Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Forward Looking
Statements
Some of the statements
contained in this report discuss our plans and strategies for our business or state other forward-looking statements, as this term
is defined in the Private Securities Litigation Reform Act of 1995. Statements that are not statements of historical facts may
be deemed to be forward-looking statements. The words "anticipate," "believe," "estimate," "expect,"
"plan," "intend," "should," "seek," "will," and similar expressions are intended
to identify these forward-looking statements, but are not the exclusive means of identifying them. These forward-looking statements
reflect the current views of our management. However, various risks, uncertainties and contingencies could cause our actual results,
performance or achievements to differ materially from those expressed in, or implied by, these statements. See our Form 10-K for
the year ended February 28, 2017 for a discussion of certain known risks; also see Part II, Item 1A.
Overview, Background and History
We are currently a
“shell company” with no meaningful assets or operations other than our efforts to identify and merge with an operating
company. We no longer have any full-time employees and our Chief Executive and Chief Financial Officers serve on a part-time consulting
basis.
Prior to March 2003, our business had been
focused on pre-revenue development and commercialization of disposable medical devices designed to enhance the effectiveness of
magnetic resonance imaging in detection and diagnosis of heart disease. Due to the unavailability of funding, beginning in the
fall of 2002 we essentially ceased all of our operations including product development and commercialization activities. Our efforts
to realize value for our prior business and MRI technology have been unsuccessful. As a result, we view our most viable option
to be merging with an unrelated operating company that would benefit from our status as a reporting company in a so-called “reverse
merger” transaction. Entering into a “reverse merger” would likely involve very substantial dilution to the existing
stockholders. It would, however, provide an opportunity to return some value to stockholders. While we have identified and explored
merging with a number of candidates over the past few years, and entered into definitive agreements with one candidate (which agreement
was subsequently terminated) we have no commitments to merge with any company at the present time.
In January 2017, the Company’s President
and Chief Executive Officer (the “CEO”) entered into an Asset Purchase Agreement (the “Purchase Agreement”)
with the Company. Under the Purchase Agreement, the CEO purchased all of the intellectual property rights, any and all physical
assets, any and all permits and all non-financial books, records, files, design specification, software and other data related
to the Company’s magnetic resonance imaging technology. In exchange for purchased assets, the CEO (a) assumed all liabilities
of the Company related exclusively to the purchased assets and (b) agreed to forgiveness of all indebtedness owing from the Company
totaling approximately $110,000 including intellectual property counsel fees and costs, $68,000 of which had been paid by and is
therefore due to the CEO for payments he has made on the Company’s behalf in prior years in an attempt to preserve certain
intellectual property rights at that time. The CEO ceased making such payments several years ago and, as such, the underlying intellectual
property became compromised.
In order to raise cash to continue our efforts
to pursue a reverse merger, on October 31, 2005, the Company consummated a stock purchase agreement with Magna Acquisition LLC
(“MALLC”) which resulted in a change of control of our Company. Under the agreement, we sold 300,000 shares of Class
A Common Stock to MALLC for gross proceeds of $190,000, before expenses. Contemporaneous with the new investment, MALLC purchased
from our former principal stockholder 307,727 shares of the Company’s Class A Common Stock, representing all the shares of
our common stock owned by that stockholder. Two of our directors and our Chief Financial Officer serve as sole managers of MALLC,
with the ability to vote and dispose of the shares of our Company owned by MALLC by majority vote. These directors have assumed
a lead role with management in pursuing financing and merger candidates and operating matters.
MALLC has been responsible for substantially
all of our funding since October 2005. During the period from October 2005 to May 31, 2017, MALLC loaned us an aggregate $546,000
under a series of promissory notes payable that mature 120 days from issuance. At May 31, 2017, approximately $517,000 face amount
of such notes were beyond their maturity date and therefore due on demand. The notes bear interest at 12% per year increasing to
15% per year for periods beyond maturity. In June 2017, MALLC loaned the Company an additional $15,000 on the same terms as above.
The Company intends to make a proposal to MALLC to convert all of the amounts outstanding to them (including overdue amounts) into
common stock of the Company.
While we have reduced our expenditures very
significantly, we do not have sufficient cash to continue our activities for the coming twelve months. We currently do not have
any commitments for new funding.
Financial Condition, Liquidity and Capital
Resources -
At May 31, 2017, the Company had approximately $1,000 cash and approximately $1,415,000 in negative working capital
and stockholders’ deficit and negative cash flows from operations. For the three months ended May 31, 2017, the Company had
a net loss of approximately $43,000 and utilized approximately $22,000 of cash in operating activities. Further, losses are continuing
subsequent to May 31, 2017. Although our principal investor loaned us an additional $15,000 in June 2017, this is not sufficient
for our operations for the next twelve months and we have no commitments for future funding. These factors, among others, indicate
that the Company is in need of additional financing or a strategic arrangement in order to continue its planned activities for
the fiscal year that began on March 1, 2017. These factors, among others, raise substantial doubt about the Company’s ability
to continue operations as a going concern.
Our plan of operations
for the coming twelve months is to pursue our “reverse merger” strategy by seeking, evaluating and negotiating with
merger candidates and to continue to take actions to preserve our cash and continue our public reporting. We do not have the cash
resources to continue our plan for the coming twelve months, even at our reduced expenditure levels. As such, we may have to take
further measures or cease activities altogether, including terminating our public reporting status.
We currently have no material commitments
for capital expenditures.
Results of Operations –
During
the three months ended May 31, 2017, our net loss was approximately $43,000 compared to a net loss of approximately $34,000 in
the three months ended May 31, 2016. The increase in the loss is due principally to the higher debt levels and higher default interest
in the three months ended May 31, 2017 that resulted in an increase in interest expense as well as certain costs associated with
exploring a merger candidate.
Our expenses, particularly
professional and consulting fees, can increase significantly if we are actively engaged in negotiations for a merger transaction.
There can be no assurance that any of our activities will result in any transaction. Our interest expenses are increasing with
additional outstanding borrowings which are increasingly at default interest rates (15%).
Off Balance Sheet Arrangements -
The Company has no material off balance
sheet arrangements that are likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.
Critical
Accounting Principles
–
We have identified critical accounting principles
that affect our interim unaudited condensed consolidated financial statements by considering accounting policies that involve the
most complex or subjective decisions or assessments as well as considering newly adopted principals. They are:
Going Concern Consideration
–
Our interim unaudited condensed consolidated financial statements have been prepared assuming we are a “going concern.”
We are in need of immediate substantial additional capital or a strategic business arrangement in order to continue our planned
activities. There can be no assurance that our plans to address this need can be realized. As such, we may be unable to continue
operations as a going concern. No adjustments have been made in the interim unaudited condensed consolidated financial statements
that could result should we be unable to continue as a going concern.
Our other accounting policies, which we
do not consider critical accounting policies, are contained in Note 1 to the Consolidated Financial Statements at February 28,
2017 contained in our Form 10-K.
Item 4T. Controls and Procedures
(a)
Evaluation of Disclosure Controls
and Procedures.
The Company’s senior management is responsible for establishing and maintaining a system of disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the “Exchange
Act”) designed to ensure that the information required to be disclosed by the Company in the reports it files or submits
under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and
Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures
designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange
Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and
principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
The Company has evaluated the effectiveness
of the design and operation of its disclosure controls and procedures under the supervision of and with the participation of management,
including the Chief Executive Officer and our Chief Financial Officer as of the end of the period covered by this report. Based
on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures
are effective.
(b)
Changes in Internal Control
Over Financial Reporting.
There have not been any changes in our internal control over financial reporting (as such term is
defined in Rules 13a-15(f) under the Exchange Act) during our most recently completed fiscal quarter which is the subject of this
report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
There are inherent limitations in any system
of internal control. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance
that its objectives are met. Further, the design of a control system must consider that resources are not unlimited and the benefits
of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been
detected. These inherent limitations include the realities that judgment in decision-making can be faulty, and that breakdowns
can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons,
by collusion of two or more people, or by management override of the controls.
_____________________________________
PART II - OTHER INFORMATION
Item 1A. Risk Factors
Any investment in our common
stock involves a high degree of risk.
Some of these many known risks that affect an investment in
our Company (there can be others) include:
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we have incurred significant net losses in the past and unless we receive additional financing, we
may be forced to cease all operations and liquidate our Company,
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we may issue shares of our capital stock or debt securities to raise capital and to complete a business
combination, which would reduce the equity interest of our stockholders and likely cause a change in control of our ownership,
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if we merge with an unrelated business, we would likely divest of any of our remaining cardiac MRI
technology, partly in connection with or in anticipation of a merger with an unrelated business or such technology may remain with
the Company and not receive any priority in allocation of any funding that may be available,
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if we merge with an unrelated business, it is likely that our current officers and directors may resign
upon consummation of a business combination,
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because of our limited resources and the significant competition for business combination opportunities,
we may not be able to consummate a business combination with suitable growth potential,
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we may be unable to obtain additional financing that may be needed to fund the operations and/or growth
of the target business,
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we have no full time employees and are substantially dependent on the efforts of part-time management
and members of the Board of Directors, working for per-diem or no cash compensation, none of whom are bound by term employment
agreements and
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our significant stockholders and executive officers and directors currently are able, by virtue of
their position as managers of Magna Acquisition LLC, a 56% stockholder of the Company, to influence matters requiring stockholder
approval and their interests may conflict with those of other stockholders.
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For a more complete listing
and description of these and other risks that the Company faces please see our Annual Report on Form 10-K for the year ended February
28, 2017.
Item 3. Defaults Upon Senior Securities
As discussed in Management’s Discussion
and Analysis of Financial Condition and Results of Operations – Overview, Background and History, approximately $517,000
principal amount of 12% notes payable to Magna Acquisition LLC (“MALLC) are in default at May 31, 2017 as a result of their
non-payment when due. Such notes now carry a default rate of interest of 15%.
In
June 2017, MALLC loaned the Company another $15,000 on the same terms as the prior loans.
Item 6. - Exhibits
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31.1
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Certification of Principal
Executive Officer pursuant to Exchange Act Rule 13a – 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
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31.2
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Certification of Principal
Financial Officer pursuant to Exchange Act Rule 13a – 14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002.
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32.1
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Certification of Principal
Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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32.2
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Certification of Principal Financial Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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10.49
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Note Payable to Magna Acquisition LLC dated March 6, 2017.
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10.50
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Note Payable to Magna Acquisition LLC dated March 7, 2017.
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10.51
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Note Payable to Magna Acquisition LLC dated April 10, 2017.
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10.52
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Note Payable to Magna Acquisition LLC dated April 11, 2017.
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10.53
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Note Payable to Magna Acquisition LLC dated April 28, 2017.
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10.54
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Note Payable to Magna Acquisition LLC dated May 31, 2017.
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10.55
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Note Payable to Magna Acquisition LLC dated June 6, 2017.
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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.
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MAGNA-LAB INC.
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(Registrant)
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Date: July 14, 2017
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By:
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/s/
Lawrence A. Minkoff
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Lawrence A. Minkoff,
Chairman, President and Chief Scientific Officer (Principal
Executive Officer)
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By:
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/s/ Kenneth C. Riscica
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Kenneth C.
Riscica, Treasurer and Secretary (Principal
Financial and Accounting Officer)
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