U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended Commission file number 0-21320
February 29, 2000.
Magna-Lab Inc.
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(Name of small business issuer in its charter)
New York 11-3074326
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6800 Jericho Turnpike, Ste 120W, Syosset, NY
(P.O.Box 780, Syosset, N.Y. 11797) 11791
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number - (516) 393-5874
Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock, $.001 par value per share
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(Title of Class)
Redeemable Class E Warrants
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(Title of Class)
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 .
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Check if no disclosure of delinquent files in response to Item 405 of Regulation
S-B is contained in this form, and no disclosure will be contained, to the best
of the registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form (_)
The issuer's revenues for its most recent
fiscal year ended February 29, 2000: $ 0.
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The aggregate market value on May 10, 2000 of the publicly trading voting stock
held by non-affiliates (consisting of Class A Common Stock, $.001 par value)
computed on the average bid and asked prices of such stock on that date was
approximately $ 18,000,000.
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As of May 10, 2000, 35,785,945 shares of Class A Common Stock, $.001 par value,
and 414,722 shares of Class B Common Stock, $.001 par value, were outstanding.
Transitional small business disclosure format (check one) YES NO X
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DOCUMENTS INCORPORATED BY REFERENCE - None
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EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THIS REPORT AND THE
FOLLOWING DISCUSSION CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANINGS OF
SECTION 27A OF THE SECURITIES ACT OF 1933 AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934. SUCH STATEMENTS INVOLVE RISKS AND UNCERTAINTIES AND THE
COMPANY'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED HEREIN.
FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT
LIMITED TO, THOSE DISCUSSED BELOW IN FACTORS THAT MAY AFFECT FUTURE RESULTS
PART I
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
Magna-Lab Inc. was incorporated as a New York corporation on February 22,
1991 and commenced operations on February 10, 1992. In 1997, Cardiac MRI, Inc.
was incorporated in New York as a wholly owned subsidiary of Magna-Lab Inc.
(collectively with Magna-Lab Inc., the "Company").
From commencement of operations in 1992 until 1997, the Company developed,
received U.S. FDA clearance (September 1994), manufactured and marketed the
MAGNA-SL, the first of a planned series of anatomy specific Magnetic Resonance
Imaging ("MRI") equipment. The Company's efforts to market and sell the MAGNA-SL
did not generate sufficient revenues to sustain the Company's planned operations
and such operations were discontinued during 1997.
The Company's activities during the past three fiscal years have consisted
of the following.
In February 1997, the Company commenced a plan of restructuring (the
"Plan") to reposition the Company away from the capital medical equipment
business (MAGNA-SL) and into the disposable medical device business. The
Company's restructuring plan was focused on utilizing (i) the Company's core
competencies in MRI technology and (ii) its relationship with a clinical thought
leader in Cardiology, to develop leading edge, breakthrough disposable medical
devices which would make MRI imaging more effective for the diagnosis, and as a
guide in the treatment of, Coronary Artery Disease (the "Cardiac MRI
Initiative"). The Cardiac MRI Initiative marries the advantages of MRI in
diagnosis of soft tissue (i.e. heart and related vessels) with the absence in
modern Cardiology of definitive non-invasive or minimally invasive diagnosis of
Coronary Artery Disease ("CAD"). The Company's efforts address a broad market
since it believes that CAD is the number one killer in the United States.
Under the Plan, in March 1997, the Company discontinued its capital medical
equipment operations associated with the MAGNA-SL. As such, the majority of the
Company's workforce was terminated, the Company vacated its production,
development and executive facility and ceased the need for other assets
including leased assets with remaining non-cancelable terms, and took other
measures. Certain inventory and equipment were placed in storage. The Company
recorded a restructuring charge of approximately $1.5 million in the fourth
quarter ended February 28, 1997 for write-downs of fixed assets, inventories and
non-refundable deposits made with strategic vendors, as well as accruals for
lease termination and other costs. While the ultimate amount may differ from
this estimate, the Company presently believes that such restructuring charge
continues to be adequate.
Capital raising and business development activities for the Cardiac MRI
Initiative were undertaken by a group of five Directors, Officers and
consultants including Director Irwin M. Rosenthal, then Director Herbert
Moskowitz, Officers Lawrence A. Minkoff and Kenneth C. Riscica and consultant
Daniel M. Mulvena. In May 1997, the Company entered into a collaboration with
the Zena and Michael A. Weiner Cardiovascular Institute of the Mount Sinai
School of Medicine (New York) ("MSSM") and Dr. Valentin Fuster, M.D., Ph.D., to
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advance the Cardiac MRI Initiative. In December 1997, the Company's efforts to
raise additional financing to support the Cardiac MRI Initiative were successful
in raising $1.884 million in a private placement of 15,072,000 shares of Class A
common stock to accredited investors (the "December 1997 Financing").
The December 1997 Financing was conditioned on the Company initiating a
program to pay its then existing liabilities on a reduced basis (the "Debt
Reduction Program"). In approximately October 1997, counsel was retained and the
Company commenced the Debt Reduction Program to reduce its recorded liabilities
(then approximately $2.5 million, unaudited). Counsel contacted the Company's
creditors and informed them of the Company's opportunity to obtain new financing
if the creditors agreed to settle liabilities due them for substantially reduced
amounts. In total, approximately $2,100,000 of liabilities have been either
paid, agreed to be reduced by the vendors or written off as a result of the
passage of time (See Notes to Consolidated Financial Statements).
In May 1999, the Company completed the private placement to accredited
investors of 2,413,667 shares of Class A common stock for proceeds of
approximately $362,050. In the fourth quarter of the fiscal year ended February
29, 2000 the Company was successful in raising $2,218,000 in equity under two
arrangements aimed at raising an aggregate of $5,000,000. Subsequent to February
29, 2000, an additional approximately $1,000,000 was raised bringing the total
to approximately $3,218,000 through May 19, 2000. These transactions are
described further in Part II, Item 5 (b) and in Notes to Consolidated Financial
Statements, Item 7.
From December 1997 through the present, the Company's activities on the
Cardiac MRI Initiative have included: (i) initial design and testing, (ii) third
party design review and testing, (iii) bench testing, (iv) animal testing, (v)
publishing technical papers, (vii) presenting the results and findings at major
medical meetings and (viii) business development activities. Other efforts to
advance the Plan have included (i) executing the Debt Reduction Program, (ii)
capital raising activities and (iii) seeking, without success to date, to
realize value for the Company's investment in the MAGNA-SL through a business
relationship with others. The Company's current efforts are directed toward
commercialization of its products including completion of animal and human
testing and business development activities.
The address of the Company's principal executive office is 6800 Jericho
Turnpike, Suite 120W, Syosset, New York 11797 and its telephone number is (516)
393-5874. From May 1997 until December 1999, the Company's principal address had
been PO. Box 780, Syosset, NY 11797. From April 1996 until May 1997, the
Company's principal executive office had been 250Z Executive Drive, Edgewood,
N.Y. 11767 and its telephone number was (516) 595-2111.
(b) BUSINESS OF ISSUER
GENERAL
The Company's business activities consist principally of development of
disposable diagnostic imaging devices for use in enhancing the effectiveness of
MRI for the detection and diagnoses of CAD. These devices are intended to
significantly enhance the diagnostic image created by MRI to make MRI essential
in the diagnosis and as a guide in the treatment of CAD. The Company believes
that MRI, because of its particular effectiveness with soft tissue, can play a
critical role in diagnosis for heart disease. The Company's devices are designed
to overcome existing obstacles to the effective use MRI imaging for use in CAD.
In formulating its approach to applying MRI technology to CAD, the Company
relies on its Chief Scientific Officer, Lawrence A. Minkoff, Ph.D. and on the
clinical, medical leadership of Dr. Valentin Fuster, M.D., Ph.D. and his staff
at MSSM. Dr. Minkoff is one of the pioneers in the field of MRI technology. His
service as a member of the four man team that invented MRI imaging for humans in
July 1978 has been memorialized in the Smithsonian Institution. In fact, Dr.
Minkoff was the first human scanned by MRI. Dr. Fuster is believed by many to be
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a thought leader in Cardiovascular medicine, having numerous accomplishments and
honors including his recent leadership of the American Heart Association
(President, 1998/1999). Dr. Fuster is regularly called upon to consult on the
cardiac care of prominent world leaders and he aggressively publishes and
presents breakthrough thinking in CAD. The leadership of Dr. Minkoff and Dr.
Fuster are considered core competencies of the Company.
The Company believes the market for it's planned Cardiac MRI products is
potentially a multi-billion dollar market. The Company believes that over 11.2
million Americans have been diagnosed as having CAD and that approximately 6.0
million people visit U.S. hospitals with CAD complaints annually. The Company
believes that approximately 3.0 million of such people are referred for testing,
observation, or treatment. Annually, the Company believes that approximately 1.5
million people have a heart attack in the U. S. (approximately one American
every 20 seconds) and approximately 500,000 of these die (approximately one
American every minute). This disease is believed to be the leading killer in the
U.S. and a significant part of our healthcare cost. Further, recent research,
including research done by MSSM, indicates that "vulnerable" or "unstable
plaque" ("Vulnerable Plaque") within the coronary arteries may be a cause of the
sudden massive heart attacks experienced by persons who have not previously
exhibited signs of CAD.
There is not currently a definitive test for the diagnosis for Vulnerable
Plaque within the coronary arteries. Studies and experiments performed to date
indicate that MRI may be effective in diagnosing Vulnerable Plaque. The topic of
Vulnerable Plaque, and the Company's work in conjunction with Dr. Fuster and
MSSM, has recently received attention in the United States media in U.S.A. Today
(November 1999), ABC News 20/20 Friday (January 2000), U.S. News and World
Reports (March 2000), among others. The Company believes attention to this
unfilled diagnostic need is increasing for several reasons including: (i) the
unexplained sudden death of otherwise healthy people from CAD, (ii) the
demographics of the "baby boom" population which puts them in the age category
where CAD events (including the sudden massive heart attack associated with
Vulnerable Plaque) occur and (iii) the increasing awareness of issues related to
coronary health that result from increased education, among other factors.
The results of the Company's early work in applying its disposable MRI
devices to CAD were presented in March 2000 at the Annual Meeting of the
American College of Cardiology and at the April 2000 meeting of the Society of
Magnetic Resonance in Medicine. The Company believes that its technology was
enthusiastically received at such meetings.
The company's products under development consist of the following:
o CARDIAC VIEW - A non-invasive approach to definitive diagnosis of
coronary artery and other heart diseases. Cardiac View is designed to
operate in conjunction with a magnetic resonance imaging system to
generate diagnostic quality images of the gross arterial structure of
the heart. The device consists of an MRI micro receiver coil which is
introduced to the patient by means of a probe which is inserted down
the throat or nasal passages and into the esophagus. Positioning in
the esophagus puts the micro receiver coil directly behind the heart
for optimum imaging.
o ARTERY VIEW - A minimally invasive product to permit the cardiologist
to see the composition of atherosclerotic plaque that is the cause of
Coronary Artery Disease. Arterial View is an intra-arterial probe that
is threaded through a catheter and guidewire to the site of
atherosclerotic blockage. The device is intended to facilitate the
capture of high resolution magnetic resonance images to provide a
diagnostic view of the fine structures of the arterial wall and
various components of atherosclerotic plaque. MRI is the only imaging
technique that permits the differentiation of the chemical composition
of the tissue. This device is intended to aid in the treatment of CAD
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by permitting the physician to assess the morphology (structure and
form) and the chemistry of the lesion that is causing the distress.
The Company has frozen the design of the Cardiac View probe pending
finalization of animal and human testing and has a working prototype of the
Artery View catheter. The devices are being developed in conjunction with the
Company's principal investigator, Valentin Fuster, M.D., Ph.D., Chairman of the
Zena and Michael A. Weiner Cardiovascular Institute at Mt. Sinai School of
Medicine, New York City.
In May 1997, the Company entered into an agreement with the Zena and
Michael A. Weiner Cardiovascular Institute of the Mount Sinai School of Medicine
(New York City) and Dr. Valentin Fuster (as principal investigator) ("MSSM") for
a collaborative research arrangement devoted to utilizing MRI in cardiac
arterial imaging. Under the agreement, the Company is required to make payments
to MSSM of $600,000 in each of the first and second years and $300,000 in the
third year. The start of the annual periods was delayed and payments of $300,000
were made to MSSM during each of the fiscal years ended February 28, 1998, 1999
and February 29, 2000. In January and April 2000, the Company and MSSM agreed to
reschedule the remaining payments, as permitted under the agreement, to more
closely reflect the status of the work under the agreement. As amended, $300,000
has been paid subsequent to February 29, 2000 and a total of $300,000 is due in
two installments later in 2000. The Company is current with all required
payments under the agreement, as amended. See also Note 3 to Consolidated
Financial Statements. The Company has also agreed to pay royalties, as defined
in the agreement, to MSSM for the sole and exclusive right to use, make, have
made, sell and otherwise exploit the results of the collaboration.
The Company has also been engaged in attempting to realize value for its
investment in the MAGNA-SL product, after discontinuing development,
manufacturing and marketing activities associated with this product in 1997.
Efforts to date have included discussion of the licensing or sale of the
MAGNA-SL and no definitive arrangements have resulted.
INDUSTRY BACKGROUND
MRI, also known as nuclear magnetic resonance imaging, is a medical
diagnostic imaging procedure which produces images of slices of the body
allowing physicians to view the internal human anatomy. MRI has certain
advantages over other imaging procedures such as computerized axial tomography
(CAT), Positron Emission Tomography (PET) and X-ray. MRI does not use X-rays, or
any other ionizing radiation as in other nuclear medicine techniques and can
produce soft tissue contrast differences many times greater than other
procedures. MRI can acquire data in any planar orientation, is not limited to
cross sectional slices and provides greater flexibility in imaging a wide
variety of pathologies. MRI systems create images by analyzing the behavior of
hydrogen atom nuclei in the body. The living body contains a number of hydrogen
atoms, mostly in the form of water. MRI systems typically consist of a large
magnet, radio signal generators, radio signal receivers and computer hardware
and software. By affecting the alignment and behavior of nuclei using an
external magnet and radio waves, MRI systems obtain information and process the
information by a computer to create an image of the internal human anatomy which
is displayed on a video monitor.
The Company believes that MRI would, except for certain limitations which
the Company's products are designed to address, be the preferred diagnostic tool
in diagnosing CAD. The Company believes this because of MRI's particular
effectiveness on soft tissue and because of the additional information which MRI
presents which could definitively diagnose not only the existence, but the type
of arterial lesion. MRI is presently not used extensively in diagnosing CAD. The
Company believes that its devices will make MRI more effective for this purpose.
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PRODUCTION AND ASSEMBLY
The Company believes that there are qualified, established manufacturers of
cardiac probes and catheters who can be trained by the Company to manufacture
the Cardiac View and Artery View products to the Company's design and
specification. Further, the Company believes that this area of manufacturing,
because it includes products that are minimally invasive, has very substantial
start-up costs and rigorous government regulation. The Company has had contact
with manufacturers who have already made such investments, are already subject
to such regulations and would be interested in manufacturing these products for
the Company.
ACT Medical, Inc. ("ACT") Newton Ma., a leading contract developer and
manufacturer of medical devices, has been engaged since 1998 to assist the
Company in the design, validation and the initial production of the Company's
devices. ACT is one of the leading suppliers of these services to major
companies in the healthcare field. The Company believes that ACT serves or has
served industry leaders such as Boston Scientific Corp., Medtronic, Inc. and
Johnson and Johnson. By utilizing the services of ACT, the Company believes that
it can achieve a shorter timeframe to get its products to market by taking
advantage of ACT's existing FDA approved manufacturing capability. The Company
believes that ACT can satisfy the production needs that would result from
commercial introduction of its products.
The Company has carefully followed principles of good manufacturing
practice in the design, documentation and validation of its devices. The Company
has been advised by outside consultants of the documentation that is required to
achieve GMP and ISO certification. The Company is working with regulatory
consultants to be in compliance with accepted standards.
MARKETING AND DISTRIBUTION
Initially, the Company plans to focus its marketing effort on the clinical
validation of the use of Cardiac View. Working with the research scientists and
clinical staff at MSSM, the Company will explore the practical application of
its technology in carefully controlled studies. Using the experience gained at
MSSM, the Company will expand its study base by working with top researchers
located around the U.S. and in international markets.
The Company presently expects to establish its own direct sales force in
the United States. The sales force would be made up of experienced sales people
from the cardiology field. The key target accounts will be the largest teaching
hospitals, larger hospitals in metropolitan areas and active free-standing MRI
centers who focus on cardiology. Overseas the company would expect to employ
distributors with a proven track record in diagnostic imaging and cardiology.
The company would expect to employ a representative in each international market
to manage the development of the business. These representatives would be
expected to have technical expertise in the product to assist the dealers in
clinical and service related issues.
The Company expects to attend the major and regional conferences at which
Cardiac View and Artery View might have a receptive audience including the
meetings of the American Heart Association and American College of Cardiology.
PROPRIETARY RIGHTS
The Company's policy has been to obtain patents to protect technology,
inventions and improvements that are important to the development of its
business. The Company also relies upon trade secrets, know-how, continuing
technological innovation and licensing opportunities to develop and maintain its
competitive position.
The Company has filed three patent applications in the United States
relative to the proprietary elements of its Cardiac View and Artery View
products. Such patent applications relate to the application and design of its
system. Efforts to advance such patent applications to the non-U.S. markets are
in process.
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Dr. Lawrence A. Minkoff, President and Chief Scientific Officer and a
Director of the Company, has received one patent relating to the permanent
magnet structure of the Company's MAGNA-SL. In December 1992, Dr. Minkoff
assigned his rights to the magnet technologies to the Company. Additionally, the
Company has filed applications for patent protection internationally, including
an application under the Patent Cooperation Treaty ("PCT"), relating to the
permanent magnet structure, but has permitted its rights under that PCT
application to lapse. The Company has been informed that the PCT application was
published, making it unlikely that additional foreign patent protection with
respect to the permanent magnet structure can now be obtained. In March 1995,
the Company was issued a U.S. patent concerning a certain proprietary imaging
sensing coil assembly. The Company has filed an application for patent
protection internationally, including under the PCT, relating to the imaging
sensing coil assembly.
The patent position of any medical device manufacturer, including the
Company, is uncertain and may involve complex legal and factual issues.
Consequently, the Company does not know whether its applications will result in
the issuance of any patents, or, for any patents issued, whether they will
provide significant proprietary protection or will be circumvented or
invalidated. Since patent applications are maintained in the U.S. in secrecy
until patents issue, and since publications of discoveries in the scientific or
patent literature tend to lag behind actual discoveries by several months, the
Company cannot be certain that it was the first creator of inventions covered by
its pending patent application or that it was the first to file a patent
application for such inventions. There can be no assurance that any of the
Company's patent applications will result in any patents being issued or that,
if issued, patents will offer protection against competitors with similar
technology; nor can there be any assurance that others will not obtain patents
that the Company would need to license or circumvent. Moreover, the Company may
have to participate in interference proceedings declared by the U.S. Patent and
Trademark Office to determine the priority of inventions, which could result in
substantial cost to the Company.
The Company may utilize technologies, patents or other rights which may be
held by third parties. The Company believes that certain technologies utilized
in its Cardiac View product may need to be licensed from others and the Company
believes that such licenses are generally available on commercial terms. Certain
technologies utilized by the Company in the MAGNA-SL are covered by patents
owned or administered by the British Technologies Group, PLC. British
Technologies Group, PLC. has offered the Company a license concerning such
technology, however the Company has not made the required payment to secure such
technologies which are integral to the MAGNA-SL.
GOVERNMENTAL REGULATION
The operations of the Company are subject to extensive federal and state
regulation. Non-invasive and minimally-invasive medical devices and MRI devices
generally are subject to regulation by the FDA, certain state and federal
agencies that regulate the provision of health care, particularly the Health
Care Financing Administration ("HCFA"), and the Environmental Protection Agency
("EPA").
A. FDA REGULATION
The FDA categorizes devices into three regulatory classifications subject
to varying degrees of regulatory control. Class I devices are those devices
whose safety and efficacy can reasonably be ensured through the general control
provisions. These provisions include requirements that a device not be
adulterated or misbranded, that the device is manufactured in conformity with
GMP regulations and that appropriate FDA premarket notification requirements be
met. Class II devices are those devices whose safety and efficacy can reasonably
be ensured through the use of special controls, such as performance standards,
post-market surveillance, patient registries and FDA guidelines. All other
devices are placed in Class III. Class III devices, which are typically invasive
or life sustaining products, require clinical testing to assure safety and
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effectiveness and FDA approval prior to marketing and distribution. The FDA also
has the authority to require clinical testing of Class I and Class II devices.
The Company believes that the Cardiac View product is a Class II medical
device and that the Artery View product may be a Class II medical device. The
MAGNA-SL(TM) is a Class II medical device subject to clearance by the FDA prior
to commercialization in the United States. Such FDA clearance was received in
September 1994 through submission of a 510(k) notification (discussed below).
The cessation of the Company's MAGNA-SL operations in March 1997 calls into
question the continuing status of the Company's ongoing compliance with FDA
regulations with respect to that product.
Pursuant to the Food Drug and Cosmetic ("FDC") Act and regulations
promulgated thereunder, the FDA regulates the manufacture, distribution and
promotion of medical devices in and the exportation from the United States.
Various states and foreign countries in which the Company's products may be sold
in the future may impose additional regulatory requirements.
If a manufacturer or distributor of medical devices can establish that a
device is "substantially equivalent" to a legally marketed Class I or Class II
medical device or to a Class III medical device for which the FDA has not
required premarket approval, the manufacturer or distributor may seek FDA
marketing clearance for the device by filing a 510(k) notification. The 510(k)
notification and the claim of substantial equivalence will almost certainly have
to be supported by various types of data indicating that the device is as safe
and effective for its intended use as a legally marketed predicate device. Until
the FDA issues an order finding that a device is substantially equivalent, the
manufacturer or distributor may not place the device into commercial
distribution. The order may be sent within 90 days of the submission and may
declare the FDA's determination that the device is "substantially equivalent" to
another legally marketed device, and allow the device to be marketed in the
United States. The FDA may, however, determine that the proposed device is not
substantially equivalent, or may require further information, such as additional
test data, before the FDA is able to make a determination regarding substantial
equivalence. Such determination or request for additional information could
delay the Company's market introduction of its products and could have a
materially adverse effect on the Company's continued operations.
If a manufacturer or distributor cannot establish to the FDA's satisfaction
that a new device is substantially equivalent, the device will be considered a
Class III device and the manufacturer or distributor will have to seek premarket
approval ("PMA") or reclassification of the new device. A PMA would have to be
submitted and be supported by extensive data, including preclinical and clinical
trial data, to demonstrate the safety and efficacy of the device. Upon receipt,
the FDA will conduct a preliminary review of the PMA to determine whether the
submission is sufficiently complete to permit a substantive review. If
sufficiently complete, the submission is declared fileable by the FDA. By
statute and regulation, the FDA has 180 days to review a PMA once determined to
be fileable. During that time an advisory committee may also evaluate the
application and provide recommendations to the FDA. While the FDA has responded
to PMA's within the allotted time period, PMA reviews more often occur over a
significantly protracted time period, and generally take approximately two or
more years to complete from the date of filing. A number of devices have never
been cleared for marketing. An application and petition to reclassify a device
can also be extensive in time and cost.
If human clinical trials of a device are required, and the device presents
"significant risk," the manufacturer or distributor of the device will have to
file an investigational device exemption ("IDE") application with the FDA prior
to commencing human clinical trials. The IDE application must be supported by
data, typically including the results of animal and mechanical testing. If the
IDE application is approved, human clinical trials may begin at the specific
number of investigational sites and could include the number of patients
approved by FDA. Sponsors of clinical trials are permitted to sell those devices
distributed in the course of the study, provided such compensation does not
exceed recovery of the costs of manufacturer, research, development and
handling.
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In 1988, the FDA reclassified MRI devices and all substantially equivalent
devices of this generic type from Class III to Class II. This encompassed MRI
systems from 13 petitioners. The FDA may require the Company or its competitors
to file PMAs for new products or technologies if the devices are sufficiently
different from the reclassified MRI devices. Such a determination by the FDA
would delay the Company's market introduction of products it may in the future
(subject to obtaining funding) consider developing, and could have a material
adverse effect on the Company's operations, should the Company pursue
development of such products. FDA recently announced its intent to impose higher
safety standards on premarket clearance of devices that might pose potential
risks if they fail. Such a change in policy could have a material adverse effect
on the Company, should the Company resume operations and pursue development of
such products.
The costs associated with the filing of applications with the FDA and, if
required, of conducting clinical trials can be significant.
If determined to be Class II medical devices under the Safe Medical Devices
Act of 1990, the Company's proposed products are potentially subject to
performance standards and other special controls that the FDA has the authority
to establish. Currently, no such performance standards or special controls
applicable to the Company's products have been established. If any such
performance standards or other special controls are established, obtaining
initial marketing clearance for its products or maintaining continued clearance
will be dependent upon the Company's ability to satisfactorily comply with such
standards or controls.
The MAGNA-SL is and any future products distributed by the Company pursuant
to the above described clearances will be subject to pervasive and continuous
regulation by the FDA. Moreover, the FDC Act will also require the Company to
manufacture its products in registered establishments and in accordance with
Good Manufacturing Practice (GMP) regulations. The Company presently plans to
outsource the production of its Cardiac View and Artery View products to
qualifies FDA approved manufacturers. Once registered, the Company's facility,
if any, will be subject to periodic inspections by the FDA. The Company does not
presently have a facility. Labeling and promotional activities are subject to
scrutiny by the FDA and, in certain instances, by the Federal Trade Commission.
In addition, the Company's products are expected to be subject to technical
standards established by the Federal Communications Commission regarding radio
frequency emission limits. The export of medical devices is also subject to
regulations in certain instances and in certain circumstances to FDA approval as
well as to approval by certain countries to which these devices might be
exported. In addition, the use of the Company's products may be regulated by
various state agencies. There can be no assurance that the Company's products
will be able to comply successfully with any such requirements or regulations.
In fact, the Company's MAGNA-SL does not presently comply with the regulatory
standards of several countries. Moreover, future changes in regulations or
enforcement policies could impose more stringent requirements on the Company,
compliance with which could adversely affect the Company's potential business.
Failure to comply with applicable regulatory requirements could result in
enforcement action, including withdrawal of marketing authorization, injunction,
seizure or recall of products, operating restrictions, refusal of government to
approve product applications or allow a company to enter into supply contracts
and liability for civil and/or criminal penalties.
The Company believes that its Cardiac View product would be Class II
medical devices subject to the "substantial equivalence" standard and that its
Artery View product may be a Class II medical device.
B. THIRD PARTY COVERAGE, REIMBURSEMENT AND RELATED HEALTH CARE REGULATIONS.
The market for MRI scanners and ancillary devices such as Cardiac View and
Artery View is affected significantly by the amount which Medicare, Medicaid or
other third party payors, including private insurance companies, will reimburse
hospitals and other providers for diagnostic procedures using MRI systems. The
health care industry has changed dramatically during the 1980's and the 1990's
in reaction to changes in third party reimbursement systems designed to contain
health care costs. In the MRI market, third party reimbursement issues will
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focus principally on whether MRI diagnostic procedures using the Company's
products and proposed products will be covered procedures and, if so, the level
of reimbursement that will be available for the MRI procedure.
HCFA, the agency responsible for administering the Medicare program, sets
requirements for coverage and reimbursement under the program, pursuant to the
Medicare law. In addition, each state Medicaid program has individual
requirements that affect coverage and reimbursement decisions under state
Medicaid programs for certain health care providers and recipients. Private
insurance companies also set their own coverage and reimbursement policies.
Private insurance companies and state Medicaid programs are influenced, however,
by the HCFA requirements.
As of November 22, 1985, under a national policy, Medicare covers certain
diagnostic procedures using MRI technology (as described by Medicare) for
certain clinical indications. There can be no assurance that the Company's
products or proposed products, once available, will be included within the then
current Medicare coverage determination. In the absence of a national Medicare
coverage determination, local contractors that administer the Medicare program,
within certain guidelines, can make their own coverage decisions. Favorable
coverage determinations are made in those situations where a service is of a
type that falls within allowable Medicare benefits and a review concludes that
the service is safe, effective and not experimental. Under HCFA coverage
requirements, FDA approval for the marketing of a medical device, including the
Company's proposed MRI mammography scanning systems and any other MRI technology
devices, will not necessarily lead to a favorable coverage decision. A
determination will still need to be made as to whether the device is reasonable
and necessary for the purpose used. In addition, HCFA has proposed adopting
regulations that would add cost-effectiveness as a criterion in determining
Medicare coverage. No assurance can be given that the scans utilizing the
Company's products will be covered under Medicare, especially if HCFA changes
its coverage policy to include a cost-effectiveness criterion. Changes in HCFA's
coverage policy, including adoption of a cost-effective criterion could have a
material adverse effect on the Company's prospects, if any, in the MRI market.
Currently, MRI diagnostic services provided on an outpatient basis are
reimbursable under Part B of the Medicare program. The professional and
technical components of radiological procedures which are performed in a
physician's office or freestanding diagnostic imaging center, and the
professional component of radiological procedures performed in a hospital
setting, are currently reimbursed on the basis of a relative value scale which
phased in, beginning January 1, 1992. There can be no assurance that the
implementation of this system, or other governmental actions, will not limit or
decrease reimbursement levels for services using any products developed by the
Company. Any reduction in the willingness of physicians to perform procedures
using the Company's proposed products could have a material adverse effect on
the Company's prospects, if any, in the MRI market.
Medicare reimbursement for the technical component (the operating costs)
for MRI diagnostic services furnished in the hospital outpatient setting
generally is currently calculated on a formula that is the lesser of the
hospital's reasonable costs and a 42/58 blended amount respectively of hospital
reasonable costs and the blended amount of reimbursement for the technical
component of the service if furnished in a physician's office in the same
locality.
The market for the Company's products and proposed products could also be
adversely affected by the amount of reimbursement provided by third party payors
to hospitals or private practitioners for procedures performed using such
products. Reimbursement rates from private insurance companies vary depending
upon the procedure performed, the third-party payor, the insurance plan, and
other factors. Medicare generally reimburses hospitals that are expected to
purchase the Company's products and proposed products for their operating costs
for in-patients on a prospectively-determined fixed amount for the costs
associated with an inpatient hospital stay based on the patient's discharge
diagnosis, regardless of the actual costs incurred by the hospital in furnishing
care. The willingness of these hospitals ("PPS hospitals") or private
practitioners to purchase the Company's products and proposed products, if any,
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could be adversely affected if they determined that the prospective payment
amount to be received for the procedures for which the Company's products or
proposed products are used would be inadequate to cover the costs associated
with performing the procedures using the Company's proposed products, or to be
less profitable than using an alternative procedure for the same condition.
Until October 1991, hospitals were generally able to pass their capital
costs on to Medicare which reimbursed such costs on a reasonable basis subject
to percentage limitations. However, under regulations which became effective
October 1, 1991, reimbursement for capital-related costs began to be included in
the prospective payment system. In general, under the new system, which has a 10
year phase-in period, hospitals will be reimbursed for capital costs related to
services provided to inpatients through an add-on payment made to the hospital
based upon the Diagnostic Related Group (DRG) for each such inpatient. While it
is unclear what effects the prospective payment systems will have, it may cause
hospitals to more closely scrutinize new capital expenditures and it could have
an adverse effect on recovery of capital costs for equipment. Capital costs for
hospital outpatient departments are currently reimbursed by Medicare in an
amount equal to 90% of their reasonable capital costs.
A number of states, through Certificate of Need ("CON") laws, limit the
establishment of new facility or service or the purchase of major medical
equipment to situations where it has been determined that the need for such
facility, service or equipment exists. The market for the MAGNA-SL may be
adversely affected by CON regulation to the extent that institutional health
care facility purchasers and lessors of the products are subject to CON
regulation. While many states exempt non-institutional providers from CON
coverage, a number of states have extended CON coverage to physicians' offices
or medical groups by restricting the purchase of major medical equipment
wherever located.
C. EPA REGULATION
The Company, and any research facility which it operates, would also be
required to comply with any applicable federal and state environmental
regulations and other regulations related to hazardous materials used,
generated, and/or disposed of in the course of its operations.
COMPETITION
The health care industry in general, and the market for medical devices in
particular, is highly competitive and virtually all of the other entities known
to management of the Company to be engaged in the manufacture of medical devices
possess substantially greater resources than the Company. The Company will
experience competition both from existing technologies and from others who may
attempt other approaches to MRI imaging for diagnosis of CAD. The competing
technologies that physicians utilize to make diagnoses and select treatment
options for CAD include:
o Electrocardiography (ECG)
o Stress Tests
o X-ray
o Computed Tomography (CT) Scan
o Echocardiography
o Cardiac Catheterization
o Angiography
Most invasive techniques, like cardiac catheterization and angiography, carry a
risk of complications, such as stroke, heart attack or death. Additionally,
stress tests have a risk of heart attack or death. The above techniques are
described below.
ELECTROCARDIOGRAPHY (ECG) - This procedure measures electrical impulses in
the heart - a fast, slow or irregular heart beat can be detected. A physician
can analyze the rhythm of the heart that triggers each heartbeat, the nerve
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conduction pathways of the heart and the rate and rhythm of the heart. These
results give clues to the condition of the heart including abnormal blood flow
and heart rhythms. The test gives some information as to the location, or extent
of the damage, but little or no information of blockage.
EXERCISE TOLERANCE TESTING (STRESS TEST) - The test monitors a person's
Electrocardiogram (ECG) and blood pressure during exercise. For example, if
coronary arteries are partially blocked, the heart may have sufficient blood
flow when the person is resting but not during exercise. This test however gives
no detail of the location of blockages or the composition of materials creating
the blockage.
X-RAY - Anyone who presents symptoms of coronary disease may be given a
chest x-ray from the front and side. X-rays show the shape and size of the heart
and abnormalities. The condition of blood vessels is also viewed on x-rays and
is helpful in identifying an enlargement of the right ventricle of the heart.
This test provides only a gross overview of what may be going on in the heart.
COMPUTED TOMOGRAPHY (CT) SCAN - Newer CT scans can "freeze' the heart and
take a 3-D moving picture. This procedure can assess motion abnormalities.
Ultra-fast systems can see calcium deposits, the hard plaque in the vessels
which is a material associated with blockages. This technique is unable,
however, to get pictures of the Vulnerable Plaque in the vessels which, the
Company believes is more likely to break off and cause the more serious and life
threatening blockages.
ECHOCARDIOGRAPHY - This technique uses high frequency ultrasound waves
emitted by a recording probe (transducer) and bounced off heart and vessel
structures to produce a moving image. A trans-esophageal probe can be passed
down the patient's throat to analyze structures at the back of the heart. The
test can test heart wall motion, blood volume of each heart beat, thickening of
the sac around the heart and the accumulation of fluid between the pericardium
and the heart. The images from this technique cannot detect soft tissue or the
chemical composition within the vessels.
CARDIAC CATHETERIZATION. - In this procedure, a thin catheter is inserted
through an artery or vein and advanced into the major vessels and heart
chambers. Catheters are for either diagnosis or treatment. The catheter often
contains a measuring instrument at its tip. Often these catheters are used to
measure blood pressure in the major vessels and heart chambers. Blood samples
and biopsies may also be taken through the catheter. A subset of the diagnostic
catheterization is angiography discussed next.
CORONARY ANGIOGRAPHy - A slender catheter is threaded into an artery in the
arm or groin toward the heart and into the coronary arteries. A dye is used that
is visible on X-ray (fluroscopy). Coronary artery disease is manifested by an
irregular or narrowing of the inner wall of the coronary arteries. If coronary
artery disease is detected, an angioplasty may be ordered to widen the channel
in the artery.
COMPETITIVE COMPANIES AND RESEARCH - There are currently several companies
or research groups developing systems or devices that provide the capability for
performing cardiac imaging via several technical approaches. The Cardiac View
and Artery View devices are distinguished from these by its proprietary design
and its validation, which is continuing, through research performed at Mount
Sinai School of Medicine in New York. Both devices are breakthroughs in the use
of magnetic resonance imaging of the cardiovascular system and, to the Company's
knowledge, there is little direct competition (see below).
The company is aware of certain research activities that could be in
competition with the products of the Company.
Surgi-Vision is an MRI based company developing products in conjunction
with the imaging center at Johns Hopkins Medical Center. The Company believes
that the focus of their efforts is intravascular catheters to obtain a better
image from a variety of bodily structures including the prostate, colon, rectum,
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lungs, uterine and abdominal areas as well as the heart. The Company does not
believe that their products will compete with the Company's Cardiac View for
screening of heart disease but could compete with Artery View. The Company
believes that the intellectual property of Surgi-Vision is not in conflict with
the Company's own patent filings.
The Company is aware of other MRI intravascular developments at Allegheny
University and Stanford University.
In both cases the work identified uses much larger diameter catheters which
will limit the ability to place it in the smallest vessels. Schneider Division
of Boston Scientific Corporation, has a patent on a small diameter guidewire
antenna. The status of this development is unknown.
The Company is aware of developments in surface coil improvements for MRI
at certain other universities.
PRODUCT LIABILITY
Product liability claims relating to the Company's products may be asserted
against the Company. If such claims are asserted against the Company, there can
be no assurance that the Company will have sufficient resources to defend
against any such claim or satisfy any such successful claim. The Company does
not have, but is in the process of applying for, product liability insurance
related to its current activities. The Company previously had product liability
insurance in connection with its discontinued operations which was terminated
during 1997 for non-payment of insurance premiums.
THE DISCONTINUED MAGNA-SL PRODUCT
The Company has developed and, in September 1994, received regulatory
clearance from the FDA to begin marketing, its MAGNA-SL MRI scanner. The
MAGNA-SL is not currently available for sale due to the Company's curtailment of
MRI equipment operations in 1997 including the termination of relationships with
vendors and the termination of the technical workforce necessary to build,
install and service such systems. Four MAGNA-SL scanners have been delivered to
and accepted by customers, including three scanners which were shipped to a
related party, the third of which remains unpaid.
The Company's current plan has been to realize value for its investment in
the MAGNA-SL through sale or license of the product to others. To date such
efforts have not resulted in any agreements.
The magnet utilized in the MAGNA-SL system is approximately two and
one-half feet high, three and one-half feet deep and two feet wide. The magnet
structure is open at the top, bottom and front providing access from three sides
thereby permitting non-claustrophobic scanning. A bed/chair is placed next to
the magnet for various scans and would recline into the magnet for certain
purposes. Sitting or reclining in the moveable bed/chair, patients may position
their leg, knee, arm, elbow, wrist or hand in the magnet opening without having
to put their entire body into the scanner. The magnet rotates 90 degrees into a
horizontal position for arm, elbow, wrist and hand scanning as well as certain
positions for knee and leg scanning. In addition, images of legs or feet may be
obtained from either a weight-bearing position (standing up) or from a sitting
or lying down position. This approach adds to the inherent patient friendliness
by having the patient sitting for many scans where typically they are in a prone
position. Separate from the magnet is the digital and analog MRI electronics and
computer terminal which controls the operation of the magnet and produces the
image. The entire system had been designed to be installed in approximately 150
square feet of office space making it suitable for use in radiology suites,
hospital emergency rooms, or offices of private medical practices.
The MAGNA-SL(TM) is a Class II medical device subject to clearance by the
FDA prior to commercialization in the United States. Such FDA clearance was
received in September 1994 through submission of a 510(k) notification
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(discussed below). The cessation of the Company's operations during 1997 calls
into question the current state of the Company's continued compliance with FDA
requirements.
The MAGNA-SL was expected initially to have applications in radiology,
orthopedics, pediatrics, chiropractic and podiatry and, if and when possible,
for applications in neurology, vascular and certain areas of dentistry.
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 defined non-United States territories.
The Company was to have been paid royalties on systems manufactured and sold by
Elscint. To maintain its rights under the agreement, Elscint was required to
sell a minimum number of systems. Upon execution of the agreement, a
nonrefundable deposit of $250,000 was paid to the Company to be applied to first
year royalties. Elscint had a right of first negotiation on certain new
products.
The parties agreed to certain development tasks and enhancements, which, if
not completed by the Company in November 1996, could, if not cured, result in
termination of the agreement by Elscint. Elscint has informed the Company that
it is not satisfied with the completion of certain of the tasks agreed to by the
parties and presented to the Company its proposal (the "Elscint Proposal") to
take over the uncompleted tasks and to initiate a major alteration and
improvement of certain systems comprising the MAGNA-SL. The Company has
determined not to go forward with Elscint Proposal based upon the inability of
the parties to agree on meaningful and binding minimum sales levels which would
justify the $500,000 investment in the Elscint Proposal. The Company's last
substantive contact on this matter was in May 1998. The Company believes that
Elscint's MRI business was purchased by the General Electric Company in June
1998.
A third party has alleged that the terms of a Company engagement with that
third party call for a fee to them with respect to the June 1996 agreement with
Elscint. During October 1997, the parties settled this matter for the issuance
by the Company of 125,000 shares of Class A common stock.
UNDERWRITERS LABORATORIES INC. OR EQUIVALENT LISTING - MAGNA-SL - The
Company's MAGNA-SL is required to be listed by Underwriters Laboratories Inc.
("UL")., which is a not-for-profit independent organization, or by ETL Testing
Laboratories, Inc. ("ETL"). The Company's MAGNA-SL is not presently listed by
such organizations.
PRODUCTION AND ASSEMBLY - MAGNA-SL - The MAGNA-SL system was comprised of
three major subsystems; a magnet subsystem (previously assembled by the
Company), an MRI computer subsystem (previously purchased from a third party
with which the Company has terminated its relationship as a result of the
Company's failure to purchase commercially viable quantities, among other
matters) and a rack of power and electronic components (previously purchased
from third parties).
The proprietary MRI computer subsystem was purchased from a supplier in
Europe. In August 1993, the Company established a multi-system purchase
relationship with this vendor by making a $480,000 non-refundable deposit
payment. Deposits remaining at February 28, 1997 were written off as a result of
the discontinuance of the MAGNA-SL product operations. The Company believes that
its prior relationship with this vendor is no longer be available and this
critical component would not be available. Further, it is possible that this
vendor may assert damages against the Company for various matters including
volume discounts for volumes not realized or for other costs or investments made
by this vendor.
The Company is also required to conform to FDA Good Manufacturing Practice
("GMP") regulations and various other statutory and regulatory requirements
applicable to the manufacture of medical devices. The Company's production and
assembly operations are subject to FDA inspections at all times. The Company
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would not meet the standards of such practices at this time. See "Governmental
Regulation."
MARKETING AND DISTRIBUTION - MAGNA-SL - All marketing and distribution
efforts related to the MAGNA-SL were discontinued during 1997.
See above regarding a June 1996 agreement with Elscint under which Elscint
was to manufacture market and sell the MAGNA-SL for distribution in certain
defined non-U.S. territories.
COMPETITION - MAGNA-SL - At the present time, manufacturers of whole body
scanners include the General Electric Company; Toshiba; Bruker Medical Imaging
Inc.; Siemens Corporation; Philips Medical Systems, a division of Philips
Industries, N.V.; Picker International Corporation; Shimadzu; and Hitachi. The
Company is aware of one company, Esaote Biomedica SpA. ("Esaote") engaged in
marketing an MRI device for extremity imaging. Their product, the ARTOSCAN,
received FDA marketing clearance in October 1993, approximately 11 months prior
to the Company's receipt of clearance.
WARRANTY AND SERVICE - MAGNA SL - It is customary in the medical equipment
industry to warrant that each scanner will be free from defects in material and
workmanship for a period of one year after acceptance of the scanner and to
provide routine servicing free of charge for the first year. After the first
year, servicing is customarily offered to customers on a contract basis or by
charges for service calls.
The Company has not honored warranty and service obligations, if any, since
approximately 1997.
FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company's future operating results are dependent upon many factors
including, but not limited to the Company's ability to: (i) obtain sufficient
capital or a strategic business arrangement to fund its plan of operations, (ii)
pay its debts including significant payments to its outsourced manufacturer and
to its principal medical collaborator as they come due and any residual claims
or obligations that may exist relative to its discontinued product, (iii)
successfully develop its planned products, Cardiac View and Artery View, (iv)
successfully accomplish its business development and marketing efforts to
commercialize any products developed, (v) maintain its relationship with the
Zena and Michael A. Weiner Cardiovascular Institute of the Mount Sinai School of
Medicine and with its principal medical investigator, (vi) develop products
which do not infringe the intellectual property rights of others, (vii) protect
its intellectual property rights from infringement by others with patents and
other protections, (viii) build the management and infrastructure necessary to
support the growth of its business, as well as (i) competitive factors and
developments beyond the Company's control and (ii) general economic conditions
and conditions in the financial and technology markets.
HUMAN RESOURCES
At May 15, 2000, the Company has one full time executive, research and
development employee, two executive employees who devote such time as is
necessary to the business, two consultants providing executive, business
development, management and financial services and one part time administrative
employee. The Company's human resources are further supported by the physicians
and scientists at the Zena and Michael A. Weiner Cardiovascular Institute of the
Mount Sinai School of Medicine (New York) working under the Company's
collaboration with MSSM and with the design and manufacturing staff at ACT
Medical, Inc., the Company's outsourced manufacturer.
ITEM 2: DESCRIPTION OF PROPERTY
The Company conducts its research operations at the Cardiac Institute at
the Mount Sinai School of Medicine (New York) and in a laboratory in the
personal residence of its Chief Scientific Officer. The Company maintains an
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executive office in Syosset, NY which the Company rents on a month-to-month
basis for approximately $1,100 per month. Certain inventory and equipment have
been secured in storage facilities which the Company rents on a month to month
basis for approximately $3,000 per month.
ITEM 3: LEGAL PROCEEDINGS
As a result of a period of deferral of payment of obligations due to the
lack of cash primarily in 1997, the Company has been the subject of several
threatened, and certain actual, litigation actions for nonpayment of obligations
or for breach of agreements in the past. To the best of the Company's knowledge
all material litigation has been settled and there is no material pending or
threatened litigation against the Company. Reference is made to Note 8 to the
Consolidated Financial Statements.
The Company has been unsuccessful to date in its efforts to restructure the
Elscint agreement in a manner which is satisfactory to the Company. As such, the
Company is exposed to possible litigation from Elscint's claim that the Company
failed to perform certain required tasks under the Elscint agreement. Elscint
paid the Company a non-refundable advance payment in June 1996 of $250,000 in
connection with the Elscint agreement, as well as certain other subsequent
payments, and would likely claim these payments and additional damages. The
Company is unable to estimate an amount of possible loss exposure for this
potential claim or for any offsets or recoveries it may have as a result of any
counterclaims which it may have against Elscint.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended February 29, 2000.
PART II
ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
(a) MARKET INFORMATION
The following sets forth the high and low bid prices for the Company's
Class A Common Stock for each quarter during the last two fiscal years. The
source for the high and low bid information is the OTC Bulletin Board.
Quotations reflect interdealer prices without retail mark-up, mark-down or
commission, and may not represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Year Ending February 28 or 29,
2000 1999
---- ----
High Low High Low
Class A Common Stock:
<S> <C> <C> <C> <C>
First Quarter ended May 31, $0.21 $0.11 $0.31 $0.25
Second Quarter ended August 31, $0.15 $0.05 $0.56 $0.13
Third Quarter ended November 30, $0.11 $0.05 $0.28 $0.08
Fourth Quarter ended February 28, $0.88 $0.08 $0.22 $0.06
</TABLE>
In April 2000, the Class A common stock price ranged from $0.25 to $1.65.
The Company's Class E warrants are not listed because their trading value
subsequent to the quarter ended May 31, 1997 has been nominal. There is no
established public trading market for the Company's Class B Common Stock.
On May 10, 2000 the closing bid price for the Class A Common Stock was
approximately $0.69.
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(b) RECENT SALES OF UNREGISTERED SECURITIES AND RELATED MATTERS -
DURING THE FISCAL YEAR ENDED FEBRUARY 29, 2000 AND THROUGH MAY 2000 -
In the fourth quarter of the fiscal year ended February 29, 2000 the
Company was successful in raising $2,218,000 under two arrangements aimed at
raising an aggregate of $5,000,000. Subsequent to February 29, 2000, an
additional amount of approximately $1,000,000 was raised bringing the total
raised to approximately $3,250,000. These transactions are described below.
From December 1999 through February 29, 2000, the Company was successful in
raising $1,468,000 of proceeds from the issuance of 6,672,727 shares of Class A
common stock under a $2,000,000 private placement to "accredited investors", as
that term is defined in Regulation D promulgated under the Securities Act of
1933, as amended (the "Securities Act"). The $2,000,000 private placement was
completed in with subscriptions, oversubscribed, of approximately $2,600,000
(approximately 11,800,000 shares). The Company claims exemption from
registration of this private placement under section 4(2) of the Securities Act
and/or Regulation D promulgated thereunder.
In December 1999, the Company entered into a letter agreement with Noga
Investments in Technology Ltd. (successor in interest to Noga Electrotechnica
Limited, "Noga") pursuant to which Noga agreed to purchase $3,000,000 worth of
common stock at $0.22 per share payable in installments over a five month period
ending May 2000. To secure its commitment, Noga paid $250,000 as a
non-refundable deposit. In January and February 2000, Noga purchased a total of
$500,000 worth of common stock toward its commitment. In May 2000, the agreement
was amended to permit the balance to be paid by July 27, 2000 in exchange for an
additional $100,000 to be paid by Noga to the Company as an additional
non-refundable deposit to secure the timely payment of the balance ($2,150,000).
If Noga fails to timely pay the balance, the Company is entitled to keep the
$350,000 in non-refundable deposits it has received and all rights that Noga is
entitled to under this letter agreement terminate. According to the letter
agreement, as amended, the Company agreed to provide Noga with an option to
purchase 3,500,000 shares of the Company's common stock at $0.02 per share and
an option, exercisable prior to July 27, 2000, to purchase the number of
additional shares that are necessary to satisfy the requirements for listing of
the Company's stock on the NASDAQ SmallCap market.
In connection with both transactions, the Company has agreed to provide
options to purchase 7,000,000 shares of Class A common stock at $0.02, including
3,500,000 to an officer of the Company, Mr. Allen Perres and 3,500,000 to Noga
and has received certain Board representation and other rights. See Item 12:
Certain Relationships and Related Transactions.
(c) APPROXIMATE NUMBER OF EQUITY STOCK HOLDERS
Based upon information supplied from the Company's transfer agent, the
Company believes that the number of record holders of the Company's equity
securities as of May 10, 2000 are approximately as follows:
Title of Class Number of Record Holders
Class A Common Stock 359
Class B Common Stock 52
The Company believes that the number of beneficial holders of the Company's
Common Stock as of May 10, 2000 is in excess of 400.
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(d) DIVIDENDS
The Company has never declared or paid a cash dividend on any class of its
common stock and anticipates that for the foreseeable future any earnings will
be retained for use in its business. Accordingly, the Company does not expect to
pay cash dividends in the foreseeable future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
(a) MANAGEMENT'S ANALYSIS AND DISCUSSION OR PLAN OF OPERATIONS -
COMPANY ACTIVITIES - The Company is engaged in research and development
activities including a collaboration with the Zena and Michael A. Weiner
Cardiovascular Institute of the Mount Sinai School of Medicine ("MSSM") in New
York. The Company's activities are devoted to developing disposable,
non-invasive and minimally invasive medical devices for use in increasing the
effectiveness of MRI for the detection and definitive diagnosis of Coronary
Artery Disease.
BACKGROUND/HISTORY - From commencement of operations on February 10, 1992
until 1997, The Company developed, received US FDA clearance (1994),
manufactured and marketed the MAGNA-SL, the first of a planned series of anatomy
specific MRI equipment products. The Company's efforts to market and sell the
MAGNA-SL equipment did not generate sufficient revenues to sustain the Company's
planned operations and such operations were discontinued. In February 1997, the
Company commenced a plan of restructuring of the Company's operations to
reposition itself into its current activities.
In December 1997, the Company's efforts to raise additional financing to
support the Cardiac MRI Initiative were successful in raising $1.884 million in
a private placement of 15,072,000 shares of Class A common stock (the "December
1997 Financing"). Such financing was conditioned on the Company initiating a
program to pay its liabilities on a reduced basis (the "Debt Reduction Program"
- See Note 8 to Consolidated Financial Statements). Since December 1997, the
Company has: (1) advanced the Cardiac MRI Initiative, (2) continued the Debt
Reduction Program (3) sought to realize value for the Company's investment in
the MAGNA-SL and (4) raised an additional approximately $2,580,000 through
February 29, 2000, principally through private placement of its Class A common
stock. Such efforts are ongoing.
LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN CONSIDERATION
As indicated in the accompanying consolidated financial statements, as of
February 29, 2000, the Company had working capital of approximately $277,000,
net worth of approximately $249,000, a net loss of approximately $1,035,000 for
the fiscal year ended February 29, 2000 and an accumulated deficit of
approximately $17.5 million since inception. Further, the Company has no present
revenue and a development agenda which requires additional financing. Losses
have continued since February 29, 2000. These factors, among others, indicate
that the Company is in need of additional financing in order to complete its
plans for the fiscal year beginning March 1, 2000. The Company's efforts to
raise additional financing have resulted in approximately $1,000,000 of
additional financing since February 29, 2000 as well as an agreement for an
additional $2,250,000 of additional capital. The Company believes that its cash
resources at February 29, 2000, together with amounts raised subsequent to
February 29, 2000 and amounts expected to be raised ($2,250,000) under an
agreement with one investor, are sufficient to fund its operations for the year
ending February 28, 2001 and that thereafter it will be required to raise
additional capital.
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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. Also
see - Factors That May Affect Future Results.
RESULTS OF OPERATIONS -
Operations for the fiscal year ended February 29, 2000 resulted in a net
loss of approximately $1,035,000, and utilized approximately $836,000 of cash,
principally in connection with the Company's development activities under The
Cardiac MRI Initiative as well as business development. Research and development
costs totaled approximately $686,000 including approximately $425,000 related to
the collaborative agreement with MSSM. General and administrative costs were
approximately $291,000 reflecting management and other operating costs including
occupancy, storage and professional fees, among other items. Operations for the
fiscal year ended February 29, 2000 also includes a non-cash charge associated
with stock options granted to certain consultants who are members of management
for approximately $107,000 (see Note 5 to Consolidated Financial Statements,
Item 7.) and a credit for the reversal of approximately $47,000 of liabilities
related to the Company's discontinued MAGNA-SL business.
Operations for the fiscal year ended February 28, 1999 resulted in a net
loss of approximately $919,000, and utilized approximately $849,000 of cash,
principally in connection with activities under The Cardiac MRI Initiative.
Research and development costs of approximately 928,000 include charges
associated with the collaboration with MSSM of $600,000 as well as approximately
$106,000 related to certain design review work performed by ACT. General and
administrative costs were approximately $270,000 reflecting management and other
operating costs including rent, storage and professional fees, among other
items. Net loss of approximately $919,000 reflects costs of approximately
$1,200,000 reduced by gains of approximately $275,000 related to the settlement
of liabilities at amounts less than their recorded balances and related
evaluations of payables and accruals. Reference is made to Note 8 to
Consolidated Financial Statements (Item 7.)
Also see - Factors That May Affect Future Results.
THE YEAR 2000 ISSUE
The Year 2000 issue refers to the fact that many computers and applications
have been programmed with two digit date fields for the year. As such, as the
century date change occurs, date sensitive systems may not be able to recognize
the year 2000 or distinguish it from the year 1900, for example. This inability
to recognize or properly interpret the year 2000 could result in incorrect or
interrupted processing of financial and operational data. The effect that this
could have on information, systems and operations is not measurable but could be
significant.
The Company uses computers in accounting and general administration and in
various technical applications. The Company has updated its general accounting
and administration software to versions which it believes to be substantially
year 2000 compliant. The software used for technical functions is generally
believed to be year 2000 compliant. The Company believes that its collaborator,
MSSM and its outsourced developer, ACT Medical, Inc. have taken the steps
necessary to be year 2000 compliant. The Company's MAGNA-SL uses computer
systems which generally are not time or date sensitive and the Company believes
are generally year 2000 compliant. There can be no assurance that the Company
will have no disruption as a result of the year 2000 issue, however, no material
disruptions have occurred to date.
18
<PAGE>
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
MAGNA-LAB INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
INDEPENDENT AUDITORS' REPORT 20
FINANCIAL STATEMENTS:
CONSOLIDATED BALANCE SHEET 21
CONSOLIDATED STATEMENTS OF OPERATIONS 22
CONSOLIDATED STATEMENTS OF CASH FLOWS 23
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
EQUITY (DEFICIENCY) 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 25 - 32
19
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
Board of Directors and Stockholders
Magna-Lab Inc.:
We have audited the accompanying consolidated balance sheet of Magna-Lab Inc.
and Subsidiary as of February 29, 2000, and the related consolidated statements
of operations, cash flows and stockholders' equity (deficiency) for the years
ended February 29, 2000 and February 28, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Magna-Lab Inc. and
Subsidiary as of February 29, 2000, and the results of their operations and
their cash flows for the years ended February 29, 2000 and February 28, 1999, in
conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1, the
Company has suffered significant and recurring losses from operations. In
addition, the Company has been unable to generate adequate cash flow from sales
and production to support its first product and has instead commenced a new
development activity which requires significant capital resources. While the
Company has entered into arrangements that it believes will permit it to
continue its planned operations in the coming fiscal year, its financial
resources are not currently sufficient to assure that the Company can complete
its plans for the coming fiscal year. Furthermore, the Company has various
liabilities and contingent liabilities as a result of its attempt to develop its
first product. These conditions raise substantial doubt about the Company's
ability to continue as a going concern. Management's plans regarding these
matters also are described in Note 1. The consolidated financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ Rothstein, Kass & Company, P.C.
Roseland, New Jersey
May 5, 2000
20
<PAGE>
<TABLE>
<CAPTION>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
February 29, 2000
ASSETS
<S> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,372,000
Other current assets - deposit with vendor 130,000
--------------
Total current assets 1,502,000
PROPERTY AND EQUIPMENT, net, and all other 9,000
--------------
$ 1,511,000
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 283,000
Accrued expenses and other current liabilities 942,000
--------------
Total current liabilities 1,225,000
--------------
NON-CURRENT LIABILITIES 37,000
--------------
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, 30,811,087 shares issued
and outstanding 30,000
Common stock, Class B, par value $.001 per share,
3,750,000 shares authorized, 1,875,000 shares issued
and 735,034 shares outstanding 1,000
Capital in excess of par value 17,675,000
Accumulated deficit (17,457,000)
--------------
Total stockholders' equity 249,000
--------------
$ 1,511,000
==============
See accompanying Notes.
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended February 29, 2000 and February 28, 1999
2000 1999
-------- -------
<S> <C> <C>
REVENUES $ 0 $ 0
------------- ------------
OPERATING EXPENSES:
General and administrative 291,000 270,000
Stock compensation charge 107,000 0
Selling and marketing 0 0
Research and development 686,000 928,000
------------- -----------
1,084,000 1,198,000
------------- -----------
LOSS FROM OPERATIONS (1,084,000) (1,198,000)
------------- ------------
OTHER INCOME:
Gain from disposition of liabilities 47,000 275,000
Interest and other income, net 2,000 4,000
------------- ------------
49,000 279,000
------------- ------------
NET LOSS $ (1,035,000) $ (919,000)
============== ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING 23,306,000 20,350,000
============= ============
NET LOSS PER SHARE, basic and diluted $ (0.04) $ (0.05)
============= ============
See accompanying Notes
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended February 29, 2000 and February 28, 1999
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,035,000) $(919,000)
Adjustments to reconcile net loss to net cash
used in operating activities:
Stock compensation charge 107,000 0
Depreciation and amortization 4,000 4,000
Gain from disposition of liabilities (47,000) (275,000)
Changes in operating assets and liabilities:
Other current assets - deposit with vendor (130,000) 0
Accounts payable and other current liabilities 265,000 341,000
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES (836,000) (849,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES 0 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sales of stock 2,248,000 332,000
Costs of stock issued (144,000) (15,000)
Bridge notes and other non-current liabilities 37,000 0
----------- -----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 2,141,000 317,000
----------- -----------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,305,000 (532,000)
CASH AND CASH EQUIVALENTS:
Beginning of year 67,000 599,000
----------- -----------
End of year $ 1,372,000 $ 67,000
=========== ===========
See accompanying Notes
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
Years Ended February 29, 2000 and February 28, 1999
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 28, 1998 19,322,142 $ 19,000 764,858 $ 1,000 $ 15,334,000 $(15,503,000)
CONVERT B SHARES TO A 26,541 - (26,541) - - -
SHARES TO SETTLE LIABILITY 100,000 - - - 16,000 -
PRIVATE PLACEMENT 2,213,667 2,000 - - 330,000 -
COSTS OF PRIVATE
PLACEMENT - - - - (31,000) -
NET LOSS - - - - - (919,000)
------------------------------------------------------------------------------------
BALANCES, February 28, 1999 21,662,350 21,000 738,317 1,000 15,649,000 (16,422,000)
CONVERT B SHARES TO A 3,283 - (3,283) - - -
PRIVATE PLACEMENT 9,145,454 9,000 - - 2,239,000 -
COSTS OF PRIVATE
PLACEMENT - - - - (320,000) -
STOCK COMPENSATION - - - - 107,000 -
NET LOSS - - - - - (1,035,000)
------------------------------------------------------------------------------------
BALANCES, February 29, 2000 30,811,087 $ 30,000 735,034 $ 1,000 $ 17,675,000 $(17,457,000)
====================================================================================
See accompanying Notes.
</TABLE>
24
<PAGE>
MAGNA-LAB INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DISCUSSION OF THE COMPANY'S ACTIVITIES; GOING CONCERN CONSIDERATION:
COMPANY ACTIVITIES - Magna-Lab Inc. and Subsidiary (the "Company") is engaged in
research and development activities including a collaboration with the Zena and
Michael A. Weiner Cardiovascular Institute of the Mount Sinai School of Medicine
("MSSM") in New York. The Company's activities are devoted to developing
disposable, non-invasive and minimally invasive medical devices for use in
increasing the effectiveness of Magnetic Resonance Imaging ("MRI") for the
detection and definitive diagnosis of Coronary Artery Disease (the "Cardiac MRI
Initiative").
BACKGROUND/HISTORY - From commencement of operations on February 10, 1992 until
1997, the Company developed, received US FDA clearance (1994), manufactured and
marketed the MAGNA-SL, the first of a planned series of anatomy specific MRI
equipment products. The Company's efforts to market and sell the MAGNA-SL
equipment did not generate sufficient revenues to sustain the Company's planned
operations and such operations were discontinued. In February 1997, the Company
commenced a plan of restructuring of the Company's operations (the "Plan") to
reposition itself into its current activities.
In December 1997, the Company's efforts to raise additional financing to support
the Cardiac MRI Initiative were successful in raising $1.884 million in a
private placement of 15,072,000 shares of Class A common stock (the "December
1997 Financing"). Such financing was conditioned on the Company initiating a
program to pay its liabilities on a reduced basis (the "Debt Reduction Program"
- See Note 8). Since December 1997, the Company has: (1) advanced the Cardiac
MRI Initiative, (2) continued the Debt Reduction Program, (3) sought to realize
value for the Company's investment in the MAGNA-SL and (4) raised an additional
approximately $2,580,000 through February 29, 2000, principally through private
placements of its class A common stock. Such efforts are ongoing.
GOING CONCERN CONSIDERATION - As indicated in the accompanying consolidated
financial statements, as of February 29, 2000, the Company had working capital
of approximately $277,000, net worth of approximately $249,000, a net loss of
approximately $1,035,000 for the fiscal year ended February 29, 2000 and an
accumulated deficit of approximately $17.5 million since inception. Further, the
Company has no present revenue and a development agenda which requires
additional financing. Losses have continued since February 29, 2000. These
factors, among others, indicate that the Company is in need of additional
financing in order to complete its plans for the fiscal year beginning March 1,
2000. The Company's efforts to raise additional financing has resulted in
approximately $1,000,000 of additional financing since February 29, 2000 as well
as an agreement with one investor for an additional $2,250,000 of additional
capital as discussed further in Note 5. The Company believes that its cash
resources at February 29, 2000, together with amounts raised subsequent to
February 29, 2000 and amounts expected to be raised ($2,250,000) under an
agreement with one investor, are sufficient to fund its operations for the year
ending February 28, 2001, and that thereafter it will be required to raise
additional capital.
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 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the
accounts of Magna-Lab Inc. and its wholly-owned subsidiary, Cardiac MRI, Inc.
All significant intercompany balances and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS - Included in cash and cash equivalents are deposits
with financial institutions as well as short-term money market instruments with
maturities of three months or less when purchased.
25
<PAGE>
RESEARCH AND DEVELOPMENT COSTS - Costs of research and development activities,
including patent costs, are charged to operations when incurred. Items of
equipment or materials which are purchased and have alternative future uses
either in production or research and development activities are capitalized, at
cost, as equipment or inventory.
INVENTORIES - Inventories are stated at the lower of cost or market, generally
on the first-in, first-out (FIFO) method. Cost includes materials, labor and
manufacturing overhead.
PROPERTY AND EQUIPMENT - Property and equipment, including purchased software,
are stated at cost, less accumulated depreciation and amortization. The Company
provides for depreciation and amortization principally using the declining
balance method as follows:
Estimated
Asset Useful life
----- -----------
Machinery and equipment 5-7 years
Purchased software 5 years
INCOME TAXES - Deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in future taxable or deductible amounts and are
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
NET LOSS PER SHARE - Net loss per share is computed based on the weighted
average number of Class A Common and Class B Common shares outstanding.
The Company complies with Statement of Financial Accounting Standards ("SFAS")
No. 128, "Earnings Per Share", which requires dual presentation of basic and
diluted earnings per share. Basic earnings (loss) per share excludes dilution
and is computed by dividing income (loss) available to common stockholders by
the weighted average common shares outstanding for the year. Diluted earnings
per share reflects the potential dilution that could occur if securities or
other contracts to issue common stock were exercised or converted into common
stock or resulted in the issuance of common stock that then shared in the
earnings of the entity. Since the effect of outstanding options is antidilutive,
they have been excluded from the Company's computation of net loss per share.
Therefore, basic and diluted loss per share for the fiscal years ended February
29, 2000 and February 28, 1999 were the same.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair values of the Company's assets
and liabilities which qualify as financial instruments under SFAS No. 107
approximate their carrying amounts presented in the consolidated balance sheet
at February 29, 2000.
IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically assesses the
recoverability of the carrying amounts of long-lived assets. A loss is
recognized when expected undiscounted future cash flows are less then the
carrying amount of the asset. An impairment loss is the difference by which the
carrying amount of an asset exceeds its fair value.
USE OF ESTIMATES AND ASSUMPTIONS - The preparation of financial statements in
accordance with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results can, and in many cases will, differ
from those estimates.
26
<PAGE>
NOTE 3 - RELATIONSHIP WITH THE ZENA AND MICHAEL A. WEINER CARDIOVASCULAR
INSTITUTE OF THE MOUNT SINAI SCHOOL OF MEDICINE:
In May 1997, the Company entered into a three-year agreement with the Zena and
Michael A. Weiner Cardiovascular Institute of the Mount Sinai School of Medicine
(New York City) and Dr. Valentin Fuster (as principal investigator) ("MSSM") for
a collaborative research arrangement devoted to utilizing MRI in cardiac
arterial imaging (the "Cardiac MRI Initiative"). Under the agreement, the
Company is required to make payments to MSSM of $600,000 in each of the first
and second years and $300,000 in the third year. The start of the annual periods
was delayed until August 1997. The Company has also agreed to pay royalties, as
defined in the agreement, to MSSM for the sole and exclusive right to use, make,
have made, sell and otherwise exploit the results of the collaboration.
The Company accrues for the cost of the collaboration with MSSM as research and
development expense monthly, based upon the originally scheduled $600,000 annual
payments from August 1997 to July 1999 and $300,000 annual payments from August
1999 to July 2000.
For the fiscal year ended February 28, 1999, $600,000 was charged to operations,
$300,000 was paid and $350,000 remained in accrued expenses at February 28, 1999
under this collaborative arrangement. For the fiscal year ended February 29,
2000, $425,000 was charged to operations, $300,000 was paid and approximately
$475,000 remained in accrued expenses at February 29, 2000.
In January and March 2000, the Company and MSSM agreed that certain work
contemplated by the Agreement needed to be rescheduled as a result of, among
other things, development delays in 1999. As such, the Company and MSSM agreed
to the following schedule for payment of the accrued and remaining payments;
$150,000 in March 2000, $150,000 in April 2000 (both of which payments have been
made) and $150,000 in each of July and October 2000.
NOTE 4 - PROPERTY AND EQUIPMENT:
Property and equipment at February 29, 2000 consists of the following:
Machinery and equipment $ 360,000
Purchased software 49,000
----------
409,000
Less accumulated depreciation and amortization and write-downs (400,000)
----------
$ 9,000
==========
NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIENCY):
GENERAL - The Company was incorporated on February 22, 1991 in the State of New
York and commenced operations on February 10, 1992. All references to share or
per share data in the Company's consolidated financial statements refer to
amounts after a stock split, approved by the Board of Directors on October 29,
1992, of approximately 21,532 shares for one.
DESCRIPTION OF CLASS A AND CLASS B COMMON STOCK
The Class A and Class B common stock are identical in most respects except that:
(i) the Class B common stock has five votes per share and the Class A common
stock has one vote per share, (ii) shares of Class B common stock are
convertible into shares of Class A common stock and require conversion to Class
A for sale or transfer to a non-Class B stockholder and (iii) by agreement with
an underwriter, no more Class B common stock can be issued. Holders of Class A
and Class B common stock have equal ratable rights to dividends and, upon
liquidation, are entitled to share ratably, as a single class, in the net assets
available for distribution. Shares of Class A and Class B common stock are not
27
<PAGE>
redeemable, have no preemptive rights or cumulative voting power, and vote as
one class, except in certain circumstances, in matters before the shareholders.
INITIAL PUBLIC OFFERING OF CLASS A COMMON STOCK AND WARRANTS - During the year
ended February 28, 1994, the Company completed its initial public offering of
1,150,000 units of its Class A common stock in a unit offering yielding gross
proceeds of $6.9 million (approximately $5.4 million, net of underwriting
discounts and expenses). Redeemable Class A warrants and Class B warrants and
the unit purchase option issued to an underwriter in connection with the
offering have all expired unexercised in March 1998.
1995 PRIVATE PLACEMENT - During the year ended February 28, 1995, the Company
made a private placement of an aggregate amount of $1.65 million principal
amount of notes payable and five year warrants to purchase 825,000 shares of
Class A common stock. Approximately $400,000 of such notes were repaid and the
remaining $1,250,000 face amount of notes, together with accrued interest,
warrants to purchase 625,000 shares of common stock and an additional cash
payment were converted into 625,000 shares of common stock of the Company. The
remaining warrants to purchase 200,000 shares at, initially, $2.85 per share,
are subject to adjustment for anti-dilution in certain circumstances and grant
the holders certain other rights including those summarized below.
1996 PUBLIC OFFERING OF CLASS A COMMON STOCK AND WARRANTS - In January 1996, the
Company completed the public offering of 1,850,000 shares of Class A common
stock and 925,000 Class E Warrants sold through an underwriter in units of two
shares and one warrant. Each Class E Warrant entitles the holder to purchase one
share of Class A common stock at $4.375 per share prior to December 26, 2000.
The Class E Warrants are redeemable by the Company at $0.05 per share at any
time that the average closing bid price of the Class A common stock is in excess
of $5.6875 for twenty consecutive trading days. The offering yielded gross
proceeds of $5.8 million (approximately $4.6 million net of offering discounts
and expenses). The net proceeds were used to pay down certain indebtedness and
to fund working capital and other requirements of the Company's production and
sale of its first product, the MAGNA-SL.
1998 PRIVATE PLACEMENT OF COMMON STOCK - In December 1997 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 were used to advance the plan of restructuring outlined in Note 1,
including the initial funding of the agreement with the Mount Sinai School of
Medicine.
1999 PRIVATE PLACEMENT OF COMMON STOCK - In May 1999, the Company completed the
private placement of 2,413,667 shares of class A common stock to a group of
accredited investors for gross proceeds of approximately $362,050. The proceeds
were used to advance the Cardiac MRI Initiative and the plan of restructuring
outlined in Note 1.
2000 PRIVATE PLACEMENT OF COMMON STOCK - In the fourth quarter of the fiscal
year ended February 29, 2000, the Company was successful in raising $2,218,000
under two arrangements aimed at raising an aggregate of $5,000,000. Subsequent
to February 29, 2000, an additional approximately $1,000,000 was raised bringing
the total raised to $3,218,000. These transactions are described below.
From December 1999 through February 29, 2000, the Company was successful in
raising $1,468,000 of proceeds from the issuance of 6,672,727 shares of Class A
common stock under a $2,000,000 private offering to accredited investors.
Efforts to complete the $2,000,000 private placement were completed in May 2000
with total proceeds, oversubscribed, of approximately $2,600,000.
Separately, in December 1999 an investor made a non-refundable $250,000 deposit
with the Company toward a proposed investment of $3,000,000 for the purchase of
a total of 13,636,363 shares of class A common stock over a five month period
ending in May 2000. The agreement, as amended, calls for investments of
$500,000, which were made, prior to February 29, 2000, an additional
non-refundable deposit of $100,000 in May 2000 and a remaining investment of
$2,150,000 to be made in July 2000. If the investor keeps all of these
investment commitments, it will receive class A common shares for the original
$250,000 and May 2000 $100,000 non-refundable deposits. Further, this investor
28
<PAGE>
has the option to invest additional amounts, as defined, at $0.22 prior to July
15, 2000.
In connection with both transactions, the Company has agreed to provide warrants
to purchase 7,000,000 shares of Class A common stock at $0.02 and has agreed to
certain representation on its Board of Directors.
Certain fees and expenses are to be paid in connection with the amounts raised.
STOCK OPTIONS AND WARRANTS - In December 1992, the Company adopted its 1992
Stock Option Plan (the "Stock Option Plan") which, as amended in 1993 and 1995,
provides for the granting of incentive stock options (ISO) and nonqualified
stock options to purchase 1,000,000 shares of the Company's Class A common stock
or stock appreciation rights (SAR). The exercise price of options granted under
the Stock Option Plan shall not be less than 100% (110% with respect to certain
beneficial holders of common stock) of the fair market value of the stock at the
date of grant.
In May 1997, the Company determined that the purposes of the Stock Option Plan
were not being adequately achieved with respect to those employees and
consultants holding options that were exercisable above current market value and
that it was in the best interests of the Company and the Company's shareholders
that the Company retain and motivate such employees and consultants. Therefore,
in order to provide such optionees the opportunity to exchange their above
market value options for options exercisable at the current market value, the
Company repriced the outstanding options under the Stock Option Plan of selected
individuals, who were identified by the Company's Board of Directors to have a
continuing role in the Company's plan of restructure and who had options with
exercise prices above $2.00 per share, with new stock options at an exercise
price of $0.25 per share. In aggregate, 750,000 options were repriced. In
addition, in recognition of their efforts to advance the plan of restructuring,
the Company awarded 910,000 new options at $0.25 per share to certain
individuals. A portion of such grant, after considering forfeitures, would be
subject to approval of the shareholders of an increase in the shares available
under the Stock Option Plan. 660,000 of such options were granted for a
five-year term, immediately exercisable, while 250,000 of such options would be
exercisable ratably over three years.
In November 1999, the Company's Board of Directors voted to increase the number
of shares available under the 1992 Stock Option Plan and granted options to
purchase 4,875,000 shares to management. Such increase in the option plan and
grant of shares is subject to shareholder approval of an increase in shares
available under the plan. Such options granted are for a term of five years at
an exercise price of $0.22 per share. Options to purchase 3,055,000 shares vest
immediately and the remainder vest over three years.
The Company may be required to record a compensation charge in the future for
stock option awards which are subject to stockholder approval. Such charge would
be required if the fair market value of the underlying common stock at the date
of shareholder approval is in excess of the exercise price of the options.
Stock option activity for the years ended February 29, 2000 and February 28,
1999 is as follows:
<TABLE>
<CAPTION>
2000 1999
---------------------- ---------------------
Shares Shares
Under Under
Option Price Option Price
------------------------------ ---------------------
<S> <C> <C> <C> <C>
Beginning 1,222,500 $0.25 1,222,500 $0.25
Canceled/expired - - - -
Granted 5,025,000 $0.22 - -
------------------------------ ---------------------
End 6,247,500 $0.22 - 0.25 1,222,500 $0.25
=============================== =====================
</TABLE>
Options granted to three consultants resulted in a charge to compensation
expense of $107,000 in the fiscal year ended February 29, 2000. In addition to
29
<PAGE>
the options granted above, an officer of the Company was granted a five- year
option to purchase 3,500,000 shares of Class A common stock at $0.02 per share
vesting immediately. The option was granted in connection with the activities of
this executive to raise financing for the Company.
In March 2000, the Board of Directors approved the issuance of five year options
to purchase 1,000,000 shares of Class A common stock of the Company at $0.22 per
share to consultants at the Company's medical collaborator, MSSM. Such options
are subject to an increase in the shares available for grant as discussed above
and will result in a charge to compensation expense subsequent to the fiscal
year ended February 29, 2000.
Options granted contain various vesting provisions and expiration dates. Of the
options granted to date, approximately 4,247,500 and 1,100,000 were exercisable
at February 29, 2000 and February 28, 1999, respectively, although amounts over
1,000,000 shares could not be exercised until receipt of shareholder approval.
PRO-FORMA INFORMATION - The Company complies with the disclosure-only provisions
of SFAS 123, "Accounting for Stock-Based Compensation". Accordingly, no
compensation expense to an employee and non-employee directors has been
recognized for the Company's stock option plan. Had compensation cost for the
Company's stock option plan been determined on the fair value at the date of
grant of awards in the year ended February 29, 2000 consistent with the
provisions of SFAS 123, the Company's net loss and net loss per common share
would have increased to the pro-forma amounts indicated below:
2000
----
Net loss, as reported $(1,035,000)
Net loss, pro-forma $(1,174,000)
Loss per common share, basic and diluted, as reported $( 0.04)
Loss per common share, basic and diluted, pro-forma $( 0.05)
The fair value of each option grant under SFAS 123 is estimated on the date of
the grant using a Black-Sholes option pricing model with the following
weighted-average assumptions: risk free rate of 5%; no dividend yield; option
lives of five years and expected volatility of 140%.
OTHER COMMON STOCK ISSUED - In connection with an amount payable to a third
party at February 28, 1998, 100,000 shares were issued during the fiscal year
ended February 28, 1999 to settle an account payable. Such amount was valued at
approximately $16,000. See Note 7 regarding the settlement of certain
liabilities after February 29, 2000 in exchange for Class A common stock.
NOTE 6 - INCOME TAXES:
At February 29, 2000, the Company had net operating loss carryforwards of
approximately $17.0 million to offset future income subject to tax and
approximately $440,000 of research tax credits available to offset future taxes
payable. These resulted in an estimated $5.7 million of federal and $1.5 million
of state deferred tax assets at February 29, 2000. A full valuation allowance
has been established for these deferred tax assets since their realization is
considered unlikely.
A change in the ownership of a majority of the fair market value of the
Company's common stock could delay or limit the utilization of existing net
operating loss carryforwards and credits. The Company believes, based upon
limited analysis, that such a change may have occurred in 1993 at a time when
net operating losses (subject to limitation) were less than $2 million. The
Company believes that other issuances of stock, including a significant issuance
of common stock in December 1997 and again in 2000, may also have triggered
additional changes and new limitations.
Such carryforwards and credits expire between 2007 and 2020.
30
<PAGE>
NOTE 7 - OTHER MATTERS:
BRIDGE LOAN AND OTHER NON-CURRENT LIABILITIES - In September 1999, two
shareholders loaned the Company a total of $20,000. Subsequent to February 29,
2000, such shareholders agreed to accept 90,909 shares of Class A common stock
in settlement of the liability. One vendor was owed approximately $17,000 at
February 29, 2000 and such vendor has agreed to accept 100,000 shares of Class A
common stock for settlement of the liability to them. Since both of these
liabilities were settled with the issuance of stock after February 29, 2000,
they are considered non-current liabilities in the accompanying consolidated
balance sheet.
1997 RESTRUCTURING COSTS AND ACCRUAL - In connection with the restructuring of
its business, the Company recorded a February 1997 restructuring charge of
$1,489,000, including approximately $1,264,000 for asset impairments and
$225,000 for early cancellation of leases and other costs. During the fiscal
year ended February 29, 2000 and February 28, 1999, the Company utilized
approximately $0 and $40,000, respectively, of the restructuring accrual
primarily for lease termination costs. In the years ended February 29, 2000 and
February 28, 1999, the Company reversed approximately $30,000 and $35,000 of
such accruals as no longer considered necessary. The remaining accrual at
February 29, 2000 is approximately $32,000. Total liabilities remaining on the
Company's books related to its discontinued MAGNA-SL business amount to
approximately $235,000.
INTELLECTUAL PROPERTY RIGHTS - In connection with an agreement dated February
28, 1992, a founder of the Company assigned his right and interest to certain
MRI technology to the Company. No value is assigned to this right in the
Company's consolidated financial statements. The Company, through its officers,
has filed various patent applications in connection with devices and processes
related to the Cardiac MRI Initiative.
NOTES PAYABLE - In February 1997, the Company issued a $75,000 promissory note
payable to a shareholder, collateralized by certain accounts receivable and a
MAGNA-SL system delivered to a related party but not paid for by that related
party. The note is payable at prime plus 2% per annum and was due March 15,
1997. As of February 29, 2000, approximately $62,000 has been repaid and
approximately $13,000 plus interest remains in default. No payments of interest
or principal have been made since the fiscal year ended February 28, 1998 when
the Company turned over the collateral for the note to the noteholder.
RENT EXPENSE - Rent expense for the years ended February 29, 2000 and February
28, 1999 was approximately $48,000 and $44,000 including storage charges for
inventories and other assets.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
DEBT REDUCTION PROGRAM - In approximately October 1997, reorganization counsel
was retained and the Company commenced a Debt Reduction Program to reduce its
recorded liabilities (then approximately $2.5 million, unaudited). The Company
contacted its creditors and informed them of the Company's opportunity to obtain
new financing if the creditors agreed to settle liabilities due them for
substantially reduced amounts. Such efforts have continued during the fiscal
year ended February 29, 2000 and are largely complete. Additionally, the Company
settled the claims of its employees for unpaid payroll and expenses.
The Company has settled several judgments entered against it including: (1) an
October 1997 judgment in favor of a vendor for $300,000 which was settled for
$150,000 and (2) a May 1997 judgment in favor of a former landlord for
approximately $120,000 which was settled for approximately $100,000.
In total, approximately $2,100,000 of liabilities have been either paid or
agreed to be reduced by the vendors. The difference between recorded payables
and accruals and amounts paid for settlement are periodically evaluated and, if
necessary, adjusted. Such adjustments are included in other income in the
consolidated statements of operations. Approximately $235,000 remains in
accruals and accounts payable pending resolution or write-off.
The Company has a recorded liability to one vendor for approximately $22,000
and, rather than settle, this vendor has continued to invoice the Company for
additional items that were never received and for interest charges, and now
claims it is owed in excess of $150,000. The Company, in consultation with
counsel, disputes this claim.
31
<PAGE>
LITIGATION - The Company knows of no pending litigation against it although
there are some unpaid judgments against the Company for various claims that the
Company believes do not exceed $25,000.
The Company is also exposed to potential litigation from agreements entered into
in connection with its discontinued business activities. Some of these
agreements are summarized below. The Company has not recorded liabilities for
any contingencies that could arise from these agreements as it cannot estimate
an amount of liability, if any.
AGREEMENT WITH ELSCINT - In June 1996, the Company and a subsidiary of
Elscint Ltd., ("Elscint") entered into an agreement under which Elscint
would manufacture the MAGNA-SL for marketing and sale in defined
territories. Elscint paid the Company a non-refundable deposit of $250,000,
purchased components from the Company and had other efforts in preparation
for the activities of the agreement.
Elscint informed the Company in November 1996 and May 1998 of its belief
that the Company was in default of the agreement. No resolution has been
reached and the Company has had little, if any, contact with Elscint since
Elscint's MRI business was acquired by the General Electric Company during
1998.
WARRANTY, SERVICE, PRODUCT LIABILITy - The Company has not honored its
obligations for warranty, service or product liability for the MAGNA-SL
since approximately March 1997. The Company is not aware of any warranty,
service or product liability claims.
RELATIONSHIP WITH RELATED PARTY DISTRIBUTOR - The Company entered into a
sales representation agreement for the sale of the MAGNA-SL with an entity
(Beta Numerics, Inc., "Beta") whose shareholders included two directors and
beneficial owners of the Company's stock and one former director and still
beneficial owner of the Company's stock. Beta has asserted certain
potential claims which the Company disputes.
32
<PAGE>
ITEM 8: CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS.
NONE
PART III
Item 9: Directors, Executive Officers, Promoters and Control Persons; Compliance
with Section 16 (a) of the Exchange Act:
The Company's Directors and executive officers are as follows:
Name Age Positions with the Company
-------------------------------------------------------------------------------
Daniel M. Mulvena (2)(3) 52 Chairman of the Board, Chief
Executive Officer and Acting Chief
Financial Officer
Lawrence A. Minkoff, Ph.D.(3) 51 Director, President and Chief
Scientific Officer
Allen Perres 48 Vice-President
J. M. Feldman (3) 56 Director
Joel Kanter (1) 43 Director
Seymour Kessler (2)(3) 68 Director
Irwin M. Rosenthal, Esq. (1)(2) 71 Director
----------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of Executive Committee
DANIEL M. MULVENA has been the Company's Chairman and Chief Executive
Officer since March 1998 and a consultant to the Company since February 1997.
Mr. Mulvena devotes such time as is necessary to the business and affairs of the
Company. Mr. Mulvena is Chairman of the Board of EcoCath, Inc., a publicly
traded medical technology company and serves as a consultant to and/or on the
Boards of several privately-held and publicly-held medical technology companies
including publicly-held companies Thoratec Laboratories, Inc., Zoll Medical
Corporation and Cambridge Heart. Mr. Mulvena is the principal owner of Commodore
Associates, a private firm providing consulting services to medical technology
companies.
Mr. Mulvena has served Boston Scientific Corporation, a publicly traded
corporation which manufactures and sells minimally invasive medical products
("BSC"), from 1992 through 1995 including as Vice-President and General Manager
and ultimately as Group Vice-President Cardio/Cardiology responsible for
Mansfield, Cardiac Assist and Mansfield Electrophysiology Divisions of BSC. From
1989 through 1991, Mr. Mulvena was Chairman, President and Chief Executive
Officer of, and from 1991 through 1992 was a consultant to, Lithox Systems,
Inc., a developer and manufacturer of medical devices. From 1984 to 1989, Mr.
Mulvena served as President of Bard Implants and Bard Cardiosurgery, all
divisions of C.R. Bard, Inc. C.R. Bard, Inc. is a leading worldwide manufacturer
of medical devices. Mr. Mulvena has served as Co-Chairman of the Board of
Directors of Life Medical Sciences, a publicly traded corporation engaged in the
research and development of technologies for use in medical applications.
LAWRENCE A. MINKOFF, PH.D., a founder of the Company, is presently the
Company's President and Chief Scientific Officer and has also served as its
Chairman of the Board and Chief Executive Officer from inception in February
1991 until March 1998. From October 1989 until February 1991, Dr. Minkoff has
served as President and a director of Minkoff Research Labs, Inc., a privately
held company engaged in the development of MRI technology. Dr. Minkoff continues
as President of Minkoff Research Labs, Inc. Minkoff Research Labs, Inc. is a
principal shareholder of the Company and prior to the formation of the Company
conducted the development activities relating to certain of the Company's
technology. From July 1978 to October 1989, Dr. Minkoff was an executive
33
<PAGE>
vice-president of Fonar Corporation, a publicly traded corporation engaged in
developing and commercializing the use of Magnetic Resonance Imaging for
scanning the human body. Dr. Minkoff served as a member of its Board of
Directors from January 1985 to February 1989.
ALLEN PERRES, has been Vice President of the Company since November 1999.
Mr. Perres devotes such time as is requested of him by the company in connection
with financing and strategic matters. For more than the last five years, Mr.
Perres has been employed as a Managing Director of RKP Capital Partners, LLC, a
private investment banking and merchant banking firm.
J. M. FELDMAN, has been a Vice President and Director of the Company since
January 2000. For more than the past five years Mr. Feldman has been a financial
advisor employed by various firms in the brokerage industry.
JOEL S. KANTER, has served as a Director of the Company since March 1998.
Mr. Kanter has served as President of Windy City, Inc., a privately held
investment firm, since July 1986. Mr. Kanter has also served as President of
Chicago Advisory Group, Inc., a privately held private equity financing and
consulting company since its inception in November 1999. From 1995 to November
1999, Mr. Kanter served as the Chief Executive Officer and President of Walnut
Financial Services, Inc., a publicly traded company. Walnut Financial's primary
business focus was the provision of different forms of financing to small
business, including equity financing to start-up and early stage development
companies, bridge financing to small and medium-sized companies, and later stage
institutional financing to more mature enterprises.
Mr. Kanter serves on the Board of Directors of several public companies
including Encore Medical Corporation, I-Flow Corporation, Mariner Post Acute
Network, Inc., and THCG, Inc., as well as a number of private concerns. He is
Chairman of the Coalition to Stop Gun Violence. He is also a member of the Board
of Trustees of The Langley School, it's Treasurer, and the Chairman of its
Finance Committee.
SEYMOUR KESSLER, D.P.M. has served as a Director of the Company since
January 2000. For more than the past five years Dr. Kessler has been a Managing
Director of RKP Capital Partners, a private investment bank specializing in
small to medium size companies. Dr. Kessler received his Doctorate of Podiatric
Medicine from Illinois College of Podiatric Medicine in 1954 and has had a long
career as a practicing Podiatric Surgeon as well as banker, investor and
corporate executive. He is a Board Certified Diplomat of the American Board of
Ambulatory Foot Surgery and the American Board of Podiatric Orthopedics. Dr.
Kessler is the developer of the "Kessler/Wilson Osteotomy", a minimally invasive
surgery and a co-founder and past president of the Academy of Foot and Ankle
Surgery. Dr. Kessler has served as CEO of Princeton Dental Management Corp. and
as a member of the Board of Directors of several banks in the Chicago area. He
has also served as a Director of RealShares, Inc. and NASD member firm.
IRWIN M. ROSENTHAL, ESQ., has served as a Director of the Company since
February 1992. He has served as a senior partner at Graham & James, LLP since
1998 and at Rubin Baum Levin Constant & Friedman from December 1991 until 1998.
From December 1989 to December 1991, he served as a partner at Baer Marks Upham,
and from 1983 to December 1989, as a senior partner at Botein Hays & Sklar. Mr.
Rosenthal is a director of Life Medical Sciences, Inc., and EchoCath, Inc. and
serves as secretary and director of Magar Inc., a principal shareholder of the
Company.
Other significant employees of the Registrant:
KENNETH C. RISCICA has served as Vice President and Chief Financial Officer
of the Company from November 1993 until April 1997 and has served as a
consultant to the Company since that date. Mr. Riscica is the principal owner of
34
<PAGE>
Riscica Associates, Inc., a management and financial consulting company, since
its formation in 1993. From October 1997 until April 1999, Mr. Riscica was Vice
President - Chief Financial Officer of BCAM International, Inc. From 1976 until
1992, Mr. Riscica was with Arthur Andersen & Co. LLP in various positions
including Partner in Charge of an Enterprise Services group from 1987 until
1992. Mr. Riscica devotes such time as is required to the financial affairs of
the Company.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership and changes in ownership with the Securities and Exchange Commission.
Such persons are required by SEC regulations to furnish the Company with copies
of all Section 16(a) reports they file.
The Company believes, based solely on review of copies of such reports
furnished to the Company, that section 16(a) filing requirements applicable to a
portion of the options that were not subject to stockholder approval granted to
Company's officers and directors and consultants in May 1997 (Mulvena, Minkoff,
Riscica and Rosenthal) were delinquent until their filing in May 2000. Other
than this delinquency for options granted, the Company believes, based solely on
review of copies of such reports furnished to the Company, that Section 16(a)
filing requirements applicable to the Company's officers and directors and
greater than ten percent shareholders have been complied with during the last
fiscal year.
ITEM 10: EXECUTIVE COMPENSATION.
The following tables set forth certain information relating to compensation
paid or accrued by the Company for the past three fiscal years to its Chief
Executive Officer and its executive officers whose cash paid compensation
exceeded $100,000 for the year ended February 29, 2000 (the "Named Executive
Officers"). Only those columns which call for information applicable to the
Company or the Named Executive Officers for the periods indicated have been
included in such tables.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term
Year Annual Compensation
Ended Compensation Options/
Name & Principal Position Feb. 28 Salary ($) Bonus ($) SAR (#)
------------------------- ------- ---------- --------- -------
<S> <C> <C> <C> <C>
Daniel Mulvena, Chairman of the Board, 2000 $106,765 - 1,300,000
Chief Executive Officer 1999 $114,757 - -
1998 $ 42,000 - 250,000
Lawrence A. Minkoff, Ph.D., President 2000 $125,833(a) $100,000(a) 2,200,000
and Chief Scientific Officer 1999 $112,000 - -
1998 $ 93,334(b) - 150,000
-------------
(a) During the fiscal year ended February 29, 2000 Dr. Minkoff's salary was
adjusted from $112,000 per annum to $195,000 per annum and he was awarded a
performance bonus of $100,000 which was paid during May 2000.
(b) Net of approximately $18,666 due to Dr. Minkoff for services rendered and
forgiven by him under the Debt Reduction Program.
</TABLE>
35
<PAGE>
OPTION/SAR GRANTS IN LAST FISCAL YEAR
The following table sets forth information with respect to options granted
during the last fiscal year to the Named Executive Officers of the Company.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
% of Total
Options/SARs
Granted to Exercise or
Options/ Employees in Base Price
Name SARs Granted(#) Fiscal Year ($/share) Expiration Date
---- --------------- ----------- --------- ---------------
<S> <C> <C> <C> <C>
Daniel M. Mulvena 1,300,000(a) 26% $0.22 700,000 11/16/04
200,000 11/16/05
200,000 11/16/06
200,000 11/16/07
Lawrence A. Minkoff, Ph. D. 2,200,000(a) 46% $0.22 1,300,000 11/16/04
300,000 11/16/05
300,000 11/16/06
300,000 11/16/07
-----------------
a) All of which are subject to shareholder approval of an increase in the
options available under the Company's stock option plan. See "Report on
Repricing of Options" below.
</TABLE>
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END
OPTION/SAR VALUES
The following table sets forth certain information with respect to stock
option exercises by the Named Executive Officers during the fiscal year ended
February 29, 2000 and the value of unexercised options held by them at the
fiscal year-ended February 29, 2000.
<TABLE>
<CAPTION>
Value of Unexercised
Number of In-the Money
Shares Unexercised Options/SARs
Acquired Options/SARs at F/Y at F/Y End ($)
on Value End (#) Exercisable/ Exercisable/
Name Exercise(#) Realized($) Unexercisable Unexercisable(1)
---- ----------- ----------- ------------- ----------------
<S> <C> <C> <C> <C>
Daniel M. Mulvena 0 0 1,050,000/600,000 $169,200/$111,600
Lawrence A. Minkoff, Ph. D. 0 0 1,550,000/900,000 $280,800/$167,400
---------------
(1) Based on a closing price of $0.406 per share of Class A Common Stock
on February 29, 2000, less the exercise price.
</TABLE>
EMPLOYMENT AGREEMENTS
There are no employment agreements with any of the Company's employees. Dr.
Minkoff continued to receive compensation at the rate of compensation indicated
in his prior contract ($112,000 per year) until December 31, 1999 at which time
his annual compensation was increased to $195,000 and he received a performance
bonus of $100,000 in the fiscal year ended February 29, 2000 which was paid in
May 2000. Mr. Mulvena and Mr. Riscica provide services to the Company based upon
consulting agreements which call for payment based upon time expended on the
affairs of the Company. Mr. Mulvena and Mr. Riscica agree to spend such time as
36
<PAGE>
is necessary to advance the affairs of the Company. Mr. Perres is compensated
based upon a base salary and incentive compensation related to his efforts in
raising capital for the Company. See "Certain Relationships and Related
Transactions."
DIRECTORS' COMPENSATION
The Company does not presently pay cash compensation to its outside
Directors for attendance at Board or committee meetings. Outside Directors may
be reimbursed for expenses incurred by them in acting as a Director or as a
member of any committee of the Board of Directors.
During the fiscal year ended February 29, 2000 Mssrs. Feldman, Kanter and
Kessler were each granted options to purchase 75,000 shares, and Mr. Rosenthal
was granted an option to purchase 225,000 shares, at $0.22 prior to November 16,
2000. Such options are fully vested.
37
<PAGE>
ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Class A and Class B Common Stock as of May 10, 2000
for (i) each of the Company's directors and the executive officers named in the
Summary Compensation Table, (ii) each person known by the Company to own
beneficially 5% or more of the outstanding shares of any class of its voting
securities and (iii) all directors and executive officers as a group.
<TABLE>
<CAPTION>
Percentage
Number of of Total
Class of Shares Class A and Percentage of
Name and Address Common Beneficially Percent of Class B Total Voting
of Beneficial Owner (1) Stock (2) Owned(3) Class(3) Common Stock(3) Power (2)(3)
----------------------- --------- -------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C>
Daniel M. Mulvena (4)(6) Class A 950,000 2.6% 2.6% 2.4%
Lawrence A. Minkoff, Ph.D. (4)(6) Class A 1,550,000 4.2%
Class B 238,915 57.6%
---------
1,788,915 4.7% 7.0%
---------
Irwin M. Rosenthal (4)(6) Class A 849,593 2.3% 2.3% 2.2%
Allen Perres (4)(6) Class A 3,500,000 8.9% 8.8% 8.5%
Kenneth C. Riscica (4)(6) Class A 717,500 2.0% 1.9% 1.9%
J.M. Feldman (4)(6) Class A 75,000 0.2% 0.2% 0.2%
Seymour Kessler (4)(6) Class A 75,000 0.2% 0.2% 0.2%
Joel Kanter (4)(6)(7) Class A 641,754 1.8% 1.8% 1.7%
Noga Investments in Technology Ltd. (8) Class A 17,136,363 33.8% 33.6% 32.5%
Robert M. Rubin (4) Class A 3,400,000 9.5% 9.4% 9.0%
Abbe/Berman "Group" (9) Class A 2,000,000 5.6% 5.5% 5.3%
All Executive Officers and Directors as Class A 7,858,847 19.3%
a Group (7 persons) Class B 238,915 57.6%
---------
8,097,762 19.7% 21.1%
---------
(see following page for notes)
----------------------
</TABLE>
The information presented in the table above is based solely upon Forms 13, 15
and 4 filed by the respective holders under the Securities Exchange Act of 1934
and has not been otherwise independently verified by the Company. To the extent
that any required holders have not filed timely reports on such Forms, the
Company would not be in a position to know the current holdings of such persons.
(1) All shares are beneficially owned and sole voting and investment power
is held by the persons named, except as otherwise noted.
(2) Class B Common Stock is entitled to five votes per share but is
otherwise substantially identical to the Class A Common Stock, which
has one vote per share. Each share of Class B Common Stock is
convertible into one share of Class A Common Stock. Beneficial
ownership of Class B common stock reflects the forfeiture of an
aggregate 1,000,000 shares due to certain criteria not being met.
(3) Based upon 35,785,945 shares of Class A common stock and 414,722 shares
of Class B common stock outstanding at May 10, 2000 and reflecting as
outstanding, with respect to the relevant owner, the shares which that
beneficial owner could acquire upon exercise of options which are
presently exercisable or will become exercisable within the next 60
days.
38
<PAGE>
(4) The address for Mssrs. Mulvena, Minkoff, Rosenthal, Perres, Riscica,
Rubin, Feldman, Kessler and Kanter is c/o Magna-Lab Inc., 6800 Jericho
Turnpike, #120W, Syosset, NY 11791.
(5) Includes currently exercisable options to purchase 1,550,000 shares of
Class A Common Stock, including shares underlying options which are
subject to shareholder approval. Reflects the forfeiture of 273,042
shares of Class B common stock on February 28, 1998.
(6) Includes currently exercisable options to purchase the following shares
of Class A Common Stock; Mr. Mulvena, 950,000, Dr. Minkoff, 1,550,000,
Mr. Rosenthal, 500,000, Mr. Perres, 3,500,000, Mr. Riscica 717,500, Mr.
Feldman, 75,000, Mr. Kessler, 75,000, Mr. Kanter, 75,000 including
amounts which are subject to approval of an increase in the Company's
Stock Option Plan.
(7) Includes the holding of The Kanter Family Foundation and Windy City
Associates to which Mr. Kanter does not have sole voting or investment
power.
(8) The address for Noga Investments in Technology Ltd. is 6 Azoran Street,
South Industrial Zone, P.O. Box 8471, Netaninya, Israel. Includes
2,272,727 shares presently owned and currently exercisable rights to
purchase and additional 11,363,636 shares prior to July 30, 2000.
Excludes additional shares which would be issuable if this investor
exercised its right to make additional investments sufficient to permit
the Company to be listed on the Nasdaq SmallCap market as such amount
is not presently determinable.
(9) The Abbe/Berman Group consists of Coleman Abbe, Richard Abbe, Leo Abbe
and Jeffrey Berman, each of whom beneficially owns 500,000 shares of
Class A common stock. The address for each of Messrs. Coleman Abbe,
Richard Abbe, Leo Abbe and Jeffrey Berman is c/o Hampshire Securities
Corp., 640 Fifth Avenue, New York, NY 10016. Such reporting persons may
be deemed to be part of a "group" and such reporting persons disclaim
any such "group" membership. The "Abbe Group" reflects such amounts as
though such reporting persons were a member of a "group" (which they
disclaim).
ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Rosenthal is a senior partner in a law firm which provides legal
services to the Company from time to time. During the fiscal year ended February
29, 2000, such firm billed the Company approximately $103,000 principally
related to financing transactions.
In December 1999, the Company entered into a letter agreement with Noga
Investments in Technology Ltd (successor in interests to Noga Electrotechnica
Limited, "Noga") pursuant to which Noga agreed to purchase $3,000,000 worth of
common stock at $0.22 per share payable in installments over a five month period
ending May 2000. To secure its commitment, Noga paid $250,000 as a
non-refundable deposit. In January and February 2000, Noga purchased a total of
$500,000 worth of common stock toward its commitment. In May 2000, the agreement
was amended to permit the balance to be paid by July 27, 2000 in exchange for an
additional $100,000 to be paid by Noga to the Company as an additional
non-refundable deposit to secure the timely payment of the balance ($2,150,000).
If Noga fails to timely pay the balance, the Company is entitled to keep the
$350,000 in non-refundable deposits it has received and all rights that Noga is
entitled to under this letter agreement terminate. According to the letter
agreement, as amended, the Company agreed to provide Noga with an option to
purchase 3,500,000 shares of the Company's common stock at $0.02 per share and
an option, exercisable prior to July 27, 2000, to purchase the number of
additional shares that are necessary to satisfy the requirements for listing of
the Company's stock on the NASDAQ SmallCap market. The Company also agreed that
for a period of two years from the date of this letter agreement, Noga has the
right to nominate a number of directors to the Company's board such that the
total number of non-Noga nominated directors exceeds the number of
Noga-nominated directors by one. Mr. Feldman was designated by Noga as its
initial nominee. Additionally, the Company agreed that any payment or withdrawal
from the Company's bank account of at least $2,000 requires the approval of Mr.
Feldman. In March 2000, the Company and Noga agreed that Noga would not have the
right to nominate any additional directors to the Company's Board until the
completion of its $3,000,000 financing commitment was completed. The Company has
agreed to hold meetings of its board at least once per month or at such
39
<PAGE>
intervals as is reasonably acceptable to the Noga-nominated directors.
In December 1999, the Company entered into a letter agreement and an
amendment to the letter agreement with Mr. Perres, an officer of the Company, in
connection with Mr. Perres' assistance in raising financing for the Company in
its $2,000,000 private placement. Under the agreement, as amended, the Company
agreed to elect Mr. Kessler as a member of its board to fill a vacancy. The
Company also agreed to nominate Mr. Perres as a director in the event that Mr.
Perres assists the Company in raising funds in excess of $2,000,000 in its
private placement. Additionally, the Company has agreed that any increase in the
size of its board must be approved by Messrs. Perres and Kessler so long as they
are directors. Under the letter agreement, as amended, the Company agreed to
create an Executive Committee consisting of Messrs. Kessler, Minkoff, and
Mulvena. The Company agreed to pay Mr. Perres for his services a base salary of
$90,000 per year and to provide him with options to purchase 3,500,000 shares of
the Company's common stock at $0.02 per share.
Mr. Minkoff, a director and officer of the Company, received a performance
bonus of $100,000 during fiscal year ended February 29, 2000 which was paid
during May 2000. See "Executive Compensation - Employment Agreements."
There are no other material transactions with related parties during the
two fiscal years ended February 29, 2000. Transactions between the Company and
its Directors, officers and principal shareholders are approved by the
disinterested directors of the Company and determined to be on terms no less
favorable than those available from independent third parties.
Reference is made to Item 10. Regarding option grants to management.
ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K
(A) Exhibits
10.36 December 6, 1999 letter agreement between the Company
and Allen Perres.
10.37 December 17, 1999 letter agreement between the
Company and Noga Investments in Technology Ltd.
(successor in interests to Noga Electrotechnica
Limited).
10.38 December 20, 1999 letter agreement between the
Company and Allen Perres.
10.39 January 24, 2000 letter amendment to Collaborative
Research Agreement between the Company and Mount
Sinai School of Medicine of the City University of
New York.
10.40 March 7, 2000 letter between the Company and Noga
Investments in Technology Ltd. amending certain
rights to Board representation.
10.41 Form of April 14, 2000 letter amendment to
Collaborative Research Agreement between the Company
and Mount Sinai School of Medicine of the City
University of New York.
(B) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the fiscal
year ended February 29, 2000.
40
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
caused this Report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAGNA-LAB INC.
Dated: May 26, 2000
By: /s/Daniel M. Mulvena
--------------------
Daniel M. Mulvena
Chairman of the Board and
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated.
Signature Title Date
--------- ----- ----
/s/Daniel M. Mulvena
--------------------
Daniel M. Mulvena Chairman of the Board May 26, 2000
and Chief Executive Officer
(principal executive and
financial officer)
/s/Lawrence A. Minkoff
----------------------
Lawrence A. Minkoff, Ph.D. President and Chief May 26, 2000
Scientific Officer
/s/Jerome Feldman
-----------------
Jerome Feldman Director May 26, 2000
/s/Joel Kanter
--------------
Joel Kanter Director May 26, 2000
/s/Seymour Kessler
------------------
Seymour Kessler Director May 26, 2000
/s/Irwin M. Rosenthal
---------------------
Irwin M. Rosenthal Director May 26, 2000
41
<PAGE>
INDEX TO EXHIBITS
Exhibit
No. Description
------- -----------
1.1 Form of Underwriting Agreement between the Company and the
Representative. (7)
1.2 Form of Representative's Warrant Agreement. (7)
1.3 Form of Merger and Acquisition Agreement between the Company and the
Representative. (7)
1.4 Form of Financial Consulting Agreement between the Company and the
Representative. (7)
3.1 Restated Certificate of Incorporation of the Company. (1)
3.1(a) Form of Certificate of Amendment to Restated Certificate of
Incorporation of the Company. (3)
3.1(b) Certificate of Amendment of Restated Certificate of Incorporation (4).
3.2 By-Laws of the Company. (1)
3.2(a) Amendment to By-Laws of the Company. (3)
4.1 Form of Class E Warrant Agreement among the Company, the Representative
and American Stock Transfer and Trust Company. (7)
4.2 Form of Specimen Class A Common Stock Certificate. (3)
4.3 Intentionally omitted
4.4 Intentionally omitted
4.5 Intentionally omitted
4.6 Form of Specimen Class E Warrant Certificate. (7)
5.1 Opinion of Rubin Baum Levin Constant & Friedman re: legality. (7)
10.1 1992 Stock Option Plan of the Company, as amended. (7)
10.2 Form of Stock Restriction Agreement among the Company, Class B Common
shareholders of the Company and D. H. Blair Investment Banking Corp.(2)
10.3 License Agreement, dated February 28, 1992, between the Company and Dr.
Lawrence A. Minkoff. (1)
10.4 Employment Agreement, dated February 28, 1992, between the Company and
Dr. Joel M. Stutman. (1)
10.4(a) Letter Agreement dated February 28, 1995 between the Company and Dr.
Joel M. Stutman. (7)
10.5 Employment Agreement, dated February 28, 1992, between the Company and
Dr. Lawrence A. Minkoff. (1)
10.5(a) Letter Agreement dated as of February 28, 1995 between the Company and
Dr. Lawrence A. Minkoff. (7)
10.6 Form of Subscription Agreement (with certain Exhibits, including form
of Notes and Warrant Agreement) for 10% notes and Class C Warrants.
Incorporated by reference to Exhibit 4.1 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended November 30, 1994 (File No.
0-21320)
10.7 Form of Subscription Agreement (with certain Exhibits, including form
of Notes and Warrant Agreement) for 12% Notes and Class D Warrants.
Incorporated by reference to Exhibit 4.2 to the Company's Quarterly
Report on Form 10-QSB for the quarter ended November 30, 1994 (File No.
0-21320).
10.8 Sales, Marketing and Distribution Agreement between Beta Numerics Inc.
and Magna-Lab Inc. Incorporated by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
November 30, 1994 (File No. 0-21320).
10.9(a) Medical Advisory Board Agreement, dated as of December 31, 1992,
between the Company and Dr. Kurt Isselbacher. (2)
10.9(b) Medical Advisory Board Agreement, dated as of December 31, 1992,
between the Company and Dr. Valentin Fuster. (3)
10.9(c) Medical Advisory Board Agreement between the Company and Dr. Thomas
Brady. (3)
10.10 Lease dated February 28, 1992 between Grumman Aerospace Corporation and
the Company. (1)
10.11 Form of Indemnification Agreement entered into between the Company and
each officer and Director of the Company . (1)
42
<PAGE>
10.12 Assignment from Dr. Lawrence Minkoff to the Company dated December 22,
1992. (1)
10.13 Agreement, dated November 22, 1991, between the Company and John
Haytaian, as amended. (1)
10.14 Form of Stock Option Agreement between the Company and each officer and
Director of the Company (7)
10.15 Employment Agreement between the Company and Kenneth C. Riscica. (5)
10.16 Form of Consulting Agreement between the Company and D.H. Blair
Investment Banking Corp.(3)
10.18 Agreement between Magna-Lab Inc. and Surrey Medical Imaging Systems
Limited dated August 23, 1993. Incorporated by reference to Exhibit
10.18 to the Company's Quarterly Report on Form 10-QSB for the quarter
ended August 31, 1993 File No. 0-211320)
10.19 Letter Amendment dated December 8, 1993 to Agreement with Surrey
Medical Imaging Systems Limited Incorporated by reference to the
Company's Quarterly Report on Form 10-QSB for the quarter ended
November 30, 1993 (File No. 0-21320)
10.19(a) Letter of amendment dated July 11, 1994 to agreement with Surrey
Medical Imaging Systems Limited. Incorporated by reference to exhibit
10.20 to the Company's Quarterly Report on Form 10-QSB for the quarter
ended May 31, 1994. (File Number 0-21320)
10.20 Foreign Distributorship Agreement and Coordination Foreign Distributor
Agreement between Magna-Lab Inc. and Apic-Medarax dated January 22,
1994. (5)
10.20(a) Letter amendment dated September 1, 1994 to Foreign Distributor
Agreement dated January 22, 1994. Incorporated by reference to Exhibit
10.20(a) to the Company's Quarterly Report on Form 10-QSB for the
quarter ended August 31, 1994. (7)
10.20(b) Letter amendment dated October 20, 1995 to Foreign Distributor
Agreement dated January 22, 1994. (7)
10.21 Form of stock option agreement between the Company and each non
executive option holder. (5) 10.22 Medical Advisory Board Agreement,
dated January 19, 1994, between the Company and
Dr. William Abbott. (5)
10.23 Form of Underwriting Agreement, dated March 30, 1993, between the
Company and D.H. Blair Investment Banking Corp. Incorporated by
reference to Exhibit 1.1 to Amendment No. 2 to the Registration
Statement described in notes 1 and 3 to this Exhibit Index.
10.24 Form of Unit Purchase Option, dated April 6, 1993 between the Company
and D.H. Blair Investment Banking Corp. Incorporated by reference to
Exhibit 1.2 to Amendment No. 2 to the Registration Statement described
in notes 1 and 3 to this Exhibit Index
10.25 Form of Warrant Agreement among the Company, D.H. Blair Investment
Banking Corp. and American Stock Transfer and Trust Company.(3)
10.26 Placement Agent Agreement, dated as of June 20, 1995, among the
Company, the Representative and, for purposes of certain sections,
Dreyer & Traub, L.L.P. (7)
10.27 Form of Subscription Agreement, dated as of August 4, 1995, between the
Company and Bridge Note investors. (7)
10.28 Lock-up letters from Bridge Note investors. (7)
10.29 Letter Agreements, dated June 19, 1995, between the Company and Class C
Warrantholders. (7)
10.30 Letter of Intent, dated November 25, 1995, between the Company and
Elscint, Ltd. (7)
10.31 Surrender of Lease agreement dated April 4, 1996 between the Company
and Grumman Aerospace Corporation.(8)
10.32 Lease Agreement, dated April 4, 1996, between the Company and Heartland
Rental Properties Partnership.(8)
10.33 Letter amendment to Lease Agreement, dated April 4, 1996, between the
Company and Heartland Rental Properties Partnership.(8)
10.34 Note Agreement between the Company and Beta Numerics, Inc. dated April
15, 1996.(8)
10.35 Collaborative Research Agreement, dated as of May 7, 1997, between the
Company and Mount Sinai School of Medicine of the City University of
New York. (9)
10.36 December 6, 1999 letter agreement between the Company and Allen Perres
(filed herewith).
43
<PAGE>
10.37 December 17, 1999 letter agreement between the Company and Noga
Investments in Technology Ltd. (successor in interests to Noga
Electrotechnica Limited)(filed herewith).
10.38 December 20, 1999 letter agreement between the Company and Allen Perres
(filed herewith).
10.39 January 24, 2000 letter amendment to Collaborative Research Agreement
between the Company and Mount Sinai School of Medicine of the City
University of New York (filed herewith).
10.40 March 7, 2000 letter between the Company and Noga Investments in
Technology Ltd. amending certain rights to Board representation.
10.41 Form of April 14, 2000 letter amendment to Collaborative Research
Agreement between the Company and Mount Sinai School of Medicine of the
City University of New York (filed herewith).
11 Statement re computation of per share earnings. (6)
27 Financial Data Schedule.
----------------------------------
(1) Incorporated by reference to the correspondingly numbered exhibit to
the Company's Registration Statement on Form S-1 (Registration No.
33-56344) filed on December 24, 1992 and declared effective on March
30, 1993 (the "S-1").
(2) Incorporated by reference to the correspondingly numbered exhibit to
Amendment No. 1, filed on March 3, 1993, to the S-1.
(3) Incorporated by reference to the correspondingly numbered exhibit to
Amendment No. 2, filed on March 25, 1993, to the S-1.
(4) Incorporated by reference to the correspondingly numbered exhibit to
the Company's Quarterly Report on Form 10-QSB for the quarter ended
August 31, 1994 (File No. 0-21320).
(5) Incorporated by reference to the correspondingly numbered exhibit to
the Company's Annual Report on Form 10-KSB for the year ended February
28, 1994 (File No. 0-21320).
(6) Current year not required.
(7) Incorporated by reference to the correspondingly numbered exhibit to
the Company's Registration Statement on Form SB-2 (Registration
Statement No. 33-96272) filed on August 28, 1995 including Amendment
No. 1 filed on October 20, 1995 and Amendment No. 2 filed on December
19, 1995.
(8) Incorporated by reference to the correspondingly numbered exhibit to
the Company's Annual Report on Form 10-KSB for the year ended February
29, 1996 (File No. 0-21320).
(9) Incorporated by reference to the correspondingly numbered exhibit to
the Company's Annual Report on Form 10-KSB for the year ended February
28, 1997.
44
