U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended: November 30, 1999
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from __________________ to __________________
Commission file number 0-21320
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Magna-Lab Inc.
--------------
(Exact name of small business issuer as specified in its charter)
New York 11-3074326
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
P. O. Box 780, Syosset, N.Y. 11791
----------------------------------------
(Address of principal executive offices)
(516) 393-5874
---------------------------
(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 21,865,633
----------------------------------------- -----------------
Class B Common Stock, $.001 Par Value 735,034
----------------------------------------- -----------------
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
CONDENSED CONSOLIDATED BALANCE SHEETS 1
CONDENSED CONSOLDATED STATEMENTS OF OPERATIONS 2
CONDENSED CONSOLDATED STATEMENTS OF CASH FLOWS 3
CONDENSED CONSOLDATED STATEMENT OF STOCKHOLDERS' EQUITY 4
NOTES TO CONDENSED 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.
<PAGE>
MAGNA-LAB INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
November 30, 1999 (unaudited) and February 28, 1999
<TABLE>
<CAPTION>
November 30, February 28,
1999 1999
------------ -----------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ -- $ 67,000
------------ -----------
Total current assets -- 67,000
------------ -----------
DEFERRED FINANCING COSTS 43,000 --
PROPERTY AND EQUIPMENT, net, and all other 12,000 13,000
------------ -----------
$ 55,000 $ 80,000
============ ===========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable to shareholders $ 20,000 $ 0
Accounts payable 347,000 223,000
Accrued expenses and other current liabilities 1,310,000 608,000
------------ -----------
Total current liabilities 1,677,000 831,000
------------ -----------
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, 21,865,633 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 and 735,034 shares outstanding, respectively 1,000 1,000
Capital in excess of par value 15,664,000 15,649,000
Accumulated deficit (17,309,000) (16,422,000)
------------ -----------
Total stockholders' deficit (1,622,000) (751,000)
------------ -----------
$ 55,000 $ 80,000
============ ===========
</TABLE>
See accompanying notes to financial statements
1
<PAGE>
MAGNA-LAB INC. and Subsidiary
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
November 30, November 30,
------------ ------------
1999 1998 1999 1998
---------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES
COSTS AND EXPENSES:
General and administrative 16,000 83,000 164,000 241,000
Selling and marketing -- -- -- --
Research and development 328,000 197,000 723,000 619,000
------------ ------------ ------------ ------------
344,000 280,000 887,000 860,000
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Other income -- -- -- --
Interest and financing expense -- -- -- --
Interest income -- 1,000 -- 5,000
------------ ------------ ------------ ------------
NET LOSS $ (344,000) $ (279,000) $ (887,000) $ (855,000)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING 22,601,000 20,187,000 22,534,000 20,187,000
============ ============ ============ ============
NET LOSS PER SHARE $ (0.02) $ (0.01) (0.04) $ (0.04)
============ ============ ============ ============
</TABLE>
See accompanying notes to financial statements
2
<PAGE>
MAGNA-LAB INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(unaudited)
<TABLE>
<CAPTION>
Nine Months ended
-----------------
November 30,
------------
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(887,000) $(855,000)
--------- ---------
Adjustments:
Depreciation and amortization 1,000 1,000
Effect on cash of changes in operating assets and liabilities:
Accounts payable and accrued liabilities 783,000 278,000
--------- ---------
Total adjustments 784,000 279,000
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (103,000) (490,000)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Deferred finance costs -- (10,000)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES -- (10,000)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of 200,000 shares in private placement to accredited investor 30,000 --
Issuance of demand notes payable to shareholders 20,000
Payment of offering expenses (14,000) --
--------- ---------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 36,000 --
--------- ---------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (67,000) (586,000)
CASH AND CASH EQUIVALENTS:
Beginning of period 67,000 599,000
--------- ---------
End of period $ -- $ 13,000
========= =========
SUPPLEMENTAL INFORMATION ON NON-CASH TRANSACTIONS
Common stock issued to settle account payable $ -- $ 20,000
========= =========
</TABLE>
See accompanying notes to financial statements
3
<PAGE>
MAGNA-LAB INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the nine months ended November 30, 1999 (unaudited)
<TABLE>
<CAPTION>
Capital in
Common Stock Excess
Class A Class B Of Par Accumulated
Shares Amount Shares Amount Value (a) Deficit
----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, February 28, 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 OF COMMON
STOCK 200,000 1,000 -- -- 29,000 --
STOCK ISSUANCE EXPENSES -- -- -- -- (14,000)
NET LOSS -- -- -- -- -- (887,000)
---------------------------------------------------------------------- ----------------------------------------
BALANCES, November 30, 1998 (unaudited) 21,865,633 $22,000 735,034 $ 1,000 $ 15,664,000 (17,309,000)
========== ======= ======= ======= ============ ==========
</TABLE>
See accompanying notes to financial statements
4
<PAGE>
MAGNA-LAB INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED 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 CONSIDERATIONS:
Current Activities - Magna-Lab Inc. and Subsidiary (the "Company") is engaged in
research and development activities including a current collaboration with the
Cardiac 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"). In December 1999 and
January 2000, the Company raised approximately $1,327,000 to support its efforts
principally through private placement of its class A common stock (see Note 8).
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
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 the
collaboration with MSSM to advance its development of its new disposable medical
device. 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 6). 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 and (4) raised an
additional approximately $1,689,000 (including approximately $1,327,000 raised
in December 1999 and January 2000) principally through private placement of its
class A common stock. Such efforts are ongoing.
Going Concern Consideration - The accompanying condensed consolidated financial
statements indicate that at November 30, 1999, the Company had negative working
capital of approximately $1,677,000, negative stockholders' equity of
approximately $1,622,000 and it had incurred losses of approximately $344,000
and $887,000 in the three and nine months ended November 30, 1999. Further, the
Company has no present revenue, rather it has a development agenda which
requires additional financing.
In December 1999 and January 2000, the Company was successful in raising
approximately $1,327,000 as further described in Note 8. In January 2000, the
Company was successful in reaching agreement with MSSM to reschedule certain
work and financial obligations as further discussed in Note 4. The Company is
attempting to raise additional capital to continue its planned operations. Under
agreements described in Note 8, the Company is attempting to raise another
approximately $3,633,000 in financing through May 2000. Management believes that
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<PAGE>
such financing, if successful, would provide the Company with the capital it
needs to complete its planned activities through the fiscal year ending February
28, 2001.
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 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 (the "Agreement")
with the Cardiac Institute of the Mount Sinai School of Medicine (New York City)
and Dr. Valentin Fuster (as principal investigator) for a collaborative research
arrangement devoted to utilizing MRI in cardiac arterial imaging. 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 subsequently delayed until October 1997.
For the quarter and nine months ended November 30, 1999, no amounts were paid
and a total of $150,000 and $450,000, respectively, has been accrued. At
November 30, 1999, amounts accrued and unpaid to MSSM were $800,000 (including
five quarterly payments in arrears). The agreement with MSSM also obligates the
Company 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.
In January 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 agreed to pay $300,000 of the
outstanding $800,000 at November 30, 1999 and reschedule the remaining $500,000
over the work schedule for the coming approximately one year.
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 November 30, 1999 are as follows:
Machinery and equipment $760,000
Purchased software 49,000
--------
809,000
Less: accumulated depreciation and amortization 397,000
amounts written off in 1997restructuring 400,000
--------
$ 12,000
--------
NOTE 6 - 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, 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
6
<PAGE>
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 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 items that were never received and for interest charges and now
claims it is owed approximately $150,000. The Company, in consultation with
counsel, disputes this claim.
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 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.
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 by Elscint 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 has informed the Company in November 1996 and May 1998 of its belief
that the Company is 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 been unable to
honor its obligations for warranty and service for the MAGNA-SL since
approximately March 1997. The Company is not aware of any warranty or product
liability claims.
Relationship with foreign component supplier - Under the Plan, the Company
terminated its relationship with a foreign supplier which contemplated
multi-year requirements.
Relationship with related party distributor - The Company entered into a
sales representation agreement covering 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.
See also Form 10-KSB for the year ended February 28, 1999.
Note 7 - Other:
In November 1999, the Company's Board of Directors approved (1) the issuance of
stock options to purchase approximately 6,100,000 shares of the Company's Class
A common stock to officers directors and consultants subject to shareholder
approval of an increase in the related option plan and (2) a bonus of $100,000
to management, payable after 1999, for its efforts to advance the Plan during
1999. The bonus amount was charged to research and development costs in the
three and nine months ended November 30, 1999.
Note 8 - SUBSEQUENT EVENTS:
In December 1999 and January 2000, the Company was successful in raising
$1,327,000 under two arrangements aimed at raising an aggregate of $5,000,000.
This is described below.
In December 1999 and January 2000, the Company was successful in raising
$827,000 of proceeds under a private placement of shares of Class A common stock
issued under a $2,000,000 private offering to accredited investors.
7
<PAGE>
$650,000 (2,954,545 shares) has been closed and another $177,000 has been
deposited in the escrow account for this private placement. Such efforts are
ongoing.
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
13,636,363 shares of class A common stock over a five month period ending in May
2000. The agreement calls for investments of $250,000 to be made in each of the
months of January (which was received by the Company) and February and a
remaining investment of $2,250,000 to be made in May 2000. If the investor keeps
all of these investment commitments, it will receive class A common shares for
the original $250,000 non-refundable deposit. Further, this investor will have
the option to invest additional amounts, as defined, 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.
Certain fees and expenses are to be paid in connection with the amounts raised.
In January 2000, the Company and MSSM agreed to reschedule certain development
work as further described in Note 3.
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 -
Current Activities - The Company is engaged in research and development
activities including a current collaboration with the Cardiac 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"). In December 1999 and January 2000, the
Company raised approximately $1,327,000 to support its efforts principally
through private placement of its class A common stock (see Note 8).
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 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 the
collaboration with MSSM to advance its development of its new disposable medical
device. In February 1997, the Company commenced a plan of restructuring of the
Company's operations (the "Plan") to reposition itself into its current
activities.
See Form 10-KSB for the year ended February 28, 1999.
Liquidity, Capital Resources
The accompanying condensed consolidated financial statements indicate that
at November 30, 1999, the Company had negative working capital of approximately
$1,677,000, negative stockholders' equity of approximately $1,622,000 and it had
incurred losses of approximately $344,000 and $887,000 in the three and nine
months ended November 30, 1999. Further, the Company has no present revenue,
rather it has a development agenda which requires additional financing.
In December 1999 and January 2000, the Company was successful in raising
approximately $1,327,000 as further described in Note 8 to Condensed
Consolidated Financial Statements. In January 2000, the Company was successful
in reaching agreement with MSSM to reschedule certain work and financial
obligations as further discussed in Note 4 to Condensed Consolidated Financial
Statements. The Company is continuing its efforts to raise additional capital to
continue its planned operations. Under agreements described in Note 8, the
Company is attempting to raise another approximately $3,633,000 ($2,500,000 from
one investor and $1,173,000 under a private placement to accredited investors)
in financing through May 2000. Management believes that such financing, if
successful, would provide the Company with the capital it needs to complete its
planned activities through the fiscal year ending February 28, 2001.
There can be no assurances that management's plans described in the
preceding paragraphs will be
9
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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 nine months ended November 30, 1999 resulted in a net
loss of approximately $887,000 (approximately $450,000 related to the Company's
agreement with MSSM) and utilized approximately $103,000 of cash principally in
connection with activities under The Cardiac MRI Initiative. Payments to MSSM
are approximately $800,000 in arrears at November 30, 1999 and in January 2000,
management reached agreement with MSSM to reschedule the work under its
agreement and to correspondingly reschedule $500,000 of such payments. Net loss
of approximately $887,000 reflects accrual of costs under the MSSM agreement as
well as accrual of management and other costs incurred.
Operations in the nine months ended November 30, 1998 resulted in a net
loss of approximately $885,000 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 $450,000 of the net loss for the
nine 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.
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 has been using
includes versions that are several years old and, the Company believes, have
year 2000 issues. Further, the hardware the Company has been using for this
purpose is not Year 2000 compliant. Because of the financial constraints on the
Company in 1999 and the receipt of new funding late in December 1999, the
Company has secured its data and is making its conversion to software and
hardware that is Year 2000 compliant during January 2000. Based upon the
measures taken, the Company does not anticipate any serious difficulties as a
result of Year 2000 and expects to spend less than $15,000 to become compliant.
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 to fund its continued plan of
development operations, (ii) pay its debts including significant payments to
trade creditors and to its principal medical collaborator, (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
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sustained period of non payment in 1999, (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,
(vi) attract and retain scientific and management personnel, as well as (vii)
competitive factors and developments beyond the Company's control and (viii)
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.
In December 1999 and January 2000, the Company was successful in raising
$1,327,000 under two arrangements aimed at raising an aggregate of $5,000,000.
This is described below.
In December 1999 and January 2000, the Company was successful in raising
$827,000 of proceeds under a private placement of shares of Class A common stock
issued under a $2,000,000 private offering to accredited investors. $650,000
(2,954,545 shares) has been closed and another $177,000 has been deposited in
the escrow account for this private placement. Such efforts are ongoing. The
Company claims exemption from registration of this placement under Rule 506 of
Regulation D.
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 13,636,363 shares of class A common stock over a five month period
ending in May 2000. The agreement calls for investments of $250,000 to be made
in each of the months of January (which was received by the Company) and
February and a remaining investment of $2,250,000 to be made in May 2000. If the
investor keeps all of these investment commitments, it will receive class A
common shares for the original $250,000 non-refundable deposit. Further, this
investor will have the option to invest additional amounts, as defined, 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. The
Company claims exemption from registration of this placement under Rule 506 of
Regulation D.
Certain fees and expenses are to be paid in connection with the amounts
raised.
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 November 30, 1999.
11
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAGNA-LAB INC.
-------------------------
(Registrant)
Date: January 19, 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)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Form 10-QSB
and is qualified in it's entirety by reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> FEB-28-2000
<PERIOD-START> MAR-01-1999
<PERIOD-END> NOV-30-1999
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 809,000
<DEPRECIATION> 797,000
<TOTAL-ASSETS> 55,000
<CURRENT-LIABILITIES> 1,677,000
<BONDS> 0
0
0
<COMMON> 1,000
<OTHER-SE> (1,623,000)
<TOTAL-LIABILITY-AND-EQUITY> 55,000
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 887,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 887,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 887,000
<EPS-BASIC> 0
<EPS-DILUTED> (0.04)
</TABLE>
