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: May 31, 1997
( ) 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.
----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
New York 11-3074326
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O.Box 1313, Brentwood. NY 11717
----------------------------------------
(Address of principal executive offices)
(516) 595-2111
---------------------------
(Issuer's telephone number)
Not applicable
----------------------------------------------------
(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 ( ) No ( X)
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, 1998
Class A Common Stock, $.001 Par Value 19,322,142
- -------------------------------------------------- -----------------
Class B Common Stock, $.001 Par Value 1,764,858
- -------------------------------------------------- -----------------
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 8-10
PART II - OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS 11
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS 11
ITEM 5 - OTHER INFORMATION 11
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 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
<TABLE>
<CAPTION>
MAGNA-LAB INC.
BALANCE SHEETS
May 31, 1997 (unaudited) and February 28, 1997
May 31, February 28,
1997 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ - $ 10,000
Accounts receivable 61,000 61,000
Inventory, net of allowance for estimated
non-realizable value of approximately $532,000 - -
Deposits and other, net of amounts written off - -
------------- ------------
Total current assets 61,000 89,000
------------- ------------
PROPERTY AND EQUIPMENT, less accumulated depreciation
and amortization and write offs of approximately $792,000
and $791,000, respectively 17,000 18,000
------------- ------------
OTHER ASSETS - -
------------- ------------
$ 78,000 $ 89,000
============= ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to related party, overdue $ 75,000 $ 75,000
Accounts payable 1,202,000 1,126,000
Accrued and other current liabilities 1,102,000 908,000
------------- ------------
Total current liabilities 2,379,000 2,109,000
------------- ------------
COMMITMENTS AND CONTINGENCIES
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, 4,190,811 and
3,765,811 shares issued and 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,
1,824,189 and 1,824,189 shares outstanding, respectively. 2,000 2,000
Capital in excess of par value 13,465,000 13,324,000
Accumulated deficit (15,772,000) (15,490,000)
------------- ------------
Total stockholders' equity (2,301,000) (2,020,000)
------------- ------------
$ 78,000 $ 89,000
============= ============
See accompanying notes to financial statements
</TABLE>
1
<PAGE>
MAGNA-LAB INC.
STATEMENTS OF OPERATIONS
(unaudited)
Three months ended May 31,
--------------------------
1997 1996
--------------------------
REVENUES $ - $ -
------------- ------------
COSTS AND EXPENSES:
Cost of sales - -
Selling and marketing 39,000 130,000
General and administrative 197,000 285,000
Research and development 42,000 319,000
------------- ------------
278,000 734,000
OTHER INCOME (EXPENSE)
Interest expense (3,000) (2,000)
Interest income - 28,000
------------- ------------
NET LOSS $ (281,000) $ (708,000)
============= ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 4,890,000 4,590,000
============= ============
NET LOSS PER SHARE $(0.06) (0.15)
============= ============
See accompanying notes to financial statements
2
<PAGE>
<TABLE>
<CAPTION>
MAGNA-LAB INC.
STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(unaudited)
Three Months ended May 31,
--------------------------
1997 1996
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (281,000) $ (708,000)
------------ ------------
Adjustments:
Depreciation and amortization 1,000 26,000
Effect on cash of changes in operating assets and liabilities:
Inventory - (241,000)
Accounts receivable - 55,000
Deposits and other - (6,000)
Accounts payable and accrued liabilities (272,000) (110,000)
Customer deposits - (80,000)
------------ ------------
Total adjustments (271,000) (356,000)
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES (10,000) (1,064,000)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of equipment and software - (55,000)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES - (55,000)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Other, net - -
------------ ------------
NET CASH PROVIDED BY(USED IN) FINANCING ACTIVITIES - -
------------ ------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (10,000) (1,119,000)
CASH AND CASH EQUIVALENTS:
Beginning of period 10,000 3,047,000
------------ ------------
End of period $ - $ 1,928,000
============ ============
See accompanying notes to financial statements
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
MAGNA-LAB INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
For the quarter ended May 31, 1997 (unaudited)
Capital in
Common Stock Excess
---------------------------------------------------
Class A Class B Of Par Accumulated
Shares Amount Shares Amount Value (a) Deficit
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, February 28, 1997 3,765,851 $ 4,000 1,824,149 $ 2,000 $13,464,000 (15,490,000)
CONVERT B SHARES TO A - -
ISSUE SUBSCRIBED SHARES 300,000
NET LOSS (204,000)
-----------------------------------------------------------------------------------
BALANCES, May 31, 1996 (unaudited) 4,065,851 $ 4,000 1,824,149 $ 2,000 $13,464,000 (15,694,000)
=========== ========= ========== ========== ============ ============
(a) Includes amounts classified as Common stock subscribed at February 28, 1997.
See accompanying notes to financial statements
</TABLE>
4
<PAGE>
MAGNA-LAB INC.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - ACTIVITIES:
Since commencement of operations on February 10. 1992, Magna-Lab Inc.
(the "Company") has developed and intended to manufacture and market the
MAGNA-SL, the first of a planned series of anatomy specific MRI (Magnetic
Resonance Imaging) products which are smaller and cost less to own install and
operate than present "whole body" MRI systems. The Company's efforts to market
and sell the MAGNA-SL did not generate sufficient revenues to sustain the
Company's planned operations.
In February 1997, the Board of Directors retained a consultant and
approved a plan of restructuring of the Company's operations conceived with the
assistance of the consultant (the "Plan"). The Plan has, as its objective,
restructuring of the Company's existing business by elimination of production,
marketing and certain system engineering by strengthening the existing
relationship with Elscint Cryomagnetics, Ltd. ("Elscint" - see Form 10-KSB for
the year ended February 28,1997 for a discussion of the relationship with
Elscint), and repositioning the Company into a royalty and development company
in the near term. The repositioning involves a significant new development
iniative in Cardiac MRI through a joint collaberation with the Mount Sinai
School of Medicine (the "Cardiac MRI Iniative"). The Company has received a
proposal from Elscint (the "Elscint Proposal") for certain work which is
integral to the Plan but the Company has been unable to finalize the proposal
because of lack of funds. The Company has concluded an agreement with the Mount
Sinai School of Medicine for the Cardiac MRI Iniative but has been unable to
fund its obligations under the agreement until January 1998. See Note 10 -
Subsequent Events.
The Plan involves termination, in March 1997, of the majority of the
Company's workforce including the entire sales and marketing staff, the
production department and portions of the engineering staff. Further, the Plan
includes elimination of the Company's production, development and executive
facility, reductions in the need for other assets including leased assets with
remaining non-cancelable terms, and other measures. The Plan also includes
raising new financing in order to support the Cardiac MRI Iniative and the
financial resources needed to go forward with the Elscint Proposal. The Company
recorded a restructuring charge of approximately $1.5 million to the fourth
quarter ending February 28, 1997 for write downs of fixed assets, inventory (see
next paragraph) and deposits made with strategic vendors which are
non-refundable, as well as accruals for lease termination and other costs. The
ultimate amount may differ from this estimate.
Pursuant to the Plan and after its further attempts to raise
substantial additional working capital were unsuccesssful, on March 5, 1997, the
Company informed 10 of its 20 employees that they were being indefinitely laid
off and between March 5 and March 15, 1996, another 4 employees were laid off
due to insufficient funds for their payroll. The remaining employees were
offered the opportunity to continue with the Company in exchange for deferred
compensation pending successful completion of continuing efforts to complete a
financing. At March 15, 1997, unpaid payroll to terminated and continuing
employees totaled approximately $150,000. Of the remainder, only Lawrence A.
Minkoff, Ph. D., the Company's Chairman, president and Chief Executive Officer,
is in the full time employ of the Company as of January 1, 1998. The remaining
employees have terminated their full time relationship with the Company and
approximately four of them serve or have indicated that they may serve as part
time employees or consultants to the Company. When the Company vacated its
principal production, development and executive facility it agreed to a judgment
against it by the landlord for unpaid rent in amounts exceeding $50,000 and for
additional rent totaling approxiately $70,000 in settlement of the unexpired
term of the lease. The Company then placed certain inventory and equipment in
storage and several key individuals continued the search for new capital. The
Company's operations have, therefore, all but ceased. Additionally, virtually
all of the Company's creditors have threatened or initiated legal action to
recover amounts due them which the Company has no ability to pay (See - Note 10
Subsequent Events and Part II, Item 1 - Legal Proceedings).
As indicated in the attached financial statements, as of May 31, 1997
Magna-Lab Inc. (the "Company") had no substantial current assets , approximately
$2.4 million of liabilities and virtually no cash. Further, the Company has
incurred a loss of approximately $300,000 for the quarter ended May 31, 1997 and
losses have continued since May 31, 1997 as indicated in the accompanying
condensed financial statements. These factors, among others, indicate that the
5
<PAGE>
Company is in need of very significant additional financing or a strategic
business arrangement in order to continue any aspect of its planned operations
in the fiscal year beginning March 1, 1997. (See Note 10 Subsequent Events
egarding, among other things, completion of this financing in December 1997 and
January 1998).
While the Company had ceased virtually all operations during the
quarter ended May 31, 1997, it continued to search for new capital in order to
continue its operations pursuant to the Plan. In October 1997, the Company
reached agreement with an investor group to provide certain limited funding to
the Company predicated on the Company's ability to reduce its recorded
liabilities (through creditor consessions) by a very material amount. See Note
10 Subsequent Events.
In May 1997, the Company entered into an agreement with Mount Sinai
School of Medicine (New York City) and Dr. Valentin Fuster (as principal
investigator) for a collaborative research arrangement devoted to utilizing MRI
in cardiac arterial imaging and requiring payments totaling approximately $1.5
million over three years. The initial required payment of $150,000 was made in
December 1997.
The Company is continuing its efforts to (1) raise additional capital,
(2) enter into a strategic arrangement with others, and (3) move forward with
the new product opportunity in cardiac MRI and the Elscint proposal. There is no
assurance that any of these efforts will be successful and that the Company will
be able to continue even its severely curtailed operations, for which the
Company will require additional capital. See Note 10 Subsequent Events.
There can be no assurances that management's plans described in the
preceding paragraphs will be realized. These factors, among others, indicate
that the Company may be unable to continue operations as a going concern.
NOTE 2 - 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.
NOTE 3 - 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) Calss B shares, which are forfeitable at March 31, 1998 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 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. The unamortized deposit of approximately
$332,000 remaining at May 31, 1997 has been written off to restructuring charges
in the statement of operations for the fiscal year ended February 28, 1997.
6
<PAGE>
NOTE 5 - PROPERTY AND EQUIPMENT:
Details of property and equipment at May 31, 1997 are as follows:
Machinery and equipment $ 760,000
Purchased software 49,000
---------
809,000
Less: accumulated depreciation and amortization 392,000
amounts written off in restructuring charge 400,000
---------
$ 17,000
NOTE 6 - NOTES PAYABLE:
In February 1997, the Company issued an interest bearing (10%) note payable to a
shareholder on March 15, 1997 for $75,000, secured by certain amounts receivable
from the taxing authorities of the United Kingdom and the machine delivered to a
related party in December 1996 but not paid for by that party. In June 1997,
upon collection of the receivable from the taxing authorities of the United
Kingdom, the Company repaid approximately $64,000 of this note and interest
payable. The remainder, plus penalty interest remains due.
NOTE 7 - STOCKHOLDERS' EQUITY:
In May 1997, the The Board of Directors of the Company determined that the
purposes of the 1992 Stock Option Plan were not being adequately achieved with
respect to those employees and consultants holding options that were exercisable
above the then current market value and that it was essential to the best
interests of the Company and the Company's shareholders that the Company retain
and motivate such employees and consultants. The Board concluded that such
retention was particularly important given the Company's severely strained
financial situation and the sacrifices made by the key employees to work without
current pay and put forth their own resources to support the Companys Plan. The
Board further determined that it would be in the best interests of the Company
and the Company's shareholders to provide such optionees the opportunity to
exchange their above market value options for options exercisable at the then
current market value. In May 1997, upon approval of the Board of Directors of
the Company, the Company offered the holders of outstanding options under the
1992 Stock Option Plan who were identified by the Board to have a continuing
role in the Company's Plan of restructure with exercise prices above $2.00 per
share, the opportunity to exchange such options for new stock options at an
exercise price of $0.25 per share. The bid price for the Class A Common stock on
Nasdaq on that date was $0.22. Any holder accepting this offer was required to
give up existing options. In addition, in recognition of their efforts to
advance the Plan, the completion of the agreement with Mount Sinai School of
Medicine, and the early successful results of the work with Mount Sinai School
of Medicine, the Board awarded (subject to shareholders approval which has not
yet been obtained) new options to purchase an aggregate of 900,000 shares of
Class A common stock at $0.25 per share to officers and directors of the
Company. Each of the new options were granted for a five year period of exercise
with options for 650,000 shares exercisable immediately and options for 250,000
shares exercisable ratably over a three year period.
NOTE 8 - ACCRUED LIABILITIES:
Included in accrued liabilities at May 31, 1997 are approximately $250,000 for
accrued payroll.
NOTE 9 - 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
quarter ended May 31, 1996 have been recorded at approximately $75,000 related
to financing, strategic and general corporate matters. Amounts owing to such
firm are included in the financial statements at approximately $50,000 at May
31, 1996.
7
<PAGE>
Restructuring charge recouped in May 1997 quarter - During the quarter ended May
31, 1997, inventories which had been written off to restructuring charge at
February 28, 1997 totaling approximately $60,000 were returned to vendors for
credit. This amount has been credited to general and administrative costs during
the quarter ended May 31, 1997.
Litigation matters - As a result of the Company's distressed financial
condition, it is subject to the risk of litigation related to unsettled payables
as further discussed in Form 10-KSB for the year ended February 28, 1997.
NOTE 10 SUBSEQUENT EVENTS:
Subsequent to the completion of the quarter ended May 31, 1997, the following
events, pursuant to the Plan of restructuring outlined above, have occurred
which are material to the Company's financial position and results of
operations:
(a) Private placement with accredited investors - Pursuant to a private offering
to accredited investors beginning in November 1997, in January 1998 the Company
completed the offering of 15,072,000 shares of class A common stock to a group
of accredited investors for gross proceeds of approximately $1,884,000. The
proceeds are to be used to advance the Plan of restructuring outlined above,
including the initial funding of the agreement with the Mount Sinai School of
Medicine.
(b) Negotiated settlements with creditors - In connection with the January 1998
private placement of securities outlined in (a) above, the Company has offered
its trade and other creditors the opportunity to settle the Company's obligation
to them for a reduced amount. As of January 1, 1998, certain vendor and employee
claims have been agreed to be settled and efforts are still in process to settle
remaining amounts in an orderly manner.
(c) Settlement of liabilities to employees - In December 1997, the Company
offered to settle claims by non-executive employees of the Company for unpaid
payroll and expenses of approximately $133,000, representing the approximate
amount recorded by the Company for such liabilities. Over 80% of this amount has
been agreed for settlement and efforts are ongoing to settle the remainder.
Executive employees of the Company were offered the opportunity to settle the
liability for amounts due them for compensation for a reduced amount aggregating
approximately $150,000. Approximately 80% of this amount has been agreed to by
the executives and efforts are continuing to settle the remainder. 1 (d)
Settlement of litigation with a vendor - In October 1997 a judgment for $300,000
was entered against the Company in the action commensed by a vendor to recover
amounts alledged to be due from the Company (see Note 12 to finanaial statement
at February 28, 1997). In December 1997, the Company and the vendor agreed to
settle this judgment for a total of $150,000, substantially less than the amount
that had been accrued to the May 31, 1997 condensed balance sheet.
(e) Settlement of judgment in favor or a former landlord - Amounts due to a
former landlord, including amounts under a judgment rendered against the
Company, have been settled for approximately $150,000.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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
(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
8
<PAGE>
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. During the year ended February 28, 1997,
the Company raised approximately $75,000 in a secured note payable to a
shareholder due in March 1997 (which note is presently in default as to
approximately $13,000 of principal plus accrued interest and penalty interest)
and approximately $100,000 in a private placement with accredited investors of
300,000 shares of the Company's Class A Common Stock.
In January 1997, the Company ran out of cash and since then, and until
completion of a private placement of Class A common stock in December 1997 (See
Note 10 Subesquent Events) has had no financial resources available to it.
AT MAY 31, 1997 - FINANCIAL CONDITION AND GOING CONCERN MATTERS - Reference is
made to the Form 10-KSB for a discussion of conditions leading to the Company's
financial situation.
During the quarter ended May 31, 1997, the Company was unsuccessful in
its efforts to raise additional capital, the amounts receivable from the related
party have not been paid, inventory produced for that party has not gone forward
into further production, and, as such, the Company ceased virtually all
operations.
In February 1997, the Board of Directors retained a consultant and
approved a plan of restructuring of the Company's operations conceived with the
assistance of the consultant (the "Plan"). The Plan has, as its objective,
restructuring of the Company's existing business by elimination of production,
marketing and certain system engineering by strengthening the existing
relationship with Elscint Cryomagnetics, Ltd. ("Elscint" - see Form 10-KSB for
the year ended February 28,1997 for a discussion of the relationship with
Elscint), and repositioning the Company into a royalty and development company
in the near term. The repositioning involves a significant new development
iniative in Cardiac MRI through a joint collaberation with the Mount Sinai
School of Medicine (the "Cardiac MRI Iniative"). The Company has received a
proposal from Elscint (the "Elscint Proposal") for certain work which is
integral to the Plan but the Company has been unable to finalize the proposal
because of lack of funds. The Company has concluded an agreement with the Mount
Sinai School of Medicine for the Cardiac MRI Iniative but has been unable to
fund its obligations under the agreement until January 1998. See Note 10 -
Subsequent Events.
The Plan involves termination, in March 1997, of the majority of the
Company's workforce including the entire sales and marketing staff, the
production department and portions of the engineering staff. Further, the Plan
includes elimination of the Company's production, development and executive
facility, reductions in the need for other assets including leased assets with
remaining non-cancelable terms, and other measures. The Plan also includes
raising new financing in order to support the Cardiac MRI Iniative and the
financial resources needed to go forward with the Elscint Proposal. The Company
recorded a restructuring charge of approximately $1.5 million to the fourth
quarter ending February 28, 1997 for write downs of fixed assets, inventory (see
next paragraph) and deposits made with strategic vendors which are
non-refundable, as well as accruals for lease termination and other costs. The
ultimate amount may differ from this estimate.
Pursuant to the Plan and after its further attempts to raise
substantial additional working capital were unsuccesssful, on March 5, 1997, the
Company informed 10 of its 20 employees that they were being indefinitely laid
off and between March 5 and March 15, 1996, another 4 employees were laid off
due to insufficient funds for their payroll. The remaining employees were
offered the opportunity to continue with the Company in exchange for deferred
compensation pending successful completion of continuing efforts to complete a
financing. At March 15, 1997, unpaid payroll to terminated and continuing
employees totaled approximately $150,000. Of the remainder, only Lawrence A.
Minkoff, Ph. D., the Company's Chairman, president and Chief Executive Officer,
is in the full time employ of the Company as of January 1, 1998. The remaining
employees have terminated their full time relationship with the Company and
approximately four of them serve or have indicated that they may serve as part
time employees or consultants to the Company. When the Company vacated its
principal production, development and executive facility it agreed to a judgment
against it by the landlord for unpaid rent in amounts exceeding $50,000 and for
additional rent totaling approximately $70,000 in settlement of the unexpired
term of the lease. The Company then placed certain inventory and equipment in
storage and several key individuals continued the search for new capital. The
Company's
9
<PAGE>
operations have, therefore, all but ceased. Additionally, virtually all of the
Company's creditors have threatened or initiated legal action to recover amounts
due them which the Company has no ability to pay (See - Part II, Item 1 - Legal
Proceedings and Note 10 Subsequent Events).
As indicated in the attached financial statements, as of May 31, 1997
Magna-Lab Inc. (the "Company") had no substantial current assets , approximately
$2.4 million of liabilities and virtually no cash. Further, the Company has
incurred a loss of approximately $300,000 for the quarter ended May 31, 1997 and
losses have continued since May 31, 1997 as indicated in the accompanying
condensed financial statements. These factors, among others, indicate that the
Company is in need of very significant additional financing or a strategic
business arrangement in order to continue any aspect of its planned operations
in the fiscal year beginning March 1, 1997.
While the Company has ceased virtually all operations during the
quarter ended May 31, 1997, it continued to search for new capital in order to
continue its operations pursuant to the Plan.
Pursuant to a private placement to accredited investors begun in
November 1997, in January 1998 the Company completed the offering of 15,036,000
shares of class A common stock to a group of accredited investors for gross
proceeds of approximately $1,884,000. The proceeds are to be used to advance the
Plan of restructuring outlined above, specifically to fund the launch of the
Cardiac MRI initiative, to reduce indebtedness and to provide working capital.
Based on vendor and executive employee concessions to date and anticipated, the
expects that the proceeds of this offering will last it no longer than six
months, after which it would require additional capital to pursue the Plan.
The Company is continuing its efforts to (1) raise additional capital,
(2) enter into a strategic arrangement with others, and (3) move forward with
the new product opportunity in cardiac MRI and the Elscint proposal. The Company
will require additional if it is to pursue its plans.
There can be no assurances that management's plans described in the
preceding paragraphs will be realized. These factors, among others, indicate
that the Company may be unable to continue operations as a going concern.
On April 10, 1997, the Company's equity securities were removed from
listing on the NASDAQ SmallCap Market after the Company's appeal to the Listing
Qualifications Committee was unsuccessful.
The Company believes, based upon its resources after the January 1998
private placement and anticipated operations, that it does not have the
financial resources to fund its operations for more than six months without
substantial additional capital or a stretegic business arrangement. This belief
is based upon estimates and the Company's belief about its financial
requirements, 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 liabilities and discussions with creditors, as well
as existing and projected operating costs, efficiencies and scheduling. 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 -
Operations in the quarter ended May 31, 1997 resulted in a net loss of
approximately $281,000. The majority of the workforce was terminated between
March 5 and March 15, 1997, however, six senior managers and executives
continued to devote their efforts to the Company's Plan of restructure during
the majority of the quarter. Their payroll, which was accrued but not paid
during the quarter, is the principal cost in the accompanying Statement of
Operations. Net loss also includes the reversal of approximately $60,000 of
restructuring charge as a result of the return for credit of inventory which was
written off to restructuring charge at February 28, 1997.
Operations in the quarter ended May 31, 1996 resulted in a net loss of
approximately $708,000. The loss results from the absence of shipments in the
quarter and the ongoing selling, general, administrative and
research/development costs of the Company at that time.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. - LEGAL PROCEEDINGS
Reference is made to Part I - Item 3 of Form 10-KSB for the year ended February
29, 1996 for discussion of a legal proceeding commenced against the Company,
including by Devcom and by the Company's former landlord Heartland Rental
Properties Partnership). See paragraphs (d) and (e) of Note 10 - Subsequent
Events, above, for disclosure of the settlements of these two legal proceedings.
The Company continues to be subject to judgments for lesser amounts and other
litigation and/or threatened litigation.
ITEM 2. - CHANGES IN SECURITIES AND USEOF PROCEEDS
See paragraph (a) of Note 10 - Subsequent Events and Part 1. Item 2,
Management's Analysis and Discussion of Financial Condition and Results of
Operations, for a discussion of a private placement of equity securities (under
Rule 506 Regulation D).
ITEM 5. - OTHER INFORMATION
See Note 10 - Subsequent Events, above, for a discussion of significant Company
developpments during the October 1998 through January 1998 period.
In May 1997, the Company entered into an agreement with Mount Sinai School of
Medicine and Dr. Valentin Fuster (as principal investigator) for a collaborative
research arrangement devoted to utilizing MRI in cardiac arterial imaging and
requiring payments totaling approximately $1.5 million over three years. The
initial required payment of $150,000 was made by the Company until January 1998.
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) The Company filed a report on Form 8-K during the quarter ended
May 31, 1997 (filed in April 1997)
The Form 8-K reported (under Item 5) the following events -
- The very significant financial distress of the Company
- The private placement of $100,000 of Class A common
stock and a $75,000 secured promissory note with a
shareholder
- The Company's Plan of restructuring together with
activities under the Plan
- The removal of the Company's securities from
listing on the NASDAQ SmallCap market
- The agreement with Mount Sinai School of Medicine
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 15, 1997 By: /s/ Lawrence A. Minkoff
------------------ ------------------------------
Lawrence A. Minkoff , Chairman of the
Board of Directors, Chief Executive
Officer and President (Principal Executive
Officer), Acting Treasurer (Principal
Financial and Accounting Officer)
12
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information
extracted from the Balance Sheet, Statements of Operations
and Statements of Cash Flows, and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<CIK> 0000895464
<NAME> Magna-Lab Inc.
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-28-1998
<PERIOD-START> MAR-01-1997
<PERIOD-END> MAY-31-1997
<EXCHANGE-RATE> 1.000
<CASH> 0
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<RECEIVABLES> 61,000
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