U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: August 31, 1996
( ) 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 0-21320
Magna-Lab Inc.
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(Exact name of small business issuer as specified in its charter)
New York 11-3074326
--------------------------------- -----------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
250Z Executive Drive, Edgewood, NY 11717
------------------------------------------
(Address of principal executive offices)
(516) 595-2111
-----------------------------
(Issuer's telephone number)
_________________________________________________________
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 ( )
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date - September 17, 1996
Class A Common Stock, $.001 Par Value 3,746,185
- ----------------------------------------------------- ------------------
Class B Common Stock, $.001 Par Value 1,843,815
- ----------------------------------------------------- ------------------
Class Shares
Transitional Small Business Disclosure Format (check one) Yes ( ) No (X)
<PAGE>
MAGNA-LAB INC.
CONTENTS
PART 1 - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. - FINANCIAL STATEMENTS
BALANCE SHEETS 1
STATEMENTS OF OPERATIONS 2
STATEMENTS OF CASH FLOWS 3
STATEMENT OF STOCKHOLDERS' EQUITY 4
NOTES TO FINANCIAL STATEMENTS 5 - 8
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 8 - 9
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS 9
ITEM 4. - SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS 9
ITEM 5 - OTHER INFORMATION 10
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K 10
All items which are not applicable or to which the answer is negative have been
omitted from this report.
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. - Financial Statements
MAGNA-LAB INC.
BALANCE SHEETS
August 31, 1996 (unaudited) and February 29, 1996
<TABLE>
<CAPTION>
August 31, February 29,
1996 1996
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,107,000 $ 3,047,000
Accounts receivable 307,000 62,000
Inventory 491,000 199,000
Deposits and other 402,000 475,000
------------ ------------
Total current assets 2,307,000 3,783,000
------------ ------------
PROPERTY AND EQUIPMENT, less accumulated depreciation
and amortization of $324,000 and $272,000, respectively 477,000 351,000
------------ ------------
OTHER ASSETS 15,000 2,000
------------ ------------
$ 2,799,000 $ 4,136,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts Payable $ 709,000 $ 754,000
Accrued liabilities 519,000 558,000
Customer deposits 461,000 635,000
------------ ------------
Total current liabilities 1,689,000 1,947,000
------------ ------------
OBLIGATIONS UNDER CAPITAL LEASES, noncurrent 38,000 --
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 4 and 11)
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share, 5,000,000
shares authorized, no shares issued -- --
Common stock, Class A, par value $.001 per share,
40,000,000 shares authorized, 3,746,185 shares issued, 3,746,185
and 3,736,802 shares outstanding, respectively 4,000 4,000
Common stock, Class B, par value $.001 per share, 3,750,000 shares authorized,
1,875,000 shares issued,
1,843,815 and 1,853,198 shares outstanding 2,000 2,000
Capital in excess of par value 13,324,000 13,324,000
Accumulated Deficit (12,258,000) (11,141,000)
------------ ------------
Total stockholders' equity 1,072,000 2,189,000
------------ ------------
$ 2,799,000 $ 4,136,000
============ ============
</TABLE>
See accompanying notes to financial statements
1
<PAGE>
MAGNA-LAB INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended August31, Six months ended August 31,
---------------------------- ----------------------------
1996 1995 1996 1995
--------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
Sales $ 400,000 $ -- $ 400,000 425,000
Royalties 250,000 -- 250,000 --
----------- ----------- ----------- -----------
650,000 -- 650,000 425,000
COST OF SALES 259,000 -- 259,000 333,000
----------- ----------- ----------- -----------
GROSS PROFIT 391,000 -- 391,000 92,000
----------- ----------- ----------- -----------
OPERATING EXPENSES:
General and administative 388,000 257,000 673,000 518,000
Selling and marketing 182,000 163,000 312,000 313,000
Research and development 244,000 295,000 562,000 664,000
----------- ----------- ----------- -----------
814,000 715,000 1,547,000 1,495,000
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (423,000) (715,000) (1,156,000) (1,403,000)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest and financing expense (4,000) (78,000) (6,000) (215,000)
Interest income 17,000 1,000 45,000 6,000
----------- ----------- ----------- -----------
NET LOSS $ (410,000) $ (792,000) $(1,117,000) $(1,612,000)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,590,000 2,230,000 4,590,000 2,127,000
=========== =========== =========== ===========
NET LOSS PER SHARE $ (0.09) $ (0.36) $ (0.24) $ (0.76)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
MAGNA-LAB INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
For the six months ended August 31, 1996 and 1995
(unaudited)
1996 1995
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,117,000) $(1,612,000)
----------- -----------
Adjustments:
Depreciation and amortization 52,000 49,000
Imputed interest -- 136,000
Effect on cash of changes in operating
assets and liabilities:
Accounts receivable (245,000) (55,000)
Inventory (292,000) 86,000
Deposits and other 60,000 (31,000)
Accounts payable and accrued liabilities (119,000) 478,000
Customer deposits (174,000) 90,000
----------- -----------
Total adjustments (718,000) 753,000
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (1,835,000) (859,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and software (97,000) (21,000)
All other, net -- --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (97,000) (21,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Conversion of notes and warrants
(non-cash portion - see Note 5) -- 167,000
Sales of notes -- 500,000
Repay 10% bridge notes -- 400,000
Debt and equity offering costs; other (8,000) (147,000)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (8,000) 120,000
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (1,940,000) (760,000)
CASH AND CASH EQUIVALENTS:
Beginning of year 3,047,000 903,000
----------- -----------
End of year $ 1,107,000 $ 143,000
=========== ===========
See accompanying notes to financial statements
3
<PAGE>
MAGNA-LAB INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the six months ended August 31, 1996
(unaudited)
<TABLE>
<CAPTION>
Common Stock
------------------------------------------------ Capital in
Class A Class B Excess
---------------------- -------------------- Of Par Accumulated
Shares Amount Shares Amount Value Deficit
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, February 29, 1996 3,736,802 $ 4,000 1,853,198 $2,000 $13,324,000 $(11,141,000)
CONVERT B TO A SHARES 9,383 (9,383)
NET LOSS (1,117,000)
-----------------------------------------------------------------------------------
BALANCES,
August 31, 1996 (unaudited) 3,746,185 $ 4,000 1,843,815 $2,000 $13,324,000 $(12,258,000)
========== ======= ========= ====== =========== ============
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
MAGNA-LAB INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying financial statements have been prepared in accordance with the
instructions to Form 10-QSB and do not include all of the information and
footnotes required by generally accepted accounting principles. All adjustments
which are of a normal recurring nature and, in the opinion of management,
necessary for a fair presentation have been included. These statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's annual report on Form 10-KSB for the year ended February 29, 1996.
Prior to February 29, 1996, the Company had reported as a development stage
company.
NOTE 2 - LOSS PER SHARE OF COMMON STOCK:
Net loss per share is computed based on the weighted average number of Class A
Common and Class B Common shares outstanding after subtracting certain
(1,000,000) shares, which are forfeitable unless certain events occur, from
shares outstanding in computing net loss per share. Such forfeitable shares
would not be deducted in computing net income per share. Dilutive options and
warrants outstanding would be considered in the computation of net income per
share under the treasury stock method when their effect is to reduce reported
net income per share.
NOTE 3 - RELATIONSHIP WITH ELSCINT, LTD.:
In June 1996, the Company and Elscint Cryomagnetics, Ltd. a subsidiary of
Elscint, Ltd. ("Elscint") signed a definitive agreement covering a strategic
business arrangement in which Elscint would manufacture the MAGNA-SL for
marketing and sale by Elscint in certain non-United States territories including
Europe, the Peoples Republic of China, parts of the Middle East and Latin
America, Australia and other territories. The Company would be paid royalties on
each system manufactured and sold by Elscint. To maintain its rights under the
agreement, Elscint is required to sell a minimum number of systems in the first
two year period (commencing after an agreed upon period of start-up) and a
higher number of systems in the first permitted two year renewal period.
Thereafter, the agreement is renewable by Elscint in two year sales periods at
higher minimum quantities which will be set by the parties in good faith. If
Elscint manufactures and sells the minimum quantities contemplated by the
agreement, (assuming the initial term and two renewal periods) minimum royalties
would be approximately $7.5 million. Elscint has the right to cure shortfalls
by, among other things, making payment of approximately 87% of the minimum
royalties. Upon execution of the agreement, a nonrefundable deposit of $250,000
was paid to the Company to be applied to first year royalties. Additionally,
Elscint and the Company have agreed to cooperate in making certain capital
expenditures and other areas of manufacturing in order to reduce production
costs and increase operating margins. The parties have also agreed to
collaborate in developing new features and improvements to the MAGNA-SL and the
Company has agreed to provide certain ongoing research and development support.
Elscint has a right of first negotiation on certain new products.
The parties have agreed to certain development tasks and enhancements, which, if
not completed within five months of the signing of the agreement, could, if not
cured, result in termination of the agreement by Elscint.
A third party has indicated to the Company that it believes the agreement with
Elscint comes within the terms of an engagement with that third party and that a
fee is due them with respect thereto. The Company disputes this. The agreement
with the third party contains provisions for compensation of 6% of certain
amounts received and refers to a minimum fee of $250,000 for covered
transactions. The Company is in discussions with this party concerning this
matter and, in light of discussions to date and after discussions with counsel,
has accrued (but still disputes) an amount of fee based on a percentage of the
royalties received to date.
In August 1996, Elscint placed purchase orders for certain components of the
MAGNA-SL from the Company in order to accommodate the current stage of its
manufacturing and marketing efforts.
5
<PAGE>
NOTE 4 - DEPOSITS:
In August 1993, the Company made a $480,000 non-refundable deposit payment
pursuant to an agreement with an unaffiliated European supplier of MRI
components (consoles). Such agreement, as amended in July 1994, provides for
purchases of consoles and the license of certain technology underlying consoles.
The Company has agreed to purchase initial consoles which, as amended, would
result in an additional payment of approximately $240,000 (which has been paid)
beyond the $480,000 paid as a deposit. All initial consoles have been purchased
and an unamortized deposit of approximately $332,000 remains at August 31, 1996.
Such remaining deposit will be amortized over the remaining consoles to be
purchased under the amended agreement. Such amount is included in deposits and
other assets in the accompanying financial statements. If the Company does not
purchase consoles beyond the initial consoles, such remaining deposit (or
portion thereof) would be forfeited.
At August 31, 1996, the Company is in discussion with this vendor regarding
purchasing a new model console and the effect on pricing, payment and delivery
terms and amortization of remaining deposits. In exchange for more favorable
pricing, the Company and the vendor have discussed a more aggressive delivery
schedule and a longer period of amortization of deposits (which may then require
a portion of deposits that are classified as current assets, to be reclassified
to non-current assets). Although the Company has commenced purchasing consoles
under proposed new pricing, certain disputes have arisen regarding delivery and
payment schedules. Discussions with the vendor are continuing. It is possible,
if such discussions are not concluded to the satisfaction of the Company, that
the Company could choose to forfeit its rights to the remaining deposit and have
a claim asserted against it by the vendor. As of August 31, 1996, the Company
had not yet made engineering acceptance of this new model.
NOTE 5 - PROPERTY AND EQUIPMENT:
Details of property and equipment at August 31, 1996 are as follows:
Machinery and equipment $723,000
Purchased software 78,000
--------
801,000
Less accumulated depreciation and amortization 324,000
--------
$477,000
--------
Note 6 - NOTES PAYABLE:
On May 23, 1995, the Company repaid $400,000 principal amount of 10% bridge
notes (issued in November 1994) at their maturity together with accrued interest
of approximately $20,000. The remaining notes payable of $1.25 million at May
31, 1995 consisted of 12% bridge notes due in December 1995 (or the closing of
an earlier equity financing), net of amounts allocated to warrants issued
together with the notes. In May and July 1995, holders of such 12% bridge notes
and warrants indicated their intention to convert their notes payable, accrued
interest, warrants to purchase 625,000 shares of Class A common stock and an
additional approximately $167,000 into Class A common stock. Amortization during
the quarter ended May 31, 1995 of the amounts allocated to the warrants
approximated $91,000. Of the notes and warrants, $500,000 and 250,000,
respectively, were held by an entity whose Treasurer became a member of the
Company's Board of Directors during 1996.
In August 1995, the Company issued $500,000 of notes bearing interest at 10% and
payable in August 1997 or upon the earlier offering of equity securities of the
Company ("Bridge Notes"). A portion of the Bridge Notes ($10,000, the
"convertible portion") were repayable in 60,000 shares of Class A Common Stock.
The Company does not allocate a value to the conversion feature and allocates
all of the proceeds of the debt to notes payable in accordance with established
accounting practice. In January 1996, in accordance with the terms of the Bridge
Notes, all of the Bridge Note holders exercised their rights to convert the
convertible portion to a total of 60,000 shares of Class A Common Stock and the
remaining $490,000 was paid together with approximately $20,000 in accrued
interest. Approximately $92,000 of issuance costs were incurred in connection
with this Bridge Note financing.
6
<PAGE>
Note 7 - OBLIGATIONS UNDER CAPITAL LEASES:
At August 31, 1996, Property and Equipment and Accumulated Depreciation included
approximately $83,000 and $2,000, respectively, of equipment recorded under
capital leases. Aggregate future minimum lease payments at August 31, 1996 are
approximately $27,500, $50,000, and $22,500 for the fiscal years ending February
28, 1997, 1998 and 1999, respectively. Current portion of such obligations under
capital leases are included with accrued liabilities in the accompanying balance
sheet.
During the three and six months ended August 31, 1996, the Company made
approximately $83,000 of purchases of property and equipment on a leased basis
which did not involve the outlay of cash.
NOTE 8 - STOCKHOLDERS' EQUITY:
During the first quarter ended May 31, 1995, the Company granted options to
purchase 215,000 shares of Class A Common Stock to officers and a director of
the Company. In June 1995, the Company agreed with the holders of Class C
Warrants to issue them 25,000 shares of Class A Common Stock in exchange for
their agreement to postpone any sales of shares under such warrants, and defer
their registration right relating to these shares, in connection with a
financing which was concluded in January 1996.
The pro-forma effect, as if such transactions had occurred at the beginning of
the periods presented, on Net Loss, Net Loss per Share and Weighted Average
Number of Shares Outstanding of: (i) the conversion of $1.25 million principal
amount of notes and warrants into 625,000 shares of Class A Common Stock
(discussed in Note 6), (ii) the conversion of a portion of the August 1995
Bridge Notes into 60,000 shares of Class A Common Stock and (iii) the issuance
of 25,000 shares of stock to the Class C warrantholders as described above, is
as follows:
As Reported Pro-Forma
----------- ---------
Quarter ended August 31, 1995:
Net Loss $ (792,000) $ (725,000)
Weighted Average Shares 2,230,000 2,735,000
Net Loss Per Share $ (.36) $ (.26)
Six months ended August 31, 1995:
Net Loss $(1,612,000) $(1,413,000)
Weighted Average Shares 2,127,000 2,735,000
Net Loss Per Share $ (.76) $ (.52)
Note 9 - CUSTOMER DEPOSITS:
During the six months ended August 31, 1996, the Company (i) returned $80,000 in
customer deposits to this related party at their request, (ii) released $400,000
previously received from this related party to the Statement of Operations on
customer delivery, (iii) made $240,000 in progress billings to this related
party and (iv) received approximately $66,000 from Elscint in connection with
their purchase of certain components from the Company. The $240,000 billed to
the related party for progress payments on units in process is past due at
August 31, 1996.
Activity in customer deposits during the six months ended August 31, 1995
included receipt of additional deposits from a related party totaling $420,000
and release to the Statement of Operations of $400,000 of customer deposits
previously received from that related party.
Note 10 - ACCRUED LIABILITIES:
Included in accrued liabilities at August 31, 1996 are approximately $62,000 and
$57,000 related to notes payable for certain insurance policies and accrued
payroll, respectively.
7
<PAGE>
Note 11 - OTHER
Related party matters - A director of the Company, who is also a principal owner
of a company which owns stock in the Company, is a partner in a law firm which
provides legal services to the Company. Fees accruing to such firm in the three
and six months ended August 31, 1996 have been recorded at approximately
$110,000 and $150,000, respectively, related to financing, strategic and general
corporate matters. Amounts owing to such firm are included in the financial
statements at approximately $125,000 at August 31, 1996.
Also see Notes 6 and 9.
Litigation matter - During May 1996, a vendor filed a litigation against the
Company over certain contested balances due and certain alleged commitments for
services in the future. The Company intends to vigorously contest this
litigation unless the vendor agrees to negotiate a settlement on a reasonable
basis. While the ultimate liability in this matter is not known and the vendor
seeks damages materially in excess of amounts recorded, the Company believes,
based on the advice of counsel, that its liability will not exceed amounts
recorded in the financial statements.
--------------------------------------------------------------------
Item 2. Management's Discussion and Analysis or Plan of Operation
(b) Management's Analysis and Discussion of Financial Condition and Results
of Operations -
Financial Condition -
History - During the fiscal year ended February 28, 1994, the Company realized
net proceeds of approximately $5.4 million in connection with the initial public
offering of its equity securities. At that time, it was estimated that the
proceeds of the public offering would last the Company for approximately one
year and that the Company may be dependent upon the receipt of additional
financing in order to continue its activities beyond that time. During the
fiscal year ended February 28, 1995, the Company raised an aggregate of $1.65
million through the private placement of notes payable in 1995 and warrants (see
notes 5 and 6 to the financial statements). During the fiscal year ended
February 29, 1996, the Company raised $500,000 (approximately $410,000 net
proceeds) in a bridge loan transaction and approximately $4.6 million in net
proceeds from a public offering of equity securities.
At August 31, 1996 - At August 31, 1996, the Company had current assets, working
capital and stockholders' equity of approximately $2,307,000, $618,000, and
$1,072,000, respectively. This compares with current assets, working capital and
stockholders equity of approximately $3,783,000, $1,836,000, and $2,189,000,
respectively, at fiscal year end February 29, 1996. Included in such amounts are
deposits with a supplier of a key component to the Company as described in Note
4 to the financial statements. Operations utilized approximately $1,835,000 of
cash in the six months ended August 31, 1996 due to losses of approximately
$1,117,000, as well as the build up of inventories, amounts receivable from a
customer for progess payments and the continued pay down of accounts payable and
accrued liabilities as outlined in the Statements of Cash Flows. The sale in the
quarter ended August 31, 1996, did not generate cash in the six months then
ended because it had been paid for with customer deposits during the prior
fiscal year. During the six months ended August 31, 1996, capital expenditures
totaled approximately $180,000, including tooling, equipment and software, and
approximately $83,000 was financed by capital leases with third parties.
The Company believes, based upon present resources and anticipated operations,
that it has the financial resources to fund its operations for the remainder of
the current fiscal year ending February 28, 1997. Thereafter it is expected to
require additional financing. This belief is based upon estimates and
assumptions including, among other things, levels of existing and projected
orders and sales, as well as existing and projected operating and production
costs, efficiencies and scheduling. The sales and production levels projected
for the fiscal year ended February 28, 1997 are substantially greater than the
sales and production levels in the past fiscal year. In that regard, it is noted
that the Company has only emerged from the development stage in the fourth
quarter of the fiscal year ended February 29, 1996. Because of vendor lead times
and the need to secure certain critical or sole sourced parts and components and
pricing thereof, the Company makes commitments to its vendors in anticipation of
these anticipated increase in revenues (for example, see note 4 to financial
statements). The
8
<PAGE>
ability of the Company to achieve the increased sales and production will depend
upon, among other things, the success of the Company and its distributors in
fostering market acceptance of the Company's product and the success of
production programs and vendor cooperation. In the event that the Company's
estimates and assumptions prove materially incorrect, the Company's financial
resources may not be adequate to fund planned operations which could have a
material adverse effect on the Company's business and operations. Reference is
made to notes 3, 4 and 11 to the financial statements regarding commitments and
contingencies. The foregoing information constitutes forward-looking statements
within the meaning of Section 21E under the Securities Exchange Act of 1934, as
amended.
Results of Operations -
For the quarter ended August 31, 1996, revenues, gross profit, and net loss were
approximately $650,000, $391,000 and $410,000, respectively and approximately
$650,000, 391,000 and $1,117,000, respectively for the six months ended August
31, 1996. This compares to revenues, gross profit and net loss of approximately
$0, $0, and $792,000 for the prior year quarter ended August 31, 1995 and
approximately $425,000, $92,000 and $1,612,000 respectively for the six months
ended August 31, 1995.
The significant improvement in the quarter and six months ended August 31, 1996
reflects several factors including (i) shipment of one MAGNA-SL in the current
quarter and six months compared to none in the prior year quarter ended August
31, 1995 and one in the six months then ended, (ii) receipt and recognition of
$250,000 in non-refundable advance royalties from Elscint in the quarter and six
months of the current year, (iii) improved gross profit margins on shipment in
the current periods due to improvements in the cost of the MAGNA-SL as well as
the reduction of older, higher cost inventories, and (iv) the reduction of
interest and financing expenses associated with bridge financings in the prior
fiscal year. Reduced research and development levels reflect, among other
things, redeployment of certain development personnel in production and delivery
activities. These improvements were somewhat mitigated by higher costs in the
following areas (i) professional and other costs associated with closing the
Elscint licence and distribution agreement during the current quarter, (ii)
higher occupancy costs associated with the new production facility (which are
not yet absorbed fully by production) and (iii) an increase in interest expense
associated with obligations under capital leases initiated in the current
quarter. The royalty revenues recognized in the quarter ended August 31, 1996
are not necessarily indicative of such revenues to be recorded in future
quarters and reference is made to note 3 to financial statements.
---------------------------------------------------------------
PART II - OTHER INFORMATION
Item 1. - Legal proceedings
Reference is made to Part I - Item 2 of Form 10-KSB for the year ended February
29, 1996 for discussion of a legal proceeding commenced against the Company in
the current fiscal year.
Item 4. - Submission of Matters to a Vote of Security Holders
(a) The 1996 Annual Meeting of Shareholders of the Company was held on July
24, 1996
(b) The following five persons were elected as Directors at the annual
meeting pursuant to the following vote:
Votes For Votes Withheld
--------- --------------
Lawrence A. Minkoff, Ph.D. 8,426,739 3,000
Joel M. Stutman, Ph.D. 8,426,739 3,000
Ms. Cynthia R. May 8,426,739 3,000
Dr. Herbert Moskowitz 8,426,739 3,000
Irwin M. Rosenthal, Esq. 8,426,739 3,000
(c) The independent auditing firm of Rothstein Kass & Co. was ratified as
the Company's auditors at the annual meeting pursuant to the following vote:
Votes for 8,409,074
Votes against 4,700
Votes abstaining
9
<PAGE>
Item 5. - Other information
As previously reported, in June 1996, the Company and Elscint Cryomagnetics,
Ltd. a subsidiary of Elscint, Ltd. ("Elscint") signed definitive agreements
covering a strategic business arrangement in which Elscint would manufacture the
MAGNA-SL for marketing and sale by Elscint in certain non-United States
territories including Europe, the Peoples Republic of China, parts of the Middle
East and Latin America, Australia and other territories. The Company would be
paid royalties on each system manufactured and sold by Elscint. To maintain its
rights under the agreement, Elscint is required to sell a minimum number of
systems in the first two year period (commencing after an agreed upon period of
start-up) and a higher number of systems in the first permitted two year renewal
period. Thereafter, the agreement is renewable by Elscint in two year sales
periods at higher minimum quantities which will be set by the parties in good
faith. If Elscint manufactures and sells the minimum quantities contemplated by
the agreement, (assuming the initial term and two renewal periods) minimum
royalties would be approximately $7.5 million. Elscint has the right to cure
shortfalls by, among other things, making payment of approximately 87% of the
minimum royalties. Upon execution of the agreement, a nonrefundable deposit of
$250,000 was paid to the Company to be applied to first year royalties.
Additionally, Elscint and the Company have agreed to cooperate in making certain
capital expenditures and other areas of manufacturing in order to reduce
production costs and increase operating margins. The parties have also agreed to
collaborate in developing new features and improvements to the MAGNA-SL and the
Company has agreed to provide certain ongoing research and development support.
Elscint has a right of first negotiation on certain new products.
The parties have agreed to certain development tasks and enhancements, which, if
not completed within five months of the signing of the agreement, could, if not
cured, result in termination of the agreement by Elscint.
Item 6. - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No.
-----------
(11) Statement re: computation of loss per share - A statement
regarding the computation of loss per share is omitted because
computation can be clearly determined from the material
contained in this Quarterly Report on Form 10-QSB.
(b) Reports on Form 8-K - NONE
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAGNA-LAB INC.
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(Registrant)
Date: September 26, 1996 By: /s/ Lawrence A. Minkoff
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Lawrence A. Minkoff, Chairman of the Board of
Directors, Chief Executive Officer and President
(Principal Executive Officer)
Date: September 26, 1996 By: /s/ Kenneth C. Riscica
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Kenneth C. Riscica, Vice President - Finance and
Chief Financial Officer; Treasurer and Assistant
Secretary (Principal Financial and Accounting
Officer)
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