UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the fiscal year ended February 28, 2009

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the transition period from to

Commission file number: 0-26057

BIOPHAN TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

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

15 SCHOEN PLACE
PITTSFORD, NEW YORK	14534
(Address of principal executive offices)	(Zip Code)

Registrant's telephone number, including area code: (585) 267 - 4800

Securities registered pursuant to Section 12(b) of the Act:

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock $.005 par value

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes o No x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o Yes o No

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer,”” 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

The aggregate market value of the voting stock held by non-affiliates of the Registrant based on the average bid and asked price reported on the OTC Bulletin Board as of May 28, 2009 was $4,197,477.

The number of shares outstanding of the registrant's common stock, $0.005 par value, as of May 28, 2009 was 238,362,184 shares.

Documents Incorporated by Reference Not Applicable.

TABLE OF CONTENTS

Item No.		Page

	PART I
1	Business	1
1A	Risk Factors	5
1B	Unresolved Staff Comments
2	Properties	6
3	Legal Proceedings	6
4	Submission of Matters to a Vote of Security Holders	7
	PART II
5	Market for Registrant's Common Equity; Related Stockholder
	Matters and Issued Purchases of Equity Securities	7
6	Selected Financial Data	10
7	Management's Discussion and Analysis of Financial Condition and Results of Operations	10
7A	Quantitative and Qualitative Disclosures About Market Risk	24
8	Financial Statements and Supplementary Data	F-1
9	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	25
9A	Controls and Procedures
9A (T)	Controls and Procedures	25
9B	Other Information	27
	PART III
10	Directors and Executive Officers of the Registrant	28
11	Executive Compensation	35
12	Security Ownership of Certain Beneficial Owners and
	Management and Related Stockholder Matters	43
13	Certain Relationships and Related Transactions, and Director Independence	44
14	Principal Accountant Fees and Services	45
	PART IV

SIGNATURES

CAUTIONARY STATEMENTS REGARDING

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K contains statements that are considered forward-looking statements. Forward-looking statements give the Company's current expectations and forecasts of future events. All statements other than statements of current or historical fact contained in this annual report, including statements regarding the Company's future financial position, business strategy, budgets, projected costs and plans and objectives of management for future operations, are forward-looking statements. The words "anticipate," "believe," "continue," "estimate," "expect," "intend," "may," "plan," and similar expressions, as they relate to the Company, are intended to identify forward-looking statements. These statements are based on the Company's current plans, and the Company's actual future activities and results of operations may be materially different from those set forth in the forward-looking statements. These forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from the statements made. Any or all of the forward-looking statements in this annual 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 annual report.

PART I

ITEM 1. BUSINESS

OVERVIEW

Biophan Technologies, Inc. (“Biophan”) is a technology development and holding company focused on the creation and sale of novel, patent protected technologies and medical devices including MRI compatible implants and devices, and circulatory support systems. We became a public company in December 2000 and have assembled a management team with extensive experience in technology development, product development, intellectual property management and business-to-business technology licensing and sales.

Myotech Circulatory Support System (CSS)

Biophan is focused on developing a novel circulatory support system, the Myotech CSS. The Myotech CSS is a one-of-a-kind mechanical circulatory support system that’s based on a family of technologies known as Direct Mechanical Ventricular Actuation (DMVA). Biophan took a minority interest in Myotech, LLC in November 2005, and increased its ownership to approximately 71 percent through October 2008. 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. The consolidated financial statements of the Company include the accounts of all of its subsidiaries, including Myotech, LLC through its date of dissolution.

The Myotech CSS is aimed at the treatment of acute heart failure patients. It is a comprehensive circulatory support system that has features designed to provide safer and more effective support, and because of its one-of-a-kind properties, it is uniquely positioned to serve the acute resuscitation market, which is largely overlooked by existing device technologies. The advantages of the Myotech CSS include:

No contact with circulating blood, which reduces the problems of clotting and stroke, bleeding, repeat surgery, and infection – all are problems that plague existing support devices;

Comparatively simple, rapid installation; and

The ability to completely restore blood flow from an arrested heart, providing both systolic (emptying) and diastolic (filling) support to both ventricles.

During fiscal 2010, our goal is to establish a relationship with a development partner to further the commercialization of the Myotech CSS technology, with a view toward product introduction and sales.

MRI Related Technologies

Our technologies for MRI safety and image compatibility apply to a broad segment of the medical device marketplace. Existing devices have significant limitations as MRI continues to grow as the premier imaging modality. Because of its exceptional soft tissue contrast capabilities, its ability to provide functional data and its lack of ionizing radiation, MRI has clear advantages over fluoroscopy and CT imaging.

There are two primary limitations of existing medical devices with MRI. First, some devices are currently contraindicated for use with MRI, preventing patients with implants from having potentially lifesaving diagnostic MRI procedures performed. Devices that are currently contraindicated for use with MRI include pacemakers, implantable cardioverter defibrillators (ICDs) and neurostimulators.

Second, a number of medical devices are safe for use with MRI machines, but interfere with the quality of the image. This limited MRI image compatibility prevents imaging within the implant and in the area immediately around the device. Devices that have limited MRI image compatibility include stents, heart valves, vena cava filters and certain types of catheters and guidewires.

Biophan has developed solutions to the problems of both MRI safety and MRI image compatibility of medical devices and implants.

Biophan's marketing efforts are focused on business-to-business sales of our technology. Since we are focused on working with the leaders in each market segment, the number of prospective partners is small - approximately 25 to 30 of the leading medical device companies.

We entered into our first significant license agreement with Boston Scientific Scimed Corporation in 2005 covering a range of products in exclusive and non-exclusive product segments. We also sold a portion of our intellectual property portfolio, including a number of our patents for MRI safety, to Medtronic in October 2007 for $11 million.

Biophan is currently focused on partnering its technologies, including the Myotech CSS and some of its other early stage technologies, such as pulsewidth modulation to increase the life of implantable pacemakers and neurostimulators. Biophan’s subsidiary, Biophan Europe, is focusing on further developing its MRI image compatibility technologies.

MARKET OPPORTUNITY

Myotech CSS

The initial Myotech product will focus on the acute circulatory support market. This product is designed to resuscitate and sustain the circulation of patients who experience acute heart failure until they recover or can be treated with more definitive therapies. Approximately 260,000 (CDC, 2002) patients per year in the U.S. experience in-hospital cardiac arrest, and with the best treatments currently available, there is still an 80 percent mortality rate (Cardiopulmonary resuscitation of adults in the hospital: A report of 14,720 cardiac arrests from the national registry of Cardiopulmonary resuscitation, Peberdy, et al, Resuscitation, 2003). In addition, approximately 7.5% (67,200) (Cardiogenic Shock eMedicine, Sat Sharma, 2007) of the 896,000 patients who experience a heart attack in the U.S. each year have a complication known as cardiogenic shock, which has a 70 percent mortality rate (Cardiogenic Shock eMedicine, Sat Sharma, 2007).

The potential patient population for the Company’s initial product application is therefore in excess of 300,000 patients in the U.S. alone. Patient populations outside the U.S. would conservatively double these numbers to over 600,000 patients per year. The large, poorly served patient population indicates a multibillion dollar total market opportunity for the first generation product.

MRI Related Technologies

Although there are many applications, management believes the most significant product opportunity for MRI image compatibility technologies is the coronary stent market, which is dominated by drug eluting stents. The stent market was estimated by Lehman Brothers Equity Research in its 2006 Medical Device Outlook to exceed $5.5 billion in 2006 and we believe that the market has grown since then.

TECHNOLOGY

The Myotech CSS

The Myotech CSS consists of a single-use polymeric cup that is designed to fit around the heart and is connected to an external console. A pneumatically actuated inner membrane compresses and expands the heart, enabling the heart to restore normal blood flow to life-sustaining levels. In contrast to the complex and time-consuming installation of currently marketed circulatory assist devices such as ventricular assist devices (VADs) and intra-aortic balloon pumps (IABPs), the Myotech CSS can be installed very rapidly, significantly improving clinical response in the vast and underserved acute resuscitation market. We believe the Myotech CSS will also offer the following competitive advantages:

Our device powers both the heart's ejecting (systolic) and filling (diastolic) cycles, for both the right and left ventricles. Current devices typically only provide systolic support to the left ventricle.

Our device does not come in contact with circulating blood, which significantly reduces the risks of clotting, stroke, internal bleeding, blood-borne infections or the need for repeat surgery - all of these are problems that are byproducts of existing circulatory support devices.

The CSS has the capability of being installed by a trained general surgeon, not just a cardiac specialist, so once our product is introduced, we anticipate that the CSS will be available at community hospitals, not just a limited number of transplant or specialized cardiac centers. This broader utility will enable the device to reach cardiac arrest patients where they present and to reach a much broader segment of the market.

The CSS can be produced in a range of sizes appropriate to treat a broad spectrum of patients, including women and children.

The Myotech CSS is designed to be a simpler, safer, and more broadly-effective product design that can be installed quickly and in more hospitals without the need for specialized cardiothoracic surgical facilities or personnel, combined with a lower total procedure cost compared to existing device therapies.

MRI Related Technologies Biophan has developed and in-licensed a number of technologies for improving MRI image compatibility of interventional devices and implants. These technologies are primarily based on methods to incorporate a resonant circuit, tuned to the resonant frequency of the MRI machine, to enhance the MRI signal and overcome the image artifact (distortion). This technology is applicable to a number of devices with limited MRI image compatibility, including stents, vena cava filters, and septal occluders.

SALES AND MARKETING

Biophan's marketing efforts are focused on business-to-business sales of our technology. For all of our technologies, we are focused on licensing the technology to appropriate development / distribution partners rather than to develop finished products and build a sales and marketing force. Leveraging market leaders with established sales and distribution channels will help to speed introduction and adoption of our technologies.

Since we are focused on working with the leaders in each market segment, the number of prospective partners is limited to 25 to 30 medical device companies, which we are able to address with a small and experienced business development team.

COMPETITION

Myotech CSS

In the area of circulatory support, there are several manufacturers of circulatory support systems; however, they use different technologies and focus on different market segments. These manufacturers include Abiomed, Thoratec and World Heart in the ventricular assist device market, and Datascope and others in the intraortic balloon pump market. In the area of acute heart failure, where restoration of cardiac output is needed for an arrested heart, there are no circulatory systems known to the Company that can provide full systolic and diastolic support to an arrested heart without blood contact, such as we anticipate will be provided by the Myotech CSS.

PPA Technologies AG, in Germany, is developing a device that provides non-blood contacting support for acute heart failure. They are at an early stage in the development of their product, and they are targeting a different group of physicians, focusing on the needs of interventional cardiologists while the Myotech CSS is initially focused on the needs of cardiothoracic and general surgeons. Myotech has executed a memorandum of understanding with PPA to explore potential relationships between the companies, including possible joint venture or merger opportunities. In addition, Corinnova, Inc. is an early stage company affiliated with Texas A&M University, that is also exploring direct compression technology; however, their product is at an earlier stage of development and they are focused on specifically treating congestive heart failure, which is a totally different patient population.

MRI Related Technologies

The Company holds patents on its non-invasive MRI compatible solutions, specifically the use of resonant circuits, inside stents or heart valves to enable imaging. Other companies have filed patents on alternative designs, but Biophan and its licensors have the only known patents on products that have successfully demonstrated visualizing inside stents and heart valves under MRI.

INTELLECTUAL PROPERTY

Biophan has aggressively protected its technologies with broad patent protection. Our total U.S. portfolio of patents owned as well as exclusively licensed include 45 issued patents and over 40 applications at various stages of examination at the U.S. Patent and Trademark Office. Presented below are summaries of some of the key patents and a brief summary of the technology covered.

Myotech CSS

In October 2008, Biophan acquired several patent applications formerly owned by Myotech LLC, one of its majority owned subsidiaries, covering operational, diagnostic and therapeutic features of the Myotech CSS direct mechanical ventricular actuation technology. The first issued patent is "Sensor-Equipped and Algorithm-Controlled Direct Mechanical Ventricular Assist Device" and national filing has begun in Europe, Canada, Japan, China, and India. The second patent application "Therapeutic Agent Delivery Apparatus with Direct Mechanical Ventricular Assist Capability" has published in the US, and has been filed worldwide as a PCT. These applications are being followed by five Divisional and CIP applications. "Method and Apparatus for Minimally Invasive Direct Mechanical Ventricular Actuation", originally filed as a PCT, is currently under national filing in the US and the same foreign countries identified above.

Photonics

These patents cover systems, subsystems and components for implanted devices that utilize optical fiber technology instead of electrically conductive leads that cause thermal damage and other risks to implant patients being imaged under MRI. Several patents have specific emphasis on intraluminal MRI catheters that could be used to diagnose and monitor vulnerable plaque, the leading case of heart attacks.

Nanomagnetic Thin-Film Coatings

We hold patents and applications that relate to nanomagnetic coating applications on stents and other implants, specifically thin film circuits or coatings having similar behavior, that create resonant effects that offset or eliminate unwanted MRI-induced effects.

Biothermal Power Source

TE-Bio, LLC has licensed technology intended to reduce or eliminate the need to remove pacemakers or other implants simply to replace their aging batteries. Our technology harnesses the electrical power generated by small temperature gradients the body already produces. We have worked with NASA's Ames Center for Nanotechnology on new coatings to improve the efficiency of thermoelectric devices and have executed two SBIR grants for applications of the technology.

Pulse-width Cardiac Pacing

We hold a patent that teaches the stimulation of nerve tissue with less electrical power than is currently used in implantable devices, utilizing pulse-width modulation techniques used in many types of electrical control systems

Trademarks

The name "Biophan" is a registered trademark of the Company.

Employees

As of March 28, 2009, we had 2 full-time employees and five part-time employees, all of whom reside in the US.

AVAILABLE INFORMATION

Information about the Company’s products and services can be found on the Company’s website http://www.biophan.com. The Company's annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and other SEC filings, and any amendments to such reports and filings are available free of charge on the SEC website at http://www.sec.gov/edgar.

ITEM 1A. RISK FACTORS

See “Risk Factors” in Item 7, Part 1, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

ITEM 2. PROPERTIES

Our headquarters are located at 15 Schoen Place, Pittsford, New York 14534, with approximately 4,470 square feet of office space and 1,000 square feet of laboratory space. Myotech formerly leased space at the same location however that lease was terminated following Myotech, LLC’s dissolution in October 2008. Our operating lease for the space commenced March 2007 and expires February 28, 2022, subject to our right to terminate at any time after January 31, 2009 upon 90 days notice (or 150 days notice if the property isn’t occupied by another tenant within 90 days.) Key terms include the following: For the annual lease period commencing on March 1, 2009 and continuing through February 28, 2011, the base rent is $94,036 per year with increases 5% over the previous year's rent in subsequent years through March 2017. For each year commencing on March 1, 2017 and continuing through February 28, 2022, the base rent increases 3% over the previous year's rent. The landlord is responsible for all real property taxes through April 2010; thereafter, the landlord has agreed to absorb the first 3% of any increase in real property taxes and two-thirds of the remaining 97% of any such increase, while we have agreed to reimburse the landlord for our proportionate share of the remaining one-third of such 97%. We bear our own gas, electric, water and other utility charges and our proportionate share of utility charges for the premises' interior common areas.

In May 2009, in connection with certain planned cost reduction measures we exercised our right to terminate the agreement in various stages during fiscal 2010. As a result, future minimum rental payments total $47,018 during fiscal 2010.

ITEM 3. 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. We are not aware of any legal proceedings contemplated by any governmental authorities involving either us or our property.

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

On August 5, 2008, an information statement was furnished to all holders of Common Stock of the Company as of July 25, 2008, in connection with the proposed actions cited below, as taken by the Company at a Special Meeting of Stockholders held on Friday, September 12, 2008:

The amendment to the Articles of Incorporation to increase the number of authorized shares of the Company’s common stock, par $0.005 per share, from 250,000,000 shares to 800,000,000 shares.

To elect a Board of seven directors to hold office for the ensuing year and until the election and qualification of their respective successors.

To approve the Company’s 2008 Incentive Stock Plan

To approve Freed Maxick & Battaglia, CPAs, PC. as the Company’s independent registered public accounting firm for the fiscal year ending February 28, 2009.

All but the first of the foregoing actions were approved by the holders of the majority of the Company’s issued and outstanding common shares on September 12, 2008 and became effective immediately.

The meeting was adjourned with regard to the first action until December 1, 2008, and 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. At the reconvened meeting on February 4, 2009, the meeting was further adjourned until February 26, 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, and the location of the reconvened meeting was agreed to be the offices of the Company at 15 Schoen Place, Pittsford, New York 14534. At the reconvened meeting on February 26, 2009, the meeting was further adjourned until April 30, 2009.

At the reconvened meeting on April 30, 2009, Mr. John Lanzafame, the Company’s CEO, reported that only 41% of the outstanding shares voted in favor of the proposal to amend the Company’s Articles of Incorporation to increase the number of authorized shares of common stock. This measure required over 50% of the outstanding shares to vote in favor, and the large number of unvoted shares prevented this threshold from being reached. Accordingly, the proposal was not approved, the vote was closed and the meeting ended.

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY; RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

MARKET INFORMATION

Our common stock is listed on the OTC Bulletin Board under the symbol BIPH. The following table sets forth, for the fiscal quarters indicated, the high and low sales prices. These quotations reflect inter-dealer prices, without mark-up, mark-down or commission, and may not represent actual transactions.

Quarter Ended	High		Low
May 31, 2007	$	.450	$	.190
August 31, 2007	$	.430	$	.120
November 30, 2007	$	.250	$	.070
February 29, 2008	$	.120	$	.040
May 31, 2008	$	.060	$	.029
August 31, 2008	$	.034	$	.009
November 30, 2008	$	.026	$	.006
February 28, 2009	$	.015	$	.010

HOLDERS

As of February 28, 2009, we had 238,362,184 shares of our common stock outstanding which were held by 236 stockholders of record and approximately 8,300 beneficial stockholders.

DIVIDEND POLICY

We have never paid cash dividends and have no plans to do so in the foreseeable future. Our future dividend policy will be determined by our Board of Directors and will depend upon a number of factors, including our financial condition and performance, our cash needs and expansion plans, income tax consequences, and the restrictions that applicable laws and our credit arrangements then impose.

EQUITY COMPENSATION PLANS

The following chart sets forth information regarding our equity compensation plans as of February 28, 2009:

Plan Category

Number of securities to be

Weighted average exercise

Number of securities

issued upon exercise of

price of outstanding

remaining available for

outstanding options,

options, warrants and

future issuance under

warrants and rights

rights

equity compensation plans

(excluding securities

reflected in column (a))

(a)

(b)

(c)

Equity compensation plans approved by security holders

16,490,979

0.54

5,514,727

Equity compensation plans not approved by security holders

-0-

Total

16,490,979

0.54

5,514,727

RECENT SALES OF UNREGISTERED SECURITIES

The following describes transactions in which securities were issued or sold by Biophan culminating in the year ended February 28, 2009, without registration under the Securities Act of 1933. None of these have been modified since previously reported on a quarterly report on Form 10-Q:

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

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

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

On February 21, 2007, we entered into a Forbearance Agreement (the "Forbearance Agreement") with the investors pursuant to which the investors agreed that, during the period commencing on February 16, 2007 and ending on the earlier of (i) March 31, 2007 or (ii) the date on which any Termination Event (as defined in the Forbearance Agreement) first occurs (the "Forbearance Period"), they will forbear from exercising any and all of the rights and remedies which they may have against us or any of our assets under the Notes or the Purchase Agreement or at law or in equity as a result of any default under the Notes or as a result of the occurrence of certain events with respect to the Purchase Agreement. In exchange for entering into the Forbearance Agreement, we issued pro rata to the investors three-year warrants for the purchase of an aggregate of 60,000 shares of our common stock at an exercise price of $0.51 per share (the "Fee Warrants"). In consideration for a payment of $652,500 on October 9, 2007 all the existing defaults under the Notes or Purchase Agreement were remedied.

Upon the issuance of the Fee Warrants, the exercise prices of the five-year warrants issued to the investors pursuant to the Purchase Agreement (the "Original Warrants") for the purchase of an aggregate of 10,820,896 shares of our common stock were automatically adjusted from $0.81 per share and $0.89 per share, respectively, to $0.51 per share, and the number of shares of our common stock issuable upon exercise of the Original Warrants was automatically adjusted, proportionately, to an aggregate of 18,034,830 shares. In the Forbearance Agreement, the investors waived, with respect to the issuance of the Fee Warrants, application of similar anti-dilution adjustments contained in the Notes and in a third series of warrants for the purchase, on or before October 12, 2007, of an aggregate of 10,820,896 additional shares of our common stock at an exercise price of $0.67 per share (the "One Year Warrants"). C.E. Unterberg Towbin, which holds a warrant for the purchase of 865,672 shares of our common stock at an exercise price of $0.67 per share, issued to it in connection with its services as exclusive placement agent under the Purchase Agreement, separately agreed to waive, with respect to the issuance of the Fee Warrants, application of the anti-dilution provisions set forth in that warrant. The warrants and any shares issued upon exercise of warrants or any election to convert outstanding debt are exempt from registration pursuant to Sections 3(a)9 and 4(2) of the Securities Act.

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 amended 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. The Amendment also amended the warrants to reduce the exercise prices of the various warrants to $0.23. In exchange for the foregoing, the investors released certain intellectual property for the Security Agreement, allowing the Company to transfer and sell such intellectual property. Further, in the Amendment, we agreed to certain spending covenants in connection with the proceeds we 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.

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 28, 2009. 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.

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 on 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 was written off as a loss on extinguishment of debt.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable for smaller reporting companies.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and related notes that appear elsewhere in this Annual Report on Form 10-K. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Form 10-K.

Overview

During the year ended February 28, 2009 we were, and for 2010 we expect we will continue to be a development stage company. We are a technology development and holding company with a strong focus on solving real-world technical challenges facing the medical device industry. Our technologies focus on MRI compatible implants and circulatory support devices. We currently have 45 issued U.S. patents and over 40 U.S. and international patents pending. We believe that a strong intellectual property portfolio is vital to our ability to achieve and maintain royalties and product sales to major industrial partners across our product lines.

Our business plan for the next 12 months has a two pronged approach to bring in additional capital to fund operations. The first is to focus on monetizing our existing technologies, through licensing activities and grants. The Company has a broad technology portfolio covering a variety of applications including the Myotech CSS, a circulatory support technology which has a number of novel features for treating cardiac arrest patients. The Company is focused on finding suitable licensing partners for these technologies, to enable them to reach the market through our technology partners.

The Company has filed grant applications associated with these technologies. Grants are a useful way to bring in revenue to support meaningful research that both demonstrates the effectiveness of the technologies and helps to move them closer to commercialization. The Company has grant applications pending at the National Institutes for Health.

In addition to monetizing our existing technology, the Company is seeking a strategic transaction to bring an additional technology or product line into the Company capable of generating cash flow to help move the Company to a cash neutral position and eliminate our dependence on external financing. The targeted transaction would bring additional capital resources into the Company in one of a number of ways – either through a concurrent financing with the transaction or through cash flow from operations of the acquired entity.

Historically and to date, we have not been a capital intensive operation as our business model was one where we would outsource any product manufacturing. We anticipate this to hold true going forward. During fiscal 2009 we have reduced out employment level from 9 to our current level of 7. We do not anticipate increasing our staffing levels in the near future unless driven by increases in revenue generating activities.

Critical Accounting Estimates

In response to the SEC’s financial reporting release, FR-60, Cautionary Advice Regarding Disclosure About Critical Accounting Policies, the Company has selected its more subjective accounting estimation processes for purposes of explaining the methodology used in calculating the estimate, in addition to the inherent uncertainties pertaining to the estimate and possible effects on the Company’s financial condition. These accounting estimates are discussed below. These estimates involve certain assumptions that if incorrect could create a material adverse impact on the Company’s results of operations and financial condition.

Revenue Recognition

The Company earns and recognizes revenue under development agreements when the phase of the agreement to which amounts relate is completed and the Company has no further performance obligation. Completion is determined by the attainment of specified milestones, such as a written progress report. Advance fees received on such agreements are deferred until recognized. The Company recognizes license fees over the term of the related agreement and revenue related to a performance milestone is recognized upon the achievement of the milestone, as defined in the respective agreements. Testing services and consulting fee revenue is recognized as services are performed.

Income from the sale of intellectual property is recognized as a gain from the sale of intellectual property, an operating item, when payment has been received and ownership of the patents has been transferred to the buyer and is recorded net of any carrying value and selling costs.

Stock-Based Compensation

Under Statement of Financial Accounting Standards No. 123, “Share-Based Payment” (revised 2004) or Statement 123(R), which was effective January 1, 2006, we recognize an expense for the fair value of our outstanding stock options as they vest, whether employees or others.

We estimate the fair value of each stock option at the grant date by using the Black-Scholes option pricing model based on certain assumptions which are contained in Note 17 to our consolidated financial statements contained in this Report. The Black-Scholes model requires the input of highly subjective assumptions including the expected stock price volatility. Because our stock options and warrants have characteristics different from those of traded options, and because changes in the subjective input of assumptions can materially affect the fair value estimate, in our management’s opinion, the existing models do not necessarily provide a reliable single measure of the fair value of such stock options.

The Company’s policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of EITF 96-18, “Accounting for Equity Instruments That are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” and EITF 00-18, “Accounting Recognition for Certain Transactions Involving Equity Instruments Granted to Other Than Employees.” The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which the commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

Intangible Assets

The Company evaluates the recoverability of it capitalized patent intangibles when necessary to determine if the probable recovery of the net book value of the assets, as compared to discounted future cash flows, is uncertain. The carrying value of our patents was evaluated and certain patents related to the Myotech CSS device was reduced during the third quarter of fiscal 2009. The evaluation of asset impairment was based on management’s judgments regarding the Company’s current cash position, the requirements for minimum annual funding requirements for royalties and the uncertainty regarding the implementation of research and commercialization programs in 2009 due to the Company’s current liquidity position. Actual future results may differ from management’s assumptions and estimations.

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 recorded a liability for the fair value of the warrants issued in connection with the Senior Secured Convertible Notes in order to provide for the possibility that we would not have sufficient available authorized shares to execute the related warrants and thus we would be required to settle the contract in cash. During the year ended February 28, 2009, we reclassified warrants with a fair value of $23,897 from equity to the warrant liability and recorded the change in the fair value of our warrant liability as a component of the consolidated statement of operations. The fair value of the warrant liability was determined utilizing the Black-Scholes Option Pricing Model.

Income Taxes

Deferred tax assets and liabilities are determined based on temporary differences between income and expenses reported for financial reporting and tax reporting. Statement of Financial Accounting Standards (“SFAS”) No. 109, “Accounting for Income Taxes” (“SFAS 109”) requires that a valuation allowance be established when management determines that it is more likely than not that all or a portion of a deferred tax asset will not be realized. The Company evaluates the realizability of its net deferred tax assets on an annual basis and any additional valuation allowances are provided or released, as necessary. Since the Company has had cumulative losses in recent years, the accounting guidance suggests that we should not look to future earnings to support the realizability of the net deferred tax asset. As a result, as of the years ended February 28, 2009 and February 29, 2008, the Company has recorded a valuation allowance to reduce its gross deferred tax assets to zero in accordance with SFAS 109.

The Company believes that the accounting estimates related to deferred tax valuation allowances are “critical accounting estimates” because: (1) the need for valuation allowance is highly susceptible to change from period to period due to changes in deferred tax asset and deferred tax liability balances, (2) the need for valuation allowance is susceptible to actual operating results and (3) changes in the tax valuation allowance can have a material impact on the tax provisions/benefit in the consolidated statements of operations and on deferred income taxes in the consolidated balance sheets.

Contingent Losses

Management also makes judgments and estimates in recording liabilities for claims, litigation, and tax matters. Actual costs can frequently vary from estimates for a variety of reasons. For example, the costs from settlement of claims and litigation can vary from estimates based on differing interpretations of laws, opinions on culpability and assessments on the amount of damages.

Under the accounting rules, a liability is generally recorded for these types of contingencies if management determines the loss to be both probable and estimable. The company generally records these losses as “Operating expenses” or “Selling, general and administrative expenses” on the Consolidated Statement of Operations. An exception to this handling is for income tax matters, for which benefits are recognized only if management determines the tax position is “more likely than not” (i.e., likelihood greater than 50 percent) to be allowed by the tax jurisdiction. For additional discussion of income tax uncertainties, refer to Note 19.

An estimate as to the sensitivity to earnings for these periods if other assumptions had been used in recording these liabilities is not practicable because of the number of contingencies that must be assessed, the number of underlying assumptions and the wide range of reasonably possible outcomes, both in terms of the probability of loss and the estimates of such loss.

RESULTS OF OPERATIONS

Liquidity and Capital Resources

Going Concern – The accompanying consolidated financial statements contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, the Company incurred a net loss for 2009 of $17,069,103 and had a cash balance of $1,358,706 and negative working capital of $603,771 and an accumulated deficit of $71,939,063 at February 28, 2009. The Company does not currently have sufficient funds to pay its expenses for the next twelve months. Since inception the Company’s growth has been funded through combination of equity financing, convertible debt from private investors, a one-time sale of intellectual property, and a license agreement, and other limited sources. The Company's continuation as a going concern is dependent upon its ability to generate sufficient cash flow to meet its obligations, to obtain additional financing and, ultimately, to attain successful operations.

These factors, among others, may indicate that the Company will be unable to continue as a going concern for a reasonable period of time.

Due to the strain on the Company’s liquidity throughout 2009, we have experienced product introduction and commercialization delays. Throughout fiscal 2009 we implemented significant cost and staff reductions. As of February 28, 2009, seven employees were active in the Company.

Management is actively assessing the Company's operating structure with the objective of continuing to reduce ongoing expenses, while simultaneously pursuing additional sources of revenue including potential technology transactions, and/or additional debt or equity financing. The Company will continually evaluate funding options including additional offerings of its securities to private and institutional investors and other credit facilities as they become available. There can be no assurance as to the availability or terms upon which such financing alternatives might be available.

There are former officers and a former director of the Company who may be entitled to indemnification for expenses relating to a proceeding pertaining to their activities related to the Company while an officer or director of the Company. Such officers and director have requested indemnification for expenses incurred in connection with the pending proceeding, and the Company has elected to provide such indemnification.

The Company has put its directors’ and officers’ liability insurance carrier on notice of the pending proceeding and requests for indemnification.

Although the Company cannot predict at this time the magnitude of the aggregate of such indemnified expenses and the extent to which such expenses will not be covered by available insurance, it is possible that the aggregate amount of uninsured expenses could be material to the Company.

Revenue

We currently derive revenue from license fees from Boston Scientific Scimed, payments from a development agreement with Medtronic Inc., testing and consulting services, and government sponsored research and development grants.

Research and development expenses

Research and development expenses consist primarily of: salaries and related costs for our research and development employees; funding for various research projects, often employing the use of consulting scientists and engineers; legal fees to file, renew, and defend our patent estate; and license fees for access to certain patent technologies developed by others.

General and administrative expenses

General and administrative expenses consist primarily of: salaries and related costs of executives and administrative personnel; professional service fees; investor relations; travel and related out of pocket expenses; and occupancy and other overhead costs.

Operating gains and losses

We record gains and losses from transactions that are central to our business strategy but don’t otherwise meet the definition of revenue in operating gains and losses. During fiscal 2008, we recognized a net gain of $10,939,333 from the sale of intellectual property to Medtronic, Inc. During fiscal 2009, we recorded an impairment of intellectual property of approximately $14,565,000, however in 2009 this amount was included in the loss from operations of discontinued operations since the impairment of intellectual property was directly related to the dissolution of Myotech LLC, one of Biophan’s majority-owned subsidiaries.

Discontinued operations

Discontinued operations represent the results of operations from MR:Comp GmbH (“MR Comp”) and Myotech LLC (“Myotech”). The Company’s interest in MR Comp was divested and Myotech was dissolved effective June 1, 2008 and October 17, 2008, respectively.

The following table presents the dollar amount and percentage of changes from period to period of the line-items included in our Consolidated Statements of Operations:

	Year Ended
	February 28, 2009			February 29, 2008			Increase (Decrease)			% Change
				(As Restated)
Revenue	$	677,927		$	685,684		$	(7,757	)		-1.13	%
Operating expenses:
Research and development		1,010,368			2,039,526			(1,029,158	)		-50.46	%
General and administrative		3,381,560			4,573,692			(1,192,132	)		-26.06	%
		4,391,928			6,613,218			(2,221,290	)		-33.59	%
Operating gains and (losses):
Gain from sale of intellectual property, net		-			10,939,333			(10,939,333	)		-100.00	%

Operating (loss) profit		(3,714,001	)		5,011,799			(8,725,800	)		-174.11	%

Other income (expense)		(3,831,480	)		(9,007,363	)		5,175,881			-57.46	%

Continuing operations:
Loss from continuing operations before minority interest		(7,545,481	)		(3,995,564	)		(3,549,919	)		88.85	%

Minority interest in loss from continuing operations		2,137			35,745			(33,608	)		-94.02	%
Loss from continuing operations		(7,543,344	)		(3,959,819	)		(3,583,527	)		90.50	%

Discontinued operations:
Loss from operations of discontinued operations before minority interest		(10,064,023	)		(2,579,777	)		(7,484,246	)		290.11	%
Minority interest in loss from operations of discontinued operations		538,264			1,361,705			(823,441	)		-60.47	%

Loss from operations of discontinued operations		(9,525,759	)		(1,218,072	)		(8,307,687	)		682.04	%

Net loss	$	(17,069,103	)	$	(5,177,891	)	$	(11,891,214	)		229.65	%

Comparison of the Years Ended February 28, 2009 and February 29, 2008

Revenue:

Revenue for the year ended February 28, 2009 was $678,000 compared to $686,000 for the year ended February 29, 2008. The decrease was due to less MRI safety testing and related consulting services performed by our European subsidiary ($88,000) and an increase in technology transfer development payments from Medtronic in 2009 as compared to 2008 ($80,000).

Operating Expenses:

Research and Development Expenses -

	For the Year Ended February 28, 2009		For the Year Ended February 29, 2008		Variance increase (decrease)

Salaries & Benefits	$	358,334	$	743,933	$	(385,598	)
Stock Option Compensation		87,916		467,386		(379,470	)
Depreciation & Amortization		13,102		12,351		751
Project Funding		175,165		646,660		(471,495	)
Consulting		77,436		-		77,436
Legal and Other Administrative Fees		298,415		169,197		129,218
	$	1,010,368	$	2,039,526	$	(1,029,158	)

Research and development expenses decreased by $1,029,000 or 50% of total 2008 restated research and development expenses of $2,040,000. After accounting for the net decrease of $378,000 in non-cash charges from stock-based compensation ($379,000) and depreciation and amortization ($1,000), expenses impacting cash flow decreased by $650,000 or 32%. This amount (the net $650,000 decrease in expenses impacting cash flow) consisted of planned cost reduction measures realized in Project Funding ($471,000) and Salaries and Benefits expenses ($386,000). However, outsourcing certain critical research and development functions yielded increased expenditures in the Consulting ($77,000) and Legal and Other Administrative Fees ($129,000). The Company anticipates its research and development expenditures for the coming year will decrease slightly for our early stage technologies, which will largely be paced by our grant and partnering activities, while expenditures on the development of the Myotech CSS will increase as the Company focuses more of its effort on identifying a development partner for the Myotech CSS. These expenditures are dependent on the Company having sufficient working capital to fund these activities.

General and Administrative Expenses -

	For the Year Ended February 28, 2009			For the Year Ended February 29, 2008			Variance increase (decrease)

Salaries & Benefits	$	980,757		$	1,495,851		$	(515,094	)
Stock Option Compensation		71,970			845,512			(773,542	)
Depreciation and Amortization		52,148			99,322			(47,174	)
Consulting		292,364			255,990			36,373
Legal and Accounting		1,483,441			1,233,407			250,034
State Tax Fees and Rebates, net		(114,415	)		(49,213	)		(65,202	)
Shareholder, Board and Other Expenses		224,584			159,539			65,045
Travel & Entertainment		43,081			173,304			(130,223	)
All Other Overhead		347,630			359,980			(12,349	)
	$	3,381,560		$	4,573,692		$	(1,192,132	)

General and Administrative Expenses decreased by $1,192,000 or 26% of total 2008 general and administrative expenses of $4,574,000. After accounting for the decrease of $821,000 in non-cash charges from stock-based compensation ($774,000) and depreciation and amortization ($47,000), expenses impacting cash flow decreased by $371,000 or 8%. This amount (the net $371,000 decrease in expenses impacting cash flow) consisted of decreases in Salaries and Benefits ($515,000), Travel and Entertainment ($130,000), Facilities and All Other Overhead ($12,000). However, compared to fiscal 2008, the Company incurred greater Consulting ($36,000), Legal and Accounting ($250,000) and Shareholder Expenses ($65,000) as a result of the Company’s attempt to increase the number of authorized shares and its involvement in ongoing legal matters for which future costs are probable until they are resolved. The Company also realized greater tax credits ($65,000) in 2009 as compared to 2008, as a result of finalizing QETC claims with New York State. The Company plans to continue to aggressively contain general and administrative expenses in fiscal 2010.

Operating gains and losses

During fiscal 2008, we recognized a net gain of $10,939,333 from the sale of intellectual property to Medtronic, Inc.

Other Income and Expense

	For the Year Ended February 28, 2009			For the Year Ended February 29, 2008			Variance increase (decrease)

Interest expense	$	(1,708,676	)	$	(10,421,552	)	$	(8,712,876	)
Interest income		65,257			137,090			71,833
Gain on sale of investments		-			337,250			337,250
Loss on extinguishment of debt		(2,057,803	)		(3,189,187	)		(1,131,384	)
Other income		109,735			442,322			332,587
Other expenses		(64,825	)		(652,500	)		(587,675	)
Change in fair value of warrant liability		(175,168	)		4,339,214			4,514,382
	$	(3,831,480	)	$	(9,007,363	)	$	(5,175,881	)

Other Income and Expenses decreased by $5,176,000 or 57% compared to total 2008 Other Income and Expenses of $9,007,000. The change between years in Interest Expense ($8,713,000) is due to a number of recurring and non-recurring events. Most notably, on October 3, 2007 the Company finalized an amendment to its senior secured convertible notes. This amendment triggered accounting for the beneficial conversion feature of the debt ($3,021,000) and the Company wrote-off the balance of any unamortized discount associated with the warrants attached to the debt instrument ($3,353,000). Comparatively, the Company recorded more interest, accretion of discount and amortization of deferred financing costs in 2008 ($434,000, $1,974,000 and $218,000, respectively) as compared to 2009. However, in 2009 the Company incurred more interest premium charges ($287,000) since the fair value of the Company’s stock declined at faster rate in 2009 as compared to the same time period in 2008. Due to lower cash and cash equivalent balances in 2009 the Company earned less interest income ($65,000) as compared to 2008 ($137,000). The Company also did not sell any investments in 2009. Therefore, the decrease in the gain on sale of investments ($337,250) was entirely due to 2008 activity. Similarly, the decrease in loss on extinguishment of debt was due to two different transactions. The 2008 balance ($3,189,000) was generated by the amendment of the senior secured convertible notes on October 3, 2007. The extinguishment of debt in 2009 ($2,058,000) was triggered by the Company’s prepayment of the senior secured convertible notes on September 24, 2008. $290,000 of the $333,000 difference in Other Income relates to vendor debt settlements negotiated in 2008. The remaining difference of $43,000 in Other Income between years is attributable to an overall decrease in service charges billed to related parties. Other expenses in 2008 consisted mostly of liquidating damages ($652,000) paid to the senior secured convertible note holders following the Company’s default on certain covenants contained with the convertible notes agreements. The Company did not incur comparable (liquidating damages) expenses in 2009. Instead, in 2009 the Other Expenses balance of $65,000 consists mostly of the Company’s provision for uncollectible accounts, plus other charges and adjustments ($5,000). And finally, the change in the Change in fair value of warrant liability between years ($4,514,000) is mostly due to an entry that was recorded in 2008 when the Company’s warrant liability was eliminated by the Shareholder’s approval to increase the number of authorized shares on May 8, 2007 ($4,339,000). The balance of the 2009 Change in the fair value of the warrant liability ($175,000) represents the net change in the Company’s liability after it was triggered in July 2008 by a share delivery to the former senior secured convertibles note holders.

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.

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.

In June 2008 the FASB ratified EITF 07-5, Determining Whether an Instrument (or Embedded Feature) is Indexed to an Entity’s Own Stock, which requires that an instrument’s contingent exercise provisions be analyzed first. If this evaluation does not preclude consideration of an instrument as indexed to its own stock, the instrument’s settlement provisions are then analyzed. EITF No. 07-5 is effective for financial statements issued for fiscal years beginning after December 15, 2008, and interim periods within those fiscal years, with recognition of a cumulative effect of a change in accounting principle for all instruments existing at the effective date to the balance of retained earnings. The Company is currently evaluating the potential impact, if any, that EITF 07-5 will have on its consolidated financial statements.

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

RISK FACTORS

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

We are a development-stage research and development company with limited prior business operations. We are presently engaged in the development of certain technologies for use with medical procedures and biomedical devices. Because of our limited operating history, you may not have adequate information on which you can base an evaluation of our business and prospects. To date, our efforts have been devoted primarily to the following:

organizational activities;

developing a business plan;

obtaining funding;

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

aggressively patenting or protecting our intellectual property;

licensing technology from third parties related to our business; and

marketing to major biomedical device manufacturers.

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

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

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

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

We are a development stage company and have incurred losses since we were formed. We incurred a net loss of $17,069,103 for the year ended February 28, 2009 and incurred cumulative losses since our inception on August 11, 1968 of $71,939,063. We currently have no products ready for commercialization, have generated revenue solely from licensing and sale of our intellectual property to third parties and expect to incur substantial net losses for the foreseeable future to further develop and commercialize our technology. We expect to continue to incur losses as we spend additional capital to develop and market our technologies and establish our infrastructure and organization to support anticipated operations. We cannot be certain whether we will ever earn a significant amount of revenues or profit, or, if we do, that we will be able to continue earning such revenues or profit. Also, our current financial condition may limit our ability to develop and ultimately market our technologies. Any of these factors could cause our stock price to decline and result in you losing a portion or all of your investment.

WE WILL NEED TO RAISE CAPITAL TO FUND OUR OPERATIONS, AND OUR FAILURE TO OBTAIN FUNDING WHEN NEEDED MAY FORCE US TO DELAY, REDUCE OR ELIMINATE OUR PRODUCT DEVELOPMENT EFFORTS.

Until we are capable of generating sufficient revenues from operations to fund our operations and our capital resources are sufficient to meet future requirements, we will have to raise funds to continue the development, commercialization, marketing and sale of our products.

We cannot be certain that funding will be available on acceptable terms, or at all. To the extent that we raise additional funds by issuing equity securities, our stockholders may experience significant dilution. Any debt financing, if available, may involve restrictive covenants that impact our ability to conduct our business. If we are unable to raise additional capital if required or on acceptable terms, we may have to significantly delay, scale back or discontinue the development and/or commercialization of one or more of our products, obtain funds by entering into agreements on unattractive terms or restrict or cease our operations as a going concern.

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

Our technologies are in the development stage. Further research and development efforts will be required to develop these technologies to the point where they can be incorporated into commercially viable or salable products. We cannot assure you, however, that our planned programs will be accomplished in the order or in the time frame set forth. We reserve the right to modify the research and development program. We may not succeed in developing commercially viable products from our technologies. Also, certain of our research and development efforts are aimed at technology that will enable certain medical procedures and biomedical devices to become compatible with MRI diagnostics. If MRI diagnostics are replaced by the healthcare industry, our technology and products, if any, may become obsolete. If we are not successful in developing commercially viable products or if such products become obsolete, our ability to generate revenues from our technologies will be severely limited. This would result in the loss of all or part of your investment.

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

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

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

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

	·	substantially greater financial, technical and marketing resources;
	·	larger customer bases;
	·	better name recognition;
	·	related product offerings; and

larger marketing areas.

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

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

Our marketing partners must obtain the approval of the U.S. Food and Drug Administration in order to market our MRI image compatibility technology and Myotech CSS technology. If these approvals are not obtained, or are significantly delayed, our ability to generate revenues may be adversely affected and our development and marketing efforts inhibited. This would most likely cause our stock price to decline and result in the loss of all or part of your investment.

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

Proprietary rights are critically important to us. We currently have 45 issued U.S. patents and over 40 U.S. and international patents pending. Although we intend to aggressively pursue additional patent protection for our technologies as we continue to develop them, we cannot assure you that any additional patents will be issued. Although we will seek to defend our patents and to protect our other proprietary rights, our actions may be inadequate to protect our patents and other proprietary rights from infringement by others, or to prevent others from claiming infringement by us of their patents and other proprietary rights.

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

FUTURE SALES OF OUR COMMON STOCK WOULD HAVE A DILUTIVE EFFECT ON CURRENT STOCKHOLDERS AND COULD ADVERSELY IMPACT THE MARKET PRICE FOR OUR COMMON STOCK.

Sales of a substantial number of shares of our common stock, or the perception that sales could occur, whether at the then current market price or below the then current market price, could adversely affect prevailing market prices for our common stock.

BECAUSE OUR CEO IS AN AFFILIATE OF OTHER ENTITIES WITH WHOM BIOPHAN HAS SIGNIFICANT BUSINESS RELATIONSHIPS, THERE MAY BE CONFLICTS OF INTEREST THAT YOU SHOULD CONSIDER BEFORE INVESTING IN OUR COMMON STOCK.

John Lanzafame, our Chief Executive Officer, is a former Director of NaturalNano, Inc., a former stockholder of which was Technology Innovations, LLC, a 57% equity member of Biomed Solutions, LLC, a company engaged in the business of identifying and acquiring technologies in the biomedical field for exploitation. Biomed holds an aggregate of $614,300 face amount of our convertible line of credit.

Because of the nature of our business and the business of these other entities, current or former the relationships of Mr.’s Lanzafame with these other entities may give rise to conflicts of interest with respect to certain matters affecting us. Potential conflicts may not always be resolved in a manner that is favorable to us. We believe it is impossible to predict the precise circumstances under which future potential conflicts may arise and therefore intend to address potential conflicts on a case-by-case basis. Under Nevada law, directors have a fiduciary duty to act in good faith and with a view to the best interests of the corporation.

THE PRICE AND TRADING VOLUME OF OUR COMMON STOCK IS SUBJECT TO CERTAIN FACTORS BEYOND OUR CONTROL THAT MAY RESULT IN SIGNIFICANT PRICE AND VOLUME VOLATILITY, WHICH SUBSTANTIALLY INCREASES THE RISK THAT YOU MAY NOT BE ABLE TO SELL YOUR SHARES AT OR ABOVE THE PRICE THAT YOU PAY FOR THE SHARES.

Factors beyond our control, that may cause our share price to fluctuate significantly include, but are not limited to, the following:

	·	the development of a future market for our products;
	·	changes in market valuations of similar companies;
	·	announcement by us or our competitors of significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
	·	additions or departures of key personnel; and
	·	fluctuations in stock market price and volume.

Additionally, in recent years the stock market in general, and the OTCBB and technology stocks in particular, have experienced extreme price and volume fluctuations. In some cases these fluctuations are unrelated or disproportionate to the operating performance of the underlying company. These market and industry factors may materially and adversely affect our stock price regardless of our operating performance. The historical trading of our common stock is not necessarily an indicator of how it will trade in the future and our trading price as of the date of this prospectus is not necessarily an indicator of what the trading price of our common stock might be in the future.

In the past, class action litigation has often been brought against companies following periods of volatility in the market price of those companies' common stock. If we become involved in this type of litigation in the future it could result in substantial costs and diversion of management attention and resources, which could have a further negative effect on your investment in our stock.

THERE IS NO ASSURANCE OF AN ESTABLISHED PUBLIC TRADING MARKET, WHICH WOULD ADVERSELY AFFECT THE ABILITY OF INVESTORS IN OUR COMPANY TO SELL THEIR SECURITIES IN THE PUBLIC MARKETS.

Although our common stock trades on the OTCBB, a regular trading market for our common stock may not be sustained in the future. The National Association of Securities Dealers (the “NASD”) limits quotation on the OTCBB to securities of issuers that are current in their reports filed with the SEC. If we fail to be current in the filing of our reports with the SEC, our common stock will not be able to be traded on the OTCBB. The OTCBB is an inter-dealer market that provides significantly less liquidity than a national securities exchange or automated quotation system. Quotes for stocks included on the OTCBB are not listed in the financial sections of newspapers as are those for stocks listed on national securities exchanges or automated quotation systems. Therefore, prices for securities traded solely on the OTCBB may be difficult to obtain and holders of common stock may be unable to resell their securities at or near their original offering price or at any price. Market prices for our common stock may be influenced by a number of factors, including:

	·	the issuance of new equity securities;
	·	changes in interest rates;
	·	competitive developments, including announcements by competitors of new products or services or significant contracts, acquisitions, strategic partnerships, joint ventures or capital commitments;
	·	variations in quarterly operating results;
	·	change in financial estimates by securities analysts;
	·	the depth and liquidity of the market for our common stock;
	·	investor perceptions of our company and the technologies industries generally; and
	·	general economic and other national conditions.

OUR LIMITED PRIOR PUBLIC MARKET AND TRADING MARKET MAY CAUSE VOLATILITY IN THE MARKET PRICE OF OUR COMMON STOCK.

The quotation of our common stock on the OTCBB does not assure that a meaningful, consistent and liquid trading market currently exists, and in recent years such market has experienced extreme price and volume fluctuations that have particularly affected the market prices of many smaller companies like us. Our common stock is thus subject to volatility. In the absence of an active trading market:

	·	investors may have difficulty buying and selling or obtaining market quotations;
	·	market visibility for our common stock may be limited; and
	·	lack of visibility for our common stock may have a depressive effect on the market for our common stock.

OUR COMMON STOCK IS A "PENNY STOCK."

Our common stock is a “low-priced” security, or a penny stock, under rules promulgated under the Exchange Act. A stock could be considered to be a "penny stock" if it meets one or more of the definitions in Rules 15g-2 through 15g-6 promulgated under Section 15(g) of the Exchange Act. These include but are not limited to the following: (i) the stock trades at a price less than $5.00 per share; (ii) it is NOT traded on a "recognized" national exchange; (iii) it is NOT quoted on The NASDAQ Stock Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company with net tangible assets less than $2.0 million, if in business more than a continuous three years, or with average revenues of less than $6.0 million for the past three years. The principal result or effect of being designated a "penny stock" is that securities broker-dealers cannot recommend the stock but must trade in it on an unsolicited basis.

In accordance with these rules, broker-dealers participating in transactions in low-priced securities must first deliver a risk disclosure document which describes the risks associated with such stocks, the broker-dealer’s duties in selling the stock, the customer’s rights and remedies and certain market and other information. Furthermore, the broker-dealer must make a suitability determination approving the customer for low-priced stock transactions based on the customer’s financial situation, investment experience and objectives. Broker-dealers must also disclose these restrictions in writing to the customer, obtain specific written consent from the customer, and provide monthly account statements to the customer. The effect of these restrictions probably decreases the willingness of broker-dealers to make a market in our common stock, decreases liquidity of our common stock and increases transaction costs for sales and purchases of our common stock as compared to other securities.

BROKER-DEALER REQUIREMENTS MAY AFFECT TRADING AND LIQUIDITY.

Section 15(g) of the Securities Exchange Act of 1934, as amended, and Rule 15g-2 promulgated thereunder by the SEC require broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document before effecting any transaction in a penny stock for the investor's account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor's financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

FAILURE TO ACHIEVE AND MAINTAIN INTERNAL CONTROLS IN ACCORDANCE WITH SECTIONS 302 AND 404(A) OF THE SARBANES-OXLEY ACT OF 2002 COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS AND STOCK PRICE.

If we fail to maintain adequate internal controls or fail to implement required new or improved controls, as such control standards are modified, supplemented or amended from time to time; we may not be able to assert that we can conclude on an ongoing basis that we have effective internal controls over financial reporting. Effective internal controls are necessary for us to produce reliable financial reports and are important in the prevention of financial fraud. If we cannot produce reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and there could be a material adverse effect on our stock price. We have examined and evaluated our internal control procedures, including controls over financial reporting to satisfy the requirements of Section 404(a) of the Sarbanes-Oxley Act, as required for our Annual Report on Form 10-K for the year ending February 28, 2009, and noted weaknesses that need to be addressed during the current reporting period in order for our internal controls to be effective. Failure to implement and maintain internal controls in accordance with sections 302 and 404(a) of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and stock price.

BECAUSE WE HAVE NO PLANS TO PAY DIVIDENDS ON OUR COMMON STOCK, STOCKHOLDERS MUST LOOK SOLELY TO APPRECIATION OF OUR COMMON STOCK TO REALIZE A GAIN ON THEIR INVESTMENTS.

We do not anticipate paying any dividends on our common stock in the foreseeable future. We currently intend to retain future earnings, if any, to finance the expansion of our business. Our future dividend policy is within the discretion of our board of directors and will depend upon various factors, including our business, financial condition, results of operations, capital requirements and investment opportunities. Accordingly, stockholders must look solely to appreciation of our common stock to realize a gain on their investment. This appreciation may not occur.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not applicable for smaller reporting companies

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

BIOPHAN TECHNOLOGIES, INC.

FINANCIAL STATEMENTS

CONTENTS

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Financial Statements:
Balance Sheets	F-3
Statements of Operations	F-4
Statements of Stockholders' Equity (Deficiency)	F-5
Statements of Cash Flows	F-9

Notes to Consolidated Financial Statements	F-12

F-1

Reports of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders

Biophan Technologies, Inc

We have audited the consolidated balance sheets of Biophan Technologies, Inc. and Subsidiaries (a development stage company) as of February 29, 2008 and February 28, 2009, and the related consolidated statements of operations, stockholders’ equity (deficiency), and cash flows for years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Biophan Technologies, Inc. and Subsidiaries as of February 29, 2008 and February 28, 2009, and the results of their operations and their cash flows for the years then ended.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company is a development stage enterprise that has suffered recurring losses from operations, has negative working capital, a stockholders’ deficiency, and will be dependent on obtaining future financing. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might results from the outcome of this uncertainty.

As more fully described in Note 22, subsequent to the issuance of the Company's 2008 consolidated financial statements and our report thereon dated June 13, 2008, we became aware that those consolidated financial statements should have presented certain operating gains below the gross profit line item rather than in the revenue section of the statement of operations. This change reduces the revenues and increases operating gains but has no effect on the Company’s financial condition at February 29, 2008 and no effect on its loss from operations, net loss, net loss applicable to common stock, net loss per share or cash flows for the year ended February 29, 2008. In our related report, we expressed an unqualified opinion. Our opinion on the revised consolidated financial statements, as expressed herein, remains unqualified.

/s/ Freed, Maxick & Battaglia, CPAs, PC.

Buffalo, New York

May 29, 2009

F-2

BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED BALANCE SHEETS

	February 28,			February 29,
	2009			2008
ASSETS

Current assets:
Cash and cash equivalents	$	1,358,706		$	6,970,205
Accounts receivable, net		53,092			114,566
Prepaid expenses		23,629			103,212
Other current assets		7,578			44,437
Total current assets		1,443,005			7,232,420
Property and equipment, net		41,478			309,692
Other assets:
Intangible assets, net of amortization:
Myotech, LLC		1,750,820			17,120,242
Other		846,947			1,320,128
Deferred financing costs, net of amortization of $0 and $683,283, respectively		-			848,927
Deposits		206			206
		2,597,973			19,289,503
Total assets	$	4,082,456		$	26,831,615
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)

Current liabilities:
Current portion of capital lease obligation	$	12,752		$	10,885
Current portion of senior secured convertible notes payable, net of discount of $0 and $1,297,913, respectively		-			1,428,251
Accrued interest		147,066			331,548
Accounts payable and accrued expenses		1,326,769			779,132
Note payable		-			58,864
Line of credit - related party		180,000			1,200,000
Due to related parties		138,456			126,717
Deferred revenue		208,333			208,333
Other current liabilities		33,400			-
Total current liabilities		2,046,776			4,143,730

Long-term liabilities:
Capital lease obligation		1,770			14,795
Line of credit – related party, net of current portion		434,300			-
Senior secured convertible notes payable, net of discount of $0 and $853,599		-			345,628
Other long-term liabilities		17,300			-
Fair value of warrant liability		199,065			-
Total liabilities		2,699,211			4,504,153

Minority interest		-			7,053,950

Stockholders' equity:
Common stock, $.005 par value:
Authorized, 250,000,000 shares
Issued, 243,285,264 and 119,128,504 shares, respectively		1,216,426			595,643
Additional paid-in capital		72,174,805			78,015,527
		73,391,231			78,611,170
Less treasury stock, 4,923,080 shares		(68,923	)		(8,467,698	)
		73,322,308			70,143,472
Deficit accumulated during the development stage		(71,939,063	)		(54,869,960	)
Total stockholders' equity		1,383,245			15,273,512
Total liabilities and stockholders' equity	$	4,082,456		$	26,831,615

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

F-3

BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended February 28, 2009			Year Ended February 29, 2008 (As Restated)			Period from August 1, 1968 (date of inception) to February 28, 2009 (Unaudited and (As Restated)
Revenues:
Development payments	$	155,000		$	75,000		$	530,000
License fees		250,000			250,000			1,541,666
Grant revenues		99,793			100,000			199,793
Testing services & consulting fees		173,134			260,684			1,201,542
		677,927			685,684			3,473,001
Operating expenses:
Research and development		1,010,368			2,039,526			19,103,870
General and administrative		3,381,560			4,573,692			31,995,083
		4,391,928			6,613,218			51,098,953
Operating gains and (losses):
Gain from sale of intellectual property, net		-			10,939,333			10,939,333
Write-down of intellectual property		-			-			(530,000	)
		-			10,939,333			10,409,333

Operating (loss) profit		(3,714,001	)		5,011,799			(37,216,619	)

Other income (expense):
Interest income		65,257			137,090			413,719
Interest expense		(1,708,676	)		(10,421,552	)		(19,305,560	)
Additional expense related to warrants		-			-			(7,304,105	)
Change in fair value of warrant liability		(175,168	)		4,339,214			9,482,110
Liquidated damages		-			(652,500	)		(652,500	) )
Gain on sale of investment		-			337,250			337,250
Loss on extinguishment of debt		(2,057,803	)		(3,189,187	)		(5,917,043	)
Other income		109,735			442,322			1,405,450
Other expense		(64,825	)		-			(135,355	)
		(3,831,480	)		(9,007,363	)		(21,676,034	)
Continuing operations:
Loss from continuing operations before minority interest		(7,545,481	)		(3,995,564	)		(58,892,653	)
Minority interest in loss from continuing operations		2,137			35,745			37,883
Loss from continuing operations		(7,543,344	)		(3,959,819	)		(58,854,770	)

Discontinued operations:
Loss from operations of discontinued operations before minority interest		(10,064,023	)		(2,579,777	)		(17,616,061	)
Minority interest in loss from operations of discontinued operations		538,264			1,361,705			4,531,766
Loss from operations of discontinuing operations		(9,525,759	)		(1,218,072	)		(13,084,295	)

Net Loss:	$	(17,069,103	)	$	(5,177,891	)	$	(71,939,065	)

Net loss per common share
- basic and diluted:
Continuing operations	$	(0.04	)	$	(0.04	)
Discontinued operations		(0.05	)		(0.01	)
Net Loss	$	(0.09	)	$	(0.05	)

Weighted average shares outstanding		192,350,652			92,182,931

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

F-4

BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

PERIOD FROM AUGUST 1, 1968 (DATE OF INCEPTION) TO FEBRUARY 28, 2009

													Deficit
													Accumulated
	Number						Additional				Stock		During the			Stockholders'
	of Shares			Common			Paid-in		Treasury		Subscription		Development			Equity
	Outstanding			Stock			Capital		Stock		Receivable		Stage			(Deficiency)
1969-1993 - 382,130 shares issued for services for $.05 per share		382,130		$	1,911		$	17,196		—		—		—		$	19,107
1970 - 1,405,000 shares issued for mining rights for $.05 per share		1,405,000			7,025			63,225		—		—		—			70,250
Net loss from inception through February 28, 1998 (unaudited)		—			—			—		—		—		(89,357	)		(89,357	)
Balance at February 28, 1998		1,787,130			8,936			80,421		—		—		(89,357	)		—
1999 - 10,000 shares issued for services for $.05 per share		10,000			50			450		—		—		—			500
1999 - 1,000,000 shares issued for services for $.005 per share		1,000,000			5,000			—		—		—		—			5,000
Net loss for the year ended February 28, 1999 (unaudited)		—			—			—		—		—		(5,500	)		(5,500	)
Balance at February 28, 1999		2,797,130			13,986			80,871		—		—		(94,857	)		—
2000 - 1,000,200 shares issued for services for $.005 per share		1,000,200			5,001			—		—		—		—			5,001
Net loss for the year ended February 29, 2000 (unaudited)		—			—			—		—		—		(5,001	)		(5,001	)
Balance at February 29, 2000		3,797,330			18,987			80,871		—		—		(99,858	)		—
2000 - 250,000 shares issued for services for $.005 per share		250,000			1,250			—		—		—		—			1,250
2000 - Expenses paid by stockholder								2,640		—		—		—			2,640
2000 - 10,759,101 shares issued for acquisition of Antisense Technology, Inc		10,759,101			53,795			121,205		—		—		—			175,000
2000 - 10,759,101 shares issued for cash for $.005 per share		10,759,101			53,796			121,204		—		—		—			175,000
Net loss for the year ended February 28, 2001		—			—			—		—		—		(729,130	)		(729,130	)
Balance at February 28, 2001		25,565,532			127,828			325,920		—		—		(828,988	)		(375,240	)
2001 - 2,399,750 shares issued for cash for $1.00 per share		2,399,750			11,999			2,387,751		—		—		—			2,399,750
2001 - 468,823 shares issued for interest		468,823			2,344			466,479		—		—		—			468,823
2001 - Redemption of 200,000 shares		(200,000	)		(1,000	)				—		—		—			(1,000	)

CONTINUED ON FOLLOWING PAGE

F-5

BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

PERIOD FROM AUGUST 1, 1968 (DATE OF INCEPTION) TO FEBRUARY 28, 2009

												Deficit
												Accumulated
	Number				Additional					Stock		During the			Stockholders'
	of Shares		Common		Paid-in			Treasury		Subscription		Development			Equity
	Outstanding		Stock		Capital			Stock		Receivable		Stage			(Deficiency)
2001 - 1,315,334 shares issued upon conversion of bridge loans at $.75 per share		1,315,334		6,576		979,924			—		—		—			986,500
2001 - Offering costs associated with share issuances for cash		—		—		(254,467	)		—		—		—			(254,467	)
2002 - Grant of stock options for services		—		—		702,800			—		—		—			702,800
Net loss for the year ended February 28, 2002		—		—		—			—		—		(3,705,917	)		(3,705,917	)
Balance at February 28, 2002		29,549,439		147,747		4,608,407			—		—		(4,534,905	)		221,249
2002 - Shares issued for cash for $.34 per share		993,886		4,969		337,461			—		—		—			342,430
2002 - Shares issued for cash for $.15 per share		1,192,874		5,964		167,002			—		—		—			172,966
2002 to 2003 - Shares issued for cash for $.25 per share		5,541,100		27,706		1,357,569			—		—		—			1,385,275
2002 to 2003 - Shares issued as commissions on offerings		357,394		1,787		(1,787	)		—		—		—			—
2002 to 2003 Cash commissions on offerings		—		—		(119,488	)		—		—		—			(119,488	)
Offering costs		—		—		(45,644	)		—		—		—			(45,644	)
Grant of stock options for services		—		—		485,000			—		—		—			485,000
Intrinsic value of beneficial conversion feature of note payable and MRI liability		—		—		800,000			—		—		—			800,000
Net loss for the year ended February 28, 2003		—		—		—			—		—		(3,438,252	)		(3,438,252	)
Balance at February 28, 2003		37,634,693		188,173		7,588,520			—		—		(7,973,157	)		(196,464	)
2003 - Shares issued upon conversion of related party loans at $.14 per share		1,268,621		6,343		177,607			—		—		—			183,950
2003 - Shares issued upon conversion of stockholder loan plus accrued interest at $.20 per share		775,000		3,875		151,693			—		—		—			155,568
2003 - Shares issued for cash pursuant to equity line of credit at prices from $.11 to $.23 per share		3,325,757		16,629		474,561			—		—		—			491,190
2003 - Shares issued for option exercises at $.14 per share		3,000,000		15,000		412,847			—		—		—			427,847

CONTINUED ON FOLLOWING PAGE

F-6

BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

PERIOD FROM AUGUST 1, 1968 (DATE OF INCEPTION) TO FEBRUARY 28, 2009

												Deficit
												Accumulated
	Number				Additional					Stock		During the			Stockholders'
	of Shares		Common		Paid-in			Treasury		Subscription		Development			Equity
	Outstanding		Stock		Capital			Stock		Receivable		Stage			(Deficiency)
2004 - Shares issued for warrant exercises at $.25 and $.50 per share		995,940		4,980		327,864			—		—		—			332,844
2004 - Shares issued for cash pursuant to stock purchase agreement at prices from $.15 to $.40 per share		11,000,000		55,000		2,845,000			—		—		—			2,900,000
2004 - Shares issued upon conversion of related party loans at $.10 per share		7,945,000		39,725		754,775			—		—		—			794,500
Offering costs		—		—		(209,528	)		—		—		—			(209,528	)
Grant of stock options for the year		—		—		565,000			—		—		—			565,000
Beneficial conversion feature of note payable		—		—		250,950			—		—		—			250,950
Net loss for the year ended February 29, 2004		—		—		—			—		—		(3,718,570	)		(3,718,570	)
Balance at February 29, 2004		65,945,011		329,725		13,339,289			—		—		(11,691,727	)		1,977,287
2004 - Shares issued for option exercise at $.32 per share		70,000		350		22,050			—		—		—			22,400
2004 - Shares issued for option exercise at $.50 per share		24,999		125		12,375			—		—		—			12,500
2004 - Shares issued upon exercise of warrants at $.25 per share		868,700		4,343		212,832			—		—		—			217,175
2004 - Shares issued upon exercise of warrants at $.50 per share		926,700		4,634		458,716			—		—		—			463,350
2004 - Shares issued upon exercise of warrants at $1.00 per share		108,375		542		107,833			—		—		—			108,375
2004 - Shares issued upon cashless exercise of warrants		74,047		370		(370	)		—		—		—			—
2004 - 2005 - Shares issued for cash pursuant to stock purchase agreement at prices from $.60 to $.70 per share		6,000,000		30,000		3,870,000			—		—		—			3,900,000
2005 - Restricted shares issued in connection with employment agreements at $1.34 per share		200,000		1,000		267,000			—		—		—			268,000
2005 - Restricted shares issued in connection with acquisition of Biophan Europe at $1.34 per share		100,000		500		133,500			—		—		—			134,000
Offering costs		—		—		(41,998	)		—		—		—			(41,998	)

CONTINUED ON FOLLOWING PAGE

F-7

BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY

PERIOD FROM AUGUST 1, 1968 (DATE OF INCEPTION) TO FEBRUARY 28, 2009

	Number of Shares Outstanding			Common Stock		Additional Paid-in Capital			Treasury Stock			Stock Subscription Receivable			Deficit Accumulated During the Development Stage			Stockholders' Equity(Deficiency)
Grant of stock options for services		-			-		201,000			-			-			-			201,000
Section 16(b) short swing profits		-			-		400,725			-			-			-			400,725
Stock subscription receivable		-			-		-			-			(150,000	)		-			(150,000	)
Net loss for the year ended February 28, 2005		-			-		-			-			-			(5,793,547	)		(5,793,547	)
Balance at February 28, 2005		74,317,832			371,589		18,982,952			-			(150,000	)		(17,485,274	)		1,719,267
2005 - Shares issued for option exercise at $.50 per share		74,998			375		66,206			-			-			-			66,581
2005 - Shares issued for option exercise at $.67 per share		12,500			63		8,312			-			-			-			8,375
2005 - Shares issued for option exercise at $1.00 per share		136,667			683		106,901			-			-			-			107,584
2005 - Shares issued upon exercise of warrants at $.16 per share		54,054			270		8,379			-			-			-			8,649
2005 - Shares issued upon exercise of warrants at $.39 per share		12,500			62		4,813			-			-			-			4,875
2005 - Shares issued upon exercise of warrants at $.41 per share		17,520			88		7,095			-			-			-			7,183
2006 - Restricted shares issued in connection with acquisition of Biophan Europe at $1.34 per share		100,000			500		133,500			-			-			-			134,000
2005 - Shares issued for acquisition of minority interest in Myotech, LLC at $1.72 per share		4,923,080			24,615		8,443,083			-			-			-			8,467,698
2005 - Treasury shares		(4,923,080	)		-		8,467,698			(8,467,698	)		-			-			-
2006 - Shares issued pursuant to investment agreement with Boston Scientific at $3.02 per share		1,653,193			8,266		4,991,734			-			-			-			5,000,000
2006 - 22,000 Restricted shares issued for services at $1,73 per share		22,000			110		37,730			-			-			-			37,840
2006 - Shares issued upon conversion of related party loans at $2.12 per share		480,899			2,405		1,017,101			-			-			-			1,019,506
Beneficial conversion feature of note payable		-			-		2,395,485			-			-			-			2,395,485
Stock options issued for services		-			-		4,609,778			-			-			-			4,609,778
Section 16(b) short swing profits		-			-		295,362			-			-			-			295,362
Stock subscription receivable		-			-		-			-			150,000			-			150,000
Net loss for the year ended February 28, 2006		-			-		-			-			-			(14,484,384	)		(14,484,384	)
Balance at February 28, 2006		76,882,163			409,026		49,576,129			(8,467,698	)		-			(31,969,658	)		9,547,799
Shares issued for option exercises in the range of $.18 to $.67 per share		38,956			195		12,984			-			-			-			13,179
Shares issued for cash pursuant to stock purchase agreement with SBI at $2.00 per share		1,587,500			7,937		3,167,063			-			-			-			3,175,000
Extinguishment of debt on related party notes payable		-			-		670,053			-			-			-			670,053
Allocation of beneficial conversion feature of related party notes payable		-			-		417,070			-			-			-			417,070
Allocation of proceeds to warrants		-			-		7,250,000			-			-			-			7,250,000
Reclassification of warrants		-			-		(8,005,875	)		-			-			-			(8,005,875	)
Stock options expense		-			-		1,444,780			-			-			-			1,444,780
Net loss for the year ended February 28, 2007		-			-		-			-			-			(17,722,411	)		(17,722,411	)
Balance at February 28, 2007		78,508,619			417,158		54,532,204			(8,467,698	)		-			(49,692,069	)		(3,210,405	)
Shares issued for principal and interest on convertible notes		30,434,578			152,173		3,511,693			-			-			-			3,663,866
Shares issued for services		1,716,109			8,581		248,773			-			-			-			257,354
Line of credit conversion		3,546,118			17,731		2,358,168			-			-			-			2,375,899
Stock option expense		-			-		1,312,901			-			-			-			1,312,101
Fair value warrant liability		-			-		6,154,792			-			-			-			6,154,792
Gain on forgiveness of debt		-			-		1,050,000			-			-			-			1,050,000
Loss on extinguishment of debt		-			-		3,189,187			-			-			-			3,189,187
Beneficial conversion feature of senior secured convertible notes		-			-		3,021,197			-			-			-			3,021,197
Allocation of proceeds to warrants		-			-		2,636,612			-			-			-			2,636,612
Net loss for the year ended February 29, 2008		-			-		-			-			-			(5,177,891	)		(5,177,891	)
Balance at February 29, 2008		114,205,424			595,643		78,015,527			(8,467,698	)		-			(54,869,960	)		15,273,512
Shares issued for principal and interest on convertible notes		120,555,441			602,776		1,761,093			-			-			-			2,363,869
Shares issued for services		3,601,319			18,007		76,656			-			-			-			94,663
Stock option expense		-			-		159,886			-			-			-			159,886
Loss recorded upon transfer of treasury stock from subsidiary to parent		-			-		(8,467,698	)		8,398,775			-			-			(68,923	)
Fair value warrant liability		-			-		(23,897	)		-			-			-			(23,897	)
Shareholder expenses		-			-		653,238			-			-			-			653,238
Net Loss for the year ended February 28, 2009		-			-		-			-			-			(17,069,103	)		(17,069,103	)
Balance at February 28, 2009		238,362,184		$	1,216,426	$	72,174,805		$	(68,923	)	$	-		$	(71,939,063	)	$	1,383,245

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

F-8

BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended February 28, 2009			Year Ended February 29, 2008			Period from August 1, 1968 (date of Inception) to February 28, 2009 (Unaudited)
Cash flows from operating activities:
Net loss	$	(17,069,103	)	$	(5,177,891	)	$	(71,939,063	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Amortization of intangible assets		757,076			1,338,883			3,959,445
Amortization of deferred financing costs		278,834			496,933			962,117
Depreciation and amortization		67,668			141,856			444,326
Loss on disposal of equipment		75,036			7,082			92,717
Gain on sale or disposal of investments, net		(55,610	)		(337,250			(392,860	)
Non-cash charge related to warrants		-			-			7,304,105
Change in fair value of warrant liability		175,168			(4,339,214	)		(9,482,110	)
Realized and unrealized losses on marketable securities		-			-			66,948
Loss on extinguishment of debt		2,057,804			3,189,187			5,917,044
Amortization of discount on senior secured convertible notes		704,002			6,028,035			9,490,053
Write -down of intellectual property rights		14,564,958			-			15,094,958
Amortization of discount on payable to related party		-			-			2,887,555
Issuance of common stock for services		94,663			257,354			758,965
Fair value of beneficial conversion feature of debt		-			3,021,197			3,021,197
Issuance of common stock for interest		545,450			922,375			1,968,152
Grant of stock options for services		159,886			1,312,901			9,481,145
Allowance for uncollectible accounts		69,657			-			69,657
Expenses paid by stockholder		-			-			2,640
Change in investment in subsidiary & minority interest, net		(6,526,522	)		(1,318,380	)		(10,430,745	)
Changes in operating assets and liabilities:
(Increase) decrease in accounts receivable		(35,809	)		(93,118	)		(142,875	)
(Increase) decrease in due from related parties		-			-			(59,300	)
(Increase) decrease in prepaid expenses		79,583			62,959			(23,629	)
(Increase) decrease in other current assets		(33,778	)		(19,087	)		(36,877	)
(Increase) decrease in deposits		-			3,498			2,043
Increase (decrease) in accounts payable and accrued expenses		638,862			(831,353	)		1,189,537
Increase (decrease) in due to related parties		21,053			46,437			104,274
Increase (decrease) in deferred revenues		-			-			208,333
Net cash provided by (used in) operating activities		(3,431,122	)		4,712,404	)		(29,482,249	)

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

F-9

BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

	Year Ended February 28, 2009			Year Ended February 29, 2008			Period from August 1, 1968 (date of Inception) to February 28, 2009 (Unaudited)
Cash flows from investing activities:
Purchases of property and equipment		-			(40,273	)		(644,917	)
Sales of marketable securities		-			-			2,369,270
Purchase of investment		-			-			(100,000	)
Proceeds from sale of investment		91,773			437,250			529,023
Acquisition costs of intangible assets		-			(150,000	)		(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 provided by (used in) investing activities		91,773			(246,977	)		(1,438,893	)
Cash flows from financing activities:
Proceeds of bridge loans		-			-			986,500
Loan from stockholder		-			-			143,570
Line of credit borrowing from related party		-			-			7,980,950
Line of credit payments		(42,069	)		-			(2,114,569	)
Proceeds of convertible notes payable		-			-			7,250,000
Proceeds (payments) on debt and notes payable		(2,150,000	)		(406,358	)		(2,678,351	)
Payments of capital lease obligation, net		(11,158	)		(1,369	)		(12,527	)
Proceeds from sales of capital stock		-			-			19,438,849
Proceeds from transfer of treasury stock to parent		(68,923	)		-			(68,923	)
Exercise of options		-			-			658,467
Exercise of warrants		-			-			1,142,451
Swing profits		-			-			696,087
Deferred financing costs		-			-			(1,030,120	)
Deferred equity placement costs		-			-			(112,536	)
Net cash provided by (used in) financing activities		(2,272,150	)		(407,727	)		32,279,848
Net increase in cash and equivalents		(5,611,499	)		4,551,654			1,358,706
Cash and equivalents, beginning		6,970,205			2,418,551			-
Cash and equivalents, ending	$	1,358,706		$	6,970,205		$	1,358,706

CONTINUED ON FOLLOWING PAGE

F-10

BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

	Year Ended February 28, 2009		Year Ended February 29, 2008		Period from August 1, 1968 (date of Inception) to February 28, 2009 (Unaudited)
Supplemental schedule of cash paid for:
Interest	$	62,308	$	206,249	$	308,357
Supplemental schedule of non-cash investing and financing activities:
Allocation of proceeds from line of credit - related party to beneficial conversion feature and warrants	$	-	$	-	$	2,812,555
Allocation of proceeds from notes payable and warrants	$	-	$	-	$	7,250,000
Change in fair value of warrants reclassified from equity to warrants liability	$	23,897	$	-	$	779,773
Change in fair value of warrant liability	$	175,168	$	6,154,792	$	6,629,960
Capital lease obligation	$	11,158	$	7,186	$	45,393
Discount on senior secured convertible notes	$	-	$	2,636,612	$	2,636,612
Forgiveness of debt - line of credit	$	816,380	$	1,050,000	$	1,866,380
Issuance of common stock upon conversion of line of credit loans	$	-	$	2,180,000	$	4,158,450
Issuance of common stock for principal payments for senior secured convertible notes	$	1,818,420	$	2,937,394	$	4,755,814
Issuance of common stock for the acquisition of initial 35% interest in Myotech, LLC	$	-	$	-	$	8,467,698
Loss on transfer of treasury stock following back to parent following dissolution of Myotech, LLC	$	8,398,775	$	-	$	8,398,775
Issuance of common stock in satisfaction of accounts payable	$	-	$	168,854	$	302,854
Liabilities assumed in conjunction with acquisition of 51% interest in Biophan Europe and certain intellectual property rights	$	-	$	-	$	178,384
Issuance of common stock upon conversion of bridge loans	$	-	$	-	$	1,142,068
Acquisition of intellectual property	$	-	$	-	$	425,000
Intellectual property acquired through issuance of capital stock and assumption of related party payable	$	-	$	-	$	175,000

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

F-11

BIOPHAN TECHNOLOGIES, INC. AND SUBSIDIARIES

(A DEVELOPMENT STAGE COMPANY)

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

BASIS OF CONSOLIDATION

The consolidated financial statements include the accounts of Biophan Technologies, Inc. ("Biophan"), its wholly owned subsidiaries, LTR Antisense Technology, Inc. ("Antisense") and Nanolution 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". Effective June 1, 2008, MR:Comp GmbH (“MR Comp”) was divested from Biophan Europe. The accounts of MR Comp are immaterial to the Company’s consolidated financial statements. Myotech, LLC was dissolved effective October 17, 2008. See Note 2 and Note 14 for further details of these transactions. The Company does not anticipate incurring any future losses from either MR Comp or Myotech. All significant intercompany 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 or recurring revenues and operating profits from its planned principal business activities. Therefore, the Company is in the development stage and will remain so until the realization of significant recurring revenues and operating profits. The Company's ability to continue in business is dependent upon maintaining sufficient financing or attaining future profitable operations.

PRINCIPAL BUSINESS ACTIVITIES

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