See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
See accompanying notes to the unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS FOR THE THREE-MONTH PERIODS ENDED MAY 31, 2020 AND 2019
(Unaudited)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF THE BUSINESS
Company Activities
Magna-Lab, Inc. (the “Company”),
a New York corporation, is focused on effecting a “reverse merger,” capital exchange, asset acquisition, stock purchase,
reorganization or other similar business combination with one or more unrelated businesses (the “Business Combination”)
that would benefit from the Company’s public reporting status. The Company is not limited to a particular industry or geographic
region for purposes of consummating a Business Combination. As of May 31, 2020, the Company had not yet commenced any operations.
All activity through May 31, 2020 also relates to preserving cash, making settlements with creditors, attempting to raise capital,
and continuing the Company’s public reporting.
The Company’s subsidiary is Cardiac
MRI, Inc., a wholly owned subsidiary of the Company.
The Company was previously
engaged in research, development, and commercialization activities until it ceased such activities during the period September
2002 through March 2003. The Company’s efforts to raise additional capital or enter into a strategic arrangement in order
to complete commercialization of its cardiac diagnostic Illuminator products and development of its Artery View product or to seek
other means to realize value through sale, license or otherwise have been unsuccessful and therefore, in January 2017, the Company
sold such technology to its President and CEO in exchange for relief from certain liabilities.
COVID-19
On March 11, 2020, the World Health Organization
(“WHO”) declared the Covid-19 outbreak to be a global pandemic. In addition to the devastating effects on human life,
the pandemic is having a negative ripple effect on the global economy, leading to disruptions and volatility in the global financial
markets. Most US states and many countries have issued policies intended to stop or slow the further spread of the disease.
Covid-19 and the U.S.
response to the pandemic are significantly affecting the economy. There are no comparable events that provide guidance as to the
effect the Covid-19 pandemic may have, and, as a result, the ultimate effect of the pandemic is highly uncertain and subject to
change. We do not yet know the full extent of the effects on the economy, the markets we serve, our business, or our operations.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Management’s Representation
of Interim Financial Statements
The accompanying interim unaudited condensed
consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 8 of Regulation
S-X for smaller reporting companies and do not include all of the information and disclosures required by accounting principles
generally accepted in the United States of America (“GAAP”). All adjustments which are of a normal recurring nature
and, in the opinion of management, necessary for a fair presentation have been included. These interim unaudited condensed consolidated
financial statements should be read in conjunction with the more complete information and the Company’s audited consolidated
financial statements and related notes thereto included in the Company's annual report on Form 10-K for the year ended February
29, 2020. The operating results for the three months ended May 31, 2020, are not necessarily indicative of the results that may
be expected for the year ending February 28, 2021.
Basis of Presentation and Principles
of Consolidation
The consolidated financial statements of
the Company have been prepared in accordance with GAAP. This basis of accounting involves the application of accrual accounting
and consequently, revenues and gains are recognized when earned, and expenses and losses or recognized when incurred. The unaudited
condensed consolidated financial statements include the accounts of Magna-Lab Inc. and its wholly-owned subsidiary, Cardiac MRI,
Inc. (collectively, the “Company”) and all significant intercompany transactions and balances have been eliminated
in consolidation.
Going Concern
As indicated in the accompanying interim
unaudited condensed consolidated financial statements, at May 31, 2020, the Company had approximately $-0- of cash and negative
working capital of approximately $1,832,000 and a stockholders’ deficit of approximately $1,832,000. These factors, among
others, indicate that the Company requires additional financing or a strategic arrangement in order to continue its planned activities
for the fiscal year that began on March 1, 2020. The Company’s plans to deal with this uncertainty are described above in
“Company Activities.” Management’s plans to raise capital, enter into a strategic arrangement or sell or merge
with an unrelated business have not been successful to date and there can be no assurance that management’s plans can be
realized at all. Historically, substantially all of the Company’s financing, has come from shareholder loans. There can be
no assurance that additional shareholder loans will be extended to the Company.
These factors, among others, raise substantial
doubt about the Company’s ability to continue operations as a going concern. No adjustments have been made in the accompanying
condensed consolidated financial statements to the amounts and classification of assets and liabilities which could result should
the Company be unable to continue as a going concern.
The accompanying unaudited consolidated
financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization
of assets and the satisfaction of liabilities in the normal course of business for the twelve months following the date of these
financial statements. On a consolidated basis, the Company has incurred significant operating losses since inception.
Use of Estimates
The preparation of financial statements
in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities
and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. The most significant estimates relate to income taxes, and contingencies. The Company
bases its estimates on historical experience, known or expected trends, and various other assumptions that are believed to be reasonable
given the quality of information available as of the date of these financial statements. The results of these assumptions provide
the basis for making estimates about the carrying amounts of assets and liabilities that are not readily apparent from other sources.
Actual results could differ from these estimates.
Income taxes
The Company accounts for income taxes under
FASB ASC 740, “Accounting for Income Taxes”. Under FASB ASC 740, deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Under FASB ASC 740, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. FASB ASC 740-10-05, “Accounting for Uncertainty in Income Taxes” prescribes
a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken
or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be
sustained upon examination by taxing authorities.
The amount recognized is
measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement. The
Company assesses the validity of its conclusions regarding uncertain tax positions every quarter to determine if facts or circumstances
have arisen that might cause it to change its judgment regarding the likelihood of a tax position’s sustainability under
audit. Changes in the ownership of a majority of the fair market value of the Company's common stock would likely limit or eliminate
the utilization of existing net operating loss carryforwards and credits. Although a formal Section 382 study to determine whether
a change in control has occurred has not been completed, the Company believes, based upon limited analysis, that such changes
may have occurred in 1997, 2000 and 2005. Such carryforwards and credits expire between 2019 and 2035. It is likely that any “reverse
merger” or settlement of existing liabilities with equity or other strategic transaction is likely to result in a change
in control under Section 382. See also Note 7 - Subsequent Events.
Net (loss) per share
The Company complies with the accounting
and reporting requirements of U.S. GAAP with respect to computing its net loss per common share. Net loss per common share is computed
based on the weighted average number of Class A Common and Class B Common shares outstanding.
Basic (loss) per share excludes dilution
and is computed by dividing loss available to common stockholders by the weighted average common shares outstanding for the period.
Diluted (loss) per share reflects the potential dilution that could occur if securities or other contracts to issue common stock
were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the
entity. Since there are no options, warrants or derivative securities outstanding, basic and diluted (loss) per share were the
same for the three-month periods ended May 31, 2020 and 2019.
Recently issued accounting standards
Management does not believe that any recently issued, but not
yet effective, accounting standards if currently adopted would have a material effect on the accompanying interim unaudited condensed
consolidated financial statements.
NOTE 3 – NOTES PAYABLE AND ACCRUED INTEREST –
RELATED PARTY
The balance of notes payable and
accrued interest was approximately $1,435,000 and $1,406,000, as of May 31, 2020 and February 29, 2020, respectively. Notes
payable include 12% unsecured notes payable to the Company’s principal stockholder, Magna Acquisition LLC
(“MALLC”), a related party, in the aggregate principal amount of approximately $687,000, plus approximately
$727,000 of interest accrued. In addition, notes payable include 10% unsecured notes payable to a director of the Company
(who is also a manager of MALLC) in the aggregate principal amount of approximately $19,000 plus approximately $2,000 of
accrued interest. All of such notes become due 120 days after issuance and, as such, approximately $687,000 principal amount
of the MALLC notes are overdue at May 31, 2020. Approximately $17,000 of the notes payable to the director are overdue. The
notes that are overdue bear interest at 15% and 12%, respectively, per year for the MALLC notes and for the director note
subsequent to their maturity date. The noteholder has not asserted that the Company is in default.
Subsequent to May 31, 2020, in June 2020,
the director loaned the Company an additional approximately $10,000.
The Company intends to make a proposal
to this principal stockholder and to this director to convert all amounts outstanding to them (including overdue amounts) into
common stock of the Company. See Note 5, Subsequent Events for discussion of the sale of these notes to a third party on July 2,
2020.
NOTE 4 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Some of the amounts recorded as accounts
payable or accrued liabilities may have passed the statute of limitations for purposes of the counterparty seeking recovery of
such monies. At May 31, 2020, the Company has not undertaken a formal study to evaluate recorded payables past the statute of limitations
for purposes of possible write-off of such payables. See also, Note 7 – Subsequent Events.
Accrued expenses and other current liabilities
includes approximately $18,000 due to a third party, guaranteed by our principal stockholder, for amounts paid to an account payable
on our behalf. This amount is repayable if the proposed merger transaction with this party was not completed. This party subsequently
merged with a third party and abandoned its possible transaction with the Company, however, there has not been a demand for repayment
of this amount. The Company believes it would be entitled to an offset for recovery of certain costs from this third party associated
with that proposed transaction pursuant to understandings between the parties.
NOTE 5- SUBSEQUENT EVENTS
On June 30, 2020 Joel S. Kanter,
individually and as representative for (i) the 607,727 common shares of a Company owned by Magna Acquisition LLC
(“Magna LLC”), (ii) the $1,453,811 of promissory notes owed by the Company to Magna LLC and to Joel S. Kanter
(collectively, the “Notes”), and (iii) as representative for the four directors and/or officers owning 106,032
Class A common shares of MAGAA ( the “Seller”), entered into a Stock Purchase Agreement (the “Stock
Purchase Agreement”) pursuant to which the Seller agreed to sell 202,576 Class A common shares and the Notes to
Activist Investing LLC., an entity owned by David Lazar (the “Purchaser”) for $105,000. The 202,576 shares
represent approximately 17.2% of the 1,179,329 Class A and Class B common shares of the Company’s outstanding common
shares, which is not a majority. However, Mr. Lazar, who will become the Company’s sole director and officer on or
about July 18, 2020, intends to cause the Purchaser to convert some or all of the Notes (which are currently not convertible)
into enough common shares so the Purchaser will become the majority shareholder of the Company. As a result, on or about July
18, 2020, there will be a change of control of the Company. There is no family relationship or other relationship between the
Seller and the Purchaser. An Amendment to the Stock Purchase Agreement clarified the responsibilities of the parties for
filing tax returns, and that references to the Company included Cardiac MRI, Inc., the Company’s 100% subsidiary.
In connection with the sale under the Stock
Purchase Agreement, the members of the Company’s Board of Directors have agreed to resign and appoint Mr. Lazar as the sole
initial director of the Company, subject to the filing and dissemination of an Information Statement, which has taken place and
the passage of the 10-day period set forth in SEC Rule 14f-1. The Company’s officers will also resign at the same time, namely
Lawrence A. Minkoff, Ph.D., Chief Executive Officer and Kenneth C. Riscica, Treasurer, Secretary and Chief Financial Officer. As
a result thereof, Lazar became the sole Director and officer of the Company.
Additionally, in connection with the
closing of the Stock Purchase Agreement, the Seller agreed to pay approximately $37,000 to settle certain liabilities of the
Company for stock transfer, Edgarizing and other services (approximately $18,000) and approximately $19,000 to settle a
liability for the services of our Treasurer and Secretary (Chief Financial Officer) over an extended period of time
aggregating approximately $186,000. Further, upon closing of the transaction, the Purchaser performed a review of certain
accounts and accruals payable (approximately $173,000 and $18,000, respectively) and received a legal opinion that such
outstanding accounts payable and accrued liabilities aggregating approximately $191,000 were time-barred by the Statute of
Limitations and has recorded the relief of those liabilities, and a gain on debt extinguishment, as of the closing date of
the transaction. A Summary Pro Forma Balance Sheet reflecting the effects of the transactions effected at the closing of the
Stock Purchase Agreement is as follows:
Summary Pro-Forma Balance
Sheet at July 2, 2020
(dollars in '000's)
|
|
May 31, 2020
|
|
Subsequent Activity
|
|
Note
|
|
Transaction Effects
|
|
Note
|
|
Pro Forma July
2, 2020
|
Cash and total assets
|
|
$
|
0
|
|
|
$
|
10,000
|
|
|
a.
|
|
$
|
0
|
|
|
|
|
$
|
0
|
|
|
|
|
|
|
|
|
(10,000
|
)
|
|
b.
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
$
|
0
|
|
|
|
|
$
|
0
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes and interest to related parties
|
|
$
|
1,435,000
|
|
|
$
|
10,000
|
|
|
a.
|
|
$
|
|
|
|
|
|
$
|
1,454,000
|
|
|
|
|
|
|
|
|
9,000
|
|
|
d.
|
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
352,000
|
|
|
|
12,000
|
|
|
c.
|
|
|
(192,000
|
)
|
|
e.
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(172,000
|
)
|
|
f.
|
|
|
|
|
Accrued liabilities
|
|
|
45,000
|
|
|
|
(10,000
|
)
|
|
b.
|
|
|
(12,000
|
)
|
|
e.
|
|
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(18,000
|
)
|
|
f.
|
|
|
|
|
Total liabilities
|
|
|
1,832,000
|
|
|
|
21,000
|
|
|
|
|
|
(394,000
|
)
|
|
|
|
|
1,459,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity (Deficit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock paid-in capital
|
|
|
27,290,000
|
|
|
|
|
|
|
|
|
|
186,000
|
|
|
e.
|
|
|
27,476,000
|
|
Accumulated deficit
|
|
|
(29,122,000
|
)
|
|
|
(9,000
|
)
|
|
d.
|
|
|
18,000
|
|
|
e.
|
|
|
(28,935,000
|
)
|
|
|
|
|
|
|
|
(12,000
|
)
|
|
c.
|
|
|
190,000
|
|
|
f.
|
|
|
|
|
Total stockholders' deficit
|
|
|
(1,832,000
|
)
|
|
|
(21,000
|
)
|
|
|
|
|
394,000
|
|
|
|
|
|
(1,459,000
|
)
|
Total liabilities and equity
|
|
$
|
0
|
|
|
$
|
0
|
|
|
|
|
$
|
0
|
|
|
|
|
$
|
0
|
|
Notes to Pro Forma:
Subsequent activity:
|
a.
|
Represents loans from a director in June 2020.
|
|
b.
|
Represents payment of expenses primarily for audit
services in June 2020.
|
|
c.
|
Represents expenses accrued in June 2020.
|
|
d.
|
Additional interest accrual on notes.
|
Transaction effects:
|
e.
|
Liabilities of the Company paid and settled by the
Seller.
|
|
f.
|
Liabilities of the Company relieved.
|