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, 2000
---------------
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
----------------- -----------------
Commission file number 0-21320
------------------------------
Magna-Lab Inc.
--------------
(Exact name of small business issuer as specified in its charter)
New York 11-3074326
------------------------------- ---------------------------------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
6800 Jericho Turnpike, #120W, Syosset, NY 11797
---------------------------------------------------------
(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 - October 9, 2000
Class A Common Stock, $.001 Par Value 39,274,188
-------------------------------------------- ----------------------
Class B Common Stock, $.001 Par Value 408,840
-------------------------------------------- ----------------------
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
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED STATEMENTS OF CASH FLOWS 4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 5
NOTES TO CONSOLIDATED 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 12-13
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SHAREHOLDERS 13
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 14
SIGNATURES 15
All items which are not applicable or to which the answer is negative have been
omitted from this report.
1
<PAGE>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
August 31, 2000 (unaudited) and February 29, 2000
<TABLE>
<CAPTION>
August 31, February 29,
2000 2000
------------ ------------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................................ $ 1,836,000 $ 1,372,000
Common s tock subscriptions receivable, collected in October 2000 .................... 1,000,000 --
Other current assets - deposit with vendor ........................................... 130,000 130,000
------------ ------------
Total current assets .............................................................. 2,966,000 1,502,000
PROPERTY AND EQUIPMENT, net, and all other ............................................. 7,000 9,000
------------ ------------
$ 2,973,000 $ 1,511,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ..................................................................... $ 265,000 $ 283,000
Accrued expenses and other current liabilities ....................................... 401,000 942,000
------------ ------------
Total current liabilities ...................................................... 666,000 1,225,000
------------ ------------
NON-CURRENT LIABILITIES ................................................................ -- 37,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, par value $.01 per share, 5,000,000
shares authorized, no shares issued ............................................... -- --
Common stock, Class A, par value $.001 per share,
100,000,000 shares authorized, 39,274,188 and 30,811,087
shares, respectively, issued and outstanding .................................... 39,000 30,000
Common stock, Class B, par value $.001 per share,
3,750,000 shares authorized, 1,875,000 shares issued,
408,840 and 735,034 shares, respectively, outstanding ............................. 1,000 1,000
Capital in excess of par value ....................................................... 19,399,000 17,675,000
Class A common stock subscribed (29,090,909 shares, including
318,182 shares for subscriptions paid but shares not yet issued) .................. 6,330,000 --
Common stock subscriptions receivable ................................................ (5,330,000) --
Accumulated deficit .................................................................. (18,132,000) (17,457,000)
------------ ------------
Total stockholders' equity ..................................................... 2,307,000 249,000
------------ ------------
$ 2,973,000 $ 1,511,000
============ ============
</TABLE>
See accompanying notes to consolidated financial statements
2
<PAGE>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
------------------ ----------------
August 31, August 31,
---------- ----------
2000 1999 2000 1999
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUES $ -- $ -- $ -- $ --
------------ ------------ ------------ ------------
COSTS AND EXPENSES:
Selling and marketing .................... -- -- -- --
General and administrative ............... 182,000 70,000 322,000 148,000
Research and development ................. 181,000 199,000 395,000 395,000
------------ ------------ ------------ ------------
363,000 269,000 717,000 543,000
------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Other income ............................. -- -- -- --
Interest expense ......................... -- -- -- --
Interest income .......................... 22,000 -- 42,000 --
------------ ------------ ------------ ------------
NET LOSS ................................... $ (341,000) $ (269,000) $ (675,000) $ (543,000)
============ ============ ============ ============
WEIGHTED AVERAGE NUMBER
OF SHARES OUTSTANDING,
BASIC AND DILUTED .......................... 36,250,000 22,601,000 37,950,000 22,501,000
============ ============ ============ ============
NET LOSS PER SHARE,
BASIC AND DILUTED ........................ $ (0.01) $ (0.01) $ (0.02) $ (0.02)
============ ============ ============ ============
</TABLE>
See accompanying notes to consolidated financial statements
3
<PAGE>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Increase (Decrease) in Cash and Cash Equivalents
(unaudited)
<TABLE>
<CAPTION>
Six months ended August 31,
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................................................... $ (675,000) $ (543,000)
----------- -----------
Adjustments:
Depreciation and amortization ............................................................ 2,000 --
Non-cash charge for warrants to consultant ............................................... 50,000 --
Effect on cash of changes in operating assets and liabilities:
Accounts payable and accrued liabilities and all other ................................... (558,000) 460,000
----------- -----------
Total adjustments ................................................................. (506,000) 460,000
----------- -----------
NET CASH USED IN OPERATING ACTIVITIES ........................................................ (1,181,000) (83,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
None ..................................................................................... -- --
----------- -----------
NET CASH USED IN INVESTING ACTIVITIES ........................................................ -- --
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of Class A common shares in private placement to accredited investors ........... 1,749,000 30,000
Receipt of prepayment of subscription receivable ......................................... 70,000 --
Receipt of non-refundable deposit from Noga .............................................. 100,000 --
Cost of private placements ............................................................... (302,000) (14,000)
Other equity ............................................................................. 28,000 --
----------- -----------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES .......................................... 1,645,000 16,000
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ........................................................................ 464,000 (67,000)
CASH AND CASH EQUIVALENTS:
Beginning of period ........................................................................ 1,372,000 67,000
----------- -----------
End of period .............................................................................. $ 1,836,000 $ --
=========== ===========
SUPPLEMENTAL INFORMATION ON NON-CASH TRANSACTIONS
Common stock subscribed .................................................................. $ 7,150,000 $ --
=========== ===========
Common stock issued to settle account payable ............................................ $ 18,000 $ --
=========== ===========
Bridge loans settled with issuance of Class A common stock ............................... $ 20,000 $ --
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
4
<PAGE>
MAGNA-LAB INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
For the six months ended August 31, 2000 (unaudited)
<TABLE>
<CAPTION>
Common Stock
------------------------------------------- Capital in
Class A Class B Excess Common Stock
------------------------------------------- of Par Accumulated Stock Subscriptions
Shares Amount Shares Amount Value Deficit Subscribed Receivable
------------------------------------------------------------------------------------------------------
<S> <C> <C> <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) $ 0 $ 0
PRIVATE PLACEMENT ......... 4,536,907 5,000 -- -- 990,000 -- -- --
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 ..... 326,194 -- (326,194) -- -- -- -- --
CHARGE FOR WARRANTS ....... -- -- -- -- 50,000 -- -- --
COSTS OF PRIVATE
PLACEMENTS .............. -- -- -- -- (302,000) -- -- --
OTHER EQUITY .............. -- -- -- -- 28,000 -- -- --
COMMON STOCK SUBSCRIBED ... -- -- -- -- -- -- 7,150,000 (7,150,000)
COLLECTED SUBSCRIPTIONS ... 3,409,091 4,000 -- -- 820,000 -- (820,000) 820,000
(Including $70,000 for
shares not yet issued)
SUBSCRIPTIONS COLLECTED
IN OCTOBER 2000 ......... -- -- -- -- -- -- -- 1,000,000
NET LOSS .................. -- -- -- -- -- (675,000) -- --
------------------------------------------------------------------------------------------------------
BALANCES, August 31, 2000 . 39,274,188 $39,000 408,840 $1,000 $19,399,000 $(18,132,000) $6,330,000 $(5,330,000)
======================================================================================================
</TABLE>
See accompanying notes to consolidated financial statements
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").
See Form 10-KSB for the year ended February 29, 20900 for a discussion of the
background and history prior to the Company's restructuring in 1997 into its
current activities.
The Company's recent financing activities are discussed in further detail in
Note 6. During the quarter ended August 31, 2000, the Company finalized
arrangements to raise a total of $7,290,000 of equity capital (including
subscriptions for $7,150,000 and $140,000 of planned option exercises). Through
October 15, 2000, $1,820,000 of this commitment has been received ($820,000
prior to August 31, 2000 and $1,000,000 in October 2000). As such, the
accompanying consolidated financial statements, as of August 31, 2000, show the
Company had working capital of approximately $2,300,000 and net worth of
approximately $2,307,000. Although the Company has no present revenue and a
continuing development agenda, it currently believes that its present financial
resources are sufficient to fund its operations for the coming twelve months.
Further, the Company believes that upon collection of the remaining $5,330,000
of subscriptions, it will have financial resources to fund its operations for
longer than one year.
In reporting periods prior to August 31, 2000, the Company had reported that it
was subject to certain going concern considerations which no longer apply.
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
6
<PAGE>
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 quarter and six months ended August 31, 2000, $50,000 and $125,000,
respectively, were charged to operations and $150300,000 and $450,000,
respectively. was paid. For the quarter and six months ended August 31, 1999,
$150,000 and $300,000, respectively, were charged to operations and no amounts
were paid. At August 31, 2000 and February 29, 2000, $150,000 and $475,000,
respectively, remained in accrued liabilities.
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 each of March, April and July 2000 (all of which payments have been
made) and $150,000 in October 2000. The Company and MSSM have agreed that the
collaborative agreement will conclude on October 31, 2000.
NOTE 5 - PROPERTY AND EQUIPMENT:
Details of property and equipment at August 31, 2000 are as follows:
Machinery and equipment $360,000
Purchased software 49,000
---------
409,000
Less: accumulated depreciation and amortization and write-downs (402,000)
---------
$ 7,000
---------
NOTE 6 - 2000 PRIVATE PLACEMENT OF COMMON STOCK:
Investment arrangements for 2000 - In the fourth quarter of the fiscal year
ended February 29, 2000, the Company was successful in raising $2,218,000 under
two arrangements aimed at raising an aggregate of $5,000,000. During the six
months ended August 31, 2000, an additional approximately $1,850,000 was raised
bringing the total raised to approximately $4,068,000. 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 six months ended August 31, 2000, an additional approximately
$1,000,000 of proceeds was raised from the issuance of 4,536,907 shares of Class
A common stock under this placement.
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 seven month period ending (as amended in
May 2000) in July 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 was made) and a remaining
investment of $2,150,000 to have been made prior to July 27, 2000 (see below).
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. In addition to the investments made and scheduled, Noga had the option
to purchase such additional shares as would be necessary to satisfy minimum
capital requirements for listing on Nasdaq SmallCap, at $0.22 prior to July 27,
2000 (the "Listing Option").
7
<PAGE>
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 costs are to
be paid in connection with the amounts raised.
Additional investment commitments and revised payments in the quarter ended
August 31, 2000 - In July 2000, the following changes to the above described
arrangements were agreed to between Noga, an officer of the Company and the
Company.
In exchange for new investment undertakings by Noga, the Company and Noga have
agreed that Noga will provide its remaining $2,150,000 under the original
commitment as follows: $750,000 on July 28, 2000 (which was paid in August),
$700,000 by September 15, 2000 (a portion of which was prepaid in August 2000)
and $700,000 by October 15, 2000. Upon completion of the full $3,000,000
commitment, Noga will have received 13,363,363 shares of Class A Common Stock.
In addition, the Company and Noga replaced Noga's Listing Option with (a) Noga's
commitment to purchase for $3,000,000, and (b) the commitment by an officer of
the Company to purchase for $2,000,000 (after a portion is offered first to
certain investors and management), an aggregate 22,727,272 shares of Class A
Common Stock of the Company. Noga's $3,000,000 new investment is to be made as
follows: $1,000,000 prior to September 30, 2000 (which was paid on October 6,
2000) and the remaining $2,000,000 prior to October 31, 2000. The officer's new
investment of $2,000,000 is required to be paid by him or by current investors
and management prior to September 30, 2000, and is as yet unpaid.
In addition, Noga has agreed to exercise its option to purchase 3.5 million
shares of Class A common stock for $70,000 at the conclusion of their initial
financing commitment in October 2000 and the officer has agreed to exercise his
option to purchase 3.5 million shares for $70,000.
Noga has executed, and the officer of the Company has agreed to execute, Notes
Payable to the Company to secure their commitment to provide an aggregate
$7,150,000 in financing for the Company. The Company has recorded these
financing commitments as "Class A common stock subscribed" and the related
receivable as "Common stock subscriptions receivable" in the accompanying
consolidated financial statements. To the extent that such common stock
subscriptions receivable were paid prior to the release of the consolidated
financial statements, they have been included among current assets as permitted
by Emerging Issues Task Force pronouncement 85-1 and SEC Staff Accounting
Bulletin 40 Topic 4E. To the extent that such subscriptions receivable remain
outstanding prior to the release of the consolidated financial statements, they
have been included as a contra amount in consolidated stockholders' equity.
NOTE 7 - OTHER MATTERS:
Increase in authorized shares of Class A common stock - On September 28, 2000,
the shareholders of the Company approved the amendment of the Company's Amended
Certificate of Incorporation to increase the authorized shares of Class A common
stock from 40,000,000 to 100,000,000. Such change is reflected retroactively in
the accompanying consolidated balance sheet at August 31, 2000.
Increase in shares of Class A common stock available for stock options - On
September 28, 2000, the shareholders of the Company approved the increase in the
number of shares of Class A common stock available under the Company's 1992
Stock Option Plan from 1,000,000 to 14,000,000. Because the vote was assured at
the time of the grant of certain options that were subject to such approval, the
Company does not expect there to be a charge to operations as a result of the
passage of the increase. The Company is negotiating a consulting agreement with
one Director which contemplates that Director being granted options to purchase
2,500,000 shares of Class A Common Stock at $0.49 per share.
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
8
<PAGE>
the final billings due from this vendor. Billings from this vendor for work
performed during the six months ended August 31, 2000 were approximately
$82,000.
Liabilities settled for stock - During the six months ended August 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 $5025,000 has been included as a non-cash charge in the
accompanying consolidated statement of operations for the six months ended
August 31, 2000.
NOTE 8 - COMMITMENTS AND CONTINGENCIES:
Debt Reduction Program - Information regarding the Debt Reduction Program
commenced in 1997 is contained in Note 8 to Consolidated Financial Statements
contained in the Company's Form 10-KSB for the year ended February 29, 2000.
There has been no material change in the status of such program.
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 could be exposed to
potential litigation from agreements entered into in connection with its
discontinued business activities as further 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 -
Liquidity and Capital Resources
During the quarter ended August 31, 2000, the Company finalized
arrangements to raise a total of $7,290,000 of equity capital (including
subscriptions for $7,150,000 and $140,000 of planned option exercise) as
discussed further in Note 6 to the accompanying consolidated financial
statements. As of August 31, 2000, the Company had working capital of
approximately $2.33,000,000 and net worth of approximately $2,307,000,
improvements of approximately $2,000,000 from the year ended February 29, 2000.
These improvements result principally from (a) the placement of additional
shares under its private placement to accredited investors (approximately
$1,000,000), (b) the receipt of common stock subscriptions receivable from Noga
toward its financing commitment to the Company ($1,820,000, including $1,000,000
which was received in October 2000 and is therefore included with current assets
at August 31, 2000) reduced by (c) losses from operations and the payment of
financing costs.
Although the Company has no present revenue and a continuing
development agenda, it currently believes that its present financial resources
are sufficient to fund its operations for the coming twelve months. Further, the
Company believes that upon collection of the remaining $5,330,000 of
subscriptions, it will have financial resources to fund its operations for
longer than one year.
Results of Operations
Operations for the three and six months ended August 31, 2000 resulted
in a net loss of approximately $341,000 and $675,000, respectively, 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 $181,000 and 395,000, respectively, during the quarter and
six months ended August 31, 2000 including approximately $50,000 and $125,000,
respectively, related to the collaborative agreement with MSSM and approximately
$21,000 and $82,000, respectively in connection with the collaboration with the
Company's outsourced manufacturer. General and administrative costs were
approximately $182,000 and 322,000, respectively for the quarter and six months
ended August 31, 2000 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 and $50,000, respectively for the
compensatory element of warrants issued to a consultant. Total costs and
expenses were offset by interest income of approximately $22,000 and $42,000,
respectively in the quarter and six months ended August 31, 2000 as a result of
the investment of higher cash balances. The increase in total costs and expenses
over the comparable periods of 1999 consists principally of the work of the
outsourced manufacturer and the fees and non-cash charges associated with an
investor relations consultant and key man and other insurances added in 2000.
Cash used by operations totaled approximately $1,181,000 consisting of the loss
from operations as well as the general reduction of accounts payable and accrued
liabilities, including $450,000 paid to MSSM.
10
<PAGE>
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 were 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 other costs incurred, most of which were unpaid
at August 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 and is
discussed in the Company's Form 10-KSB for the year ended February 29, 2000. No
changes in this matter have occurred during he quarter ended February 29, 2000.
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 and develop relationships
with other institutions and collaborators, (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 six months ended August 31, 2000
an additional amount of approximately $1,850,000 was raised bringing the total
raised to approximately $4,068,000. 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
six months ended August 31, 2000, an additional approximately $1,000,000 of
proceeds was raised from the issuance of 4,536,907 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 (the "Listing
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
(as described above) and has agreed to nominate certain individuals to its Board
of Directors.
In July 2000, the changes to the above described arrangements were
agreed to between Noga, an officer of the Company and the Company.
In exchange for new investment undertakings by Noga, the Company and
Noga have agreed that Noga will provide its remaining $2,150,000 million under
the original commitment as follows: $750,000 on July 28, 2000 (which was paid in
August), $700,000 by September 15, 2000 (a portion of which was prepaid in
August 2000) and $700,000 by October 15, 2000. Upon completion of the full
$3,000,000 commitment, Noga will have received 13,636,363 shares of Class A
Common Stock.
In addition, the Company and Noga replaced Noga's Listing Option with
(a) Noga's commitment to purchase for $3,000,000, and (b) the commitment by an
officer of the Company to purchase for $2,000,000 (after a portion is offered
first to certain investors and management), an aggregate 22,727,272 shares of
Class A Common Stock of the Company.Noga's $3,000,000 new investment is to be
made as follows: $1,000,000 prior to September 30, 2000 (which was paid on
October 6, 2000) and the remaining $2,000,000 prior to October 31, 2000. The
officer's new investment of $2,000,000 is required to be paid by him or by
current investors and management prior to September 30, 2000, and is as yet
unpaid.
In addition, Noga has agreed to exercise its option to purchase 3.5
million shares of Class A common stock for $70,000 at the conclusion of their
initial financing commitment in October 2000 and the officer has agreed to
exercise his option to purchase 3.5 million shares for $70,000.
Noga has executed, and the officer of the Company has agreed to
execute, Notes Payable to the Company to secure their commitment to provide an
aggregate $7,150,000 in financing for the Company. The Company has recorded
these financing commitments as "Class A common stock subscribed" and the related
receivable as
12
<PAGE>
"Common stock subscriptions receivable" in the accompanying consolidated
financial statements. To the extent that such common stock subscriptions
receivable were paid prior to the release of the consolidated financial
statements, they have been included among current assets as permitted by
Emerging Issues Task Force pronouncement 85-1 and SEC Staff Accounting Bulletin
40 Topic 4E. To the extent that such subscriptions receivable remain outstanding
prior to the release of the consolidated financial statements, they have been
included as a contra amount in consolidated stockholders' equity.
The Company plans to use the proceeds of the financings described above
to advance its Cardiac MRI initiative and for working capital purposes.
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 4. Submission of Matters to a Vote of Shareholders
At its Annual meeting of shareholders held on September 28, 2000
the following matters were brought for a vote of the shareholders:
<TABLE>
<CAPTION>
Proposal Votes for Votes against Abstain
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. Election of Directors
- Daniel M. Mulvena 21,427,398 880,880 0
- Lawrence A. Minkoff, Ph.D. 21,427,398 880,880 0
- J. M. Feldman 21,427,398 880,880 0
- Jonathan Adereth 21,427,398 880,880 0
- Seymour Kessler 21,427,398 880,880 0
2. Approval of a change to the Company's Amended
and Restated Certificate of Incorporation
increasing the authorized shares of Class A 21,577,808 645,180 5,290
Common Stock from 40,000,000 to 100,000,000 (52.2%)
3. Approval of an increase in the number of
shares available for grant under the Company's 21,244,341 1,218,347 15,590
1992 Stock Option Plan (51.4%)
4. Ratification of the appointment of Rothstein
Kass & Company, P.C. as the independent 21,675,458 15,550 537,270
auditors of the Company (52.5%)
5. To transact such other business as may
properly come before the meeting (no such 21,336,608 841,230 50,440
matters coming before the meeting). (51.6%)
</TABLE>
Each of the matters voted on were passed by the vote of the shareholders.
Note regarding Class A and Class B common stock - There were 41,323,461 votes
eligible to be cast at the meeting. This consisted of 39,279,261 votes for the
39,279,261 shares of Class A Common Stock outstanding (one vote per share) and
2,044,200 votes for the 408,840 shares of Class B Common Stock outstanding (five
votes per share). Shareholders representing 356,126 Class B Common voted all of
their 1,780,630 votes FOR the
13
<PAGE>
director nominations and FOR each of the proposals. The remaining shares "Voted
for" in the table above consists of the Class A common stockholders and all of
the "Voted Against" and "Abstain" votes are of Class A common stockholders.
Subsequent to the annual meeting of shareholders, the Board invited Joel Kanter,
a Board member for more than the past two years, to continue his service on the
Company's Board of Directors.
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.
(10.42) July 27, 2000 Letter agreement between the Company,
Noga Investments in Technology, Ltd. and Mr. Allen
Perres, an officer of the Company.
(27) Financial Data Schedule
(b) The Company did not file reports on Form 8-K during the quarter
ended August 31, 2000.
14
<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: October 16, 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)
15
