U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: AUGUST 31, 1999
---------------
( ) 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
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(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P. O. Box 780, Syosset, N.Y. 11791
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(Address of principal executive offices)
(516) 595-2111
-------------------------
(Issuer's telephone number)
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes ( X ) No ( )
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date - June 30, 1999
Class A Common Stock, $.001 Par Value 21,862,350
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Class B Common Stock, $.001 Par Value 738,317
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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 1
CONSOLDATED STATEMENTS OF OPERATIONS 2
CONSOLDATED STATEMENTS OF CASH FLOWS 3
CONSOLDATED STATEMENT OF STOCKHOLDERS' EQUITY 4
NOTES TO CONSOLDATED FINANCIAL STATEMENTS 5-8
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN 9-11
OF OPERATION
PART II - OTHER INFORMATION
ITEM 2 - CHANGES IN SECURITIES AND USE OF PROCEDS 11
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.
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<TABLE>
<CAPTION>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
August 31, 1999 (unaudited) and February 28, 1999
August 31, February 28,
1999 1999
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ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 0 $ 67,000
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Total current assets 0 67,000
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PROPERTY AND EQUIPMENT, net, and all other 13,000 13,000
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$ 13,000 $ 80,000
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 271,000 $ 223,000
Accrued expenses and other current liabilities 1,020,000 608,000
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Total current liabilities 1,291,000 831,000
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COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' DEFICIT:
Preferred stock, par value $.01 per share, 5,000,000
shares authorized, no shares issued - -
Common stock, Class A, par value $.001 per share,
40,000,000 shares authorized, 21,862,350 and
21,662,350 shares issued and outstanding, respectively. 22,000 21,000
Common stock, Class B, par value $.001 per share,
3,750,000 shares authorized, 1,875,000 shares issued,
738,317 shares outstanding 1,000 1,000
Capital in excess of par value 15,664,000 15,649,000
Accumulated deficit (16,965,000) (16,422,000)
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Total stockholders' deficit (1,278,000) (751,000)
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$ 13,000 $ 80,000
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SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
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1
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<TABLE>
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MAGNA-LAB INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three months ended Six months ended
August 31, August 31,
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ -
COSTS AND EXPENSES:
General and administative 70,000 72,000 148,000 158,000
Selling and marketing - - - -
Research and development 199,000 207,000 395,000 422,000
----------- ----------- ----------- -----------
269,000 279,000 543,000 580,000
----------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Other income - - - -
Interest and financing expense - - - -
Interest income - 1,000 - 4,000
----------- ----------- ----------- -----------
NET LOSS $ (269,000) $ (278,000) $ (543,000) $ (576,000)
=========== =========== =========== ===========
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 22,601,000 20,187,000 22,501,000 20,187,000
=========== =========== =========== ===========
NET LOSS PER SHARE $ (0.01) $ (0.01) $ (0.02) $ (0.03)
=========== =========== =========== ===========
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
2
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MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(unaudited)
Six Months ended August 31,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (543,000) $ (576,000)
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Adjustments:
Depreciation and amortization - -
Effect on cash of changes in operating assets and liabilities:
Accounts payable and accrued liabilities 460,000 86,000
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Total adjustments 460,000 86,000
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NET CASH USED IN OPERATING ACTIVITIES (83,000) (490,000)
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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 200,000 shares in private placement to accredited investor 30,000 -
Payment of offering expenses (14,000) -
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NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 16,000 -
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NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (67,000) (490,000)
CASH AND CASH EQUIVALENTS:
Beginning of period 67,000 599,000
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End of period $ - $ 109,000
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SUPPLEMENTAL INFORMATION ON NON-CASH TRANSACTIONS
Common stock issued to settle account payable $ - $ 20,000
============== ===============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
3
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<TABLE>
<CAPTION>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the six months ended August 31, 1999 (unaudited)
Common Stock
------------------------------------------------- Capital in
Class A Class B Excess
---------------------- ------------------- Of Par Accumulated
Shares Amount Shares Amount Value (a) Deficit
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<S> <C> <C> <C> <C> <C> <C>
BALANCES, February 28, 1999 21,662,350 $ 21,000 738,317 $ 1,000 $15,649,000 (16,422,000)
CONVERT B SHARES TO A - - - - - -
PRIVATE PLACEMENT OF COMMON
STOCK 200,000 1,000 - - 29,000 -
STOCK ISSUANCE EXPENSES - - - - (14,000) -
NET LOSS - - - - - (543,000)
--------------------------------------------------------------------------------------
BALANCES, August 31, 1999 (unaudited) 21,862,350 $ 22,000 738,317 $ 1,000 $15,664,000 (16,965,000)
========== ========= ======= ========== ============ ============
SEE ACCOMPANYING NOTES TO FINANCIAL STATEMENTS
</TABLE>
4
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MAGNA-LAB INC. AND SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
The accompanying financial statements have been prepared in accordance with the
instructions to Form 10-QSB and do not include all of the information and
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
financial statements and notes thereto included in the Company's annual report
on Form 10-KSB for the year ended February 28, 1999.
NOTE 2 - DISCUSSION OF THE COMPANY'S ACTIVITIES/PRODUCTS AND CASH REQUIREMENTS;
GOING CONCERN CONSIDERATION:
BACKGROUND/HISTORY - From commencement of operations on February 10, 1992 until
1997, Magna-Lab Inc. and Subsidiary (the "Company") developed, received US FDA
clearance (September 1994), manufactured and marketed the MAGNA-SL, the first of
a planned series of anatomy specific MRI (Magnetic Resonance Imaging) products.
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. In 1997, the Company entered into a collaboration
with the Cardiac Institute of the Mount Sinai School of Medicine ("MSSM") to
advance its development of a new disposable medical device to make cardiac MRI
imaging more effective for the diagnosis of heart disease (the "Cardiac MRI
Initiative"). The Cardiac MRI Initiative is now the Company's principal
activity. CURRENT ACTIVITIES - In February 1997, the Company commenced a plan of
restructuring of the Company's operations (the "Plan") to reposition itself into
its current activity in 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 (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 7). Since December 1997, the Company has: (1) initiated and advanced
the Cardiac MRI Initiative, (2) continued the Debt Reduction Program (3) sought
to enter into a business relationship to realize value for the Company's
investment in the MAGNA-SL and (4) raised an additional $362,050 in a private
placement of 2,413,667 shares of class A common stock.
Under the Plan, in March 1997, the majority of the Company's workforce was
terminated. Further, in 1997, 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
inventories 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.
The Company is continuing its efforts to: (1) raise additional capital, (2)
advance its development program under the Cardiac MRI Initiative, (3) complete
the Debt Reduction Program and (4) realize value for its investment in the
MAGNA-SL. There is no assurance that any of these efforts will be successful or
that the Company will be able to continue its operations, for which the Company
presently requires additional capital.
GOING CONCERN CONSIDERATION - As indicated in the accompanying consolidated
financial statements, as of August 31, 1999, the Company had no cash, negative
working capital of approximately $1,291,000 and negative net worth of
approximately $1,278,000 and further, has a development agenda which requires
additional financing (See, however, Note 8 regarding certain funding received in
December 1999). Additionally, as indicated in the accompanying consolidated
5
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financial statements, the Company has incurred a cumulative loss of
approximately $17.0 million since inception and has no present revenue. Losses
have continued since August 31, 1999. These factors, among others, indicate that
the Company is in need of immediate significant additional financing and/or a
strategic business arrangement in order to continue the Plan in the fiscal year
beginning March 1, 1999. The Company had no cash resources at August 31, 1999
and could not fund its present operations. Certain consultants, an executive and
the Company's two principal development partners have continued to work for the
Company in the absence of being paid. In April 1999, one of these parties (the
Company's third party developer) advised the Company it could no longer work
without current payment. In July 1999 the Company's medical collaborator advised
the Company that it could not continue to incur costs without payment. There is
no assurance that others will continue to advance the Company's efforts without
current pay. The Company is attempting to raise additional capital to continue
its planned operations.
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.
See Note 8 - Subsequent events regarding certain financing received in December
1999.
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 CARDIAC INSTITUTE OF THE MOUNT SINAI SCHOOL OF
MEDICINE:
In May 1997, the Company entered into a three-year agreement with the Cardiac
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 and payments of $300,000
were made to MSSM during the fiscal year ended February 28, 1998. For the fiscal
year ended February 28, 1999, $300,000 was paid and $350,000 (including two
quarterly payments in arrears) was accrued at February 28, 1999 under the
agreement. For the quarter and six months ended August 31, 1999, no amounts were
paid and a total of $150,000 and $300,000, respectively, has been accrued. At
August 31, 1999, amounts accrued and unpaid to MSSM were $650,000 (including
four quarterly payments in arrears). In July 1999, the Company was advised by
MSSM that it will not incur new costs under the collaboration due to the
arrearage. 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, subsequent to the delayed start of payments
mentioned above.
NOTE 5 - PROPERTY AND EQUIPMENT:
Details of property and equipment at August 31, 1999 are as follows:
Machinery and equipment $ 760,000
Purchased software 49,000
---------
809,000
Less: accumulated depreciation and amortization 396,000
amounts written off in restructuring charge 400,000
---------
$ 13,000
---------
6
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NOTE 6 - ACCRUED LIABILITIES:
Included in accrued liabilities at August 31, 1999 are approximately $65,000 for
accrued restructuring costs.
NOTE 7 - COMMITMENTS AND CONTINGENCIES:
DEBT REDUCTION PROGRAM - In 1997, the Company identified new investors willing
to invest in the Company's Plan if, among other things, recorded liabilities
(then approximately $2.5 million, unaudited) could be reduced by a very material
amount. In approximately October 1997, reorganization counsel was retained and
the Company commenced a Debt Reduction Program. Under the Debt Reduction
Program, the Company contacted its creditors, informed them of the Company's
opportunity to obtain new financing and requested them to settle liabilities due
them for substantially reduced amounts. Such efforts have continued during the
fiscal years ended February 28, 1999 and are ongoing. Additionally, the Company
settled claims by non-executive employees for unpaid payroll and expenses of
approximately $133,000 and settled the claims of executive employees for a
reduced amount aggregating approximately $150,000. Virtually all of the employee
claimants signed releases of liability.
The Company has had several judgments entered against it for liabilities. The
largest of these judgments consisted of: (1) an October 1997 judgment in favor
of a vendor for $300,000 entered against the Company which was settled for
$150,000 and (2) a May 1997 judgment in favor of a former landlord for
approximately $120,000 and settled for approximately $100,000.
In total, approximately $1,400,000 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 has are periodically evaluated
(generally annually) and included in other income in the consolidated financial
statements. Approximately $300,000 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 materials which were never received and for interest charges. The
vendor's claim for this $22,000 payable now exceeds $150,000 which the Company,
in consultation with its reorganization counsel, disputes.
While the Company has had success in reducing its liabilities and negotiating
with its creditors and others in accordance with the Debt Reduction Plan, the
ultimate liabilities in these matters are not known and the vendors, in some
cases, may seek damages in excess of amounts recorded in the consolidated
financial statements. The Company believes, but cannot assure, that its
liability will not exceed amounts recorded in the consolidated financial
statements.
LITIGATION - The Company knows of no pending litigation against it although
there are some unpaid judgments against the Company for various claims which the
Company believes do not exceed $25,000. Various creditors and others have
threatened the Company with litigation to recover amounts due them and some of
these parties retained counsel who have contacted the Company regarding these
claims. While the Company has had success in reducing its liabilities and
obtaining releases from its creditors, employees and others in accordance with
the Debt Reduction Plan, the ultimate liabilities in these matters are not known
and the vendors, in some cases, may seek damages in excess of amounts recorded
in the consolidated financial statements. The Company believes, but no assurance
can be made, that its liability will not exceed amounts recorded in the
consolidated financial statements.
The Company is also exposed to potential litigation from agreements entered into
in connection with its discontinued business activities. Some of these
agreements are described in the following paragraphs. 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.
7
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AGREEMENT WITH ELSCINT - In June 1996, the Company and Elscint Cryomagnetics,
Ltd., a subsidiary of Elscint Ltd., ("Elscint") entered into an agreement
covering a strategic business arrangement in which Elscint would manufacture the
MAGNA-SL for marketing and sale by Elscint in certain non-United States
territories and the Company would be paid royalties. Additionally, Elscint and
the Company agreed on various other matters, including certain ongoing
development support which is no longer practical given the Company's resources.
Elscint paid the Company a non-refundable deposit of $250,000 on signing the
agreement and purchased certain components from the Company and participated in
certain other efforts with the Company in preparation for the manufacture and
sale of the MAGNA-SL.
The Company was obligated to complete certain development tasks and
enhancements, which, if not completed by November 1996, could result in
termination of the agreement by Elscint. Elscint has informed the Company in
November 1996 and again in May 1998 that it is not satisfied with the completion
of certain of the tasks and believes that the Company is in default of its
obligations under the agreement. Various discussions have been had with Elscint
to resolve this matter. No resolution has been reached and the Company has had
little, if any, contact with Elscint since Elscint's MRI business was acquired
by General Electric ("GE") during 1998.
The Company has not recorded any liability to its consolidated financial
statements for this matter because it is unable to determine what, if any,
liability it could have to Elscint after defenses and counterclaims which it
would make against Elscint.
WARRANTY, SERVICE, PRODUCT LIABILITY - The Company has been unable to honor its
obligations for one year warranty and service for the MAGNA-SL since
approximately March 1997. Additionally, product liability claims relating to the
MAGNA-SL may be asserted against the Company. The Company is not aware of any
such claims, however, there can be no assurance that such claims will not arise
and be material.
RELATIONSHIP WITH FOREIGN COMPONENT SUPPLIER - As a result of the Plan described
in Note 1, the Company terminated its relationship with a foreign supplier of
components in which it had agreements which contemplated multi-year and
multi-system requirements. The Company wrote-off deposits, which were
non-refundable, of approximately $332,000 with this vendor.
RELATIONSHIP WITH RELATED PARTY DISTRIBUTOR - The Company entered into various
distribution and sales representation agreements covering the sale of the
MAGNA-SL, including an exclusive arrangement for certain uses and markets 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. In the fiscal year ended
February 28, 1997, the Company established a valuation allowance for 100% of a
receivable from Beta, net of previously received deposits, of approximately
$256,000, net, due to non-payment.
NOTE 8 - SUBSEQUENT EVENTS
In December 1999, the Company was successful in closing $650,000 of proceeds
under a private placement of 2,954,545 shares of Class A common stock issued
under a $5,000,000 private offering to accredited investors. Additionally, an
investor made a non-refundable $250,000 deposit with the Company toward a
proposed investment of $3,000,000 over a six month period ending in May 2000.
Further, this investor will have the option to invest additional amounts at
$0.22 prior to May 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 representations on its Board of Directors.
In November 1999, the Company's Board of Directors approved the issuance,
subject to shareholder approval of an increase in the related option plan, of
stock options to purchase approximately 6,100,000 shares of the Company's Class
A common stock to officers directors and consultants.
8
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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, Magna-Lab Inc. and Subsidiary (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 MRI (Magnetic Resonance Imaging)
products. 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. In 1997, the Company was restructured (as outlined
below) and entered into a collaboration with the Cardiac Institute of the Mount
Sinai School of Medicine ("MSSM") to advance its development of a new disposable
medical device to make cardiac MRI imaging more effective for the diagnosis, and
in guiding the treatment, of Coronary Artery Disease (the "Cardiac MRI
Initiative"). The Cardiac MRI Initiative is now the Company's principal
activity.
CURRENT ACTIVITIES - In February 1997, the Company commenced a plan of
restructuring of the Company's operations (the "Plan") to reposition itself into
its current activity in the Cardiac MRI Initiative. Under the Plan, in March
1997, the majority of the Company's workforce were 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 inventories 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 key
Directors, Officers and consultants. In May 1997, the Company entered into the
collaboration with MSSM to 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 (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 Notes to Consolidated Financial Statements). Since December 1997, the
Company has: (1) initiated and 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 through a business relationship with
Elscint or others and (4) raised an additional $362,050 in a private placement
of 2,413,667 shares of class A common stock. During December 1999, the Company
received proceeds of $850,000 in connection with its efforts to raise private
equity to support its planned operations. The $850,000 consisted of $600,000
received from accredited investors in exchange for the issuance of 2,727,273
shares of Class A common stock and $250,000 non-refundable deposit received from
one investor in connection with a letter agreement to provide up to $3,000,000
(including the $250,000 non-refundable deposit) to the Company in exchange for
shares of Class A common stock at $0.22 per share (see Item 2). Efforts to
realize value for the MAGNA-SL product have been unsuccessful to date and are
ongoing.
9
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The Company is continuing its efforts to: (1) raise additional capital, (2)
advance its development program under the Cardiac MRI Initiative, (3) complete
the Debt Reduction Program and (4) realize value for its investment in the
MAGNA-SL. There is no assurance that any of these efforts will be successful or
that the Company will be able to continue its operations, for which the Company
presently requires additional capital.
LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN CONSIDERATION
As indicated in the accompanying consolidated financial statements, as of
August 31, 1999, the Company had no cash, negative working capital of
approximately $1,291,000 and negative net worth of approximately $1,278,000 and
further has a development agenda which requires additional financing (see,
however, Note 8 and Item 2 regarding certain funding received in December 1999).
Additionally, as indicated in the accompanying consolidated financial
statements, the Company has incurred a cumulative loss of approximately $17.0
million since inception, negative cash flow from operations and has no present
revenue. Losses have continued since August 31, 1999. These factors, among
others, indicate that the Company is in need of immediate significant additional
financing and/or a strategic business arrangement in order to continue the Plan
in the fiscal year beginning March 1, 1999. The Company had no cash resources at
August 31, 1999 to fund its operations for any material period of time beyond
August 31, 1999 and the Company is attempting to raise additional capital to
continue its planned operations. Further, the Company is delinquent in payment
to its principal medical collaborator, its third party developer and to its
principal management and consultants. The medical collaborator advised the
Company in July 1999 that it could no longer incur new costs under the project
and the third party developer has advised the Company that it cannot continue
without payment.
In December 1999, the Company was successful in closing $650,000 of
proceeds under a private placement of 2,954,545 shares of Class A common stock
issued under a $5,000,000 private offering to accredited investors.
Additionally, an investor made a non-refundable $250,000 deposit with the
Company toward a proposed investment of $3,000,000 over a six month period
ending in May 2000. The Company's efforts to raise additional amounts from these
and other investors are ongoing. The Company's continued operations are
dependant upon the success of such additional efforts.
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.
RESULTS OF OPERATIONS -
Operations for the six months ended August 31, 1999 resulted in a net loss
of approximately $543,000 and utilized approximately $83,000 of cash principally
in connection with activities under The Cardiac MRI Initiative. Payments to MSSM
are approximately $650,000 in arrears at August 31, 1999. Net loss of
approximately $543,000 reflects accrual of costs under the MSSM agreement as
well as accrual of management and other costs incurred.
Operations in the six months ended August 31, 1998 resulted in a net loss
of approximately $576,000 and utilized cash of approximately $490,000. The loss
results principally from the Cardiac MRI Initiative development activities in
collaboration with the Mount Sinai School of Medicine. Cost of the MSSM portion
of the collaboration were approximately $300,000 of the net loss for the six
months. In May 1998, the Company initiated a design review/regulatory/contract
manufacturing relationship with a third party and paid $12,000 to initiate that
relationship. General and administrative expenses consisted of executive,
administrative and business development consultants as well as certain
occupancy, storage and professional costs.
10
<PAGE>
THE YEAR 2000 ISSUE MAY CAUSE PROBLEMS FOR THE COMPANY
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 Year 2000 issues relate to (1) hardware, (2) software and (3)
data. The Company uses computers in accounting and general administration and in
various technical applications. The software that the Company currently uses
includes versions which are several years old and, the Company believes, have
year 2000 issues, including hardware which is not Year 2000 compliant. The
Company would have expected to (subject to the availability of financial
resources) update its general accounting and administration hardware and
software during 1999 to the latest versions available. However, the Company has
been essentially out of cash or other financial resources since approximately
March 1999. The Company has, therefore, prepared itself for the year 2000
computer issue in very basic ways such as (1) creating backup files of data
which can be later loaded onto Year 2000 compliant hardware and software, (2)
preparation of temporary hardware and software solutions and (3) setting back
the internal clock on Company computers so that the Year 2000 issue on Company
hardware is deferred.
The software used for technical functions is generally more current and is
believed, in at least some cases, to be year 2000 compliant. The Company
believes, but cannot assure, that its collaborator, MSSM and its outsourced
developer, Act Medical, Inc. are taking the steps necessary to be year 2000
compliant. The Company's MAGNA-SL uses computer systems which generally are not
time or date sensitive but the Company has not tested them and therefore, by
definition, such systems are not Year 2000 compliant.
There can be no assurance that the Company will have no disruption as a
result of the year 2000 issue.
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 , WHICH IS REQUIRED IMMEDIATELY, TO
FUND ITS CONTINUED PLAN OF DEVELOPMENT OPERATIONS, (II) PAY ITS DEBTS INCLUDING
SIGNIFICANT PAYMENTS TO TRADE CREDITORS AND TO ITS PRINCIPAL MEDICAL
COLLABORATOR, WHICH ARE PRESENTLY OVERDUE, (III) SUCCESSFUL COMPLETION OF
DEVELOPMENT OF ITS PLANNED PRODUCTS, CARDIAC VIEW AND ARTERY VIEW, (IV)
SUCCESSFUL BUSINESS DEVELOPMENT AND MARKETING EFFORTS TO, ASSUMING COMPLETION OF
THE DEVELOPMENT EFFORT IN (III) ABOVE, COMMERCIALIZE ANY PRODUCTS DEVELOPED, (V)
MAINTAIN ITS RELATIONSHIP WITH THE CARDIAC INSTITUTE OF THE MOUNT SINAI SCHOOL
OF MEDICINE AND WITH ITS PRINCIPAL MEDICAL INVESTIGATOR AND WITH ITS THIRD PARTY
DEVELOPER ACT MEDICAL INC. DESPITE A SUSTAINED PERIOD OF NON PAYMENT, (VI)
DEVELOP PRODUCTS WHICH DO NOT INFRINGE THE INTELLECTUAL PROPERTY RIGHTS OF
OTHERS, (VII) PROTECT ITS PRODUCT DEVELOPMENTS FROM INFRINGEMENT BY OTHERS WITH
PATENTS AND OTHER PROTECTIONS, 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.
- -------------------------------------
PART II - OTHER INFORMATION
ITEM 2. - CHANGES IN SECURITIES AND USE OF PROCEEDS
From January 1999 through August 1999 the Company issued 2,413,667 shares
of Class A Common Stock to accredited investors for proceeds of 362,050 pursuant
to a private offering which was begun in October 1998. The proceeds were to be
used to advance the Plan of restructuring outlined above and for working
capital. The Company claims exemption from registration of this placement under
Rule 506 of Regulation D.
During December 1999, the Company received proceeds of $850,000 in
connection with its efforts to raise private equity to support its planned
operations. The $850,000 consisted of $600,000 received from accredited
investors in exchange for the issuance of 2,727,273 shares of Class A common
stock and $250,000 non-refundable deposit received from one investor in
connection with a letter agreement to provide up to $3,000,000 (including the
$250,000 non-refundable deposit) to the Company in exchange for shares of Class
A common stock at $0.22 per share. Further, this investor will have the option
to invest additional amounts at $0.22 prior to May 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
representations on its Board of Directors. These proceeds are to be used to
further the Company's Cardiac MRI Initiative including payment of existing
payables and liabilities.
11
<PAGE>
ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit No.
-----------
(11) Statement re: computation of loss per share - A
statement regarding the computation of loss per share
is omitted because computation can be clearly
determined from the material contained in this
Quarterly Report on Form 10-QSB.
(27) Financial Data Schedule
(b) The Company did not file reports on Form 8-K during the quarter
ended August 31, 1999.
12
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAGNA-LAB INC.
-------------------------------
(Registrant)
Date: January 5, 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)
13
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This schedule contains summary financial information
extracted from the Balance Sheet, Statements of Operations
and Statements of Cash Flows, and is qualified in its
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<NAME> Magna-Lab Inc.
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