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: November 30, 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
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Magna-Lab Inc.
-----------------------------------------------------------------
(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 -January 9, 1997
Class A Common Stock, $.001 Par Value 3,747,685
------------------------------------------------ -----------------
Class B Common Stock, $.001 Par Value 1,842,315
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Class Shares
Transitional Small Business Disclosure Format (check one) Yes |_| No |X|
<PAGE>
MAGNA-LAB INC.
CONTENTS
PART I - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. - FINANCIAL STATEMENTS
BALANCE SHEETS 1
STATEMENTS OF OPERATIONS 2
STATEMENTS OF CASH FLOWS 3
STATEMENTS OF STOCKHOLDERS' EQUITY 4
NOTES TO FINANCIAL STATEMENTS 5 - 8
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 8 - 10
PART II - OTHER INFORMATION 11
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
November 30, 1996 (unaudited) and February 29, 1996
<TABLE>
<CAPTION>
November 30, February 29,
1996 1996
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 223,000 $ 3,047,000
Accounts receivable 183,000 62,000
Inventory 744,000 199,000
Deposits and other 353,000 475,000
------------ ------------
Total current assets 1,503,000 3,783,000
------------ ------------
PROPERTY AND EQUIPMENT, less accumulated
depreciation and amortization of $357,000
and $272,000, respectively 452,000 351,000
------------ ------------
OTHER ASSETS 55,000 2,000
------------ ------------
$ 2,010,000 $ 4,136,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Accounts payable 872,000 754,000
Accrued liabilities 421,000 558,000
Customer deposits and progress billings 319,000 635,000
------------ ------------
Total current liabilities 1,612,000 1,947,000
------------ ------------
OBLIGATIONS UNDER CAPITAL LEASES, noncurrent 28,000 --
------------ ------------
COMMITMENTS AND CONTINGENCIES (Note 1)
STOCKHOLDERS' EQUITY (DEFICIT):
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, 3,747,685 shares
issued, 3,747,685 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,
1,842,315 and 1,853,198 shares outstanding 2,000 2,000
Capital in excess of par value 13,324,000 13,324,000
Deficit accumulated during development stage (12,960,000) (11,141,000)
------------ ------------
Total stockholders' equity 370,000 2,189,000
------------ ------------
$ 2,010,000 $ 4,136,000
============ ============
</TABLE>
See accompanying notes to financial statements
1
<PAGE>
MAGNA-LAB INC.
STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
November 30, November 30,
1996 1995 1996 1995
------------------------- -------------------------
<S> <C> <C> <C> <C>
REVENUES
Sales $ 99,000 $ -- $ 499,000 $ 425,000
Royalties -- -- 250,000 --
----------- ----------- ----------- -----------
99,000 -- 749,000 425,000
COST OF SALES 84,000 -- 343,000 333,000
----------- ----------- ----------- -----------
GROSS PROFIT 15,000 -- 406,000 92,000
----------- ----------- ----------- -----------
OPERATING EXPENSES:
General and administative 337,000 263,000 1,010,000 781,000
Selling and marketing 111,000 144,000 423,000 456,000
Research and development 268,000 250,000 831,000 914,000
----------- ----------- ----------- -----------
716,000 657,000 2,264,000 2,151,000
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (701,000) (657,000) (1,858,000) (2,059,000)
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest and financing expense (6,000) (25,000) (12,000) (241,000)
Interest income 6,000 -- 51,000 6,000
----------- ----------- ----------- -----------
NET LOSS $ (701,000) $ (682,000) $(1,819,000) $(2,294,000)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 4,590,000 2,650,000 4,590,000 2,301,000
=========== =========== =========== ===========
NET LOSS PER SHARE $ (0.16) $ (0.26) (0.40) (1.00)
=========== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
MAGNA-LAB INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(unaudited)
Nine months ended November 30,
1996 1995
------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,819,000) $(2,294,000)
----------- -----------
Adjustments:
Depreciation and amortization 85,000 69,000
Imputed interest -- 136,000
Effect on cash of changes in operating assets
and liabilities:
Inventory (546,000) 61,000
Accounts Receivable (121,000) --
Deposits and other 109,000 71,000
Accounts payable and accrued liabilities (55,000) 551,000
Customer deposits (316,000) 450,000
----------- -----------
Total adjustments (844,000) 1,338,000
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (2,663,000) (956,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of U.S. treasury bills -- --
Maturity of U.S. treasury bills -- --
Purchases of equipment and software (105,000) (21,000)
All other, net -- --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (105,000) (21,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of stock -- 167,000
Sales of Notes and, in 1994, warrants -- 600,000
Repay 10% Bridge Notes -- (400,000)
Deferred debt and offering costs; other (56,000) (167,000)
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (56,000) 200,000
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (2,824,000) (777,000)
CASH AND CASH EQUIVALENTS:
Beginning of period 3,047,000 903,000
----------- -----------
End of period $ 223,000 $ 126,000
=========== ===========
See accompanying notes to financial statements
3
<PAGE>
MAGNA-LAB INC.
STATEMENT OF STOCKHOLDERS' EQUITY
For the nine months ended November 30, 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 10,883 (10,883)
NET LOSS (1,819,000)
---------------------------------------------------------------------------
BALANCES,
November 30, 1996 (unaudited) 3,747,685 $4,000 1,842,315 $2,000 $13,324,000 $(12,960,000)
========= ====== ========= ====== =========== ============
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
MAGNA-LAB INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - GOING CONCERN MATTERS/BASIS OF PRESENTATION:
Going Concern Matters - As indicated in the attached financial statements, as of
November 30, 1996 Magna-Lab Inc. (the "Company") had approximately $1.5 million
in current assets , approximately $1.6 million of current liabilities and
approximately $223,000 in cash. Further, the Company has incurred a loss of
approximately $1.8 million, and has had net cash outflows from operating and
investing activities of approximately $2.8 million, for the nine months ended
November 30, 1996. Further, losses are continuing since November 30, 1996. These
factors, among others, indicate that the Company is in need of additional
financing or a strategic business arrangement in order to continue its planned
operations in the fiscal year beginning March 1, 1997. Current assets include
receivables from and inventory produced for a related party customer who has
indicated to the Company that it is not yet able to pay for a machine which was
completed in December 1996 and has not proceeded with a sales contract for a
second machine due to such customer's financing delays or difficulties.
Approximately $345,000 would be due to the Company (including approximately
$120,000 in progress billings which were included in accounts receivable at
November 30, 1996) upon completion and acceptance of the completed machine and
approximately $380,000 would be due upon completion and acceptance of the second
machine. The Company's operating and cash flow plans for the fiscal year ending
February 28, 1997 included collection of the receivable and delivery of the
second machine. While the Company continues to work with this customer to
resolve these difficulties, and this customer has paid the Company nearly $1
million, net, in the past (as the purchase price for two machines, deposits on
additional machines and advance payments for a development machine), these
elements of the Company's plan are now uncertain. This factor, among others,
indicates that the Company may be unable to continue operations in the fourth
quarter beginning December 1, 1996.
The Company is seeking, through a placement agent, to raise additional financing
in a private placement of convertible preferred equity securities of the Company
to accredited investors. The securities will not be registered under the
Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
The proceeds, if realized would be utilized to meet the Company's cash needs for
the remainder of the present and a portion of the coming fiscal year and to
commence a proposed research collaboration relating to cardiac MRI imaging.
Additionally, the Company is pursuing strategic marketing or other business
arrangements with companies in the North American market. Further, the Company
intends to assist in resolving, if possible, the credit difficulties related to
receiving payment for the completed machine or to replace that source of
financing with an alternate source. There can be no assurance that the private
placement of equity securitites will be successfully completed or that the
Company will otherwise succeed in raising additional financing or entering into
strategic or other arrangements or resolving or replacing the customer credit
difficulties.
There can be no assurances, however, that management's plans described in the
preceding paragraph will be realized. These factors, among others, indicate that
the Company may be unable to continue operations as a going concern.
See Note 9 and "Management's Discussion and Analysis or Plan of Operation" for
further information.
The foregoing information, as well as information contained elsewhere in this
report, constitutes forward-looking statements within the meaning of Section 21E
under the Securities Exchange Act of 1934, as amended.
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 28, 1996, the Company was a development stage company.
5
<PAGE>
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. Such tasks and
enhancements were scheduled to be completed in November 1996 and Elscint has
informed the Company that it is not satisfied with the completion of certain of
the tasks agreed to by the parties. The parties have negotiated a new completion
date for the tasks; however Elscint has reserved all of its rights including the
right to complete the tasks itself at the Company's expense or to terminate the
agreement.
A third party has indicated to the Company that it believes the agreement with
Elscint comes within the terms of a Company 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 has had discussions with this party concerning this
matter and, in light of those discussions to a point in time and after
discussions with counsel, had accrued (but still disputes) an amount of fee
based on a percentage of the royalties received to date. In December 1996, this
third party presented the Company with a demand for immediate payment of the
$250,000 minimum fee it asserts is due under its agreement. The Company intends
to vigorously dispute this matter.
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. In the third quarter ended November 30,
1996, the Company shipped approximately $99,000 of components to Elscint.
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
6
<PAGE>
approximately $322,000 remains at November 30, 1996. Such remaining deposit will
be amortized over the remaining consoles to be purchased under the amended
agreement (see below). 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 November 30, 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 with this vendor
regarding delivery and payment schedules. Discussions with the vendor, although
continuing, have been hampered by the operating and cash flow matters discussed
in Note 1. It is possible, if such discussions are not concluded satisfactorily,
that the Company could forfeit its rights to the remaining deposit and have a
claim asserted against it by the vendor.
NOTE 5 - PROPERTY AND EQUIPMENT:
Details of property and equipment at November 30, 1996 are as follows:
Machinery and equipment $731,000
Purchased software 78,000
--------
809,000
Less accumulated depreciation and amortization 357,000
--------
$452,000
========
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 625,000 shares of 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 and resigned as a Director in
December of 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.
Note 7 - OBLIGATIONS UNDER CAPITAL LEASES:
At November 30, 1996, Property and Equipment and Accumulated Depreciation
included approximately $83,000 and $7,000, respectively, of equipment recorded
under capital leases. Aggregate future minimum lease payments at November 30,
1996 are approximately $15,500, $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.
7
<PAGE>
During the three and nine months ended November 30, 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:
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 in the
Company's Form 10-KSB, is as follows:
As Reported Pro-Forma
----------- ---------
Quarter ended November 30, 1995:
Net Loss $ (682,000) $ (682,000)
Weighted Average Shares 2,650,000 2,735,000
Net Loss Per Share $(.26) $(.25)
Nine months ended November 30, 1995:
Net Loss $(2,294,000) $(2,095,000)
Weighted Average Shares 2,301,000 2,735,000
Net Loss Per Share $(1.00) $(.77)
Note 9 - CUSTOMER DEPOSITS:
The Company has two sales contracts with Beta Numerics, Inc. ("Beta", a
privately held company whose shareholders include two Directors and beneficial
owners of the Company's stock and one former Director and still beneficial owner
of the Company's stock who resigned as a Director in December 1996). Beta
purchases equipment from the Company and leases it to an end user on a "fee per
scan" basis. The terms of the sales contracts call for a deposit upon order and
further progress payments upon commencement of manufacturing, shipment to the
end user and acceptance or first use of the machine.
During the nine months ended November 30, 1996, the Company (i) returned $80,000
in customer deposits to Beta at their request, (ii) released $400,000 previously
received from Beta to the Statement of Operations upon the Company's delivery of
the related machine to the end user, (iii) made $240,000 in progress billings
(which are now seriously overdue) to this related party ($120,000 of which was
subsequently reversed due to the factors described in Note 1) and (iv) received
approximately $66,000 from Elscint in connection with their purchase of certain
components from the Company.
Activity in customer deposits during the nine months ended November 30, 1995
included receipt of additional deposits from Beta totaling $420,000 and release
to the Statement of Operations of $400,000 of customer deposits previously
received from that related party.
Subsequent to November 30, 1996, the Company shipped the machine that is the
subject of one progress billing described above to the end user but did not
transfer title to Beta as a result of Beta's delinquency. Such machine became
operational ("first use") in December 1996 entitling the Company to bill Beta a
total (including progress billings) of approximately $345,000. If Beta does not
pay its obligations to the Company, the Company will need to seek an alternate
source of financing for this machine.
At November 30, 1996 Beta has approximately $100,000 on deposit with the Company
in connection with its commitments under a Sales, Marketing and Distribution
Agreement for the purchase of machines and development of a mobile scanner.
Also see Note 1 and "Management's Discussion and Analysis or Plan of Operation."
8
<PAGE>
Note 10 - ACCRUED LIABILITIES:
Included in accrued liabilities at November 30, 1996 are approximately $3,000
and $53,000 related to notes payable for certain insurance policies and accrued
payroll, respectively.
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 nine months ended November 30, 1996 have been recorded at approximately
$99,000 and $180,000, respectively, related to financing, strategic and general
corporate matters. Amounts owing to such firm are included in the financial
statements at approximately $200,000 at November 30, 1996.
Also see Notes 4 and 7.
----------------------------------------------------------------------
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANINGS
OF SECTION 27A OF THER SECURITIES ACT OF 1933 AND SECTION 21E OF
THE SECURITIES EXCHANGE ACT OF 1934. ACTUAL RESULTS AND EVENTS
COULD DIFFER MATERIALLY FROM THOSE PROJECTED
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.
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 November 30, 1996 - Going Concern Matters - As indicated in the attached
financial statements, as of November 30, 1996 Magna-Lab Inc. (the "Company") had
approximately $1.5 million in current assets , approximately $1.6 million of
current liabilities and approximately $223,000 in cash. Further, the Company has
incurred a loss of approximately $1.8 million, and has had net cash outflows
from operating and investing activities of approximately $2.8 million, for the
nine months ended November 30, 1996. Further, losses are continuing since
November 30, 1996. These factors, among others, indicate that the Company is in
need of additional financing or a strategic business arrangement in order to
continue its planned operations in the fiscal year beginning March 1, 1997.
Current assets include receivables from and inventory produced for a related
party customer who has indicated to the Company that it is not yet able to pay
for a machine which was completed in December 1996 and has not proceeded with a
sales contract for a second machine due to financing delays or difficulties.
Approximately $345,000 would be due to the Company (including approximately
$120,000 in progress billings which were included in accounts receivable at
November 30, 1996) upon completion and acceptance of the completed machine and
approximately $380,000 would be due upon completion and acceptance of the second
machine. The Company's operating and cash flow plans for the fiscal year ending
February 28, 1997 included collection of the receivable and delivery of the
second machine. While the Company continues to work with this customer to
resolve these difficulties, and this customer has paid the Company nearly $1
million, net, in the past (as the purchase price for two machines, deposits on
additional machines and advance payments for a development machine), these
elements of the Company's plan are now uncertain. This factor, among others,
indicates that the Company may be unable to continue operations in the fourth
quarter beginning December 1, 1996.
9
<PAGE>
The Company is seeking, through a placement agent, to raise additional financing
in a private placement of convertible preferred equity securities of the Company
to accredited investors. The securities will not be registered under the
Securities Act of 1933 and may not be offered or sold in the United States
absent registration or an applicable exemption from registration requirements.
The Company has indicated to the placement agent that it would allocate a
portion of the proceeds of the financing, if realized, to a proposed
collaboration between the Company and a major medical center for the development
of cardiac MRI and the balance of the proceeds for working capital for the
remainder of this fiscal year and a portion of the next fiscal year.
Additionally, the Company is pursuing strategic marketing or other business
arrangements with companies in the North American market. Further, the Company
intends to assist in resolving, if possible, the credit difficulties related to
receiving payment for the completed machine or to replace that source of
financing with an alternate source. There can be no assurance that the private
placement of equity securitites will be successfully completed or that the
Company will otherwise succeed in raising additional financing or entering into
strategic or other arrangements or resolve or replace the customer credit
difficulties.
There can be no assurances that management's plans described in the preceding
paragraph will be realized. These factors, among others, indicate that the
Company may be unable to continue operations as a going concern.
Operations utilized approximately $2,800,000 of cash in the nine months ended
November 30, 1996 due to losses of approximately $1,800,000, 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 because it had been paid for with customer
deposits during the prior fiscal year. During the nine months ended November 30,
1996, capital expenditures totaled approximately $190,000, including tooling,
equipment and software, and approximately $83,000 was financed by capital leases
with third parties.
The Company belief about its financial requirements for the fourth quarter and
the coming fiscal year, as well as other information contained in this report,
are based upon present resources, condititions, developments and anticipated
operations. 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 originally projected for the fiscal
year ended February 28, 1997 have been projected at substantially greater levels
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 and that sales and
order entry levels for the current fiscal year have not met the Company's
projection and expectation. As such, the Company is exploring strategic
marketing alternatives for the North American market. 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 increases in revenues (for example, see note 4
to financial statements). The ability of the Company to achieve increased sales
and production will depend upon the availability of working capital (see first
paragraph of this subsection) and, among other things, the success of the
Company and its distributors in fostering market acceptance of the Company's
product, the possibility of a new strategic marketing arrangement in the North
American market, 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 (refer to the first paragraph of this subsection). Reference is
made to the financial statements contained in Form 10-KSB and to Notes 4 and 5
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 November 30, 1996, revenues, gross profit, and net loss
were approximately $99,000, $15,000 and $701,000, respectively and approximately
$749,000, $406,000 and $1,819,000, respectively for the nine months ended
November 30, 1996. This compares to revenues, gross profit and net loss of
approximately $0, $0, and $682,000 for the prior year quarter ended November 30,
1995 and approximately $425,000, $92,000 and $2,294,000 respectively for the
nine months ended November 30, 1995.
The quarter and nine months ended November 30, 1996 reflects several factors
including (i) shipment of one MAGNA-SL in the current nine months compared to
one in the nine months ended November 30, 1995, (ii) shipment of components of
$99,000 to Elscint in the quarter and nine months of the current year in order
to accommodate the stage of their activities to produce and sell the MAGNA-SL,
(iii) receipt and recognition of $250,000 in non-refundable advance royalties
from Elscint in the nine months of the current year, (iv) improved gross profit
margins on shipment in the current periods due
10
<PAGE>
to improvements in the cost of the MAGNA-SL as well as the reduction of older,
higher cost inventories, (v) reduced marketing costs as a result of the movement
of a major trade show from November in 1995 to December in 1996 and (vi) the
reduction of interest and financing expenses associated with bridge financings
in the prior fiscal year. Reduced research and development levels for the nine
months ending November 30, 1996 reflect, among other things, redeployment of
certain development personnel in production and delivery activities as well as a
reduced headcount. These improvements were somewhat mitigated by higher costs in
the following areas (i) substantially higher professional and other costs
associated with business development matters including closing the Elscint
licence and distribution agreement and other matters during the current year,
(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 year. 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 the financial statements.
------------------------------------------------------------
PART II - OTHER INFORMATION
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.
(27) Financial Data Schedule
(b) Reports on Form 8-K - NONE
11
<PAGE>
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.
-------------------------------
(Registrant)
Date: January 21, 1997 By: /s/ Lawrence A. Minkoff
---------------- -------------------------------
Lawrence A. Minkoff, Chairman of the
Board of Directors, Chief Executive
Officer and President (Principal
Executive Officer)
Date: January 21, 1997 By: /s/ Kenneth C. Riscica
---------------- -------------------------------
Kenneth C. Riscica, Vice President -
Finance and Chief Financial Officer;
Treasurer and Assistant Secretary
(Principal Financial and Accounting
Officer)
12
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-1997
<PERIOD-START> MAR-01-1996
<PERIOD-END> NOV-30-1996
<CASH> 223,000
<SECURITIES> 0
<RECEIVABLES> 183,000
<ALLOWANCES> 0
<INVENTORY> 744,000
<CURRENT-ASSETS> 1,503,000
<PP&E> 809,000
<DEPRECIATION> 357,000
<TOTAL-ASSETS> 2,010,000
<CURRENT-LIABILITIES> 1,612,000
<BONDS> 0
0
0
<COMMON> 4,000
<OTHER-SE> 366,000
<TOTAL-LIABILITY-AND-EQUITY> 2,010,000
<SALES> 499,000
<TOTAL-REVENUES> 749,000
<CGS> 343,000
<TOTAL-COSTS> 2,264,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,000
<INCOME-PRETAX> (1,819,000)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,819,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,819,000)
<EPS-PRIMARY> (0.40)
<EPS-DILUTED> (0.40)
</TABLE>
