U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: May 31, 2000
------------
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-21320
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Magna-Lab Inc.
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(Exact name of small business issuer as specified in its charter)
New York 11-3074326
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6800 Jericho Turnpike, #120W, Syosset, NY 11797
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(Address of principal executive offices)
(516) 393-5874
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(Issuer's telephone number)
--------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ( X ) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date - June 30, 2000
Class A Common Stock, $.001 Par Value 35,785,945
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Class B Common Stock, $.001 Par Value 414,722
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Class Shares
Transitional Small Business Disclosure Format (check one) Yes ( ) No (X)
<PAGE>
PART I: FINANCIAL INFORMATION
Item 1. - Financial Statements
MAGNA-LAB INC. AND SUBSIDIARY
CONTENTS
PART 1 - FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. - FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS 2
CONSOLDATED STATEMENTS OF OPERATIONS 3
CONSOLDATED STATEMENTS OF CASH FLOWS 4
CONSOLDATED STATEMENT OF STOCKHOLDERS' EQUITY 5
NOTES TO CONSOLDATED FINANCIAL STATEMENTS 6-9
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 10-11
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEEDS 12
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 12
SIGNATURES 13
All items which are not applicable or to which the answer is negative have been
omitted from this report.
1
<PAGE>
<TABLE>
<CAPTION>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
May 31, 2000 (unaudited) and February 29, 2000
May 31, February 29,
2000 2000
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ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 1,566,000 $ 1,372,000
Other current assets - deposit with vendor 130,000 130,000
-------------- --------------
Total current assets 1,696,000 1,502,000
PROPERTY AND EQUIPMENT, net, and all other 8,000 9,000
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$ 1,704,000 $ 1,511,000
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 235,000 $ 283,000
Accrued expenses and other current liabilities 532,000 942,000
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Total current liabilities 767,000 1,225,000
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NON-CURRENT LIABILITIES 0 37,000
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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, 35,785,945 shares issued
and outstanding. 35,000 30,000
Common stock, Class B, par value $.001 per share,
3,750,000 shares authorized, 1,875,000 shares issued,
414,722 shares outstanding 1,000 1,000
Capital in excess of par value 18,692,000 17,675,000
Accumulated deficit (17,791,000) (17,457,000)
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Total stockholders' equity 937,000 249,000
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$ 1,704,000 $ 1,511,000
============== ==============
See accompanying notes to consolidated financial statements
</TABLE>
2
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<TABLE>
<CAPTION>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended May 31,
2000 1999
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<S> <C> <C>
REVENUES $ - $ -
------------ ------------
COSTS AND EXPENSES:
Selling and marketing - -
General and administrative 140,000 90,000
Research and development 214,000 185,000
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354,000 275,000
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OTHER INCOME (EXPENSE)
Other income - -
Interest expense - -
Interest income 20,000 -
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20,000 -
------------ ------------
NET LOSS $ (334,000) $ (275,000)
============ ============
WEIGHTED AVERAGE NUMBER OF
SHARES OUTSTANDING, BASIC AND DILUTED 34,963,000 22,467,000
========== ==========
NET LOSS PER SHARE, BASIC AND DILUTED $(0.01) $(0.01)
======= =======
See accompanying notes to consolidated financial statements
</TABLE>
3
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<TABLE>
<CAPTION>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(unaudited)
Three Months ended May 31,
2000 1999
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (334,000) $ (275,000)
-------------- --------------
Adjustments:
Depreciation and amortization 1,000 -
Non-cash charge for warrants to consultant 25,000 -
Effect on cash of changes in operating assets and liabilities:
Accounts payable and accrued liabilities (457,000) 192.000
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Total adjustments (431,000) 192.000
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NET CASH USED IN OPERATING ACTIVITIES (765,000) (83,000)
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CASH FLOWS FROM INVESTING ACTIVITIES:
None - -
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NET CASH USED IN INVESTING ACTIVITIES - -
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CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Class A common shares in private placement to
accredited investors 982,000 30,000
Receipt of non-refundable deposit from Noga 100,000 -
Cost of private placements (123,000) (14,000)
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 959,000 16,000
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 194,000 (67,000)
CASH AND CASH EQUIVALENTS:
Beginning of period 1,372,000 67,000
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End of period $ 1,566,000 $ -
============== ==============
SUPPLEMENTAL INFORMATION ON NON-CASH TRANSACTIONS
Common stock issued to settle account payable $ 18,000 $ -
============== ==============
Bridge loans settled with issuance of Class A common stock $ 20,000 $ -
============== ==============
See accompanying notes to consolidated financial statements
</TABLE>
4
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<TABLE>
<CAPTION>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the three months ended May 31, 2000 (unaudited)
Common Stock
---------------------------------------------- Capital in
Class A Class B Excess
------------------- ------------------- Of Par Accumulated
Shares Amount Shares Amount Value Deficit
------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, February 29, 2000 30,811,087 $ 30,000 735,034 $ 1,000 $ 17,675,000 $(17,457,000)
PRIVATE PLACEMENT 4,463,637 5,000 - - 977,000 -
DEPOSIT FROM NOGA - - - - 100,000 -
SETTLE VENDOR BALANCE 100,000 - - - 18,000 -
PAY BRIDGE NOTES IN STOCK 90,909 - - - 20,000 -
CONVERT B TO A SHARES 320,312 - (320,312) - - -
CHARGE FOR WARRANTS - - - - 25,000 -
COSTS OF PRIVATE
PLACEMENT - - - - (123,000) -
NET LOSS - - - - - (334,000)
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BALANCES, May 31, 2000 35,785,945 $ 35,000 414,722 $ 1,000 $ 18,692,000 $(17,791,000)
=====================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
5
<PAGE>
MAGNA-LAB INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying consolidated financial statements have been prepared in
accordance with the instructions to Form 10-QSB and do not include all of the
information and disclosures required by generally accepted accounting
principles. All adjustments which are of a normal recurring nature and, in the
opinion of management, necessary for a fair presentation have been included.
These statements should be read in conjunction with the more complete
information and consolidated financial statements and notes thereto included in
the Company's annual report on Form 10-KSB for the year ended February 29, 2000.
NOTE 2 - DISCUSSION OF THE COMPANY'S ACTIVITIES/PRODUCTS AND CASH REQUIREMENTS;
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 $3,662,000 through May 31, 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 May 31, 2000, the Company had working capital of
approximately $929,000, net worth of approximately $937,000, a net loss of
approximately $334,000 for the three months ended May 31, 2000 and an
accumulated deficit of approximately $17.8 million since inception. Further, the
Company has no present revenue and a development agenda which requires
additional financing. Losses have continued since May 31, 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 an agreement
with one investor for an additional $2,150,000 of additional capital as
discussed further in Note 6. The Company believes that its cash resources at May
31, 2000, together with amounts expected to be raised ($2,150,000) 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.
6
<PAGE>
NOTE 3 - LOSS PER SHARE OF COMMON STOCK:
Net loss per share is computed based on the weighted average number of Class A
Common and Class B Common shares outstanding. Dilutive options and warrants
outstanding would be considered in the computation of net income per share under
the treasury stock method when their effect is to reduce reported net income per
share.
NOTE 4 - 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 three months ended May 31, 2000 and 1999, $75,000 and $150,000,
respectively, was charged to operations and $300,000 and $-0-, respectively, was
paid. At May 31, 2000 and February 29, 2000, $250,000 and $475,000,
respectively, remained in accrued expenses.
In January and April 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 5 - PROPERTY AND EQUIPMENT:
Details of property and equipment at May 31, 2000 are as follows:
Machinery and equipment $ 360,000
Purchased software 49,000
-----------
409,000
Less: accumulated depreciation and amortization
and write-downs (401,000)
-----------
$ 8,000
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NOTE 6 - 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. During the three months ended May 31, 2000, an
additional approximately $1,082,000 was raised bringing the total raised to
approximately $3,300,000. 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.
During the three months ended May 31, 2000, an additional $982,000 of proceeds
was raised from the issuance of 4,463,637 shares of Class A common stock under
this placement.
7
<PAGE>
Separately, in December 1999 an investor, Noga Investments in Technology, Ltd.
("Noga") 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 (which has been received) and a remaining investment of $2,150,000 to be
made prior to July 27, 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 has the option
to invest additional amounts, as defined, at $0.22 prior to July 27, 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.
NOTE 7 - OTHER MATTERS
DEPOSIT WITH VENDOR - Deposit with vendor of $130,000 included in the
accompanying consolidated balance sheet consists of amounts on deposit with the
Company's outsourced manufacturer. This amount will be deduced from the final
billings due from this vendor. Billings from this vendor for work performed
during the three months ended May 31, 2000 were approximately $60,000.
LIABILITIES SETTLED FOR STOCK - During the three months ended May 31, 2000, the
Company reached agreement with one vendor and with the holders of bridge loans
made to the Company in September 1999 to settle these obligations, which
aggregated approximately $37,000, for an aggregate 190,909 shares of Class A
common stock.
WARRANTS ISSUED TO CONSULTANT - In March 2000, the Company entered into a
contract with an investor relations firm calling for annual fees of
approximately $48,000 plus expenses. Under the agreement, the Company agreed to
issue five year warrants to purchase 280,000 shares of Class A common stock at
an exercise price of $0.22 per share. The options vest as follows: 120,000 in
March 2000 and 160,000 in November 2000, subject to the Company electing to
continue to retain the services of this investor relations firm at that time.
The warrants result in a charge to compensation over the period of service and
approximately $25,000 as been included as a non-cash charge in the accompanying
consolidated statement of operations for the three months ended May 31, 2000.
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 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.
In total, approximately $2,100,000 of liabilities have been either paid, agreed
to be reduced by the vendors or written off by the Company due to inactivity.
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. There were no adjustments included in operations for the three
months ended May 31, 2000 or 1999. Approximately $235,000 remains in accruals
and accounts payable pending resolution or write-off.
Additional information regarding the Debt Reduction Program is contained in Note
8 to Consolidated Financial Statements contained in the Company's Form 10-KSB
for the year ended February 29, 2000.
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.
8
<PAGE>
The Company is also exposed to potential litigation from agreements entered into
in connection with its discontinued business activities including but not
limited to: (a) a 1996 agreement with Elscint Ltd., (b) Warranty, Service and
Product Liability related to the discontinued product (c) an agreement with a
related party distributor and (d) other matters. These matters are discussed
further in Note 8 to Consolidated Financial Statements contained in the
Company's Form 10-KSB for the year ended February 29, 2000. 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.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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
--------------------------------------
(B) MANAGEMENT'S ANALYSIS AND DISCUSSION OR PLAN OF OPERATIONS -
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 $3,662,000 through May
31, 2000, principally through private placement of its Class A common stock.
Such efforts are ongoing.
LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN CONSIDERATION
During the three months ended May 31, 2000, the Company's working
capital improved by approximately $652,000 as a result of (a) the placement of
additional shares under its private placement to accredited investors (982,000),
(b) the receipt of an additional deposit from Noga toward its financing
commitment to the Company ($100,000) reduced by losses from operations and the
payment of financing costs.
As indicated in the accompanying consolidated financial statements, as of
May 31, 2000, the Company had working capital of approximately $929,000, net
worth of approximately $937,000, a net loss of approximately $334,000 for the
three months ended May 31, 2000 and an accumulated deficit of approximately
$17.8 million since inception. Further, the Company has no present revenue and a
development agenda which requires additional financing. Losses have continued
since May 31, 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 an agreement with one investor for an additional $2,150,000 of
additional capital as discussed further in Note 6 to Consolidated Financial
Statements. The Company believes that its cash resources at May 31, 2000,
together with amounts expected to be raised ($2,150,000) 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. Also
see - Factors That May Affect Future Results.
10
<PAGE>
RESULTS OF OPERATIONS -
Operations for the three months ended February 29, 2000 resulted in a net
loss of approximately $334,000, 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 $214,000
including approximately $75,000 related to the collaborative agreement with MSSM
and approximately $60,000 in connection with the collaboration with the
Company's outsourced manufacturer. General and administrative costs were
approximately $140,000 reflecting management and other operating costs including
occupancy, storage and professional fees, among other items and included a
non-cash charge of approximately $25,000 for the compensatory element of
warrants issued to a consultant. Total costs and expenses of $354,000 were
offset by interest income of approximately $20,000 as a result of higher cash
balances. The increase in total costs and expenses over the comparable period of
1999 consists principally of the work of the outsourced manufacturer and the
fees and non-cash charges associated with an investor relations consultant. Cash
used by operations totaled approximately $765,000 consisting of the loss from
operations as well as the general reduction of accounts payable and accrued
liabilities, including $300,000 paid to MSSM.
Operations for the three months ended May 31, 1999 resulted in a net loss
of approximately $275,000 and utilized approximately $83,000 of cash principally
in connection with activities under the Cardiac MRI Initiative. Payments to MSSM
were approximately $500,000 in arrears at May 31, 1999. Net loss of
approximately $275,000 reflects accrual of costs under the MSSM agreement as
well as accrual of other costs incurred, most of which were unpaid at May 31,
1999.
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.
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 business, (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.
-------------------------------------
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS
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. During the three months ended May 31, 2000
an additional amount of approximately $1,082,000 was raised bringing the total
raised to approximately $4,332,000. 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"). During the three months ended May 2000,
an additional $982,000 of proceeds was raised from the issuance of 4,464,637
shares of Class A common stock under this placement. 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
Investment in Technology, Ltd. ("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 which was paid by Noga to the
Company in May 2000 as an additional non-refundable deposit to secure the timely
payment of the balance ($2,150,000). If the investor 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 the investor 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. Allan Perres and 3,500,000 to Noga
and has agreed to nominate certain individuals to its Board of Directors.
In March 2000, the Company reached agreement with a vendor to settle its
outstanding balance of approximately $18,000 through the issuance of 100,000
shares of Class A common stock.
In May 2000, the Company reached agreement with three parties to an
aggregate $20,000 bridge loan to settle such bridge loan in exchange for an
aggregate 90,909 shares of Class A common stock.
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No.
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(11) Statement re: computation of loss per share - A
statement regarding the computation of loss per share
is omitted because computation can be clearly
determined from the material contained in this
Quarterly Report on Form 10-QSB.
(27) Financial Data Schedule
(b) The Company did not file reports on Form 8-K during the quarter
ended May 31, 2000.
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<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAGNA-LAB INC.
--------------
(Registrant)
Date: July 15, 2000 By: /s/ Daniel M. Mulvena
--- -----------------------------------
Daniel M. Mulvena , Chairman of the
Board of Directors, Chief Executive
Officer (Principal Executive Officer),
Acting Treasurer (Principal Financial
and Accounting Officer)
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