF Issue No. 07-3, which clarifies the method
and timing for recognition of nonrefundable advance payments for goods and
services to be used or rendered in future research and development activities
pursuant to an executory contractual arrangement. In particular, it addresses
whether nonrefundable advance payments for goods or services that will be used
or rendered for research and development activities should be expensed when the
advance payment is made or when the research and development activity has been
performed.This consensus
is effective for financial statements issued for fiscal years beginning after
December 15, 2007, and interim periods within those fiscal years.  The
adoption of EITF 07-3 did not have a material impact on the Company’s
consolidated financial statements.




In
December 2007, the FASB issued SFAS 141 (Revised 2007), Business Combinations. SFAS
141(R) retains the fundamental requirements of the original pronouncement
requiring that the purchase method be used for all business combinations. SFAS
141(R) defines the acquirer as the entity that obtains control of one or more
businesses in the business combination, establishes the acquisition date as the
date that the acquirer achieves control and requires the acquirer to recognize
the assets acquired, liabilities assumed and any non-controlling interest at
their fair values as of the acquisition date. In addition, SFAS 141(R) requires
expensing of acquisition-related and restructuring costs, remeasurement of earn
out provisions at fair value, measurement of equity securities issued for
purchase at the date of close of the transaction and capitalization of
in-process research and development related intangibles in certain
circumstances. SFAS 141(R) is effective for the first reporting period beginning
on or after December 31, 2008. The Company is currently evaluating the impact of
the implementation of SFAS 141(R) on its consolidated financial position, and
results of operations.





In
December 2007, the FASB issued SFAS 160, Non-controlling Interests in
Consolidated Financial Statements an amendment of ARB 51. This Statement
amends ARB 51 to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a
subsidiary. It also clarifies that a non-controlling interest in a subsidiary is
an ownership interest in the consolidated entity that should be reported as
equity in the consolidated financial statements. It requires consolidated net
income to be reported at amounts that include the amounts attributable to both
the parent and the non-controlling interest. Additionally, this Statement
establishes a single method of accounting for changes in a parent’s ownership
interest in a subsidiary that does not result in a change in control. SFAS 160
is effective for the first annual reporting period beginning on or after
December 31, 2008. The Company is currently evaluating the impact, if any, the
adoption of SFAS 160 will have on its consolidated financial
statements.


7





BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES


(A
DEVELOPMENT STAGE COMPANY)




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOVEMBER
30, 2008





In
December 2007, the Financial Accounting Standards Board (FASB) ratified the
Emerging Issues Task Force (“EITF”) opinion related to EITF Issue 07-1,
“Accounting for Collaborative Arrangements.” The Task Force reached a consensus
that a collaborative arrangement is a contractual arrangement that involves two
or more parties, all of which are both (a) involved as active participants in a
joint operating activity that is not conducted primarily through a separate
legal entity and (b) exposed to significant risks and rewards that depend on the
commercial success of the joint operating activity. This Issue also addresses
(i) the income statement classification by participants in a collaborative
arrangement for transactions with third parties and transactions between the
participants and (ii) financial statement disclosures. The consensus on EITF
Issue 07-1 is effective for fiscal years beginning after December 15, 2008, and
for interim periods within those fiscal years. Entities should apply the
consensus retrospectively to all periods presented for only those collaborative
arrangement existing as of the the effective date, unless it is impractical to
do so. The Company will adopt this new accounting pronouncement effective March
1, 2009, and does not anticipate any material impact on its financial condition
or results of operations.





In March
2008, the FASB released SFAS 161, Disclosures about Derivative
Instruments and Hedging Activities. SFAS 161 requires additional
disclosures related to the use of derivative instruments, the accounting for
derivatives and the impact of derivatives on the financial statements. SFAS 161
is effective for fiscal years and interim periods beginning after November 15,
2008. The Company is currently evaluating the impact, if any, the adoption of
SFAS 161 will have on its consolidated financial statements.





In April
2008, the FASB issues FSP FAS 142-3, “Determination of Useful Life of Intangible
Assets” (“FSP FAS 142-3”). FSP FAS 142-3 amends the factors that should be
considered in developing the renewal or extension assumptions used to determine
the useful life of a recognized intangible asset under FAS 142, “Goodwill and
Other Intangible Assets.” FSP FAS 142-3 also requires expanded disclosure
related to the determination of intangible asset useful lives. FSP FAS 142-3 is
effective for fiscal years beginning after December 15, 2008 and interim periods
within those fiscal years. The Company is currently evaluating the potential
impact the adoption of FAS FSP 142-3 will have on its financial
statements.





In May
2008, the FASB issued FASB Staff Position (“FSP”) APB 14-1, “Accounting for
Convertible Debt Instruments that May be Settled in Cash upon Conversion
(Include Partial Cash Settlement)” (“FSP APB 14-1”), which clarifies the
accounting for convertible debt instruments that may be settled in cash upon
conversion, including partial cash settlement. FSP APB 14-1 specifies that an
issuer of such instruments should separately account for the liability and
equity components of the instruments in a manner that reflect the issuer’s
non-convertible debt borrowing rate when interest costs are recognized in
subsequent periods. FSP APB 14-1 is effective for fiscal years beginning after
December 15, 2008, and retrospective application is required for all periods
presented. The Company is currently evaluating the potential impact of the
adoption of FSP APB 14-1 on its financial statements.





In May
2008, the FASB issued SFAS No. 162 ”The Hierarchy of Generally Accepted
Accounting Principles”. The purpose of this statement is to improve
financial reporting by providing a consistent framework for determining
applicable accounting principles to be used in the preparation of financial
statements presented in conformity with accounting principles generally accepted
in the United States of America. SFAS No. 162 will become effective 60 days
after the SEC’s approval. The Company believes the adoption of this standard on
its effective date will not have a material effect on the financial
statements.





In June
2008, the FASB issued FSP EITF 03-6-1 to address whether instruments granted in
share-based payment transactions are participating securities prior to their
vesting and therefore need to be included in the earnings per share calculation
under the two-class method described in SFAS 128, “Earnings per Share.” This FSP
requires companies to treat unvested share-based payment awards that have
non-forfeitable rights to dividends or dividend equivalents as participating
securities and thus, include them in calculation of basic earnings per share.
FSP EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008.
The Company does not anticipate a material impact on its financial statements or
its computation of basic earnings per share upon adoption.


8





BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES


(A
DEVELOPMENT STAGE COMPANY)




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOVEMBER
30, 2008


INVESTMENT
IN MYOTECH, LLC:





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




Based
upon the terms of the Securities Purchase Agreement, we were obligated to
purchase for cash consideration of $2.225 million an additional 811,037 Class A
units and could have elected 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 would have resulted in the Company owning a majority interest in
Myotech. Through October 1, 2007, Biophan provided an aggregate of $4,636,040 of
additional funding in exchange for 1,682,234 newly issued Class A units of
Myotech, which raised our ownership percentage to 44.1%.





On
October 2, 2007, we entered into a revised Securities Purchase Agreement with
Myotech pursuant to which the Company agreed to purchase from Myotech up to an
additional 15,496,547 Class A membership units for an aggregate purchase price
of $3,200,000. Prior to the execution of the Agreement, Biophan owned 5,408,194
Class A membership units. Upon execution of the revised Agreement, Biophan
purchased an additional 9,316,547 Class A membership units upon the payment of
an aggregate initial purchase price of $1,200,000 bringing our ownership
percentage as of November 30, 2007 to 68.02%. Thereafter, upon the satisfaction
of certain conditions, Biophan had the right to purchase an additional 6,180,000
Class A membership units for a purchase price of $2,000,000, which would
increase our ownership percentage to approximately 75%.





On June
30, 2008, we entered into an amendment to the Securities Purchase Agreement
dated October 2, 2007, that upon completion of certain closing obligations,
calls for us to purchase an additional 6,180,000 Class A membership units, for
an aggregate purchase price of $2,000,000. Under the terms of this amendment, we
have purchased a total of 1,854,000 Class A units for an aggregate total of
$600,000, increasing our ownership to 70.6% as of October 17, 2008, the date of
dissolution.





The
increase in our equity interest under the October 2, 2007 revised Securities
Purchase Agreement and the June 30, 2008 amendment to the Securities Purchase
Agreement for consideration of $1,200,000 and $600,000, respectively, was at a
per-unit price that was less than the then book value per unit. The aggregate
excess of the book value over the cost, or negative goodwill, in the amount of
$5,216,958 was allocated to reduce the stated value of the Myotech intellectual
property in consolidation.





On
October 17, 2008, the Company elected to dissolve Myotech LLC and distribute its
net assets according to the terms of the Myotech LLC operating
agreement.  All of the rights under the Myotech CSS patents were
transferred to Biophan.  Management performed a test for impairment
that included the income approach methodology of valuation, utilizing both
discounted and undiscounted cash flows from future royalty payments, assuming
current market conditions and considering probabilities under several
scenarios.  As a result, the Company recorded a charge for impairment
of approximately $14.565,000 which is included in the Company’s loss from
discontinued operations.See the Discontinued Operations footnote for more
detail.





Prior to
our obtaining a majority interest, we determined Myotech was a Variable Interest
Entity within the meaning of FIN 46(R) and the Company is 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.  However, on October 17, 2008, when Myotech was
dissolved the Company reclassified the results of Myotech operations for all
prior periods into loss from discontinued operations.




9





BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES


(A
DEVELOPMENT STAGE COMPANY)




NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


NOVEMBER
30, 2008





DISCONTINUED
OPERATIONS:





Effective
June 1, 2008, MR:Comp GmbH (“MR Comp”) was divested from one of Biophan’s
majority owned subsidiaries, Biophan Europe GmbH (“Biophan Europe”). As a
result, the Company recorded a gain from discontinued operations equal to
$105,120.  The rest of the accounts of MR Comp are immaterial to the
Company’s condensed consolidated financial statements.





On
October 17, 2008, the Company elected to dissolve Myotech LLC
(“Myotech”).  As a result, all of the Myotech assets and liabilities
were restated to their fair value and liquidated according to the Myotech LLC
operating agreement.  A loss on disposal of assets of $49,510 was
recorded.  The Company also recorded an impairment charge of
$14,564,958 for the difference between the carrying amount and the fair value of
the Myotech CSS technology.  The net loss from Myotech operations and
the impact of the minority interest in Myotech LLC were also accounted for in
the loss from discontinued operations account.  The following
summarizes all of the activity in the loss from discontinued operations account
during the three months ended November 30, 2008:





2008Loss
      on disposal of assets
                  
                  $
                  (49,510
                  )Impairment
      of intellectual property
                  
                  
                  (14,564,958
                  )Loss
      from Myotech operations
                  
                  
                  (232,737
                  )Minority interest
                  
                  
                  6,211,741Loss
      from operations of discontinued operations
                  
                  $
                  (8,635,464
                  )





Since
it’s inception, Myotech LLC did not generate any revenue.  Therefore,
there is no revenue included in the loss from discontinued operations for any
period presented in the condensed consolidated statements of
operations.





The
results of Myotech operations, net of corporate overhead, have been reclassified
into the loss from discontinued operations for all periods presented in the
condensed consolidated statements of operations for the period ended November
30, 2008.





As part
of the distribution of Myotech assets, 4,923,080 shares of Biophan common stock,
par value $.005 were transferred from Myotech LLC  to
Biophan.  On the date of transfer, the stock had a fair value of
$68,923.  The  Company recorded a charge against paid in
capital equal to $8,398,775 since the stock was previously accounted for as
treasury stock in the consolidated financial statements.





On
November 30, 2008, the divestiture of MR Comp and dissolution of Myotech were
substantially complete.  The Company does not
anticipate  future losses from either entity.




LINE
OF CREDIT AGREEMENTS:





On May
27, 2005, we entered into a Line of Credit Agreement (LOC #1) with Biomed
Solutions, LLC, at the time a related party, whereby Biomed agreed to provide a
line of credit facility of up to $2 million. Upon the resignation of Biophan’s
former CEO, Michael Weiner, on October 3, 2007 Biomed was no longer deemed a
related party. 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 which was valued utilizing the
Black-Scholes Option Pricing Model. The discount was amortized as additional
interest expense over the term of the note. In August 2005, Biomed elected to
convert $1 million of the note plus accrued interest into 480,899 shares of
common stock at which time the remaining discount related to the $1 million
portion of the loan was fully expensed. On October 7, 2005, we repaid $500,000
of principal and all accrued interest on the loan. The balance of borrowings on
the line was $500,000 at November 30, 2008 and 2007.




On
January 24, 2006, we entered into an additional Line of Credit
Agreement  (“LOC #2”) with Biomed Solutions, LLC, pursuant to which
Biomed committed to make advances to us, in an aggregate amount of up to
$5,000,000. Amounts borrowed bear interest at the rate of 8% per annum, and
principal and interest are convertible into shares of our Common Stock at the
rate of $1.46 per share. Biomed's obligation to lend to us under LOC #2 expired
on June 30, 2007, on which date the entire amount borrowed by us (and not
converted into shares of our Common Stock) became 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.


10


BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
  NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOVEMBER
30, 2008
 
 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
(LOC#2)  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 LOC#2. The amendment reduced the price at which the LOC#2 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 LOC#2 and
LOC#1 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 LOC#2 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 November 5, 2007, Biophan and Biomed entered into a
Settlement Agreement with SBI to settle all claims, causes of action and
disputes between and among them. As a result of SBI’s forgiveness of Biomed’s
debt, Biomed forgave $1,050,000 of the LOC#2 leaving a balance outstanding of
$700,000 as of November 30, 2007. This forgiveness of debt by Biomed, a
stockholder of the Company at that time, was recorded as a credit to additional
paid-in capital in stockholders’ equity.
 
 On
September 23, 2008, the Company amended the line of credit agreements LOC#1 and
LOC#2, extending the combined term to December 31, 2012 in exchange for monthly
cash payments of $15,000.  Accordingly, the Company paid $60,000 in
cash during the quarter ended November 30, 2008.  In addition to the
September 23, 2008 amendment, the Company obtained a letter of understanding
from Biomed outlining conditions in which certain expenses and accounts
receivable from entities related to Biomed may be used to offset line of credit
principal and interest. As a result, $732,167 was applied against the line of
credit during the quarter ended November 30, 2008 of which $583,262 was credited
to paid in capital since it related to forgiveness of debt by a Biomed
stockholder who personally holds shares of Company stock.
 
 The total
balance of borrowings on the lines of credit was $718,807 plus accrued interest
and $1,200,000 plus accrued interest at November 30, 2008 and 2007,
respectively.
  11
  BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
  NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOVEMBER
30, 2008
 
 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 was 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 elected to make principal
or interest payments in common stock, the number of shares issuable by us was
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 amortized and payments were
due in 33 equal monthly installments commencing four months following issuance
of the Notes, and was made at our option in cash or shares of our common stock
registered for resale under the Securities Act. Our obligations under the Notes
were 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").  The scheduled maturity date of the notes was October
2009.
 
 As
further consideration, 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 had elected to exercise these one-year warrants, they
would have received additional five-year warrants to purchase the shares of our
common stock equal to the number of shares purchased under the one-year
warrants, with 50% of the additional warrants having an exercise price of 115%
of the per share purchase price, and the remaining 50% of the additional
five-year warrants having an exercise price of 125% of the per share purchase
price. These one year warrants expired May 7, 2008. 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 allowed 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 allowed 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 which was calculated utilizing the
Black-Scholes Option Pricing Model. 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 was being amortized over the life of the Notes using the effective
interest method. The discount amortization for the year ended February 29, 2008
and February 28, 2007 amounted to $3,200,692 and $1,707,066, respectively
and is included in interest expense in the accompanying statements of
operations.
 
 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"). The warrants were valued at $19,980, utilizing the Black-Scholes
Option Pricing Model and charged to expense. In consideration for a payment of
$652,500 on October 9, 2007 all the existing defaults under the Notes or
Purchase Agreement were waived.
  12
  BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
  NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOVEMBER
30, 2008
 
 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"). Collins Stewart,
LLC, formerly known as 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 in the amount of $5,318,064 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 we elect to make a monthly installment
payment in cash, the holder will have the right to request payment in common
stock of the Company. In addition, the Conversion Price was reduced to $0.15. As
of November 30, 2008 2,440,000 shares have been converted at $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 from 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 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, Inc.  For accounting purposes, these amendments as they
pertain to re-pricing of the convertible debt and warrants, have been treated as
an extinguishment of the old debt. Accordingly, during fiscal 2008 the remaining
unamortized discount on the old debt of $3,352,581 was written off, a loss on
extinguishment of $3,189,187 on the old debt was recognized, and a new discount
in the amount of $2,636,612 was recorded. In addition, a beneficial conversion
charge to interest expense was recorded in the amount of
$3,021,197.
  On
February 7, 2008, the Securities Purchase Agreement was amended further to,
among other things, allow the Company to withdraw the Registration Statement on
Form S-1 (SEC File Number 333-146930) which was filed with the Securities and
Exchange Commission on October 25, 2007 on behalf of the Investors, without any
liquidated damages or penalties or further obligations to file a registration
statement in connection with any securities held by the Investors. While the
Registration Statement was pending, in order to continue to satisfy its payment
obligations to the Investors under the Agreement, the Company issued 11,869,235
shares of its common stock from November 30, 2007 through February 29, 2008. The
shares were issued without registration under the Securities Act of 1933 in
reliance on the exemption provided in Section 4(2) of such Act. In exchange, we
agreed to change the definition of Market Price if the average for the 20
Trading Days ending immediately prior to the applicable Principal Payment Date
is below $0.15 (the conversion price). Market Price will be calculated on 80% of
the arithmetic average of the VWAP for each of the 20 Trading Days ending
immediately prior to the applicable Principal Payment Date. The discount from
the market price of 20% is recognized as additional interest
expense.
 
 On
September 24, 2008, the Company  executed a prepayment agreement with
the holders of the Senior Secured Convertible Notes. Pursuant to the agreement,
the holders of the Senior 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 14.2 million shares of the Company’s common
stock. Also, 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 16.6 million shares of common stock were
redeemed for 3.9 million shares of common stock, leaving outstanding warrants to
purchase 23.4 million shares of the Company’s common stock. The remaining
warrants have an exercise price of $0.23 per share.  All of the
remaining unamortized discount associated with the warrants and unamortized
financing costs were written off as a loss on extinguishment of
debt.
 
 The
outstanding principal on the Senior Secured Convertible Notes was $0 and
$4,716,220 at November 30, 2008 and 2007, respectively. In the unaudited
condensed consolidated balance sheets, the Senior Secured Convertible Notes are
presented net of the unamortized discount associated with the warrants issued in
connection with the notes, equal to $0 and $2,446,259 at November 30, 2008 and
2007, respectively.  During the quarter ended November 30, 2008, the
Company recorded an associated loss on extinguishment of debt equal to
$2,057,804 which consisted of the unamortized debt discount of $1,447,510,
unamortized deferred financing costs of $570,093 and the balance of unpaid
principle and interest of $40,201.
  13
  BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
  NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOVEMBER
30, 2008
 
 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 for the fair value of the warrants related
to the Senior Secured Convertible Notes from time to time in order to provide
for the possibility that we would not be able to comply with the registration
rights of the lenders as contained in the Securities Purchase Agreement because
we did 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. Therefore, we would be required to reclassify
warrants from equity to a warrant liability account and based on the fair value
of the warrants at the time, reverse this transaction when the condition no
longer exists.
 
 Accordingly,
on July 10, 2008, the date the liability was triggered, the Company reclassified
warrants with a value of $23,897 from equity to the warrant liability, and
adjusted it to its fair value on August 31, 2008 and again on November 30, 2008
by recording a change in fair value in the Company’s condensed consolidated
statements of operations.  On November 30, 2008, the fair value of the
warrant liability was $269,487.
 
 As noted
above, the fair value of the warrant liability related to the Senior Secured
Convertible Notes is volatile. Several factors and underlying assumptions are
included in the Black-Scholes model utilized to derive the fair value of the
warrants. The factors and assumptions are as follows:
 
 1.)
              The
      number of warrants: varies from time to time dependent upon current period
      grants, conversion, forfeitures, and expirations,2.)
              Term
      of expiration: expiration dates vary by grant and currently range from 1
      to 3.5 years,3.)
              Market
      price at the valuation date: $0.015/share at July 10, 2008; $0.013/share
      at November 30, 2008;4.)
              Exercise
      price of the warrants: varies by grant,5.)
              Dividend
      yield: assumed to be zero6.)
              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.
 
 While
most of these factors changed during the period from July 10, 2008 to November
30, 2008, the most significant factors impacting the change in fair value were
the change in number of warrants, options granted, and the change in stock
price.
  STOCKHOLDERS'
EQUITY:
  The
following changes in stockholders’ equity took place during the nine months
ended November 30, 2008:
 
 Event
                    
                    Number of
                      Shares
                      Issued
                    
                    
                    Common Stock
                    
                    
                    Additional Paid
                      in CapitalBalance
      at February 29, 2008
                    
                    
                    119,128,504
                    
                    
                    $
                    595,643
                    
                    
                    $
                    78,015,527Shares
      issued for principal and interest on convertible notes
                    
                    
                    120,555,441
                    
                    
                    
                    602,776
                    
                    
                    
                    1,761,093Shares
      issued to directors
                    
                    
                    900,000
                    
                    
                    
                    4,500
                    
                    
                    
                    31,500Shares
      issued for services
                    
                    
                    2,701,319
                    
                    
                    
                    13,507
                    
                    
                    
                    45,156Expenses
      paid by stockholder
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    583,262Transfer
      of treasury stock
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (8,467,698
                    )Stock
      option expense
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    138,031Recognition
      of fair value of warrant liability
                    
                    
                    -
                    
                    
                    
                    -
                    
                    
                    
                    (23,897
                    )Balance
      at November 30, 2008
                    
                    
                    243,285,264
                    
                    
                    $
                    1,216,426
                    
                    
                    $
                    72,082,974
  14
  BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
  NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOVEMBER
30, 2008
 
 STOCK-BASED
COMPENSATION PLANS:
  The
Company accounts for stock-based compensation in accordance with SFAS No. 123R,
"Share-Based Payment," using the fair value recognition provisions of SFAS No.
123, "Accounting for Stock-Based Compensation." The Company recognized expense
under SFAS No. 123R in the amount of $138,031 for the nine months ended November
30, 2008. The related impact on basic and diluted earnings per share for the
quarter ended November 30, 2008 was immaterial. There was no impact on the
Company's cash flow.
  The
Company’s stock incentive plans consist of the Biophan Technologies, Inc. 2001
Stock Option Plan, the Biophan Technologies, Inc. 2006 Incentive Stock Plan and
the Biophan Technologies, Inc. 2008 Incentive Stock Plan (the “Plans”) which are
shareholder approved.  The Plans provide for the grant of incentive and
non-qualified stock options to selected employees, and the grant of
non-qualified options and other stock-based awards to selected consultants,
directors and advisory board members. The Plans are administered by the
Compensation Committee of the Board and it is authorized to grant options or
restricted stock awards up to 13,000,000 shares under the 2001 Plan, 7,500,000
shares under the 2006 Plan and 10,000,000 shares under the 2008 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 Plans. The Company typically funds exercised
options with previously unissued shares. Non-employee directors also receive
periodic restricted stock grants pursuant to the automatic grant program in
effect for them under the 2008 Plan. Some of the Company's outstanding option
agreements contain performance milestones as a condition for vesting. In
accordance with Statement of Accounting Standard No. 123(R), "Share Based
Payments," the Compensation Committee periodically evaluates the probability
these milestones will be met and records compensation expense when it is
determined that the conditions are probable of being satisfied. During the
quarter ended November 30, 2008, none of the criteria for vesting of outstanding
performance options were met.
 
 The fair
value of each option award was estimated on the date of grant using the
Black-Scholes option valuation model using the following assumptions: Expected
volatilities are based on the historical volatility of the Company's stock,
management's estimate of implied volatility of the Company's stock, and other
factors. The expected term of options granted is derived from the vesting period
of the award, as well as historical exercise behavior, and represents the period
of time that options granted are expected to be outstanding. The risk-free rate
is calculated using the U.S. Treasury yield curve, and is based on the expected
term of the option. The Company uses a combination of historical and expected
data to estimate forfeitures.
  The
Black-Scholes option pricing model was used with the following weighted-average
assumptions for options granted during the nine months ended November 30,
2008:
 
 Risk-free
      interest rate
                    
                    
                    2.70
                    %Expected
      option life
                    
                    
                    10.0
      yearsExpected
      volatility
                    
                    
                    310.73
                    %Expected
      dividend yield
                    
                    
                    0.0
                    %
  Further
information relating to stock options is as follows:
  WeightedWeighted
                      
                      
                      AverageNumber
                      
                      
                      Average
                      
                      
                      Remainingof
                      
                      
                      Exercise
                      
                      
                      ContractShares
                      
                      
                      Price
                      
                      
                      Life (years)Outstanding
      options at 2/29/08
                      
                      
                      15,503,891
                      
                      
                      $
                      0.63Granted
                      
                      
                      1,700,000
                      
                      
                      
                      0.02
                      
                      
                      
                      9.63Exercised
                      
                      
                      -
                      
                      
                      
                      -
                      
                      
                      
                      -Forfeited/expired
                      
                      
                      (662,912
                      )
                      
                      
                      0.89
                      
                      
                      
                      4.00Outstanding
      options at 11/30/08
                      
                      
                      16,540,979
                      
                      
                      $
                      0.54
                      
                      
                      
                      7.02Exercisable
      on 11/30/08
                      
                      
                      14,482,437
                      
                      
                      $
                      0.55
                      
                      
                      
                      6.84
  15
  BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
  NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOVEMBER
30, 2008
 
 The
following table summarizes our non-vested stock option activity for the nine
months ended November 30, 2008
 Non-vested stock option activity
  Wt'd Avg Grant-DateNo of Shares
                              
                              
                              Fair ValueNon-vested
      stock options at 2/29/08
                              
                              
                              1,941,667
                              
                              
                              $
                              0.73Granted
                              
                              
                              1,700,000
                              
                              
                              
                              0.02Vested
                              
                              
                              (1,308,125
                              )
                              
                              
                              0.22Forfeited/expired
                              
                              
                              (275,000
                              )
                              
                              
                              1.05Non-vested
      stock options at 11/30/08
                              
                              
                              2,058,542
                              
                              
                              $
                              0.51
 
 As of
November 30, 2008 there was approximately $62,000 of total unrecognized
compensation cost related to unvested options. The cost is expected to be
recognized over a weighted-average period of 2.2 years.
 
 The
options have contractual terms ranging from five to ten years. The aggregate
intrinsic value of shares outstanding and exercisable was $0 at November 30,
2008 as the market price of the Company's common stock was below the
weighted-average exercise price of substantially all of the options. Total
intrinsic value of options exercised was $0 for the quarter ended November 30,
2008 as no options were exercised during this period.
  At
November 30, 2008, shares available for future stock option grants to employees
and others under the 2001 Stock Option Plan, the 2006 Incentive Stock Plan and
the 2008 Incentive Stock Plan were 879,480; 26,566 and 4,698,681
respectively.
  EARNINGS
PER SHARE:
 
 If the
Company had generated earnings during the nine-month period ended November 30,
2008, no common stock equivalent shares would have been added to the weighted
average shares outstanding as no options have exercise prices below the average
fair value of the Company’s stock during the period.
 
 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.
 
 On April
17, 2008, the Company reached an agreement in principle to terminate the
Company’s forward funding commitments with Biophan Europe GmbH.  As a
result, it’s likely the Company's ownership percentage in Biophan Europe will be
reduced and the Company will no longer be required to consolidate this entity.
Management believes this will not have a material effect on the Company's
condensed consolidated financial statements in future periods. In addition, on
May 5, 2008, Biophan Europe settled a dispute with a minority shareholder
whereby Biophan Europe paid the shareholder $80,000 and agreed to issue 150,000
shares of the Company’s stock valued at approximately $2,250.
  16
  BIOPHAN
TECHNOLOGIES, INC. AND SUBSIDIARIES
 (A
DEVELOPMENT STAGE COMPANY)
  NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 NOVEMBER
30, 2008
 
 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  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.
  17
  COMPANY
BUSINESS
  During
the nine-month period ended November 30, 2008:
 ·
                We
      recognized approximately $451,000 in revenue from licensing, development
      payments, MRI testing, and consulting fees.·
                We
      continue to focus our efforts to seek license or development partners for
      the Myotech Circulatory Support System (CSS), a lifesaving device that
      provides benefits and competitive advantages not possible with other
      circulatory support devices.  This is a change from our past
      efforts which was focused on the development internally of the Myotech
      CSS.  Refer to the “Discontinued Operations” discussion in the
      notes to the financial statements which will provide an overview for the
      change.·
                We
      have continued our efforts to seek license
      partners  for  the MRI compatible devices and other
      technologies developed by Biophan and 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 grant 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 $10 million in grant applications
      this year.·
                We
      completed 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.·
                We
      have continued to be funded by Medtronic under the assignment agreement
      between Biophan and that company to help them refine the patents they
      purchased to  commercialize the technology.
  RESULTS
OF OPERATIONS
  The
following comments discuss the significant factors affecting the consolidated
operating results of the Company comparing the three months ended November 30,
2008 to the three months ended November 30, 2007 and the nine months ended
November 30, 2008 to the nine months ended November 30, 2007.
  Comparison
of the Three Months Ended November 30, 2008 to the Three Months Ended November
30, 2007.
  Revenues
:
 Revenues
decreased 99% or by $11,038,000 during the three  month
period  ended November 30, 2008 as compared to the same
period  ended November 30, 2007.
The  decrease  was primarily due to the $11,000,000 sale of
intellectual property to Medtronic in 2007.  Development
payments  decreased $30,000 and grant revenue decreased $25,000 due
to  a government sponsored research program that was in place during
2007.  Testing services and consulting fees, however, were higher in
2008 ($17,000) as a result of the technical transfer support arrangement put
into place when the intellectual property was sold to Medtronic.  The
Company plans to continue to generate revenue under existing license
arrangements, government research programs and is actively seeking a development
partner for the Myotech Circulatory Support System.
  Research
and Development Expenses :
 Research
and development expenses decreased  42% or by $194,000 during the
three months ended November 30, 2008 as compared to the same period ended
November 30, 2007. After factoring out the decrease in non-cash stock-based
compensation expense from 2007 to 2008 of $33,000 and the increase  in
depreciation and amortization of $23,000 the overall decrease is attributable to
the planned reductions in spending on research and development projects
($268,000) and research and development salaries ($84,000), offset by increases
in patent legal expenses ($71,000), consultants ($17,000) and overhead
($80,000).  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 36%, or $571,000 during the three
months ended November 30, 2008 as compared to the same period ended November 30,
2007. After factoring out the decrease in non-cash stock-based compensation
expense from 2007 to 2008 of $170,000 and a decrease in depreciation and
amortization of $10,000, there were significant decreases in administrative
salaries $478,000, and outside consulting $30,000, offset by increases in
overhead $6,000 and legal and accounting $111,000. The Company
has  taken additional measures to reduce general and administrative
overhead expenses, and therefore does not anticipate the same level of spending
in fiscal 2010.
  18
  Other
Income (Expense) :
 
 Other
Income (Expenses) consisted of the following during the three months ended
November 30, 2008 and November 30, 2007, respectively:
 
 2008
                    
                    
                    2007Interest
      income
                    
                    $
                    8,000
                    
                    
                    $
                    53,000Interest
      expense
                    
                    
                    (250,000
                    )
                    
                    
                    (7,301,000
                    )Gain
      on sale of investments and other assets
                    
                    
                    -
                    
                    
                    
                    126,000Change
      in fair value of warrant liability
                    
                    
                    255,000
                    
                    
                    
                    -Loss
      on extinguishment of debt
                    
                    
                    (2,058,000
                    )
                    
                    
                    (3,189,000
                    )Other
      income and (expenses)
                    
                    
                    (15,000
                    )
                    
                    
                    72,000Total:
                    
                    $
                    (2,030,000
                    )
                    
                    $
                    (10,239,000
                    )
 
 The two
major components of this category are interest expense and loss on
extinguishment of debt.  Interest expense was $7,051,000 greater
during the three months ended November 30, 2007 as compared to the three months
ended November 30, 2008 because of the interest that was recognized in 2007 as a
result of the modification in the Senior Secured Convertible Notes on October 3,
2007.  Also, on September 23, 2008, the Company prepaid the remaining
balance of the Senior Secured Convertible Notes.  Therefore, interest
expense on the Senior Secured Convertible Notes was not incurred during the
entire three month period, as compared to the quarter ended November 30, 2007.
The loss on extinguishment of debt was approximately $1,131,000 less during the
three months ended November 30, 2008 because the unamortized discount on the
balance of the Senior Secured Convertibles was less than comparable balance
immediately prior to executing Amendment No. 1 of the Senior Secured Convertible
Notes on October 3, 2007. The decrease in interest income of $45,000 was related
to the decrease in cash and cash equivalents balance between
periods.  The decrease in gain on sale of investment and other assets
of $126,000 was due to the fact that the Company did not have comparable
transactions during the three months ended November 30, 2008. Other income and
expenses decreased by $57,000 as a result of the reduction in incremental
services billings between periods, and the change in the fair value of the
warrant liability ($255,000) is a result of the decrease in number of
outstanding warrants relative to their change in fair value and the number of
unissued shares of Company stock.
 
 Loss From Discontinued
Operations:
 
 The
increase in  loss from discontinued operations in the condensed
consolidated statements of operations for the three month period ended November
30, 2008 was a result of the dissolution of  Myotech LLC. The loss
from discontinued operations for the three months ended November 30, 2007
represents the losses generated from the operations of Myotech during that
period. The loss from discontinued operations for the three months ended
November 30, 2008 includes the losses generated from operations as well as the
impairment of intellectual property, the write-off of unamortized acquisition
costs and the impact of the dissolution on the minority interest in Myotech
LLC.
 
 The
following comments discuss the significant factors affecting the consolidated
operating results, financial condition and liquidity and cash flows of the
Company for the nine months ended November 30, 2008 as compared to the nine
months ended November 30, 2007.
  Comparison
of the Nine Months Ended November 30, 2008 to the Nine Months Ended November 30,
2007
  Revenues
:
 Revenues
decreased 96% or by $11,041,000 during the nine months ended November 30, 2008
as compared to the same period ended November 30, 2007. The decrease was
primarily due to the $11,000,000 sale of intellectual property to Medtronic in
2007.  Development payments decreased $30,000 and grant revenue
decreased $100,000 due to  a government sponsored research program
that was in place during 2007.  Testing services and consulting fees,
however, were higher in 2008 ($89,000) as a result of the technical transfer
support arrangement put into place when the intellectual property was sold to
Medtronic and other technical consulting opportunities.  The Company
plans to continue to generate revenue under existing license arrangements,
government research programs and is actively seeking a development partner for
the Myotech Circulatory Support System.
 
 Research
and Development Expenses :
 Research
and development expenses decreased 56% or by $1,141,000 during the nine months
ended November 30, 2008 as compared to the same period ended November 30, 2007.
After factoring out the decrease in non-cash stock-based compensation expense
from 2007 to 2008 of $599,000 and the increase in depreciation and amortization
of $29,000, the overall decrease is attributable to the planned reductions in
spending on research and development projects ($421,000) , research and
development salaries ($211,000) and patent legal expenses ($32,000), offset by
increases in consulting ($13,000) and overhead ($80,000).  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 37%, or $1,692,000 during the nine
months ended November 30, 2008 as compared to the same period ended November 30,
2007. After factoring out the decrease in non-cash stock-based compensation
expense from 2007 to 2008 of $1,445,000 and a decrease in depreciation and
amortization of $8,000, there were significant decreases in administrative
salaries $492,000 and overhead $37,000, offset by increases in consulting
($105,000) and legal and accounting ($185,000). The Company has  taken
additional measures to reduce general and administrative overhead expenses, and
therefore does not anticipate the same level of spending in fiscal
2010.
  19
  Other
Income (Expense) :
 
 Other
Income (Expenses) consisted of the following during the nine months ended
November 30, 2008 and November 30, 2007, respectively:
 
 2008
                        
                        
                        2007Interest
      income
                        
                        $
                        62,000
                        
                        
                        $
                        73,000Interest
      expense
                        
                        
                        (1,691,000
                        )
                        
                        
                        (9,921,000
                        )Gain
      on sale of investments and other assets
                        
                        
                        -
                        
                        
                        
                        136,000Liquidating
      damages
                        
                        
                        -
                        
                        
                        
                        (653,000
                        )Change
      in fair value of warrant liability
                        
                        
                        (246,000
                        )
                        
                        
                        4,339,000Loss
      on extinguishment of debt
                        
                        
                        (2,058,000
                        )
                        
                        
                        (3,189,000
                        )Other
      income and (expenses)
                        
                        
                        88,000
                        
                        
                        
                        296,000Total:
                        
                        $
                        (3,845,000
                        )
                        
                        $
                        (8,919,000
                        )
 
 The three
major components of this category are interest expense, the loss on
extinguishment of debt and the change in the fair value of the warrant
liability.  Interest expense was $8,230,000 greater during the nine
months ended November 30, 2007 as compared to the nine months ended November 30,
2008 because in 2007 the interest that was recognized was as a result of the
October amendment to the Senior Secured Convertible Notes. Furthermore, on
September 23, 2008, the Company prepaid the remaining balance of the Senior
Secured Convertible Notes.  As a result, the interest expense recorded
from the Senior Secured Convertible Notes was not incurred during the entire
nine month period as compared to the nine month period ended November 30, 2007.
The loss on extinguishment of debt was approximately $1,131,000 less during the
nine months ended November 30, 2008 because the unamortized discount on the
balance of the Senior Secured Convertibles was less than the comparable balance
immediately prior to executing Amendment No. 1 of the Senior Secured Convertible
Notes.  The change in the fair value of the warrant liability
($4,585,000) was mostly driven by a $4,339,000 adjustment posted on May 8, 2007
following a special shareholder’s meeting at which an increase in authorized
shares was approved.  The balance of the change ($246,000) was a
result of the decrease in number of outstanding warrants on September 24, 2008,
relative to the change in their fair value and the number of unissued shares of
Company stock on the balance sheet date. The decrease in interest income of
$11,000 was related to the decrease in cash and cash equivalents balance between
periods.  The decrease in gain on sale of investment and other assets
of $136,000 was due to the fact that the Company did not have comparable
transactions during the nine months ended November 30, 2008. Other income and
expenses decreased by $208,000 as a result of the reduction in incremental
services billings between periods.
 
 Loss From Discontinued
Operations:
 
 The
increase in  loss from discontinued operations in the condensed
consolidated statements of operations for the nine month period ended November
30, 2008 was a result of the dissolution of it’s majority-owned subsidiary,
Myotech LLC. The loss from discontinued operations for the nine months ended
November 30, 2007 represents the losses generated from the operations of Myotech
during that period. The loss from discontinued operations for the nine months
ended November 30, 2008 includes the losses generated from operations as well as
the impairment of intellectual property, the write-off of unamortized
acquisition costs and the impact of the dissolution on the minority interest in
Myotech LLC.
 
 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 16.6
million shares of common stock were redeemed leaving outstanding warrants to
purchase 23.4 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,  on
September 23, 2008, the Company amended the line of credit agreements LOC#1 and
LOC#2, extending the combined term to December 31, 2012 in exchange for monthly
cash payments of $15,000.  Accordingly, the Company paid $60,000 in
cash during the quarter ended November 30, 2008.  In addition to the
September 23, 2008 amendment, the Company obtained a letter of understanding
from Biomed outlining conditions in which certain shared expenses and accounts
receivable from entities related to Biomed may be used to offset line of credit
principal and interest. As a result, $732,167 was applied against the line of
credit during the quarter ended November 30, 2008 of which $583,262 was credited
to paid in capital since it related to forgiveness of debt by a Biomed
stockholder who personally holds shares of Company stock.
  20
  At
November 30, 2008, the Company has cash and cash equivalents of approximately
$1.4 million and negative working capital. We believe the Company has adequate
working capital resources for the upcoming seven to nine months of operations,
however we can make no assurances as to the Company's ability to obtain
sufficient financing or attain future profitable operations.  The
Company is currently pursuing licensing/developing partners for its
technologies, including the Myotech CSS, and is also seeking strategic
acquisition(s) and financing to extend its capital resources beyond this time
frame.  If we are unsuccessful in our efforts to obtain capital, this
could adversely impact our ability to continue as a going concern.
  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 seven full-time individuals, all in the U.S.
  ITEM
3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  Not
applicable.
 
 ITEM
4. CONTROLS AND PROCEDURES
 
 Evaluation of Disclosure
Controls and Procedures.
 
 Management
is responsible for establishing and maintaining effective disclosure controls
and procedures. As of November 30, 2008, our Chief Executive Officer and Chief
Financial Officer participated with our management in evaluating the
effectiveness of our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the “Exchange Act”)). Our disclosure controls and procedures are
designed to ensure that information required to be disclosed in the Securities
and Exchange Commission (“SEC”) reports we file or submit under the Exchange Act
is recorded, processed, summarized and reported within the time period specified
by the SEC’s rules and forms and that such information is accumulated and
communicated to management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure. In
light of the discussion of the material weakness set forth below, these officers
have concluded that our disclosure controls and procedures were not effective.
To address the material weakness described below, we performed additional
analyses and other post-closing procedures to ensure our condensed consolidated
financial statements were prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP). Accordingly,
management believes that the financial statements included in this Quarterly
Report on Form 10-Q fairly present, in all material respects, our financial
condition, result of operations and cash flows for the periods
presented.
  Management’s Report on
Internal Control Over Financial Reporting.
 
 A
company’s internal control over financial reporting is a process designed by, or
under the supervision of, a public company’s principal executive and principal
financial officers, or persons performing similar functions, and effected by the
board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally
accepted accounting principles (“GAAP”) including those policies and procedures
that: (i) pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of the assets of
the company, (ii) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in
accordance with GAAP, and that receipts and expenditures are being made only in
accordance with authorizations of management and directors of the company, and
(iii) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of the company’s assets that
could have a material effect on the financial statements.
  21




Management
is responsible for establishing and maintaining adequate internal control over
financial reporting. Our management, with the participation of our Chief
Executive Officer and Chief Financial Officer, has assessed the effectiveness of
our internal control over financial reporting as of February 29, 2008 (the last
annual Management’s Assessment of Internal Control over Financial Reporting). In
making this assessment, our management used the criteria established in Internal Control — Integrated
Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).





A
material weakness is a control deficiency, or combination of control
deficiencies, such that there is a reasonable possibility that a material
misstatement of the annual or interim financial statements will not be prevented
or detected on a timely basis. In connection with management’s assessment of our
internal control over financial reporting described above, management has
identified the following material weakness in the Company’s internal control
over financial reporting as of February 29, 2008:





The Company did not maintain effective
controls over accounting for income taxes, specifically the application of
Statement of Financial Accounting Standards No. 109, “Accounting for Income
Taxes “ (as Amended), which requires management to 1.) identify and evaluate the
tax implications of non-routine transactions, including those related to the
acquisition of interest in subsidiaries and the senior secured convertible debt,
among others, 2.) evaluate net operating loss carryforwards, 3.) prepare the
provision for income taxes and income taxes payable (where applicable) including
tax reserves, return to provision adjustments, and 4.) reconcile all differences
between tax and financial reporting basis of its assets and liabilities, with
its deferred income tax assets and liabilities. Company management does not
possess the requisite knowledge or experience to adequately address the
financial statement risks associated with certain complex transactions and as a
consequence relied on the help of outside advisors (other than their independent
auditors) to properly state the Company’s financial
statements.





As a
result of the material weaknesses described above, our management concluded that
as of February 29, 2008, we did not maintain effective internal control over
financial reporting based on the criteria established in Internal Control — Integrated
Framework issued by the COSO.





The
annual report included on Form 10-K referred to above did not include an
attestation report of the Company’s registered public accounting firm regarding
internal control over financial reporting. Management’s report was not subject
to attestation by the Company’s registered public accounting firm pursuant to
the temporary rules of the SEC that permit the Company to provide only
management’s report in the aforementioned annual report on the Company’s
Form 10-K filed with the SEC on June 13, 2008.





Plan for Remediation of
Material Weaknesses.





In
response to the identified material weakness, management, with oversight from
the Company’s audit committee, plans to improve internal controls over
accounting for income taxes by formalizing a periodic tax review process that
includes the development of formalized policies and procedures, required
periodic consultation with qualified outside advisors, documentation standards
and workpaper review and approval guidelines. In addition, the Company intends
to provide tax training and educational opportunities to Company employess to
enhance internal awareness of tax-specific matters.





Notwithstanding
the material weaknesses discussed above, management believes that the financial
statements included in this report present fairly, in all material respects, our
financial position, results of operations, and cash flows for the periods
presented in accordance with U.S. generally accepted accounting
principles.





Changes in Internal Control
Over Financial Reporting.





There
were no changes in our internal controls over financial reporting identified in
connection with the evaluation required by paragraph (d) of
Rule 13a-15 or Rule 15d-15 under the Exchange Act during the period
covered by this report that have materially affected, or are reasonably likely
to materially affect, our internal control over financial
reporting.


22




PART
II. OTHER INFORMATION




ITEM
1. LEGAL PROCEEDINGS




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




ITEM
1A. RISK FACTORS





Not
applicable.




ITEM
2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS




Not
applicable.




ITEM
3. DEFAULTS UPON SENIOR SECURITIES




Not
applicable.




ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS





At a
special shareholder’s meeting held on September 12, 2008, shareholders were
asked to approve a proposal to amend the Company’s Articles of Incorporation to
increase the number of authorized shares of common stock to 800,000,000. This
proposal was adjourned until December 1, 2008 (subject for further adjournment
by those attending the reconvened meeting) or such earlier date as the Company
obtains sufficient votes to approve this proposal.  At the reconvened
meeting on December 1, 2008, the meeting was further adjourned until February 4,
2009 (subject for further adjournment by those attending the reconvened meeting)
or such earlier date as the Company obtains sufficient votes to approve this
proposal.





Also at
the special shareholders’ meeting on September 12, 2008, the 2008 Incentive
Stock Plan was approved, the shareholders ratified the appointment of Freed,
Maxick & Battaglia, CPA’s, P.C. to serve as the Company’s independent
registered public accounting firm for the fiscal year ended February 28, 2009
and the shareholders elected the following seven directors to hold office for
the ensuing year and until the election and qualification of their respective
successors: Stan Yakatan, John Lanzafame, Theodore A. Greenberg, Bonita L.
Labosky, Guenter Jaensch, Travis E. Baugh and Harold Gubnitsky.




ITEM
5. OTHER INFORMATION




Not
applicable.




ITEM
6. EXHIBITS





Exhibit
              Number
            
            Description
      of Exhibit3.1
            
            Articles
      of Incorporation, incorporated by reference to Exhibit 3.1 to Form 10-KSB
      for the year ended February 29, 2000, filed with the Securities and
      Exchange Commission (the “SEC”) on June 13, 2000 (the "2000 10-KSB").3.2
            
            Amendment
      to Articles of Incorporation, incorporated by reference to Exhibit 3.1(i)
      to Form 8-K filed with the SEC on December 15,
  2000.3.3
            
            Certificate
      of Amendment to Articles of Incorporation, incorporated by reference to
      Exhibit 3.1(i) to Form 8-K filed with the SEC on August 27, 2001.3.4
            
            Certificate
      of Amendment to Articles of Incorporation, incorporated by reference to
      Exhibit 3.4 to Registration Statement on Form S-1, filed with the SEC on
      October 25, 2007.3.5
            
            Bylaws,
      incorporated by reference to Exhibit 3.4 to Form S-1/A filed with the SEC
      on May 24, 2007.4.1
            
            Stock
      Purchase Agreement dated May 27, 2005 between Biophan and SBI Brightline
      XI, LLC, incorporated by reference to Exhibit 3.2 to Form 10-SB filed with
      the SEC on May 13, 1999.4.2
            
            Amendment
      No. 1, dated January 8, 2006, to Stock Purchase Agreement by and between
      Biophan and SBI Brightline XI, LLC, Incorporated by reference to Exhibit
      4.21 to Form 10-KSB/A for the year ended February 28, 2005, filed with the
      SEC on June 22, 2005 (the "2005 10-KSB").4.3
            
            Line
      of Credit Agreement dated as of May 27, 2005 between Biophan and Biomed
      Solutions, LLC. incorporated by reference to Exhibit 4.1 to Form 8-K filed
      with the SEC on January 9, 2006.4.4
            
            First
      Amendment to Line of Credit Agreement between Biophan and Biomed
      Solutions, LLC, incorporated by reference to Exhibit 10.50 to the 2005
      10-KSB.4.5
            
            Convertible
      Promissory Note of Biophan in the face amount of $2,000,000 payable to the
      order of Biomed Solutions, LLC dated May 27, 2005, incorporated by
      reference to Exhibit 4.2 to Form 10-Q for the period ended November 30,
      2005, filed with the SEC on January 17, 2006 (the "Q3'05
      10-Q").4.6
            
            First
      Amendment to Convertible Promissory Note, incorporated by reference to
      Exhibit 4.22 to the 2005 10-KSB.4.7
            
            Stock
      Purchase Warrant issued to Biomed Solutions, LLC dated May 27, 2005,
      incorporated by reference to Exhibit 4.3 to the Q3'05
      10-Q.4.8
            
            Rights
      Agreement among Myotech, LLC, the Members of Myotech, LLC and Biophan,
      incorporated by reference to Exhibit 4.23 to the 2005
      10-KSB.4.9
            
            Line
      of Credit Agreement dated as of January 24, 2006 between Biophan and
      Biomed Solutions, LLC, incorporated by reference to Exhibit 4.1 to the
      Q3'05 10-Q.4.10
            
            Amendment
      No. 1, dated October 11, 2006, to Line of Credit Agreement by and between
      Biophan Technologies, Inc. and Biomed Solutions, LLC, incorporated by
      reference to Exhibit 4.1 to Form 8-K filed with the SEC on January 25,
      2006 (the "January 25, 2006 8-K").4.11
            
            Convertible
      Promissory Note of Biophan in the face amount of $5,000,000 payable to the
      order of Biomed Solutions, LLC dated January 24, 2006, ) incorporated by
      reference to Exhibit 10.2 to Form 8-K filed with the SEC on October 13,
      2006 (the "October 13, 2006 8-K").4.12
            
            Amended
      and Restated Convertible Promissory Note of Biophan Technologies, Inc., in
      the principal amount of $5,000,000, dated October 11, 2006, payable to the
      order of Biomed Solutions, LLC, incorporated by reference to Exhibit 4.2
      to the January 25, 2006 8-K.4.13
            
            Stock
      Purchase Warrant for the Purchase of up to 1,198,630 Shares of Common
      Stock issued to Biomed Solutions, LLC, incorporated by reference to
      Exhibit 10.3 to the October 13, 2006 8-K.4.14
            
            Subordination
      and Standstill Agreement dated October 11, 2006, by and among Biophan
      Technologies, Inc., Biomed Solutions, LLC, and those Purchasers named
      therein, incorporated by reference to Exhibit 4.3 to the January 25, 2006
      8-K.4.15
            
            Form
      of Senior Secured Convertible Notes due October 11, 2009 issued pursuant
      to the Securities Purchase Agreement, dated October 11, 2006, by and among
      Biophan Technologies, Inc. and those Purchasers named therein,
      incorporated by reference to Exhibit 10.4 to the October 13, 2006
      8-K.




23




4.16
            
            Form
      of Senior Secured Convertible Notes due October 11, 2009 issued pursuant
      to the Securities Purchase Agreement, dated October 11, 2006, by and among
      Biophan Technologies, Inc. and those Purchasers named therein,
      incorporated by reference to Exhibit 4.2 to the October 13, 2006
      8-K.4.17
            
            Form
      of One-Year Warrants issued pursuant to the Securities Purchase Agreement,
      dated October 11, 2006, by and among Biophan Technologies, Inc. and those
      Purchasers named therein, incorporated by reference to Exhibit 4.3 to the
      October 13, 2006 8-K.4.18
            
            Form
      of Three-Year Warrants issued pursuant to the Forbearance Agreement dated
      as of February 16, 2007 by and among Biophan Technologies, Inc. and the
      Note Holders named therein, incorporated by reference to Exhibit 4.4 to
      the October 13, 2006 8-K.4.19
            
            Amended
      and Restated 2001 Stock Option Plan, incorporated by reference to Exhibit
      4.1 to Form 8-K filed with the SEC on February 27, 2007 (the "February 27,
      2007 8-K").4.20
            
            2006
      Incentive Stock Plan, incorporated by reference to Appendix A to Proxy
      Statement filed with the SEC on Schedule 14A on June 28,
      2005.4.21
            
            Amendment
      No. 1 to Securities Purchase Agreement, Senior Secured Convertible Notes,
      Warrants and Security Agreement, by and among Biophan Technologies, Inc.
      and those Purchasers named therein, incorporated by reference to Exhibit
      4.5 and 4.6 to Form 8-K filed with the SEC on October 5,
    2007.4.22
            
            Consent
      and Authorization Agreement,  dated October 3,
      2007, incorporated by reference to Exhibit 4.5 and 4.6 to Form 8-K filed
      October 5, 2007.4.23
            
            2008
      Incentive Stock Plan, incorporated by reference to Exhibit 10.1 to Form
      S-8, filed with the SEC on March 24, 2008.4.24
            
            Settlement
      Agreement with SBI Brightline LLC, SBI Brightline XI LLC and Biomed
      Solutions LLC, dated November 5, 2007, incorporated by reference to
      Exhibit 10.1 to Form 8-K, filed with the SEC on November 9,
      2007.5.1
            
            Opinion
      of Sichenzia Ross Friedman Ference LLP, incorporated by reference to
      Exhibit 5.1 to Form S-8, filed with the SEC on March 24,
    2008.10.1
            
            Agreement
      dated as of February 24, 2005 among Biophan, aMRIs GmbH, Dr. Michael
      Friebe, Tomovation GmbH, Prof. Dr. Andreas Melzer, Dipl-Ing. Gregor
      Schaefers, and Dipl. Betriebsw. Andreas Pieper, incorporated by reference
      to Appendix A to Proxy Statement filed with the SEC on Schedule 14A on
      June 21, 2006.10.2
            
            Note
      and Pledge Agreement dated November 24, 2005 between Biophan, Tomovation
      GmbH and Prof. Dr. Andreas Melzer, incorporated by reference to Exhibit
      2.4 to the 2005 10-KSB.10.3
            
            Termination
      of Stock Purchase Agreement between Biophan and SBI Brightline Consulting,
      LLC, incorporated by reference to Exhibit 4.10 to the 2005
      10-KSB.10.4
            
            Investment
      Agreement dated June 30, 2005 between Biophan and Boston Scientific
      Scimed, Inc., incorporated by reference to Exhibit 4.20 to the 2005
      10-KSB.10.5
            
            Securities
      Purchase Agreement, dated October 11, 2006, by and among Biophan
      Technologies, Inc. and those Purchasers named therein, incorporated by
      reference to Exhibit 4.5 to Form 10-Q for the period ended August 31,
      2005, filed with the SEC on October 17, 2005.10.6
            
            Security
      Agreement, dated as of October 11, 2006, by and among Biophan
      Technologies, Inc., the Purchasers named therein and Iroquois Master Fund
      Ltd., as agent for the Purchasers, incorporated by reference to Exhibit
      4.1 to Form 8-K, filed with the SEC on October 13,
2006.10.7
            
            Forbearance
      Agreement dated as of February 16, 2007 by and among Biophan Technologies,
      Inc. and the Note Holders named therein, incorporated by reference to
      Exhibit 10.1 to Form 8-K filed with the SEC on October 13,
      2006.10.8
            
            License
      Agreement between Biophan, Xingwu Wang and Nanoset, LLC dated January 15,
      2004, incorporated by reference to Exhibit 10.1 to Form 8-K, filed with
      the SEC on February 27, 2007.10.9
            
            Development
      Agreement between Biophan and Greatbatch Enterprises, Inc. dated February
      28, 2001, incorporated by reference to Exhibit 10.50 to Registration
      Statement on Form SB-2 (File No. 333-109592) filed with the SEC on October
      9, 2003.




24




10.10
                
                License
      Agreement between Biophan and Johns Hopkins University, incorporated by
      reference to Exhibit 10.28 to Amendment No. 2 to Registration Statement on
      Form SB-2/A (File No. 333-102526) filed with the SEC on May 1,
      2003.10.11
                
                AMP-Biophan
      License Agreement dated February 24, 2005 between Biophan and aMRIs Patent
      GmbH (Confidential treatment has been granted with respect to certain
      positions of this Agreement, incorporated by reference to Exhibit 10.23 to
      Amendment No. 1 to Registration Statement filed with the SEC on Form
      SB-2/A (File No. 333-102526) on March 14, 2003.10.12
                
                License
      Agreement dated June 30, 2005 between Biophan and Boston Scientific
      Scimed, Inc., incorporated by reference to Exhibit 10.46 to the amended
      2005 10-KSB.10.13
                
                Capital
      Pledge Agreement dated February 24, 2005 among Biophan, TomoVation GmbH,
      and Prof. Dr. Andreas Melzer, incorporated by reference to Exhibit 10.2 to
      Amended Form 10-Q for the period ended August 31, 2005, filed with the SEC
      on January 9, 2006.10.14
                
                Securities
      Purchase Agreement between Biophan and Myotech, LLC, dated November 30,
      2005, incorporated by reference to Exhibit 10.48 to the 2005
      10-KSB.10.15
                
                Letter
      Agreement, Amendment and Waiver of Certain Conditions to Closing, between
      Biophan and Myotech, LLC, dated December 21, 2005, incorporated by
      reference to Exhibit 10.1 to the Q3'05 10-Q.10.16
                
                Amendment
      No. 2 to Securities Purchase Agreement dated as of November 28, 2006
      between Myotech LLC and Biophan, incorporated by reference to Exhibit 10.2
      to the Q3'05 10-Q.10.17
                
                Letter
      Agreement dated August 19, 2002 between Biomed Solutions, LLC and Biophan,
      incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 8,
      2006.10.18
                
                Payment
      Agreement dated June 3, 2004 between Biophan and TE Bio LLC, incorporated
      by reference to Exhibit 10.54 to Amendment No. 2 to Registration Statement
      on Form SB-2 (File No. 333-112678) filed with the SEC on April 9,
      2004.10.19
                
                Joint
      Research Agreement between Nanolution, LLC and NaturalNano Inc. dated as
      of May 25, 2005, together with Non-Disclosure Agreement, incorporated by
      reference to Exhibit 10.16 to Form S-1 filed November 13,
      2006.10.20
                
                Lease
      Agreement between Biophan and High Technology of Rochester, Inc.,
      incorporated by reference to Exhibit 99.1 to Form 8-K filed with the SEC
      on June 3, 2004.10.21
                
                Lease
      between Schoen Place LLC and Biophan Technologies, Inc., incorporated by
      reference to Exhibit 10.19 to Amendment No. 1 to Registration Statement on
      Form SB-2/A (File No. 333-102526) filed with the SEC on March 14,
      2003.10.22
                
                Amendment
      No. 1 to Lease between Schoen Place LLC and Biophan Technologies, Inc.,
      incorporated by reference to Exhibit 10.1 to Form 8-K filed with the SEC
      on November 9, 2006.10.23
                
                Severance
      and Covenants Agreement between Biophan and Michael L. Weiner dated
      October 3, 2007, incorporated by reference to Exhibit 10.1 to the Form 8-K
      filed with the SEC on October 8, 2007.10.24
                
                Executive
      Employment Agreement between Biophan and Jeffrey L. Helfer dated June 6,
      2002, incorporated by reference to Exhibit 10.7 to Form 10-QSB for the
      period ended May 31, 2002, filed with the SEC on July 15, 2002 (the "Q1'02
      10-QSB").10.25
                
                Executive
      Employment Agreement between Biophan and Stuart G. MacDonald dated June 6,
      2002, incorporated by reference to Exhibit 10.9 to the Q1'02
      10-QSB.10.26
                
                Executive
      Employment Agreement between Biophan and John F. Lanzafame effective as of
      September 9, 2004, incorporated by reference to Exhibit 10.49 to the 2005
      10-KSB.10.27
                
                Amendment
      to Executive Employment Agreement, between Biophan and John F. Lanzafame,
      dated September 10, 2007, incorporated by reference to Exhibit 10.2 to
      Form 8-K filed with the SEC on September 13, 2007.10.28
                
                Executive
      Employment Agreement dated as of January 1, 2006 between Biophan and
      Jeffrey L. Helfer, incorporated by reference to Exhibit 10.2 to Form 8-K
      filed with the SEC on January 26, 2006.10.29
                
                Employment
      Agreement dated February 24, 2005 among aMRIs GmbH, Dr. Michael Friebe and
      Biophan, incorporated by reference to Exhibit 10.47 to the 2005
      10-KSB.




25




10.30
            
            Intellectual
      Property Assignment Agreement, dated August 6, 2007, by and between
      Biophan Technologies, Inc. and with Medtronic, Inc., incorporated by
      reference to Exhibit 10.1 to Form 8-K filed with the SEC on August 9,
      2007.10.30
            
            Amendment
      to Executive Employment Agreement by and between Biophan Technologies,
      Inc. and John F. Lanzafame, dated September 10, 2007, incorporated by
      reference to Exhibit 10.2 to Form 8-K filed with the SEC on September 13,
      2007.10.31
            
            Securities
      Purchase Agreement, dated October 2, 2007, by and between Biophan
      Technologies, Inc. and Myotech, LLC, incorporated by reference to Exhibit
      10.1 to Form 8-K filed with the SEC on October 5, 2007.10.32
            
            Severance
      and Covenants Agreement dated October 3, 2007, incorporated by reference
      to Exhibit 10.1 to Form 8-K filed with the SEC on October 9,
      2007.10.33
            
            Amendment
      No. 2 to Securities Purchase Agreement, Senior Secured Convertible Notes,
      Warrants, and Security Agreement, dated September 19, 2008, incorporated
      by reference to Exhibit 10.1 to Form 8-K filed with the SEC on September
      25, 2008.10.34
            
            Amendment
      No. 2 to Securities Purchase Agreement, Senior Secured Convertible Notes,
      Warrants, and Security Agreement, dated September 19, 2008, incorporated
      by reference to Exhibit 10.2 to Form 8-K filed with the SEC on September
      25, 2008.10.35
            
            Amendment
      to Letter of Credit Agreement, dated as of September 23, 2008,
      incorporated by reference to Exhibit 10.3 to Form 8-K filed with the SEC
      on September 25, 2008.21.1
            
            Subsidiaries,
      incorporated by reference to Exhibit 21.1 to Form 10-K for the year ended
      February 28, 2007 filed with the SEC on May 8, 2007.23.1
            
            Consent
      of Sichenzia Ross Friedman Ference LLP (See Exhibit
5.1)23.2
            
            Consent
      of Goldstein Golub Kessler LLP, incorporated by reference to Exhibit 23.2
      to Form 10-K for the fiscal year ended February 29, 2008, filed with the
      SEC on June 13, 2008.23.3
            
            Consent
      of Freed, Maxick & Battaglia, CPAs, PC, incorporated by reference to
      Exhibit 23.3 to Form 10-K for the fiscal year ended February 29, 2008,
      filed with the SEC on June 13, 2008.31.1
            
            Certification
      of Chief Executive Officer pursuant to Rule 13a-14(a), filed
      herewith.31.2
            
            Certification
      of Chief Financial Officer pursuant to Rule 13a-14(a), filed
      herewith.32.1
            
            Certification
      of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, filed
      herewith.32.1
            
            Certification
      of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, filed
      herewith.




26


SIGNATURES




Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.




BIOPHAN
TECHNOLOGIES, INC.


(Registrant)





By:
                        /s/
      John F. LanzafameName:  
      John F. LanzafameTitle:    
      Chief Executive Officer(Principal Executive Officer)By:
                        /s/
      Margaret V. RussellName:  
      Margaret V, RussellTitle:    
      Chief Financial Officer(Principal Financial Officer andPrincipal
      Accounting Officer)Date:
      January 20,
2009




27