U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

ANNUAL REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

     For the fiscal year ended            Commission file number 0-21320
     February 29, 2000.

                                Magna-Lab Inc.
                                --------------
                (Name of small business issuer in its charter)

         New York                                         11-3074326
 ------------------------------                -------------------------------
(State or other jurisdiction of               (IRS Employer Identification No.)
 incorporation or organization)

    6800 Jericho Turnpike, Ste 120W, Syosset, NY
       (P.O.Box 780, Syosset, N.Y. 11797)                     11791
    -------------------------------------------             ----------
      (Address of principal executive offices)              (Zip Code)

Issuer's telephone number - (516) 393-5874

Securities registered under Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
None None

Securities registered under Section 12(g) of the Exchange Act:
Class A Common Stock, $.001 par value per share
(Title of Class)

Redeemable Class E Warrants
(Title of Class)

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 .

Check if no disclosure of delinquent files in response to Item 405 of Regulation S-B is contained in this form, and no disclosure will be contained, to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form (_)

The issuer's revenues for its most recent fiscal year ended February 29, 2000: $ 0.

The aggregate market value on May 10, 2000 of the publicly trading voting stock held by non-affiliates (consisting of Class A Common Stock, $.001 par value) computed on the average bid and asked prices of such stock on that date was approximately $ 18,000,000.

As of May 10, 2000, 35,785,945 shares of Class A Common Stock, $.001 par value, and 414,722 shares of Class B Common Stock, $.001 par value, were outstanding.

Transitional small business disclosure format (check one) YES NO X

DOCUMENTS INCORPORATED BY REFERENCE - None


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

PART I

ITEM 1. DESCRIPTION OF BUSINESS

(a) BUSINESS DEVELOPMENT

Magna-Lab Inc. was incorporated as a New York corporation on February 22, 1991 and commenced operations on February 10, 1992. In 1997, Cardiac MRI, Inc. was incorporated in New York as a wholly owned subsidiary of Magna-Lab Inc. (collectively with Magna-Lab Inc., the "Company").

From commencement of operations in 1992 until 1997, the Company developed, received U.S. FDA clearance (September 1994), manufactured and marketed the MAGNA-SL, the first of a planned series of anatomy specific Magnetic Resonance Imaging ("MRI") equipment. 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 during 1997.

The Company's activities during the past three fiscal years have consisted of the following.

In February 1997, the Company commenced a plan of restructuring (the "Plan") to reposition the Company away from the capital medical equipment business (MAGNA-SL) and into the disposable medical device business. The Company's restructuring plan was focused on utilizing (i) the Company's core competencies in MRI technology and (ii) its relationship with a clinical thought leader in Cardiology, to develop leading edge, breakthrough disposable medical devices which would make MRI imaging more effective for the diagnosis, and as a guide in the treatment of, Coronary Artery Disease (the "Cardiac MRI Initiative"). The Cardiac MRI Initiative marries the advantages of MRI in diagnosis of soft tissue (i.e. heart and related vessels) with the absence in modern Cardiology of definitive non-invasive or minimally invasive diagnosis of Coronary Artery Disease ("CAD"). The Company's efforts address a broad market since it believes that CAD is the number one killer in the United States.

Under the Plan, in March 1997, the Company discontinued its capital medical equipment operations associated with the MAGNA-SL. As such, the majority of the Company's workforce was terminated, the Company vacated its production, development and executive facility and ceased the need for other assets including leased assets with remaining non-cancelable terms, and took other measures. Certain inventory and equipment were placed in storage. The Company recorded a restructuring charge of approximately $1.5 million in the fourth quarter ended February 28, 1997 for write-downs of fixed assets, inventories and non-refundable deposits made with strategic vendors, as well as accruals for lease termination and other costs. While the ultimate amount may differ from this estimate, the Company presently believes that such restructuring charge continues to be adequate.

Capital raising and business development activities for the Cardiac MRI Initiative were undertaken by a group of five Directors, Officers and consultants including Director Irwin M. Rosenthal, then Director Herbert Moskowitz, Officers Lawrence A. Minkoff and Kenneth C. Riscica and consultant Daniel M. Mulvena. In May 1997, the Company entered into a collaboration with the Zena and Michael A. Weiner Cardiovascular Institute of the Mount Sinai School of Medicine (New York) ("MSSM") and Dr. Valentin Fuster, M.D., Ph.D., to

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advance the Cardiac MRI Initiative. In December 1997, the Company's efforts to raise additional financing to support the Cardiac MRI Initiative were successful in raising $1.884 million in a private placement of 15,072,000 shares of Class A common stock to accredited investors (the "December 1997 Financing").

The December 1997 Financing was conditioned on the Company initiating a program to pay its then existing liabilities on a reduced basis (the "Debt Reduction Program"). In approximately October 1997, counsel was retained and the Company commenced the Debt Reduction Program to reduce its recorded liabilities (then approximately $2.5 million, unaudited). Counsel contacted the Company's creditors and informed them of the Company's opportunity to obtain new financing if the creditors agreed to settle liabilities due them for substantially reduced amounts. In total, approximately $2,100,000 of liabilities have been either paid, agreed to be reduced by the vendors or written off as a result of the passage of time (See Notes to Consolidated Financial Statements).

In May 1999, the Company completed the private placement to accredited investors of 2,413,667 shares of Class A common stock for proceeds of approximately $362,050. In the fourth quarter of the fiscal year ended February 29, 2000 the Company was successful in raising $2,218,000 in equity under two arrangements aimed at raising an aggregate of $5,000,000. Subsequent to February 29, 2000, an additional approximately $1,000,000 was raised bringing the total to approximately $3,218,000 through May 19, 2000. These transactions are described further in Part II, Item 5 (b) and in Notes to Consolidated Financial Statements, Item 7.

From December 1997 through the present, the Company's activities on the Cardiac MRI Initiative have included: (i) initial design and testing, (ii) third party design review and testing, (iii) bench testing, (iv) animal testing, (v) publishing technical papers, (vii) presenting the results and findings at major medical meetings and (viii) business development activities. Other efforts to advance the Plan have included (i) executing the Debt Reduction Program, (ii) capital raising activities and (iii) seeking, without success to date, to realize value for the Company's investment in the MAGNA-SL through a business relationship with others. The Company's current efforts are directed toward commercialization of its products including completion of animal and human testing and business development activities.

The address of the Company's principal executive office is 6800 Jericho Turnpike, Suite 120W, Syosset, New York 11797 and its telephone number is (516) 393-5874. From May 1997 until December 1999, the Company's principal address had been PO. Box 780, Syosset, NY 11797. From April 1996 until May 1997, the Company's principal executive office had been 250Z Executive Drive, Edgewood, N.Y. 11767 and its telephone number was (516) 595-2111.

(b) BUSINESS OF ISSUER

GENERAL

The Company's business activities consist principally of development of disposable diagnostic imaging devices for use in enhancing the effectiveness of MRI for the detection and diagnoses of CAD. These devices are intended to significantly enhance the diagnostic image created by MRI to make MRI essential in the diagnosis and as a guide in the treatment of CAD. The Company believes that MRI, because of its particular effectiveness with soft tissue, can play a critical role in diagnosis for heart disease. The Company's devices are designed to overcome existing obstacles to the effective use MRI imaging for use in CAD.

In formulating its approach to applying MRI technology to CAD, the Company relies on its Chief Scientific Officer, Lawrence A. Minkoff, Ph.D. and on the clinical, medical leadership of Dr. Valentin Fuster, M.D., Ph.D. and his staff at MSSM. Dr. Minkoff is one of the pioneers in the field of MRI technology. His service as a member of the four man team that invented MRI imaging for humans in July 1978 has been memorialized in the Smithsonian Institution. In fact, Dr. Minkoff was the first human scanned by MRI. Dr. Fuster is believed by many to be

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a thought leader in Cardiovascular medicine, having numerous accomplishments and honors including his recent leadership of the American Heart Association (President, 1998/1999). Dr. Fuster is regularly called upon to consult on the cardiac care of prominent world leaders and he aggressively publishes and presents breakthrough thinking in CAD. The leadership of Dr. Minkoff and Dr. Fuster are considered core competencies of the Company.

The Company believes the market for it's planned Cardiac MRI products is potentially a multi-billion dollar market. The Company believes that over 11.2 million Americans have been diagnosed as having CAD and that approximately 6.0 million people visit U.S. hospitals with CAD complaints annually. The Company believes that approximately 3.0 million of such people are referred for testing, observation, or treatment. Annually, the Company believes that approximately 1.5 million people have a heart attack in the U. S. (approximately one American every 20 seconds) and approximately 500,000 of these die (approximately one American every minute). This disease is believed to be the leading killer in the U.S. and a significant part of our healthcare cost. Further, recent research, including research done by MSSM, indicates that "vulnerable" or "unstable plaque" ("Vulnerable Plaque") within the coronary arteries may be a cause of the sudden massive heart attacks experienced by persons who have not previously exhibited signs of CAD.

There is not currently a definitive test for the diagnosis for Vulnerable Plaque within the coronary arteries. Studies and experiments performed to date indicate that MRI may be effective in diagnosing Vulnerable Plaque. The topic of Vulnerable Plaque, and the Company's work in conjunction with Dr. Fuster and MSSM, has recently received attention in the United States media in U.S.A. Today (November 1999), ABC News 20/20 Friday (January 2000), U.S. News and World Reports (March 2000), among others. The Company believes attention to this unfilled diagnostic need is increasing for several reasons including: (i) the unexplained sudden death of otherwise healthy people from CAD, (ii) the demographics of the "baby boom" population which puts them in the age category where CAD events (including the sudden massive heart attack associated with Vulnerable Plaque) occur and (iii) the increasing awareness of issues related to coronary health that result from increased education, among other factors.

The results of the Company's early work in applying its disposable MRI devices to CAD were presented in March 2000 at the Annual Meeting of the American College of Cardiology and at the April 2000 meeting of the Society of Magnetic Resonance in Medicine. The Company believes that its technology was enthusiastically received at such meetings.

The company's products under development consist of the following:

o CARDIAC VIEW - A non-invasive approach to definitive diagnosis of coronary artery and other heart diseases. Cardiac View is designed to operate in conjunction with a magnetic resonance imaging system to generate diagnostic quality images of the gross arterial structure of the heart. The device consists of an MRI micro receiver coil which is introduced to the patient by means of a probe which is inserted down the throat or nasal passages and into the esophagus. Positioning in the esophagus puts the micro receiver coil directly behind the heart for optimum imaging.

o ARTERY VIEW - A minimally invasive product to permit the cardiologist to see the composition of atherosclerotic plaque that is the cause of Coronary Artery Disease. Arterial View is an intra-arterial probe that is threaded through a catheter and guidewire to the site of atherosclerotic blockage. The device is intended to facilitate the capture of high resolution magnetic resonance images to provide a diagnostic view of the fine structures of the arterial wall and various components of atherosclerotic plaque. MRI is the only imaging technique that permits the differentiation of the chemical composition of the tissue. This device is intended to aid in the treatment of CAD

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by permitting the physician to assess the morphology (structure and form) and the chemistry of the lesion that is causing the distress.

The Company has frozen the design of the Cardiac View probe pending finalization of animal and human testing and has a working prototype of the Artery View catheter. The devices are being developed in conjunction with the Company's principal investigator, Valentin Fuster, M.D., Ph.D., Chairman of the Zena and Michael A. Weiner Cardiovascular Institute at Mt. Sinai School of Medicine, New York City.

In May 1997, the Company entered into an 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 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 delayed and payments of $300,000 were made to MSSM during each of the fiscal years ended February 28, 1998, 1999 and February 29, 2000. In January and April 2000, the Company and MSSM agreed to reschedule the remaining payments, as permitted under the agreement, to more closely reflect the status of the work under the agreement. As amended, $300,000 has been paid subsequent to February 29, 2000 and a total of $300,000 is due in two installments later in 2000. The Company is current with all required payments under the agreement, as amended. See also Note 3 to Consolidated Financial Statements. 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 has also been engaged in attempting to realize value for its investment in the MAGNA-SL product, after discontinuing development, manufacturing and marketing activities associated with this product in 1997. Efforts to date have included discussion of the licensing or sale of the MAGNA-SL and no definitive arrangements have resulted.

INDUSTRY BACKGROUND

MRI, also known as nuclear magnetic resonance imaging, is a medical diagnostic imaging procedure which produces images of slices of the body allowing physicians to view the internal human anatomy. MRI has certain advantages over other imaging procedures such as computerized axial tomography (CAT), Positron Emission Tomography (PET) and X-ray. MRI does not use X-rays, or any other ionizing radiation as in other nuclear medicine techniques and can produce soft tissue contrast differences many times greater than other procedures. MRI can acquire data in any planar orientation, is not limited to cross sectional slices and provides greater flexibility in imaging a wide variety of pathologies. MRI systems create images by analyzing the behavior of hydrogen atom nuclei in the body. The living body contains a number of hydrogen atoms, mostly in the form of water. MRI systems typically consist of a large magnet, radio signal generators, radio signal receivers and computer hardware and software. By affecting the alignment and behavior of nuclei using an external magnet and radio waves, MRI systems obtain information and process the information by a computer to create an image of the internal human anatomy which is displayed on a video monitor.

The Company believes that MRI would, except for certain limitations which the Company's products are designed to address, be the preferred diagnostic tool in diagnosing CAD. The Company believes this because of MRI's particular effectiveness on soft tissue and because of the additional information which MRI presents which could definitively diagnose not only the existence, but the type of arterial lesion. MRI is presently not used extensively in diagnosing CAD. The Company believes that its devices will make MRI more effective for this purpose.

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PRODUCTION AND ASSEMBLY

The Company believes that there are qualified, established manufacturers of cardiac probes and catheters who can be trained by the Company to manufacture the Cardiac View and Artery View products to the Company's design and specification. Further, the Company believes that this area of manufacturing, because it includes products that are minimally invasive, has very substantial start-up costs and rigorous government regulation. The Company has had contact with manufacturers who have already made such investments, are already subject to such regulations and would be interested in manufacturing these products for the Company.

ACT Medical, Inc. ("ACT") Newton Ma., a leading contract developer and manufacturer of medical devices, has been engaged since 1998 to assist the Company in the design, validation and the initial production of the Company's devices. ACT is one of the leading suppliers of these services to major companies in the healthcare field. The Company believes that ACT serves or has served industry leaders such as Boston Scientific Corp., Medtronic, Inc. and Johnson and Johnson. By utilizing the services of ACT, the Company believes that it can achieve a shorter timeframe to get its products to market by taking advantage of ACT's existing FDA approved manufacturing capability. The Company believes that ACT can satisfy the production needs that would result from commercial introduction of its products.

The Company has carefully followed principles of good manufacturing practice in the design, documentation and validation of its devices. The Company has been advised by outside consultants of the documentation that is required to achieve GMP and ISO certification. The Company is working with regulatory consultants to be in compliance with accepted standards.

MARKETING AND DISTRIBUTION

Initially, the Company plans to focus its marketing effort on the clinical validation of the use of Cardiac View. Working with the research scientists and clinical staff at MSSM, the Company will explore the practical application of its technology in carefully controlled studies. Using the experience gained at MSSM, the Company will expand its study base by working with top researchers located around the U.S. and in international markets.

The Company presently expects to establish its own direct sales force in the United States. The sales force would be made up of experienced sales people from the cardiology field. The key target accounts will be the largest teaching hospitals, larger hospitals in metropolitan areas and active free-standing MRI centers who focus on cardiology. Overseas the company would expect to employ distributors with a proven track record in diagnostic imaging and cardiology. The company would expect to employ a representative in each international market to manage the development of the business. These representatives would be expected to have technical expertise in the product to assist the dealers in clinical and service related issues.

The Company expects to attend the major and regional conferences at which Cardiac View and Artery View might have a receptive audience including the meetings of the American Heart Association and American College of Cardiology.

PROPRIETARY RIGHTS

The Company's policy has been to obtain patents to protect technology, inventions and improvements that are important to the development of its business. The Company also relies upon trade secrets, know-how, continuing technological innovation and licensing opportunities to develop and maintain its competitive position.

The Company has filed three patent applications in the United States relative to the proprietary elements of its Cardiac View and Artery View products. Such patent applications relate to the application and design of its system. Efforts to advance such patent applications to the non-U.S. markets are in process.

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Dr. Lawrence A. Minkoff, President and Chief Scientific Officer and a Director of the Company, has received one patent relating to the permanent magnet structure of the Company's MAGNA-SL. In December 1992, Dr. Minkoff assigned his rights to the magnet technologies to the Company. Additionally, the Company has filed applications for patent protection internationally, including an application under the Patent Cooperation Treaty ("PCT"), relating to the permanent magnet structure, but has permitted its rights under that PCT application to lapse. The Company has been informed that the PCT application was published, making it unlikely that additional foreign patent protection with respect to the permanent magnet structure can now be obtained. In March 1995, the Company was issued a U.S. patent concerning a certain proprietary imaging sensing coil assembly. The Company has filed an application for patent protection internationally, including under the PCT, relating to the imaging sensing coil assembly.

The patent position of any medical device manufacturer, including the Company, is uncertain and may involve complex legal and factual issues. Consequently, the Company does not know whether its applications will result in the issuance of any patents, or, for any patents issued, whether they will provide significant proprietary protection or will be circumvented or invalidated. Since patent applications are maintained in the U.S. in secrecy until patents issue, and since publications of discoveries in the scientific or patent literature tend to lag behind actual discoveries by several months, the Company cannot be certain that it was the first creator of inventions covered by its pending patent application or that it was the first to file a patent application for such inventions. There can be no assurance that any of the Company's patent applications will result in any patents being issued or that, if issued, patents will offer protection against competitors with similar technology; nor can there be any assurance that others will not obtain patents that the Company would need to license or circumvent. Moreover, the Company may have to participate in interference proceedings declared by the U.S. Patent and Trademark Office to determine the priority of inventions, which could result in substantial cost to the Company.

The Company may utilize technologies, patents or other rights which may be held by third parties. The Company believes that certain technologies utilized in its Cardiac View product may need to be licensed from others and the Company believes that such licenses are generally available on commercial terms. Certain technologies utilized by the Company in the MAGNA-SL are covered by patents owned or administered by the British Technologies Group, PLC. British Technologies Group, PLC. has offered the Company a license concerning such technology, however the Company has not made the required payment to secure such technologies which are integral to the MAGNA-SL.

GOVERNMENTAL REGULATION

The operations of the Company are subject to extensive federal and state regulation. Non-invasive and minimally-invasive medical devices and MRI devices generally are subject to regulation by the FDA, certain state and federal agencies that regulate the provision of health care, particularly the Health Care Financing Administration ("HCFA"), and the Environmental Protection Agency ("EPA").

A. FDA REGULATION

The FDA categorizes devices into three regulatory classifications subject to varying degrees of regulatory control. Class I devices are those devices whose safety and efficacy can reasonably be ensured through the general control provisions. These provisions include requirements that a device not be adulterated or misbranded, that the device is manufactured in conformity with GMP regulations and that appropriate FDA premarket notification requirements be met. Class II devices are those devices whose safety and efficacy can reasonably be ensured through the use of special controls, such as performance standards, post-market surveillance, patient registries and FDA guidelines. All other devices are placed in Class III. Class III devices, which are typically invasive or life sustaining products, require clinical testing to assure safety and

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effectiveness and FDA approval prior to marketing and distribution. The FDA also has the authority to require clinical testing of Class I and Class II devices.

The Company believes that the Cardiac View product is a Class II medical device and that the Artery View product may be a Class II medical device. The MAGNA-SL(TM) is a Class II medical device subject to clearance by the FDA prior to commercialization in the United States. Such FDA clearance was received in September 1994 through submission of a 510(k) notification (discussed below). The cessation of the Company's MAGNA-SL operations in March 1997 calls into question the continuing status of the Company's ongoing compliance with FDA regulations with respect to that product.

Pursuant to the Food Drug and Cosmetic ("FDC") Act and regulations promulgated thereunder, the FDA regulates the manufacture, distribution and promotion of medical devices in and the exportation from the United States. Various states and foreign countries in which the Company's products may be sold in the future may impose additional regulatory requirements.

If a manufacturer or distributor of medical devices can establish that a device is "substantially equivalent" to a legally marketed Class I or Class II medical device or to a Class III medical device for which the FDA has not required premarket approval, the manufacturer or distributor may seek FDA marketing clearance for the device by filing a 510(k) notification. The 510(k) notification and the claim of substantial equivalence will almost certainly have to be supported by various types of data indicating that the device is as safe and effective for its intended use as a legally marketed predicate device. Until the FDA issues an order finding that a device is substantially equivalent, the manufacturer or distributor may not place the device into commercial distribution. The order may be sent within 90 days of the submission and may declare the FDA's determination that the device is "substantially equivalent" to another legally marketed device, and allow the device to be marketed in the United States. The FDA may, however, determine that the proposed device is not substantially equivalent, or may require further information, such as additional test data, before the FDA is able to make a determination regarding substantial equivalence. Such determination or request for additional information could delay the Company's market introduction of its products and could have a materially adverse effect on the Company's continued operations.

If a manufacturer or distributor cannot establish to the FDA's satisfaction that a new device is substantially equivalent, the device will be considered a Class III device and the manufacturer or distributor will have to seek premarket approval ("PMA") or reclassification of the new device. A PMA would have to be submitted and be supported by extensive data, including preclinical and clinical trial data, to demonstrate the safety and efficacy of the device. Upon receipt, the FDA will conduct a preliminary review of the PMA to determine whether the submission is sufficiently complete to permit a substantive review. If sufficiently complete, the submission is declared fileable by the FDA. By statute and regulation, the FDA has 180 days to review a PMA once determined to be fileable. During that time an advisory committee may also evaluate the application and provide recommendations to the FDA. While the FDA has responded to PMA's within the allotted time period, PMA reviews more often occur over a significantly protracted time period, and generally take approximately two or more years to complete from the date of filing. A number of devices have never been cleared for marketing. An application and petition to reclassify a device can also be extensive in time and cost.

If human clinical trials of a device are required, and the device presents "significant risk," the manufacturer or distributor of the device will have to file an investigational device exemption ("IDE") application with the FDA prior to commencing human clinical trials. The IDE application must be supported by data, typically including the results of animal and mechanical testing. If the IDE application is approved, human clinical trials may begin at the specific number of investigational sites and could include the number of patients approved by FDA. Sponsors of clinical trials are permitted to sell those devices distributed in the course of the study, provided such compensation does not exceed recovery of the costs of manufacturer, research, development and handling.

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In 1988, the FDA reclassified MRI devices and all substantially equivalent devices of this generic type from Class III to Class II. This encompassed MRI systems from 13 petitioners. The FDA may require the Company or its competitors to file PMAs for new products or technologies if the devices are sufficiently different from the reclassified MRI devices. Such a determination by the FDA would delay the Company's market introduction of products it may in the future (subject to obtaining funding) consider developing, and could have a material adverse effect on the Company's operations, should the Company pursue development of such products. FDA recently announced its intent to impose higher safety standards on premarket clearance of devices that might pose potential risks if they fail. Such a change in policy could have a material adverse effect on the Company, should the Company resume operations and pursue development of such products.

The costs associated with the filing of applications with the FDA and, if required, of conducting clinical trials can be significant.

If determined to be Class II medical devices under the Safe Medical Devices Act of 1990, the Company's proposed products are potentially subject to performance standards and other special controls that the FDA has the authority to establish. Currently, no such performance standards or special controls applicable to the Company's products have been established. If any such performance standards or other special controls are established, obtaining initial marketing clearance for its products or maintaining continued clearance will be dependent upon the Company's ability to satisfactorily comply with such standards or controls.

The MAGNA-SL is and any future products distributed by the Company pursuant to the above described clearances will be subject to pervasive and continuous regulation by the FDA. Moreover, the FDC Act will also require the Company to manufacture its products in registered establishments and in accordance with Good Manufacturing Practice (GMP) regulations. The Company presently plans to outsource the production of its Cardiac View and Artery View products to qualifies FDA approved manufacturers. Once registered, the Company's facility, if any, will be subject to periodic inspections by the FDA. The Company does not presently have a facility. Labeling and promotional activities are subject to scrutiny by the FDA and, in certain instances, by the Federal Trade Commission. In addition, the Company's products are expected to be subject to technical standards established by the Federal Communications Commission regarding radio frequency emission limits. The export of medical devices is also subject to regulations in certain instances and in certain circumstances to FDA approval as well as to approval by certain countries to which these devices might be exported. In addition, the use of the Company's products may be regulated by various state agencies. There can be no assurance that the Company's products will be able to comply successfully with any such requirements or regulations. In fact, the Company's MAGNA-SL does not presently comply with the regulatory standards of several countries. Moreover, future changes in regulations or enforcement policies could impose more stringent requirements on the Company, compliance with which could adversely affect the Company's potential business. Failure to comply with applicable regulatory requirements could result in enforcement action, including withdrawal of marketing authorization, injunction, seizure or recall of products, operating restrictions, refusal of government to approve product applications or allow a company to enter into supply contracts and liability for civil and/or criminal penalties.

The Company believes that its Cardiac View product would be Class II medical devices subject to the "substantial equivalence" standard and that its Artery View product may be a Class II medical device.

B. THIRD PARTY COVERAGE, REIMBURSEMENT AND RELATED HEALTH CARE REGULATIONS.

The market for MRI scanners and ancillary devices such as Cardiac View and Artery View is affected significantly by the amount which Medicare, Medicaid or other third party payors, including private insurance companies, will reimburse hospitals and other providers for diagnostic procedures using MRI systems. The health care industry has changed dramatically during the 1980's and the 1990's in reaction to changes in third party reimbursement systems designed to contain health care costs. In the MRI market, third party reimbursement issues will

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focus principally on whether MRI diagnostic procedures using the Company's products and proposed products will be covered procedures and, if so, the level of reimbursement that will be available for the MRI procedure.

HCFA, the agency responsible for administering the Medicare program, sets requirements for coverage and reimbursement under the program, pursuant to the Medicare law. In addition, each state Medicaid program has individual requirements that affect coverage and reimbursement decisions under state Medicaid programs for certain health care providers and recipients. Private insurance companies also set their own coverage and reimbursement policies. Private insurance companies and state Medicaid programs are influenced, however, by the HCFA requirements.

As of November 22, 1985, under a national policy, Medicare covers certain diagnostic procedures using MRI technology (as described by Medicare) for certain clinical indications. There can be no assurance that the Company's products or proposed products, once available, will be included within the then current Medicare coverage determination. In the absence of a national Medicare coverage determination, local contractors that administer the Medicare program, within certain guidelines, can make their own coverage decisions. Favorable coverage determinations are made in those situations where a service is of a type that falls within allowable Medicare benefits and a review concludes that the service is safe, effective and not experimental. Under HCFA coverage requirements, FDA approval for the marketing of a medical device, including the Company's proposed MRI mammography scanning systems and any other MRI technology devices, will not necessarily lead to a favorable coverage decision. A determination will still need to be made as to whether the device is reasonable and necessary for the purpose used. In addition, HCFA has proposed adopting regulations that would add cost-effectiveness as a criterion in determining Medicare coverage. No assurance can be given that the scans utilizing the Company's products will be covered under Medicare, especially if HCFA changes its coverage policy to include a cost-effectiveness criterion. Changes in HCFA's coverage policy, including adoption of a cost-effective criterion could have a material adverse effect on the Company's prospects, if any, in the MRI market.

Currently, MRI diagnostic services provided on an outpatient basis are reimbursable under Part B of the Medicare program. The professional and technical components of radiological procedures which are performed in a physician's office or freestanding diagnostic imaging center, and the professional component of radiological procedures performed in a hospital setting, are currently reimbursed on the basis of a relative value scale which phased in, beginning January 1, 1992. There can be no assurance that the implementation of this system, or other governmental actions, will not limit or decrease reimbursement levels for services using any products developed by the Company. Any reduction in the willingness of physicians to perform procedures using the Company's proposed products could have a material adverse effect on the Company's prospects, if any, in the MRI market.

Medicare reimbursement for the technical component (the operating costs) for MRI diagnostic services furnished in the hospital outpatient setting generally is currently calculated on a formula that is the lesser of the hospital's reasonable costs and a 42/58 blended amount respectively of hospital reasonable costs and the blended amount of reimbursement for the technical component of the service if furnished in a physician's office in the same locality.

The market for the Company's products and proposed products could also be adversely affected by the amount of reimbursement provided by third party payors to hospitals or private practitioners for procedures performed using such products. Reimbursement rates from private insurance companies vary depending upon the procedure performed, the third-party payor, the insurance plan, and other factors. Medicare generally reimburses hospitals that are expected to purchase the Company's products and proposed products for their operating costs for in-patients on a prospectively-determined fixed amount for the costs associated with an inpatient hospital stay based on the patient's discharge diagnosis, regardless of the actual costs incurred by the hospital in furnishing care. The willingness of these hospitals ("PPS hospitals") or private practitioners to purchase the Company's products and proposed products, if any,

9

could be adversely affected if they determined that the prospective payment amount to be received for the procedures for which the Company's products or proposed products are used would be inadequate to cover the costs associated with performing the procedures using the Company's proposed products, or to be less profitable than using an alternative procedure for the same condition.

Until October 1991, hospitals were generally able to pass their capital costs on to Medicare which reimbursed such costs on a reasonable basis subject to percentage limitations. However, under regulations which became effective October 1, 1991, reimbursement for capital-related costs began to be included in the prospective payment system. In general, under the new system, which has a 10 year phase-in period, hospitals will be reimbursed for capital costs related to services provided to inpatients through an add-on payment made to the hospital based upon the Diagnostic Related Group (DRG) for each such inpatient. While it is unclear what effects the prospective payment systems will have, it may cause hospitals to more closely scrutinize new capital expenditures and it could have an adverse effect on recovery of capital costs for equipment. Capital costs for hospital outpatient departments are currently reimbursed by Medicare in an amount equal to 90% of their reasonable capital costs.

A number of states, through Certificate of Need ("CON") laws, limit the establishment of new facility or service or the purchase of major medical equipment to situations where it has been determined that the need for such facility, service or equipment exists. The market for the MAGNA-SL may be adversely affected by CON regulation to the extent that institutional health care facility purchasers and lessors of the products are subject to CON regulation. While many states exempt non-institutional providers from CON coverage, a number of states have extended CON coverage to physicians' offices or medical groups by restricting the purchase of major medical equipment wherever located.

C. EPA REGULATION

The Company, and any research facility which it operates, would also be required to comply with any applicable federal and state environmental regulations and other regulations related to hazardous materials used, generated, and/or disposed of in the course of its operations.

COMPETITION

The health care industry in general, and the market for medical devices in particular, is highly competitive and virtually all of the other entities known to management of the Company to be engaged in the manufacture of medical devices possess substantially greater resources than the Company. The Company will experience competition both from existing technologies and from others who may attempt other approaches to MRI imaging for diagnosis of CAD. The competing technologies that physicians utilize to make diagnoses and select treatment options for CAD include:

o Electrocardiography (ECG)
o Stress Tests
o X-ray
o Computed Tomography (CT) Scan
o Echocardiography
o Cardiac Catheterization
o Angiography

Most invasive techniques, like cardiac catheterization and angiography, carry a risk of complications, such as stroke, heart attack or death. Additionally, stress tests have a risk of heart attack or death. The above techniques are described below.

ELECTROCARDIOGRAPHY (ECG) - This procedure measures electrical impulses in the heart - a fast, slow or irregular heart beat can be detected. A physician can analyze the rhythm of the heart that triggers each heartbeat, the nerve

10

conduction pathways of the heart and the rate and rhythm of the heart. These results give clues to the condition of the heart including abnormal blood flow and heart rhythms. The test gives some information as to the location, or extent of the damage, but little or no information of blockage.

EXERCISE TOLERANCE TESTING (STRESS TEST) - The test monitors a person's Electrocardiogram (ECG) and blood pressure during exercise. For example, if coronary arteries are partially blocked, the heart may have sufficient blood flow when the person is resting but not during exercise. This test however gives no detail of the location of blockages or the composition of materials creating the blockage.

X-RAY - Anyone who presents symptoms of coronary disease may be given a chest x-ray from the front and side. X-rays show the shape and size of the heart and abnormalities. The condition of blood vessels is also viewed on x-rays and is helpful in identifying an enlargement of the right ventricle of the heart. This test provides only a gross overview of what may be going on in the heart.

COMPUTED TOMOGRAPHY (CT) SCAN - Newer CT scans can "freeze' the heart and take a 3-D moving picture. This procedure can assess motion abnormalities. Ultra-fast systems can see calcium deposits, the hard plaque in the vessels which is a material associated with blockages. This technique is unable, however, to get pictures of the Vulnerable Plaque in the vessels which, the Company believes is more likely to break off and cause the more serious and life threatening blockages.

ECHOCARDIOGRAPHY - This technique uses high frequency ultrasound waves emitted by a recording probe (transducer) and bounced off heart and vessel structures to produce a moving image. A trans-esophageal probe can be passed down the patient's throat to analyze structures at the back of the heart. The test can test heart wall motion, blood volume of each heart beat, thickening of the sac around the heart and the accumulation of fluid between the pericardium and the heart. The images from this technique cannot detect soft tissue or the chemical composition within the vessels.

CARDIAC CATHETERIZATION. - In this procedure, a thin catheter is inserted through an artery or vein and advanced into the major vessels and heart chambers. Catheters are for either diagnosis or treatment. The catheter often contains a measuring instrument at its tip. Often these catheters are used to measure blood pressure in the major vessels and heart chambers. Blood samples and biopsies may also be taken through the catheter. A subset of the diagnostic catheterization is angiography discussed next.

CORONARY ANGIOGRAPHy - A slender catheter is threaded into an artery in the arm or groin toward the heart and into the coronary arteries. A dye is used that is visible on X-ray (fluroscopy). Coronary artery disease is manifested by an irregular or narrowing of the inner wall of the coronary arteries. If coronary artery disease is detected, an angioplasty may be ordered to widen the channel in the artery.

COMPETITIVE COMPANIES AND RESEARCH - There are currently several companies or research groups developing systems or devices that provide the capability for performing cardiac imaging via several technical approaches. The Cardiac View and Artery View devices are distinguished from these by its proprietary design and its validation, which is continuing, through research performed at Mount Sinai School of Medicine in New York. Both devices are breakthroughs in the use of magnetic resonance imaging of the cardiovascular system and, to the Company's knowledge, there is little direct competition (see below).

The company is aware of certain research activities that could be in competition with the products of the Company.

Surgi-Vision is an MRI based company developing products in conjunction with the imaging center at Johns Hopkins Medical Center. The Company believes that the focus of their efforts is intravascular catheters to obtain a better image from a variety of bodily structures including the prostate, colon, rectum,

11

lungs, uterine and abdominal areas as well as the heart. The Company does not believe that their products will compete with the Company's Cardiac View for screening of heart disease but could compete with Artery View. The Company believes that the intellectual property of Surgi-Vision is not in conflict with the Company's own patent filings.

The Company is aware of other MRI intravascular developments at Allegheny University and Stanford University.

In both cases the work identified uses much larger diameter catheters which will limit the ability to place it in the smallest vessels. Schneider Division of Boston Scientific Corporation, has a patent on a small diameter guidewire antenna. The status of this development is unknown.

The Company is aware of developments in surface coil improvements for MRI at certain other universities.

PRODUCT LIABILITY

Product liability claims relating to the Company's products may be asserted against the Company. If such claims are asserted against the Company, there can be no assurance that the Company will have sufficient resources to defend against any such claim or satisfy any such successful claim. The Company does not have, but is in the process of applying for, product liability insurance related to its current activities. The Company previously had product liability insurance in connection with its discontinued operations which was terminated during 1997 for non-payment of insurance premiums.

THE DISCONTINUED MAGNA-SL PRODUCT

The Company has developed and, in September 1994, received regulatory clearance from the FDA to begin marketing, its MAGNA-SL MRI scanner. The MAGNA-SL is not currently available for sale due to the Company's curtailment of MRI equipment operations in 1997 including the termination of relationships with vendors and the termination of the technical workforce necessary to build, install and service such systems. Four MAGNA-SL scanners have been delivered to and accepted by customers, including three scanners which were shipped to a related party, the third of which remains unpaid.

The Company's current plan has been to realize value for its investment in the MAGNA-SL through sale or license of the product to others. To date such efforts have not resulted in any agreements.

The magnet utilized in the MAGNA-SL system is approximately two and one-half feet high, three and one-half feet deep and two feet wide. The magnet structure is open at the top, bottom and front providing access from three sides thereby permitting non-claustrophobic scanning. A bed/chair is placed next to the magnet for various scans and would recline into the magnet for certain purposes. Sitting or reclining in the moveable bed/chair, patients may position their leg, knee, arm, elbow, wrist or hand in the magnet opening without having to put their entire body into the scanner. The magnet rotates 90 degrees into a horizontal position for arm, elbow, wrist and hand scanning as well as certain positions for knee and leg scanning. In addition, images of legs or feet may be obtained from either a weight-bearing position (standing up) or from a sitting or lying down position. This approach adds to the inherent patient friendliness by having the patient sitting for many scans where typically they are in a prone position. Separate from the magnet is the digital and analog MRI electronics and computer terminal which controls the operation of the magnet and produces the image. The entire system had been designed to be installed in approximately 150 square feet of office space making it suitable for use in radiology suites, hospital emergency rooms, or offices of private medical practices.

The MAGNA-SL(TM) is a Class II medical device subject to clearance by the FDA prior to commercialization in the United States. Such FDA clearance was received in September 1994 through submission of a 510(k) notification

12

(discussed below). The cessation of the Company's operations during 1997 calls into question the current state of the Company's continued compliance with FDA requirements.

The MAGNA-SL was expected initially to have applications in radiology, orthopedics, pediatrics, chiropractic and podiatry and, if and when possible, for applications in neurology, vascular and certain areas of dentistry.

In June 1996, the Company and Elscint Cryomagnetics, Ltd. (a subsidiary of Elscint Ltd., "Elscint") signed a definitive agreement covering a strategic business arrangement in which Elscint would manufacture the MAGNA-SL for marketing and sale by Elscint in certain defined non-United States territories. The Company was to have been paid royalties on systems manufactured and sold by Elscint. To maintain its rights under the agreement, Elscint was required to sell a minimum number of systems. Upon execution of the agreement, a nonrefundable deposit of $250,000 was paid to the Company to be applied to first year royalties. Elscint had a right of first negotiation on certain new products.

The parties agreed to certain development tasks and enhancements, which, if not completed by the Company in November 1996, could, if not cured, result in termination of the agreement by Elscint. Elscint has informed the Company that it is not satisfied with the completion of certain of the tasks agreed to by the parties and presented to the Company its proposal (the "Elscint Proposal") to take over the uncompleted tasks and to initiate a major alteration and improvement of certain systems comprising the MAGNA-SL. The Company has determined not to go forward with Elscint Proposal based upon the inability of the parties to agree on meaningful and binding minimum sales levels which would justify the $500,000 investment in the Elscint Proposal. The Company's last substantive contact on this matter was in May 1998. The Company believes that Elscint's MRI business was purchased by the General Electric Company in June 1998.

A third party has alleged that the terms of a Company engagement with that third party call for a fee to them with respect to the June 1996 agreement with Elscint. During October 1997, the parties settled this matter for the issuance by the Company of 125,000 shares of Class A common stock.

UNDERWRITERS LABORATORIES INC. OR EQUIVALENT LISTING - MAGNA-SL - The Company's MAGNA-SL is required to be listed by Underwriters Laboratories Inc. ("UL")., which is a not-for-profit independent organization, or by ETL Testing Laboratories, Inc. ("ETL"). The Company's MAGNA-SL is not presently listed by such organizations.

PRODUCTION AND ASSEMBLY - MAGNA-SL - The MAGNA-SL system was comprised of three major subsystems; a magnet subsystem (previously assembled by the Company), an MRI computer subsystem (previously purchased from a third party with which the Company has terminated its relationship as a result of the Company's failure to purchase commercially viable quantities, among other matters) and a rack of power and electronic components (previously purchased from third parties).

The proprietary MRI computer subsystem was purchased from a supplier in Europe. In August 1993, the Company established a multi-system purchase relationship with this vendor by making a $480,000 non-refundable deposit payment. Deposits remaining at February 28, 1997 were written off as a result of the discontinuance of the MAGNA-SL product operations. The Company believes that its prior relationship with this vendor is no longer be available and this critical component would not be available. Further, it is possible that this vendor may assert damages against the Company for various matters including volume discounts for volumes not realized or for other costs or investments made by this vendor.

The Company is also required to conform to FDA Good Manufacturing Practice ("GMP") regulations and various other statutory and regulatory requirements applicable to the manufacture of medical devices. The Company's production and assembly operations are subject to FDA inspections at all times. The Company

13

would not meet the standards of such practices at this time. See "Governmental Regulation."

MARKETING AND DISTRIBUTION - MAGNA-SL - All marketing and distribution efforts related to the MAGNA-SL were discontinued during 1997.

See above regarding a June 1996 agreement with Elscint under which Elscint was to manufacture market and sell the MAGNA-SL for distribution in certain defined non-U.S. territories.

COMPETITION - MAGNA-SL - At the present time, manufacturers of whole body scanners include the General Electric Company; Toshiba; Bruker Medical Imaging Inc.; Siemens Corporation; Philips Medical Systems, a division of Philips Industries, N.V.; Picker International Corporation; Shimadzu; and Hitachi. The Company is aware of one company, Esaote Biomedica SpA. ("Esaote") engaged in marketing an MRI device for extremity imaging. Their product, the ARTOSCAN, received FDA marketing clearance in October 1993, approximately 11 months prior to the Company's receipt of clearance.

WARRANTY AND SERVICE - MAGNA SL - It is customary in the medical equipment industry to warrant that each scanner will be free from defects in material and workmanship for a period of one year after acceptance of the scanner and to provide routine servicing free of charge for the first year. After the first year, servicing is customarily offered to customers on a contract basis or by charges for service calls.

The Company has not honored warranty and service obligations, if any, since approximately 1997.

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 product, (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, (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.

HUMAN RESOURCES

At May 15, 2000, the Company has one full time executive, research and development employee, two executive employees who devote such time as is necessary to the business, two consultants providing executive, business development, management and financial services and one part time administrative employee. The Company's human resources are further supported by the physicians and scientists at the Zena and Michael A. Weiner Cardiovascular Institute of the Mount Sinai School of Medicine (New York) working under the Company's collaboration with MSSM and with the design and manufacturing staff at ACT Medical, Inc., the Company's outsourced manufacturer.

ITEM 2: DESCRIPTION OF PROPERTY

The Company conducts its research operations at the Cardiac Institute at the Mount Sinai School of Medicine (New York) and in a laboratory in the personal residence of its Chief Scientific Officer. The Company maintains an

14

executive office in Syosset, NY which the Company rents on a month-to-month basis for approximately $1,100 per month. Certain inventory and equipment have been secured in storage facilities which the Company rents on a month to month basis for approximately $3,000 per month.

ITEM 3: LEGAL PROCEEDINGS

As a result of a period of deferral of payment of obligations due to the lack of cash primarily in 1997, the Company has been the subject of several threatened, and certain actual, litigation actions for nonpayment of obligations or for breach of agreements in the past. To the best of the Company's knowledge all material litigation has been settled and there is no material pending or threatened litigation against the Company. Reference is made to Note 8 to the Consolidated Financial Statements.

The Company has been unsuccessful to date in its efforts to restructure the Elscint agreement in a manner which is satisfactory to the Company. As such, the Company is exposed to possible litigation from Elscint's claim that the Company failed to perform certain required tasks under the Elscint agreement. Elscint paid the Company a non-refundable advance payment in June 1996 of $250,000 in connection with the Elscint agreement, as well as certain other subsequent payments, and would likely claim these payments and additional damages. The Company is unable to estimate an amount of possible loss exposure for this potential claim or for any offsets or recoveries it may have as a result of any counterclaims which it may have against Elscint.

ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the quarter ended February 29, 2000.

PART II

ITEM 5: MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

(a) MARKET INFORMATION

The following sets forth the high and low bid prices for the Company's Class A Common Stock for each quarter during the last two fiscal years. The source for the high and low bid information is the OTC Bulletin Board. Quotations reflect interdealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.

                                           Fiscal Year Ending February 28 or 29,
                                                2000                    1999
                                                ----                    ----
                                           High        Low        High        Low
Class A Common Stock:
First Quarter ended  May 31,               $0.21       $0.11      $0.31       $0.25
Second Quarter ended  August 31,           $0.15       $0.05      $0.56       $0.13
Third Quarter ended  November 30,          $0.11       $0.05      $0.28       $0.08
Fourth Quarter ended  February 28,         $0.88       $0.08      $0.22       $0.06

In April 2000, the Class A common stock price ranged from $0.25 to $1.65. The Company's Class E warrants are not listed because their trading value subsequent to the quarter ended May 31, 1997 has been nominal. There is no established public trading market for the Company's Class B Common Stock.

On May 10, 2000 the closing bid price for the Class A Common Stock was approximately $0.69.

15

(b) RECENT SALES OF UNREGISTERED SECURITIES AND RELATED MATTERS -

DURING THE FISCAL YEAR ENDED FEBRUARY 29, 2000 AND THROUGH MAY 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. Subsequent to February 29, 2000, an additional amount of approximately $1,000,000 was raised bringing the total raised to approximately $3,250,000. 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"). The $2,000,000 private placement was completed in with subscriptions, oversubscribed, of approximately $2,600,000 (approximately 11,800,000 shares). 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 Investments in Technology Ltd. (successor in interest to Noga Electrotechnica Limited, "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 to be paid by Noga to the Company as an additional non-refundable deposit to secure the timely payment of the balance ($2,150,000). If Noga 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 Noga 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, 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. Allen Perres and 3,500,000 to Noga and has received certain Board representation and other rights. See Item 12:
Certain Relationships and Related Transactions.

(c) APPROXIMATE NUMBER OF EQUITY STOCK HOLDERS

Based upon information supplied from the Company's transfer agent, the Company believes that the number of record holders of the Company's equity securities as of May 10, 2000 are approximately as follows:

Title of Class                                      Number of Record Holders

Class A Common Stock                                                     359
Class B Common Stock                                                      52

The Company believes that the number of beneficial holders of the Company's Common Stock as of May 10, 2000 is in excess of 400.

16

(d) DIVIDENDS

The Company has never declared or paid a cash dividend on any class of its common stock and anticipates that for the foreseeable future any earnings will be retained for use in its business. Accordingly, the Company does not expect to pay cash dividends in the foreseeable future.

ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

(a) MANAGEMENT'S ANALYSIS AND DISCUSSION OR PLAN OF OPERATIONS -

COMPANY ACTIVITIES - 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 MRI for the detection and definitive diagnosis of Coronary Artery Disease.

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 equipment products. The Company's efforts to market and sell the MAGNA-SL equipment did not generate sufficient revenues to sustain the Company's planned operations and such operations were discontinued. In February 1997, the Company commenced a plan of restructuring of the Company's operations 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 8 to Consolidated Financial Statements). Since December 1997, the Company has: (1) 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 $2,580,000 through February 29, 2000, principally through private placement of its Class A common stock. Such efforts are ongoing.

LIQUIDITY, CAPITAL RESOURCES AND GOING CONCERN CONSIDERATION

As indicated in the accompanying consolidated financial statements, as of February 29, 2000, the Company had working capital of approximately $277,000, net worth of approximately $249,000, a net loss of approximately $1,035,000 for the fiscal year ended February 29, 2000 and an accumulated deficit of approximately $17.5 million since inception. Further, the Company has no present revenue and a development agenda which requires additional financing. Losses have continued since February 29, 2000. These factors, among others, indicate that the Company is in need of additional financing in order to complete its plans for the fiscal year beginning March 1, 2000. The Company's efforts to raise additional financing have resulted in approximately $1,000,000 of additional financing since February 29, 2000 as well as an agreement for an additional $2,250,000 of additional capital. The Company believes that its cash resources at February 29, 2000, together with amounts raised subsequent to February 29, 2000 and amounts expected to be raised ($2,250,000) under an agreement with one investor, are sufficient to fund its operations for the year ending February 28, 2001 and that thereafter it will be required to raise additional capital.

17

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. Also see - Factors That May Affect Future Results.

RESULTS OF OPERATIONS -

Operations for the fiscal year ended February 29, 2000 resulted in a net loss of approximately $1,035,000, and utilized approximately $836,000 of cash, 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 $686,000 including approximately $425,000 related to the collaborative agreement with MSSM. General and administrative costs were approximately $291,000 reflecting management and other operating costs including occupancy, storage and professional fees, among other items. Operations for the fiscal year ended February 29, 2000 also includes a non-cash charge associated with stock options granted to certain consultants who are members of management for approximately $107,000 (see Note 5 to Consolidated Financial Statements, Item 7.) and a credit for the reversal of approximately $47,000 of liabilities related to the Company's discontinued MAGNA-SL business.

Operations for the fiscal year ended February 28, 1999 resulted in a net loss of approximately $919,000, and utilized approximately $849,000 of cash, principally in connection with activities under The Cardiac MRI Initiative. Research and development costs of approximately 928,000 include charges associated with the collaboration with MSSM of $600,000 as well as approximately $106,000 related to certain design review work performed by ACT. General and administrative costs were approximately $270,000 reflecting management and other operating costs including rent, storage and professional fees, among other items. Net loss of approximately $919,000 reflects costs of approximately $1,200,000 reduced by gains of approximately $275,000 related to the settlement of liabilities at amounts less than their recorded balances and related evaluations of payables and accruals. Reference is made to Note 8 to Consolidated Financial Statements (Item 7.)

Also see - Factors That May Affect Future Results.

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. 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 Company uses computers in accounting and general administration and in various technical applications. The Company has updated its general accounting and administration software to versions which it believes to be substantially year 2000 compliant. The software used for technical functions is generally believed to be year 2000 compliant. The Company believes that its collaborator, MSSM and its outsourced developer, ACT Medical, Inc. have taken the steps necessary to be year 2000 compliant. The Company's MAGNA-SL uses computer systems which generally are not time or date sensitive and the Company believes are generally year 2000 compliant. There can be no assurance that the Company will have no disruption as a result of the year 2000 issue, however, no material disruptions have occurred to date.

18

ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS

MAGNA-LAB INC. AND SUBSIDIARY

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

INDEPENDENT AUDITORS' REPORT                                                  20

FINANCIAL STATEMENTS:

         CONSOLIDATED BALANCE SHEET                                           21

         CONSOLIDATED STATEMENTS OF OPERATIONS                                22

         CONSOLIDATED STATEMENTS OF CASH FLOWS                                23

         CONSOLIDATED STATEMENTS OF STOCKHOLDERS'
                  EQUITY (DEFICIENCY)                                         24

         NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                      25 - 32

19

INDEPENDENT AUDITORS' REPORT

Board of Directors and Stockholders
Magna-Lab Inc.:

We have audited the accompanying consolidated balance sheet of Magna-Lab Inc. and Subsidiary as of February 29, 2000, and the related consolidated statements of operations, cash flows and stockholders' equity (deficiency) for the years ended February 29, 2000 and February 28, 1999. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Magna-Lab Inc. and Subsidiary as of February 29, 2000, and the results of their operations and their cash flows for the years ended February 29, 2000 and February 28, 1999, in conformity with generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1, the Company has suffered significant and recurring losses from operations. In addition, the Company has been unable to generate adequate cash flow from sales and production to support its first product and has instead commenced a new development activity which requires significant capital resources. While the Company has entered into arrangements that it believes will permit it to continue its planned operations in the coming fiscal year, its financial resources are not currently sufficient to assure that the Company can complete its plans for the coming fiscal year. Furthermore, the Company has various liabilities and contingent liabilities as a result of its attempt to develop its first product. These conditions raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters also are described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

                                     /s/ Rothstein, Kass & Company, P.C.



Roseland, New Jersey
May 5, 2000

20

                          MAGNA-LAB INC. AND SUBSIDIARY
                           CONSOLIDATED BALANCE SHEET

                                February 29, 2000


                                     ASSETS
  CURRENT ASSETS:
    Cash and cash equivalents                                                               $    1,372,000
    Other current assets - deposit with vendor                                                     130,000
                                                                                            --------------
         Total current assets                                                                    1,502,000

  PROPERTY AND EQUIPMENT, net, and all other                                                         9,000
                                                                                            --------------

                                                                                            $    1,511,000
                                                                                            ==============

                      LIABILITIES AND STOCKHOLDERS' EQUITY


  CURRENT LIABILITIES:
     Accounts payable                                                                       $      283,000
    Accrued expenses and other current liabilities                                                 942,000
                                                                                            --------------
         Total current liabilities                                                               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,  40,000,000  shares
      authorized, 30,811,087 shares issued
      and outstanding                                                                               30,000
    Common stock, Class B, par value $.001 per share,
      3,750,000 shares authorized, 1,875,000 shares issued
       and 735,034 shares outstanding                                                                1,000
    Capital in excess of par value                                                              17,675,000
    Accumulated deficit                                                                        (17,457,000)
                                                                                            --------------
         Total stockholders' equity                                                                249,000
                                                                                            --------------

                                                                                            $    1,511,000
                                                                                            ==============

See accompanying Notes.

21

                          MAGNA-LAB INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF OPERATIONS

               Years Ended February 29, 2000 and February 28, 1999




                                                                                               2000            1999
                                                                                           --------         -------
REVENUES                                                                              $           0     $          0
                                                                                      -------------     ------------

OPERATING EXPENSES:
  General and administrative                                                                291,000          270,000
  Stock compensation charge                                                                 107,000                0
  Selling and marketing                                                                           0                0
  Research and development                                                                  686,000          928,000
                                                                                      -------------      -----------
                                                                                          1,084,000        1,198,000
                                                                                      -------------      -----------

LOSS FROM OPERATIONS                                                                     (1,084,000)      (1,198,000)
                                                                                      -------------     ------------

OTHER INCOME:
  Gain from disposition of liabilities                                                       47,000          275,000
  Interest and other income, net                                                              2,000            4,000
                                                                                      -------------     ------------
                                                                                             49,000          279,000
                                                                                      -------------     ------------

NET LOSS                                                                              $  (1,035,000)    $   (919,000)
                                                                                      ==============    ============


WEIGHTED AVERAGE NUMBER OF
  SHARES OUTSTANDING                                                                     23,306,000       20,350,000
                                                                                      =============     ============

NET LOSS PER SHARE, basic and diluted                                                 $       (0.04)    $      (0.05)
                                                                                      =============     ============








See accompanying Notes

22

                          MAGNA-LAB INC. AND SUBSIDIARY
                      CONSOLIDATED STATEMENTS OF CASH FLOWS

               Years Ended February 29, 2000 and February 28, 1999




                                                                                             2000              1999
                                                                                      -----------       -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                            $(1,035,000)        $(919,000)
  Adjustments to reconcile net loss to net cash
   used in operating activities:
    Stock compensation charge                                                             107,000                 0
    Depreciation and amortization                                                           4,000             4,000
    Gain from disposition of liabilities                                                  (47,000)         (275,000)
    Changes in operating assets and liabilities:
     Other current assets - deposit with vendor                                          (130,000)                0
     Accounts payable and other current liabilities                                       265,000           341,000
                                                                                      -----------       -----------

NET CASH USED IN OPERATING ACTIVITIES                                                    (836,000)         (849,000)
                                                                                      -----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES                                                            0                 0
                                                                                      -----------       -----------

CASH FLOWS FROM FINANCING ACTIVITIES:
  Sales of stock                                                                        2,248,000           332,000
  Costs of stock issued                                                                  (144,000)          (15,000)
  Bridge notes and other non-current liabilities                                           37,000                 0
                                                                                      -----------       -----------

NET CASH PROVIDED BY FINANCING ACTIVITIES                                               2,141,000           317,000
                                                                                      -----------       -----------

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                    1,305,000          (532,000)

CASH AND CASH EQUIVALENTS:
  Beginning of year                                                                        67,000           599,000
                                                                                      -----------       -----------

  End of year                                                                         $ 1,372,000       $    67,000
                                                                                      ===========       ===========







See accompanying Notes

23

                          MAGNA-LAB INC. AND SUBSIDIARY
          CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)

               Years Ended February 29, 2000 and February 28, 1999



                                                               Common Stock
                                               ----------------------------------------------       Capital in
                                                    Class A                     Class B               Excess
                                               -------------------        -------------------         Of Par      Accumulated
                                               Shares       Amount        Shares       Amount         Value         Deficit
                                          ------------------------------------------------------------------------------------

BALANCES, February 28, 1998                 19,322,142   $  19,000        764,858   $   1,000    $  15,334,000   $(15,503,000)

CONVERT B SHARES TO A                           26,541           -        (26,541)          -                -              -

SHARES TO SETTLE LIABILITY                     100,000           -              -           -           16,000              -

PRIVATE PLACEMENT                            2,213,667       2,000              -           -          330,000              -

COSTS OF PRIVATE
  PLACEMENT                                          -           -              -           -          (31,000)             -

NET LOSS                                             -           -              -           -                -       (919,000)
                                          ------------------------------------------------------------------------------------

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                            9,145,454       9,000              -           -        2,239,000              -

COSTS OF PRIVATE
  PLACEMENT                                          -           -              -           -         (320,000)             -

STOCK COMPENSATION                                   -           -              -           -          107,000              -

NET LOSS                                             -           -              -           -                -     (1,035,000)
                                          ------------------------------------------------------------------------------------

BALANCES, February 29, 2000                 30,811,087   $  30,000        735,034     $ 1,000    $  17,675,000   $(17,457,000)
                                          ====================================================================================



See accompanying Notes.

24

MAGNA-LAB INC. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 - DISCUSSION OF THE COMPANY'S ACTIVITIES; 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").

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 equipment products. The Company's efforts to market and sell the MAGNA-SL equipment did not generate sufficient revenues to sustain the Company's planned operations and such operations were discontinued. 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 8). Since December 1997, the Company has: (1) 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 $2,580,000 through February 29, 2000, principally through private placements of its class A common stock. Such efforts are ongoing.

GOING CONCERN CONSIDERATION - As indicated in the accompanying consolidated financial statements, as of February 29, 2000, the Company had working capital of approximately $277,000, net worth of approximately $249,000, a net loss of approximately $1,035,000 for the fiscal year ended February 29, 2000 and an accumulated deficit of approximately $17.5 million since inception. Further, the Company has no present revenue and a development agenda which requires additional financing. Losses have continued since February 29, 2000. These factors, among others, indicate that the Company is in need of additional financing in order to complete its plans for the fiscal year beginning March 1, 2000. The Company's efforts to raise additional financing has resulted in approximately $1,000,000 of additional financing since February 29, 2000 as well as an agreement with one investor for an additional $2,250,000 of additional capital as discussed further in Note 5. The Company believes that its cash resources at February 29, 2000, together with amounts raised subsequent to February 29, 2000 and amounts expected to be raised ($2,250,000) under an agreement with one investor, are sufficient to fund its operations for the year ending February 28, 2001, and that thereafter it will be required to raise additional capital.

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 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:

PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include the accounts of Magna-Lab Inc. and its wholly-owned subsidiary, Cardiac MRI, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.

CASH AND CASH EQUIVALENTS - Included in cash and cash equivalents are deposits with financial institutions as well as short-term money market instruments with maturities of three months or less when purchased.

25

RESEARCH AND DEVELOPMENT COSTS - Costs of research and development activities, including patent costs, are charged to operations when incurred. Items of equipment or materials which are purchased and have alternative future uses either in production or research and development activities are capitalized, at cost, as equipment or inventory.

INVENTORIES - Inventories are stated at the lower of cost or market, generally on the first-in, first-out (FIFO) method. Cost includes materials, labor and manufacturing overhead.

PROPERTY AND EQUIPMENT - Property and equipment, including purchased software, are stated at cost, less accumulated depreciation and amortization. The Company provides for depreciation and amortization principally using the declining balance method as follows:

                                                            Estimated
Asset                                                       Useful life
-----                                                       -----------

Machinery and equipment                                     5-7 years
Purchased software                                          5 years

INCOME TAXES - Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts and are based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.

NET LOSS PER SHARE - Net loss per share is computed based on the weighted average number of Class A Common and Class B Common shares outstanding.

The Company complies with Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per Share", which requires dual presentation of basic and diluted earnings per share. Basic earnings (loss) per share excludes dilution and is computed by dividing income (loss) available to common stockholders by the weighted average common shares outstanding for the year. Diluted earnings 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 the effect of outstanding options is antidilutive, they have been excluded from the Company's computation of net loss per share. Therefore, basic and diluted loss per share for the fiscal years ended February 29, 2000 and February 28, 1999 were the same.

FAIR VALUE OF FINANCIAL INSTRUMENTS - The fair values of the Company's assets and liabilities which qualify as financial instruments under SFAS No. 107 approximate their carrying amounts presented in the consolidated balance sheet at February 29, 2000.

IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically assesses the recoverability of the carrying amounts of long-lived assets. A loss is recognized when expected undiscounted future cash flows are less then the carrying amount of the asset. An impairment loss is the difference by which the carrying amount of an asset exceeds its fair value.

USE OF ESTIMATES AND ASSUMPTIONS - The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and 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. Actual results can, and in many cases will, differ from those estimates.

26

NOTE 3 - 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 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 fiscal year ended February 28, 1999, $600,000 was charged to operations, $300,000 was paid and $350,000 remained in accrued expenses at February 28, 1999 under this collaborative arrangement. For the fiscal year ended February 29, 2000, $425,000 was charged to operations, $300,000 was paid and approximately $475,000 remained in accrued expenses at February 29, 2000.

In January and March 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 March 2000, $150,000 in April 2000 (both of which payments have been made) and $150,000 in each of July and October 2000.

NOTE 4 - PROPERTY AND EQUIPMENT:

Property and equipment at February 29, 2000 consists of the following:

 Machinery and equipment                                            $  360,000
 Purchased software                                                     49,000
                                                                    ----------
                                                                       409,000
Less accumulated depreciation and amortization and write-downs        (400,000)
                                                                    ----------
                                                                    $    9,000
                                                                    ==========

NOTE 5 - STOCKHOLDERS' EQUITY (DEFICIENCY):

GENERAL - The Company was incorporated on February 22, 1991 in the State of New York and commenced operations on February 10, 1992. All references to share or per share data in the Company's consolidated financial statements refer to amounts after a stock split, approved by the Board of Directors on October 29, 1992, of approximately 21,532 shares for one.

DESCRIPTION OF CLASS A AND CLASS B COMMON STOCK

The Class A and Class B common stock are identical in most respects except that:
(i) the Class B common stock has five votes per share and the Class A common stock has one vote per share, (ii) shares of Class B common stock are convertible into shares of Class A common stock and require conversion to Class A for sale or transfer to a non-Class B stockholder and (iii) by agreement with an underwriter, no more Class B common stock can be issued. Holders of Class A and Class B common stock have equal ratable rights to dividends and, upon liquidation, are entitled to share ratably, as a single class, in the net assets available for distribution. Shares of Class A and Class B common stock are not

27

redeemable, have no preemptive rights or cumulative voting power, and vote as one class, except in certain circumstances, in matters before the shareholders.

INITIAL PUBLIC OFFERING OF CLASS A COMMON STOCK AND WARRANTS - During the year ended February 28, 1994, the Company completed its initial public offering of 1,150,000 units of its Class A common stock in a unit offering yielding gross proceeds of $6.9 million (approximately $5.4 million, net of underwriting discounts and expenses). Redeemable Class A warrants and Class B warrants and the unit purchase option issued to an underwriter in connection with the offering have all expired unexercised in March 1998.

1995 PRIVATE PLACEMENT - During the year ended February 28, 1995, the Company made a private placement of an aggregate amount of $1.65 million principal amount of notes payable and five year warrants to purchase 825,000 shares of Class A common stock. Approximately $400,000 of such notes were repaid and the remaining $1,250,000 face amount of notes, together with accrued interest, warrants to purchase 625,000 shares of common stock and an additional cash payment were converted into 625,000 shares of common stock of the Company. The remaining warrants to purchase 200,000 shares at, initially, $2.85 per share, are subject to adjustment for anti-dilution in certain circumstances and grant the holders certain other rights including those summarized below.

1996 PUBLIC OFFERING OF CLASS A COMMON STOCK AND WARRANTS - In January 1996, the Company completed the public offering of 1,850,000 shares of Class A common stock and 925,000 Class E Warrants sold through an underwriter in units of two shares and one warrant. Each Class E Warrant entitles the holder to purchase one share of Class A common stock at $4.375 per share prior to December 26, 2000. The Class E Warrants are redeemable by the Company at $0.05 per share at any time that the average closing bid price of the Class A common stock is in excess of $5.6875 for twenty consecutive trading days. The offering yielded gross proceeds of $5.8 million (approximately $4.6 million net of offering discounts and expenses). The net proceeds were used to pay down certain indebtedness and to fund working capital and other requirements of the Company's production and sale of its first product, the MAGNA-SL.

1998 PRIVATE PLACEMENT OF COMMON STOCK - In December 1997 the Company completed the offering of 15,072,000 shares of class A common stock to a group of accredited investors for gross proceeds of approximately $1,884,000. The proceeds were used to advance the plan of restructuring outlined in Note 1, including the initial funding of the agreement with the Mount Sinai School of Medicine.

1999 PRIVATE PLACEMENT OF COMMON STOCK - In May 1999, the Company completed the private placement of 2,413,667 shares of class A common stock to a group of accredited investors for gross proceeds of approximately $362,050. The proceeds were used to advance the Cardiac MRI Initiative and the plan of restructuring outlined in Note 1.

2000 PRIVATE PLACEMENT OF COMMON STOCK - 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. Subsequent to February 29, 2000, an additional approximately $1,000,000 was raised bringing the total raised to $3,218,000. 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 offering to accredited investors. Efforts to complete the $2,000,000 private placement were completed in May 2000 with total proceeds, oversubscribed, of approximately $2,600,000.

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 a total of 13,636,363 shares of class A common stock over a five month period ending in May 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 and a remaining investment of $2,150,000 to be made in July 2000. 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. Further, this investor

28

has the option to invest additional amounts, as defined, at $0.22 prior to July 15, 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 representation on its Board of Directors.

Certain fees and expenses are to be paid in connection with the amounts raised.

STOCK OPTIONS AND WARRANTS - In December 1992, the Company adopted its 1992 Stock Option Plan (the "Stock Option Plan") which, as amended in 1993 and 1995, provides for the granting of incentive stock options (ISO) and nonqualified stock options to purchase 1,000,000 shares of the Company's Class A common stock or stock appreciation rights (SAR). The exercise price of options granted under the Stock Option Plan shall not be less than 100% (110% with respect to certain beneficial holders of common stock) of the fair market value of the stock at the date of grant.

In May 1997, the Company determined that the purposes of the Stock Option Plan were not being adequately achieved with respect to those employees and consultants holding options that were exercisable above current market value and that it was in the best interests of the Company and the Company's shareholders that the Company retain and motivate such employees and consultants. Therefore, in order to provide such optionees the opportunity to exchange their above market value options for options exercisable at the current market value, the Company repriced the outstanding options under the Stock Option Plan of selected individuals, who were identified by the Company's Board of Directors to have a continuing role in the Company's plan of restructure and who had options with exercise prices above $2.00 per share, with new stock options at an exercise price of $0.25 per share. In aggregate, 750,000 options were repriced. In addition, in recognition of their efforts to advance the plan of restructuring, the Company awarded 910,000 new options at $0.25 per share to certain individuals. A portion of such grant, after considering forfeitures, would be subject to approval of the shareholders of an increase in the shares available under the Stock Option Plan. 660,000 of such options were granted for a five-year term, immediately exercisable, while 250,000 of such options would be exercisable ratably over three years.

In November 1999, the Company's Board of Directors voted to increase the number of shares available under the 1992 Stock Option Plan and granted options to purchase 4,875,000 shares to management. Such increase in the option plan and grant of shares is subject to shareholder approval of an increase in shares available under the plan. Such options granted are for a term of five years at an exercise price of $0.22 per share. Options to purchase 3,055,000 shares vest immediately and the remainder vest over three years.

The Company may be required to record a compensation charge in the future for stock option awards which are subject to stockholder approval. Such charge would be required if the fair market value of the underlying common stock at the date of shareholder approval is in excess of the exercise price of the options.

Stock option activity for the years ended February 29, 2000 and February 28, 1999 is as follows:

                                        2000                               1999
                               ----------------------              ---------------------
                               Shares                              Shares
                               Under                               Under
                               Option           Price              Option          Price
                               ------------------------------      ---------------------
Beginning                      1,222,500        $0.25              1,222,500       $0.25
Canceled/expired                       -            -                      -           -
Granted                        5,025,000        $0.22                      -           -
                               ------------------------------      ---------------------
End                            6,247,500        $0.22 - 0.25       1,222,500       $0.25
                               ===============================     =====================

Options granted to three consultants resulted in a charge to compensation expense of $107,000 in the fiscal year ended February 29, 2000. In addition to

29

the options granted above, an officer of the Company was granted a five- year option to purchase 3,500,000 shares of Class A common stock at $0.02 per share vesting immediately. The option was granted in connection with the activities of this executive to raise financing for the Company.

In March 2000, the Board of Directors approved the issuance of five year options to purchase 1,000,000 shares of Class A common stock of the Company at $0.22 per share to consultants at the Company's medical collaborator, MSSM. Such options are subject to an increase in the shares available for grant as discussed above and will result in a charge to compensation expense subsequent to the fiscal year ended February 29, 2000.

Options granted contain various vesting provisions and expiration dates. Of the options granted to date, approximately 4,247,500 and 1,100,000 were exercisable at February 29, 2000 and February 28, 1999, respectively, although amounts over 1,000,000 shares could not be exercised until receipt of shareholder approval.

PRO-FORMA INFORMATION - The Company complies with the disclosure-only provisions of SFAS 123, "Accounting for Stock-Based Compensation". Accordingly, no compensation expense to an employee and non-employee directors has been recognized for the Company's stock option plan. Had compensation cost for the Company's stock option plan been determined on the fair value at the date of grant of awards in the year ended February 29, 2000 consistent with the provisions of SFAS 123, the Company's net loss and net loss per common share would have increased to the pro-forma amounts indicated below:

                                                                  2000
                                                                  ----
Net loss, as reported                                         $(1,035,000)
Net loss, pro-forma                                           $(1,174,000)
Loss per common share, basic and diluted, as reported         $(     0.04)
Loss per common share, basic and diluted, pro-forma           $(     0.05)

The fair value of each option grant under SFAS 123 is estimated on the date of the grant using a Black-Sholes option pricing model with the following weighted-average assumptions: risk free rate of 5%; no dividend yield; option lives of five years and expected volatility of 140%.

OTHER COMMON STOCK ISSUED - In connection with an amount payable to a third party at February 28, 1998, 100,000 shares were issued during the fiscal year ended February 28, 1999 to settle an account payable. Such amount was valued at approximately $16,000. See Note 7 regarding the settlement of certain liabilities after February 29, 2000 in exchange for Class A common stock.

NOTE 6 - INCOME TAXES:

At February 29, 2000, the Company had net operating loss carryforwards of approximately $17.0 million to offset future income subject to tax and approximately $440,000 of research tax credits available to offset future taxes payable. These resulted in an estimated $5.7 million of federal and $1.5 million of state deferred tax assets at February 29, 2000. A full valuation allowance has been established for these deferred tax assets since their realization is considered unlikely.

A change in the ownership of a majority of the fair market value of the Company's common stock could delay or limit the utilization of existing net operating loss carryforwards and credits. The Company believes, based upon limited analysis, that such a change may have occurred in 1993 at a time when net operating losses (subject to limitation) were less than $2 million. The Company believes that other issuances of stock, including a significant issuance of common stock in December 1997 and again in 2000, may also have triggered additional changes and new limitations.

Such carryforwards and credits expire between 2007 and 2020.

30

NOTE 7 - OTHER MATTERS:

BRIDGE LOAN AND OTHER NON-CURRENT LIABILITIES - In September 1999, two shareholders loaned the Company a total of $20,000. Subsequent to February 29, 2000, such shareholders agreed to accept 90,909 shares of Class A common stock in settlement of the liability. One vendor was owed approximately $17,000 at February 29, 2000 and such vendor has agreed to accept 100,000 shares of Class A common stock for settlement of the liability to them. Since both of these liabilities were settled with the issuance of stock after February 29, 2000, they are considered non-current liabilities in the accompanying consolidated balance sheet.

1997 RESTRUCTURING COSTS AND ACCRUAL - In connection with the restructuring of its business, the Company recorded a February 1997 restructuring charge of $1,489,000, including approximately $1,264,000 for asset impairments and $225,000 for early cancellation of leases and other costs. During the fiscal year ended February 29, 2000 and February 28, 1999, the Company utilized approximately $0 and $40,000, respectively, of the restructuring accrual primarily for lease termination costs. In the years ended February 29, 2000 and February 28, 1999, the Company reversed approximately $30,000 and $35,000 of such accruals as no longer considered necessary. The remaining accrual at February 29, 2000 is approximately $32,000. Total liabilities remaining on the Company's books related to its discontinued MAGNA-SL business amount to approximately $235,000.

INTELLECTUAL PROPERTY RIGHTS - In connection with an agreement dated February 28, 1992, a founder of the Company assigned his right and interest to certain MRI technology to the Company. No value is assigned to this right in the Company's consolidated financial statements. The Company, through its officers, has filed various patent applications in connection with devices and processes related to the Cardiac MRI Initiative.

NOTES PAYABLE - In February 1997, the Company issued a $75,000 promissory note payable to a shareholder, collateralized by certain accounts receivable and a MAGNA-SL system delivered to a related party but not paid for by that related party. The note is payable at prime plus 2% per annum and was due March 15, 1997. As of February 29, 2000, approximately $62,000 has been repaid and approximately $13,000 plus interest remains in default. No payments of interest or principal have been made since the fiscal year ended February 28, 1998 when the Company turned over the collateral for the note to the noteholder.

RENT EXPENSE - Rent expense for the years ended February 29, 2000 and February 28, 1999 was approximately $48,000 and $44,000 including storage charges for inventories and other assets.

NOTE 8 - 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 and informed them of the Company's opportunity to obtain new financing if the creditors agreed to settle liabilities due them for substantially reduced amounts. Such efforts have continued during the fiscal year ended February 29, 2000 and are largely complete. Additionally, the Company 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 which was settled for approximately $100,000.

In total, approximately $2,100,000 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 are periodically evaluated and, if necessary, adjusted. Such adjustments are included in other income in the consolidated statements of operations. Approximately $235,000 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 in excess of $150,000. The Company, in consultation with counsel, disputes this claim.

31

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 below. 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 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 informed the Company in November 1996 and May 1998 of its belief that the Company was 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 not honored its obligations for warranty, service or product liability for the MAGNA-SL since approximately March 1997. The Company is not aware of any warranty, service or product liability claims.

RELATIONSHIP WITH RELATED PARTY DISTRIBUTOR - The Company entered into a sales representation agreement for 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.

32

ITEM 8: CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS.

NONE

PART III

Item 9: Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16 (a) of the Exchange Act:

The Company's Directors and executive officers are as follows:

         Name                       Age          Positions with the Company
-------------------------------------------------------------------------------
Daniel M. Mulvena (2)(3)            52      Chairman of the Board, Chief
                                            Executive Officer and Acting Chief
                                            Financial Officer
Lawrence A. Minkoff, Ph.D.(3)       51      Director, President and Chief
                                            Scientific Officer
Allen Perres                        48      Vice-President
J. M. Feldman (3)                   56      Director
Joel Kanter (1)                     43      Director
Seymour Kessler (2)(3)              68      Director
Irwin M. Rosenthal, Esq. (1)(2)     71      Director
----------

(1) Member of the Compensation Committee
(2) Member of the Audit Committee
(3) Member of Executive Committee

DANIEL M. MULVENA has been the Company's Chairman and Chief Executive Officer since March 1998 and a consultant to the Company since February 1997. Mr. Mulvena devotes such time as is necessary to the business and affairs of the Company. Mr. Mulvena is Chairman of the Board of EcoCath, Inc., a publicly traded medical technology company and serves as a consultant to and/or on the Boards of several privately-held and publicly-held medical technology companies including publicly-held companies Thoratec Laboratories, Inc., Zoll Medical Corporation and Cambridge Heart. Mr. Mulvena is the principal owner of Commodore Associates, a private firm providing consulting services to medical technology companies.

Mr. Mulvena has served Boston Scientific Corporation, a publicly traded corporation which manufactures and sells minimally invasive medical products ("BSC"), from 1992 through 1995 including as Vice-President and General Manager and ultimately as Group Vice-President Cardio/Cardiology responsible for Mansfield, Cardiac Assist and Mansfield Electrophysiology Divisions of BSC. From 1989 through 1991, Mr. Mulvena was Chairman, President and Chief Executive Officer of, and from 1991 through 1992 was a consultant to, Lithox Systems, Inc., a developer and manufacturer of medical devices. From 1984 to 1989, Mr. Mulvena served as President of Bard Implants and Bard Cardiosurgery, all divisions of C.R. Bard, Inc. C.R. Bard, Inc. is a leading worldwide manufacturer of medical devices. Mr. Mulvena has served as Co-Chairman of the Board of Directors of Life Medical Sciences, a publicly traded corporation engaged in the research and development of technologies for use in medical applications.

LAWRENCE A. MINKOFF, PH.D., a founder of the Company, is presently the Company's President and Chief Scientific Officer and has also served as its Chairman of the Board and Chief Executive Officer from inception in February 1991 until March 1998. From October 1989 until February 1991, Dr. Minkoff has served as President and a director of Minkoff Research Labs, Inc., a privately held company engaged in the development of MRI technology. Dr. Minkoff continues as President of Minkoff Research Labs, Inc. Minkoff Research Labs, Inc. is a principal shareholder of the Company and prior to the formation of the Company conducted the development activities relating to certain of the Company's technology. From July 1978 to October 1989, Dr. Minkoff was an executive

33

vice-president of Fonar Corporation, a publicly traded corporation engaged in developing and commercializing the use of Magnetic Resonance Imaging for scanning the human body. Dr. Minkoff served as a member of its Board of Directors from January 1985 to February 1989.

ALLEN PERRES, has been Vice President of the Company since November 1999. Mr. Perres devotes such time as is requested of him by the company in connection with financing and strategic matters. For more than the last five years, Mr. Perres has been employed as a Managing Director of RKP Capital Partners, LLC, a private investment banking and merchant banking firm.

J. M. FELDMAN, has been a Vice President and Director of the Company since January 2000. For more than the past five years Mr. Feldman has been a financial advisor employed by various firms in the brokerage industry.

JOEL S. KANTER, has served as a Director of the Company since March 1998. Mr. Kanter has served as President of Windy City, Inc., a privately held investment firm, since July 1986. Mr. Kanter has also served as President of Chicago Advisory Group, Inc., a privately held private equity financing and consulting company since its inception in November 1999. From 1995 to November 1999, Mr. Kanter served as the Chief Executive Officer and President of Walnut Financial Services, Inc., a publicly traded company. Walnut Financial's primary business focus was the provision of different forms of financing to small business, including equity financing to start-up and early stage development companies, bridge financing to small and medium-sized companies, and later stage institutional financing to more mature enterprises.

Mr. Kanter serves on the Board of Directors of several public companies including Encore Medical Corporation, I-Flow Corporation, Mariner Post Acute Network, Inc., and THCG, Inc., as well as a number of private concerns. He is Chairman of the Coalition to Stop Gun Violence. He is also a member of the Board of Trustees of The Langley School, it's Treasurer, and the Chairman of its Finance Committee.

SEYMOUR KESSLER, D.P.M. has served as a Director of the Company since January 2000. For more than the past five years Dr. Kessler has been a Managing Director of RKP Capital Partners, a private investment bank specializing in small to medium size companies. Dr. Kessler received his Doctorate of Podiatric Medicine from Illinois College of Podiatric Medicine in 1954 and has had a long career as a practicing Podiatric Surgeon as well as banker, investor and corporate executive. He is a Board Certified Diplomat of the American Board of Ambulatory Foot Surgery and the American Board of Podiatric Orthopedics. Dr. Kessler is the developer of the "Kessler/Wilson Osteotomy", a minimally invasive surgery and a co-founder and past president of the Academy of Foot and Ankle Surgery. Dr. Kessler has served as CEO of Princeton Dental Management Corp. and as a member of the Board of Directors of several banks in the Chicago area. He has also served as a Director of RealShares, Inc. and NASD member firm.

IRWIN M. ROSENTHAL, ESQ., has served as a Director of the Company since February 1992. He has served as a senior partner at Graham & James, LLP since 1998 and at Rubin Baum Levin Constant & Friedman from December 1991 until 1998. From December 1989 to December 1991, he served as a partner at Baer Marks Upham, and from 1983 to December 1989, as a senior partner at Botein Hays & Sklar. Mr. Rosenthal is a director of Life Medical Sciences, Inc., and EchoCath, Inc. and serves as secretary and director of Magar Inc., a principal shareholder of the Company.

Other significant employees of the Registrant:

KENNETH C. RISCICA has served as Vice President and Chief Financial Officer of the Company from November 1993 until April 1997 and has served as a consultant to the Company since that date. Mr. Riscica is the principal owner of

34

Riscica Associates, Inc., a management and financial consulting company, since its formation in 1993. From October 1997 until April 1999, Mr. Riscica was Vice President - Chief Financial Officer of BCAM International, Inc. From 1976 until 1992, Mr. Riscica was with Arthur Andersen & Co. LLP in various positions including Partner in Charge of an Enterprise Services group from 1987 until 1992. Mr. Riscica devotes such time as is required to the financial affairs of the Company.

COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's officers and directors, and persons who own more than ten percent of a registered class of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Such persons are required by SEC regulations to furnish the Company with copies of all Section 16(a) reports they file.

The Company believes, based solely on review of copies of such reports furnished to the Company, that section 16(a) filing requirements applicable to a portion of the options that were not subject to stockholder approval granted to Company's officers and directors and consultants in May 1997 (Mulvena, Minkoff, Riscica and Rosenthal) were delinquent until their filing in May 2000. Other than this delinquency for options granted, the Company believes, based solely on review of copies of such reports furnished to the Company, that Section 16(a) filing requirements applicable to the Company's officers and directors and greater than ten percent shareholders have been complied with during the last fiscal year.

ITEM 10: EXECUTIVE COMPENSATION.

The following tables set forth certain information relating to compensation paid or accrued by the Company for the past three fiscal years to its Chief Executive Officer and its executive officers whose cash paid compensation exceeded $100,000 for the year ended February 29, 2000 (the "Named Executive Officers"). Only those columns which call for information applicable to the Company or the Named Executive Officers for the periods indicated have been included in such tables.

SUMMARY COMPENSATION TABLE
                                                                                                Long Term
                                             Year          Annual                              Compensation
                                             Ended      Compensation                             Options/
Name & Principal Position                   Feb. 28      Salary ($)          Bonus ($)           SAR (#)
-------------------------                   -------      ----------          ---------           -------
Daniel Mulvena, Chairman of the Board,       2000         $106,765                  -           1,300,000
Chief Executive Officer                      1999         $114,757                  -                   -
                                             1998         $ 42,000                  -             250,000

Lawrence A. Minkoff, Ph.D., President        2000         $125,833(a)        $100,000(a)        2,200,000
and Chief Scientific Officer                 1999         $112,000                  -                   -
                                             1998         $ 93,334(b)               -             150,000
-------------

(a)  During the fiscal year ended  February  29, 2000 Dr.  Minkoff's  salary was
     adjusted from $112,000 per annum to $195,000 per annum and he was awarded a
     performance bonus of $100,000 which was paid during May 2000.
(b)  Net of approximately $18,666 due to Dr. Minkoff for services  rendered  and
     forgiven by him under the Debt Reduction Program.

35

OPTION/SAR GRANTS IN LAST FISCAL YEAR

The following table sets forth information with respect to options granted during the last fiscal year to the Named Executive Officers of the Company.

INDIVIDUAL GRANTS

                                                         % of Total
                                                        Options/SARs
                                                         Granted to     Exercise or
                                      Options/          Employees in     Base Price
Name                               SARs Granted(#)      Fiscal Year      ($/share)      Expiration Date
----                               ---------------      -----------      ---------      ---------------
Daniel M. Mulvena                     1,300,000(a)          26%            $0.22       700,000 11/16/04
                                                                                       200,000 11/16/05
                                                                                       200,000 11/16/06
                                                                                       200,000 11/16/07
Lawrence A. Minkoff, Ph. D.           2,200,000(a)          46%            $0.22     1,300,000 11/16/04
                                                                                       300,000 11/16/05
                                                                                       300,000 11/16/06
                                                                                       300,000 11/16/07
-----------------
a) All of which are  subject  to  shareholder  approval  of an  increase  in the
options  available  under the  Company's  stock  option  plan.  See  "Report  on
Repricing of Options" below.

AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION/SAR VALUES

The following table sets forth certain information with respect to stock option exercises by the Named Executive Officers during the fiscal year ended February 29, 2000 and the value of unexercised options held by them at the fiscal year-ended February 29, 2000.

                                                                                     Value of Unexercised
                                                                   Number of             In-the Money
                                  Shares                          Unexercised            Options/SARs
                                  Acquired                    Options/SARs at F/Y       at F/Y End ($)
                                  on              Value       End (#) Exercisable/       Exercisable/
Name                              Exercise(#)  Realized($)       Unexercisable         Unexercisable(1)
----                              -----------  -----------       -------------         ----------------
Daniel M. Mulvena                     0             0          1,050,000/600,000       $169,200/$111,600
Lawrence A. Minkoff, Ph. D.           0             0          1,550,000/900,000       $280,800/$167,400
---------------
(1)    Based on a  closing  price of  $0.406  per share of Class A Common  Stock
       on February 29, 2000, less the exercise price.

EMPLOYMENT AGREEMENTS

There are no employment agreements with any of the Company's employees. Dr. Minkoff continued to receive compensation at the rate of compensation indicated in his prior contract ($112,000 per year) until December 31, 1999 at which time his annual compensation was increased to $195,000 and he received a performance bonus of $100,000 in the fiscal year ended February 29, 2000 which was paid in May 2000. Mr. Mulvena and Mr. Riscica provide services to the Company based upon consulting agreements which call for payment based upon time expended on the affairs of the Company. Mr. Mulvena and Mr. Riscica agree to spend such time as

36

is necessary to advance the affairs of the Company. Mr. Perres is compensated based upon a base salary and incentive compensation related to his efforts in raising capital for the Company. See "Certain Relationships and Related Transactions."

DIRECTORS' COMPENSATION

The Company does not presently pay cash compensation to its outside Directors for attendance at Board or committee meetings. Outside Directors may be reimbursed for expenses incurred by them in acting as a Director or as a member of any committee of the Board of Directors.

During the fiscal year ended February 29, 2000 Mssrs. Feldman, Kanter and Kessler were each granted options to purchase 75,000 shares, and Mr. Rosenthal was granted an option to purchase 225,000 shares, at $0.22 prior to November 16, 2000. Such options are fully vested.

37

ITEM 11: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

PRINCIPAL SHAREHOLDERS

The following table sets forth certain information regarding the beneficial ownership of the Company's Class A and Class B Common Stock as of May 10, 2000 for (i) each of the Company's directors and the executive officers named in the Summary Compensation Table, (ii) each person known by the Company to own beneficially 5% or more of the outstanding shares of any class of its voting securities and (iii) all directors and executive officers as a group.

                                                                                       Percentage
                                                         Number of                      of Total
                                          Class of       Shares                        Class A and     Percentage of
Name and Address                          Common         Beneficially    Percent of      Class B       Total Voting
of Beneficial Owner (1)                   Stock (2)      Owned(3)         Class(3)    Common Stock(3)  Power (2)(3)
-----------------------                   ---------      --------         --------    --------------   ------------
Daniel M. Mulvena  (4)(6)                 Class A         950,000            2.6%          2.6%             2.4%
Lawrence A. Minkoff, Ph.D. (4)(6)         Class A       1,550,000            4.2%
                                          Class B         238,915           57.6%
                                                        ---------
                                                        1,788,915                          4.7%             7.0%
                                                        ---------
Irwin M. Rosenthal (4)(6)                 Class A         849,593            2.3%          2.3%             2.2%
Allen Perres (4)(6)                       Class A       3,500,000            8.9%          8.8%             8.5%
Kenneth C. Riscica (4)(6)                 Class A         717,500            2.0%          1.9%             1.9%
J.M. Feldman (4)(6)                       Class A          75,000            0.2%          0.2%             0.2%
Seymour Kessler (4)(6)                    Class A          75,000            0.2%          0.2%             0.2%
Joel Kanter (4)(6)(7)                     Class A         641,754            1.8%          1.8%             1.7%
Noga Investments in Technology Ltd. (8)   Class A      17,136,363           33.8%         33.6%            32.5%
Robert M. Rubin (4)                       Class A       3,400,000            9.5%          9.4%             9.0%
Abbe/Berman "Group" (9)                   Class A       2,000,000            5.6%          5.5%             5.3%
All Executive Officers and Directors as   Class A       7,858,847           19.3%
a Group (7 persons)                       Class B         238,915           57.6%
                                                        ---------
                                                        8,097,762                         19.7%            21.1%
                                                        ---------

(see following page for notes)
----------------------

The information presented in the table above is based solely upon Forms 13, 15 and 4 filed by the respective holders under the Securities Exchange Act of 1934 and has not been otherwise independently verified by the Company. To the extent that any required holders have not filed timely reports on such Forms, the Company would not be in a position to know the current holdings of such persons.

(1) All shares are beneficially owned and sole voting and investment power is held by the persons named, except as otherwise noted.
(2) Class B Common Stock is entitled to five votes per share but is otherwise substantially identical to the Class A Common Stock, which has one vote per share. Each share of Class B Common Stock is convertible into one share of Class A Common Stock. Beneficial ownership of Class B common stock reflects the forfeiture of an aggregate 1,000,000 shares due to certain criteria not being met.
(3) Based upon 35,785,945 shares of Class A common stock and 414,722 shares of Class B common stock outstanding at May 10, 2000 and reflecting as outstanding, with respect to the relevant owner, the shares which that beneficial owner could acquire upon exercise of options which are presently exercisable or will become exercisable within the next 60 days.

38

(4) The address for Mssrs. Mulvena, Minkoff, Rosenthal, Perres, Riscica, Rubin, Feldman, Kessler and Kanter is c/o Magna-Lab Inc., 6800 Jericho Turnpike, #120W, Syosset, NY 11791.
(5) Includes currently exercisable options to purchase 1,550,000 shares of Class A Common Stock, including shares underlying options which are subject to shareholder approval. Reflects the forfeiture of 273,042 shares of Class B common stock on February 28, 1998.
(6) Includes currently exercisable options to purchase the following shares of Class A Common Stock; Mr. Mulvena, 950,000, Dr. Minkoff, 1,550,000, Mr. Rosenthal, 500,000, Mr. Perres, 3,500,000, Mr. Riscica 717,500, Mr. Feldman, 75,000, Mr. Kessler, 75,000, Mr. Kanter, 75,000 including amounts which are subject to approval of an increase in the Company's Stock Option Plan.
(7) Includes the holding of The Kanter Family Foundation and Windy City Associates to which Mr. Kanter does not have sole voting or investment power.
(8) The address for Noga Investments in Technology Ltd. is 6 Azoran Street, South Industrial Zone, P.O. Box 8471, Netaninya, Israel. Includes 2,272,727 shares presently owned and currently exercisable rights to purchase and additional 11,363,636 shares prior to July 30, 2000. Excludes additional shares which would be issuable if this investor exercised its right to make additional investments sufficient to permit the Company to be listed on the Nasdaq SmallCap market as such amount is not presently determinable.
(9) The Abbe/Berman Group consists of Coleman Abbe, Richard Abbe, Leo Abbe and Jeffrey Berman, each of whom beneficially owns 500,000 shares of Class A common stock. The address for each of Messrs. Coleman Abbe, Richard Abbe, Leo Abbe and Jeffrey Berman is c/o Hampshire Securities Corp., 640 Fifth Avenue, New York, NY 10016. Such reporting persons may be deemed to be part of a "group" and such reporting persons disclaim any such "group" membership. The "Abbe Group" reflects such amounts as though such reporting persons were a member of a "group" (which they disclaim).

ITEM 12: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Mr. Rosenthal is a senior partner in a law firm which provides legal services to the Company from time to time. During the fiscal year ended February 29, 2000, such firm billed the Company approximately $103,000 principally related to financing transactions.

In December 1999, the Company entered into a letter agreement with Noga Investments in Technology Ltd (successor in interests to Noga Electrotechnica Limited, "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 to be paid by Noga to the Company as an additional non-refundable deposit to secure the timely payment of the balance ($2,150,000). If Noga 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 Noga 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, 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. The Company also agreed that for a period of two years from the date of this letter agreement, Noga has the right to nominate a number of directors to the Company's board such that the total number of non-Noga nominated directors exceeds the number of Noga-nominated directors by one. Mr. Feldman was designated by Noga as its initial nominee. Additionally, the Company agreed that any payment or withdrawal from the Company's bank account of at least $2,000 requires the approval of Mr. Feldman. In March 2000, the Company and Noga agreed that Noga would not have the right to nominate any additional directors to the Company's Board until the completion of its $3,000,000 financing commitment was completed. The Company has agreed to hold meetings of its board at least once per month or at such

39

intervals as is reasonably acceptable to the Noga-nominated directors.

In December 1999, the Company entered into a letter agreement and an amendment to the letter agreement with Mr. Perres, an officer of the Company, in connection with Mr. Perres' assistance in raising financing for the Company in its $2,000,000 private placement. Under the agreement, as amended, the Company agreed to elect Mr. Kessler as a member of its board to fill a vacancy. The Company also agreed to nominate Mr. Perres as a director in the event that Mr. Perres assists the Company in raising funds in excess of $2,000,000 in its private placement. Additionally, the Company has agreed that any increase in the size of its board must be approved by Messrs. Perres and Kessler so long as they are directors. Under the letter agreement, as amended, the Company agreed to create an Executive Committee consisting of Messrs. Kessler, Minkoff, and Mulvena. The Company agreed to pay Mr. Perres for his services a base salary of $90,000 per year and to provide him with options to purchase 3,500,000 shares of the Company's common stock at $0.02 per share.

Mr. Minkoff, a director and officer of the Company, received a performance bonus of $100,000 during fiscal year ended February 29, 2000 which was paid during May 2000. See "Executive Compensation - Employment Agreements."

There are no other material transactions with related parties during the two fiscal years ended February 29, 2000. Transactions between the Company and its Directors, officers and principal shareholders are approved by the disinterested directors of the Company and determined to be on terms no less favorable than those available from independent third parties.

Reference is made to Item 10. Regarding option grants to management.

ITEM 13: EXHIBITS AND REPORTS ON FORM 8-K

(A)      Exhibits

         10.36    December 6, 1999 letter agreement between the Company
                  and Allen Perres.

         10.37    December  17,  1999  letter  agreement   between  the
                  Company  and  Noga  Investments  in  Technology  Ltd.
                  (successor  in  interests  to  Noga   Electrotechnica
                  Limited).

         10.38    December  20,  1999  letter  agreement   between  the
                  Company and Allen Perres.

         10.39    January 24, 2000 letter  amendment  to  Collaborative
                  Research  Agreement  between  the  Company  and Mount
                  Sinai  School of Medicine of the City  University  of
                  New York.

         10.40    March 7, 2000  letter  between  the  Company and Noga
                  Investments  in  Technology  Ltd.   amending  certain
                  rights to Board representation.

         10.41    Form  of  April  14,   2000   letter   amendment   to
                  Collaborative  Research Agreement between the Company
                  and  Mount  Sinai  School  of  Medicine  of the  City
                  University of New York.

(B) Reports on Form 8-K

No reports on Form 8-K were filed during the last quarter of the fiscal year ended February 29, 2000.

40

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.

MAGNA-LAB INC.

Dated: May 26, 2000
                                            By: /s/Daniel M. Mulvena
                                                --------------------
                                            Daniel M. Mulvena
                                            Chairman of the Board and
                                            Chief Executive Officer

In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

         Signature                   Title                            Date
         ---------                   -----                            ----

/s/Daniel M. Mulvena
--------------------
   Daniel M. Mulvena              Chairman of the Board             May 26, 2000
                                  and Chief Executive Officer
                                  (principal executive and
                                  financial officer)


/s/Lawrence A. Minkoff
----------------------
   Lawrence A. Minkoff, Ph.D.     President and Chief               May 26, 2000
                                  Scientific Officer

/s/Jerome Feldman
-----------------
   Jerome Feldman                 Director                          May 26, 2000


/s/Joel Kanter
--------------
   Joel Kanter                    Director                          May 26, 2000


/s/Seymour Kessler
------------------
   Seymour Kessler                Director                          May 26, 2000


/s/Irwin M. Rosenthal
---------------------
   Irwin M. Rosenthal             Director                          May 26, 2000

41

INDEX TO EXHIBITS

Exhibit
  No.                              Description
-------                            -----------

 1.1     Form  of   Underwriting   Agreement   between   the   Company  and  the
         Representative. (7)
 1.2     Form of Representative's Warrant Agreement. (7)
 1.3     Form of Merger and  Acquisition  Agreement  between the Company and the
         Representative. (7)
 1.4     Form of  Financial  Consulting  Agreement  between  the Company and the
         Representative. (7)
 3.1     Restated Certificate of Incorporation of  the Company. (1)

3.1(a) Form of Certificate of Amendment to Restated Certificate of Incorporation of the Company. (3)
3.1(b) Certificate of Amendment of Restated Certificate of Incorporation (4).
3.2 By-Laws of the Company. (1)
3.2(a) Amendment to By-Laws of the Company. (3)

 4.1     Form of Class E Warrant Agreement among the Company, the Representative
         and American Stock Transfer and Trust Company. (7)
 4.2     Form of Specimen Class A Common Stock Certificate. (3)
 4.3     Intentionally omitted
 4.4     Intentionally omitted
 4.5     Intentionally omitted
 4.6     Form of Specimen Class E Warrant Certificate. (7)
 5.1     Opinion of Rubin Baum Levin Constant & Friedman re: legality. (7)
10.1     1992 Stock Option Plan of the Company, as amended. (7)
10.2     Form of Stock Restriction  Agreement among the Company,  Class B Common
         shareholders of the Company and D. H. Blair Investment Banking Corp.(2)
10.3     License Agreement, dated February 28, 1992, between the Company and Dr.
         Lawrence A. Minkoff. (1)
10.4     Employment Agreement,  dated February 28, 1992, between the Company and
         Dr. Joel M. Stutman. (1)
10.4(a)  Letter  Agreement  dated  February 28, 1995 between the Company and Dr.
         Joel M. Stutman. (7)
10.5     Employment Agreement,  dated February 28, 1992, between the Company and
         Dr. Lawrence A. Minkoff. (1)
10.5(a)  Letter  Agreement dated as of February 28, 1995 between the Company and
         Dr. Lawrence A. Minkoff. (7)
10.6     Form of Subscription  Agreement (with certain Exhibits,  including form
         of Notes and  Warrant  Agreement)  for 10% notes and Class C  Warrants.
         Incorporated  by  reference to Exhibit 4.1 to the  Company's  Quarterly
         Report on Form 10-QSB for the quarter ended November 30, 1994 (File No.
         0-21320)
10.7     Form of Subscription  Agreement (with certain Exhibits,  including form
         of Notes and  Warrant  Agreement)  for 12% Notes and Class D  Warrants.
         Incorporated  by  reference to Exhibit 4.2 to the  Company's  Quarterly
         Report on Form 10-QSB for the quarter ended November 30, 1994 (File No.
         0-21320).
10.8     Sales,  Marketing and Distribution Agreement between Beta Numerics Inc.
         and  Magna-Lab  Inc.  Incorporated  by reference to Exhibit 10.1 to the
         Company's  Quarterly  Report  on  Form  10-QSB  for the  quarter  ended
         November 30, 1994 (File No. 0-21320).

10.9(a) Medical Advisory Board Agreement, dated as of December 31, 1992, between the Company and Dr. Kurt Isselbacher. (2)
10.9(b) Medical Advisory Board Agreement, dated as of December 31, 1992, between the Company and Dr. Valentin Fuster. (3)
10.9(c) Medical Advisory Board Agreement between the Company and Dr. Thomas

         Brady. (3)
10.10    Lease dated February 28, 1992 between Grumman Aerospace Corporation and
         the Company. (1)
10.11    Form of Indemnification  Agreement entered into between the Company and
         each officer and Director of the Company . (1)

                                       42

10.12    Assignment from Dr. Lawrence  Minkoff to the Company dated December 22,
         1992. (1)
10.13    Agreement,  dated  November  22,  1991,  between  the  Company and John
         Haytaian, as amended. (1)
10.14    Form of Stock Option Agreement between the Company and each officer and
         Director of the Company (7)
10.15    Employment Agreement between the Company and Kenneth C. Riscica. (5)
10.16    Form of  Consulting  Agreement  between  the  Company  and  D.H.  Blair
         Investment Banking Corp.(3)
10.18    Agreement  between  Magna-Lab Inc. and Surrey Medical  Imaging  Systems
         Limited  dated  August 23, 1993.  Incorporated  by reference to Exhibit
         10.18 to the Company's  Quarterly Report on Form 10-QSB for the quarter
         ended August 31, 1993 File No. 0-211320)
10.19    Letter  Amendment  dated  December  8, 1993 to  Agreement  with  Surrey
         Medical  Imaging  Systems  Limited  Incorporated  by  reference  to the
         Company's  Quarterly  Report  on  Form  10-QSB  for the  quarter  ended
         November 30, 1993 (File No. 0-21320)
10.19(a) Letter of  amendment  dated  July 11,  1994 to  agreement  with  Surrey
         Medical Imaging Systems  Limited.  Incorporated by reference to exhibit
         10.20 to the Company's  Quarterly Report on Form 10-QSB for the quarter
         ended May 31, 1994. (File Number 0-21320)
10.20    Foreign Distributorship  Agreement and Coordination Foreign Distributor
         Agreement  between  Magna-Lab Inc. and  Apic-Medarax  dated January 22,
         1994. (5)

10.20(a) Letter amendment dated September 1, 1994 to Foreign Distributor Agreement dated January 22, 1994. Incorporated by reference to Exhibit 10.20(a) to the Company's Quarterly Report on Form 10-QSB for the quarter ended August 31, 1994. (7)
10.20(b) Letter amendment dated October 20, 1995 to Foreign Distributor Agreement dated January 22, 1994. (7)
10.21 Form of stock option agreement between the Company and each non executive option holder. (5) 10.22 Medical Advisory Board Agreement,

         dated January 19, 1994, between the Company and
         Dr. William Abbott. (5)
10.23    Form of  Underwriting  Agreement,  dated  March 30,  1993,  between the
         Company  and  D.H.  Blair  Investment  Banking  Corp.  Incorporated  by
         reference  to  Exhibit  1.1 to  Amendment  No.  2 to  the  Registration
         Statement described in notes 1 and 3 to this Exhibit Index.
10.24    Form of Unit Purchase  Option,  dated April 6, 1993 between the Company
         and D.H. Blair  Investment  Banking Corp.  Incorporated by reference to
         Exhibit 1.2 to Amendment No. 2 to the Registration  Statement described
         in notes 1 and 3 to this Exhibit Index
10.25    Form of Warrant  Agreement  among the Company,  D.H.  Blair  Investment
         Banking Corp. and American Stock Transfer and Trust Company.(3)
10.26    Placement  Agent  Agreement,  dated  as of June  20,  1995,  among  the
         Company,  the  Representative  and, for  purposes of certain  sections,
         Dreyer & Traub, L.L.P. (7)
10.27    Form of Subscription Agreement, dated as of August 4, 1995, between the
         Company and Bridge Note investors. (7)
10.28    Lock-up letters from Bridge Note investors. (7)
10.29    Letter Agreements, dated June 19, 1995, between the Company and Class C
         Warrantholders. (7)
10.30    Letter of Intent,  dated  November  25,  1995,  between the Company and
         Elscint, Ltd. (7)
10.31    Surrender  of Lease  agreement  dated April 4, 1996 between the Company
         and Grumman Aerospace Corporation.(8)
10.32    Lease Agreement, dated April 4, 1996, between the Company and Heartland
         Rental Properties Partnership.(8)
10.33    Letter amendment to Lease Agreement,  dated April 4, 1996,  between the
         Company and Heartland Rental Properties Partnership.(8)
10.34    Note Agreement between the Company and Beta Numerics,  Inc. dated April
         15, 1996.(8)
10.35    Collaborative Research Agreement,  dated as of May 7, 1997, between the
         Company and Mount Sinai  School of Medicine of the City  University  of
         New York. (9)
10.36    December 6, 1999 letter agreement  between the Company and Allen Perres
         (filed herewith).

                                       43

10.37    December  17,  1999  letter  agreement  between  the  Company  and Noga
         Investments  in  Technology  Ltd.   (successor  in  interests  to  Noga
         Electrotechnica Limited)(filed herewith).
10.38    December 20, 1999 letter agreement between the Company and Allen Perres
         (filed herewith).
10.39    January 24, 2000 letter amendment to Collaborative  Research  Agreement
         between  the  Company  and Mount  Sinai  School of Medicine of the City
         University of New York (filed herewith).
10.40    March 7, 2000  letter  between  the  Company  and Noga  Investments  in
         Technology Ltd. amending certain rights to Board representation.
10.41    Form of April 14,  2000  letter  amendment  to  Collaborative  Research
         Agreement between the Company and Mount Sinai School of Medicine of the
         City University of New York (filed herewith).
11       Statement re computation of per share earnings.  (6)
27       Financial Data Schedule.
----------------------------------

(1)      Incorporated by reference to the  correspondingly  numbered  exhibit to
         the  Company's  Registration  Statement on Form S-1  (Registration  No.
         33-56344)  filed on December 24, 1992 and  declared  effective on March
         30, 1993 (the "S-1").
(2)      Incorporated by reference to the  correspondingly  numbered  exhibit to
         Amendment No. 1, filed on March 3, 1993, to the S-1.
(3)      Incorporated by reference to the  correspondingly  numbered  exhibit to
         Amendment No. 2, filed on March 25, 1993, to the S-1.
(4)      Incorporated by reference to the  correspondingly  numbered  exhibit to
         the  Company's  Quarterly  Report on Form 10-QSB for the quarter  ended
         August 31, 1994 (File No. 0-21320).
(5)      Incorporated by reference to the  correspondingly  numbered  exhibit to
         the Company's  Annual Report on Form 10-KSB for the year ended February
         28, 1994 (File No. 0-21320).
(6)      Current year not required.
(7)      Incorporated by reference to the  correspondingly  numbered  exhibit to
         the  Company's   Registration  Statement  on  Form  SB-2  (Registration
         Statement No.  33-96272)  filed on August 28, 1995 including  Amendment
         No. 1 filed on October 20, 1995 and  Amendment  No. 2 filed on December
         19, 1995.
(8)      Incorporated by reference to the  correspondingly  numbered  exhibit to
         the Company's  Annual Report on Form 10-KSB for the year ended February
         29, 1996 (File No. 0-21320).
(9)      Incorporated by reference to the  correspondingly  numbered  exhibit to
         the Company's  Annual Report on Form 10-KSB for the year ended February
         28, 1997.

44

ALLAN PERRES

Dan Mulvena, CEO
Magna-Lab, Inc.
6 Fuller Lane
Marblehead, MA 01945

Gentlemen:

This letter sets forth our agreement under which a group of investors (the "Investors") will make a cash investment in Magna Lab Inc. (the "Company").

The Company has prepared and delivered to the Investors a confidential private placement memorandum (the "Memorandum") and a subscription agreement ("Subscription") covering an offering of shares of common stock in the Company which have been circulated to the Investors (the "Private Placement"). The Investors will make an investment under the Memorandum and Subscription subject to and provided the Company agrees to the terms and conditions of this letter. To the extent that the provisions of this letter and the Memorandum, Subscription agreement and any documents prepared by the Company in connection with the placement are inconsistent with this letter, this letter shall control, shall be deemed an amendment to such instruments and documents, and such documents shall incorporate, and not supercede such instruments and documents.

1. DIRECTORS: The Company has authorized seven director seats and now has six directors. Upon execution of this Agreement, Seymour Kessler will be elected as a member of the Board of Directors of the Company to fill a current vacancy. On or prior to closing of $1,500,000 of the Private Placement, Allan Perres will be elected as a member of the Board of Directors of the Company. This will be accomplished through the filling of a vacancy created either through the resignation of an existing director or by increasing the size of the Board of Directors from 7 to 8. In any event, any further increase in the size of the Board shall require the affirmative vote of both Messrs. Kessler and Perres so long as they remain directors. The Company agrees to include Messrs. Kessler and Perres as director nominees at all future stockholder meetings at which directors are to be elected. The obligations of the Company under this Paragraph shall be for a period of three years from the date of this Letter or until a subsequent offering of at least $3 million is completed, whichever occurs sooner.

2. EXECUTIVE COMMITTEE: The board of directors will create an Executive Committee consisting of Seymour Kessler, Dr. Larry Minkoff, and Daniel M. Mulvena. The Executive Committee shall have the powers defined by the By-Laws and shall vote by a majority vote. The By-Laws of the Company shall be amended to establish such committee, if it does not exist, with powers determined by the board of directors. The obligation to maintain the Executive Committee under this Paragraph shall apply for a period of three years from the date of this Letter or until a subsequent offering of at least $3 million is completed, whichever occurs sooner.

3. COMPENSATION TO ALLAN PERRES: For services rendered and to be rendered by Allan Perres as Vice President of the Company, the Company agrees to pay Mr. Perres $90,000 per year, payable monthly, effective from the date of his appointment as Vice President. It is contemplated that a two year agreement will be entered into governing the terms of such relationship promptly following execution of this Letter, with compensation for the second year to be determined by the Board of Directors. In addition, the Company agrees to issue to Allen Perres options to purchase shares of common stock. The options shall be exercisable at $.02 per share, shall vest in full immediately upon grant and shall expire five years from date of grant. The options shall be granted at the following times in the following amounts: At such time as the Company has raised at least $500,000 in the Private Placement, the Company shall issue to Allen Perres options to purchase 1,000,000 shares of common stock. At such time as the Company has raised an additional $500,000 in the Private Placement, the Company shall issue to Allen Perres options to purchase an additional 1,500,000 shares of common stock. At such time as the Company has raised an additional $1,500,000 in the Private Placement, the Company shall issue to Allen Perres options to purchase an additional 2,000,000 shares of common stock. At such time as the Company has raised an additional $500,000 in the Private Placement the Company shall issue to Allen Perres options to purchase an additional 1,500,000 shares of common stock. At such time as the Company has raised an additional $1,000,000 in the Private Placement, the Company shall issue to Allen Perres options to purchase an additional 1,000,000 shares of common stock (for options to purchase a maximum aggregate of 7,000,000 shares). The foregoing dollar amounts are net of commissions which may become payable to registered broker/dealers. The shares underlying the options shall not be registered, and therefore shall be restricted securities under Rule 144 of the Securities and Exchange Commission.

4. OFFICERS' OPTIONS: The Company has recently granted options to other Company executives in the amounts shown below. These options are exercisable at $.22 per share and expire 5 years from date of grant.

Person                             Amount                                    Vesting
------                             ------                                    -------

Larry Minkoff                   2.2 million options             1.3 million vest immediately

                                                                .9 million vest over three years
                                                                beginning at the end of the first year

Dan Mulvena                     1.3 million options             .7 million vest immediately

                                                                .6 million vest over three years
                                                                beginning at the end of the first year

Ken Riscica                     1.0 million options             .53 million vest immediately

                                                                .47 million vest over three years
                                                                beginning at the end of the first year

Board Members (other            75,000 each                     Total vesting
than those specified by
name)

Irwin M. Rosenthal              225,000 options                 Total vesting

5. MINIMUM OFFERING: The Company shall not be entitled to close on any proceeds from the Private Placement unless a minimum of at least $750,000 in proceeds has been accepted.

6. ASSIGNMENT: The Company will cause the appropriate scientists, officers and/or directors (including Laurence Minkoff and Dr. Valentine Fuster) to assign to the Company all patent applications and patents on the cardiac probe and tutervascular cathetors and related items being developed for the Company.

7. COMMISSIONS: Commissions not exceeding 10% of the gross offering proceeds may be payable to registered broker/dealers who participate in the Private Placement.

8. ALL DOCUMENTS: All documents signed and to be signed by the Investors shall reflect this agreement, and to the extent that any such documents state that there are no documents other than the offering documents reflected therein, such documents shall be revised to list this Agreement as one of the offering documents.

9. DOCUMENT EXECUTION: This letter agreement may be signed in counterparts, each of which shall be deemed an original, and all of which shall constitute one and the same instrument.

10. GOVERNING LAW: This letter agreement shall be interpreted in accordance with the laws of the State of New York.

If this letter correctly sets forth the Company's undertakings and agreements, please sign a copy and return it to us, upon which it shall be a binding agreement of the Company, a material representation by the Company to the Investors in connection with their investment in the Company and a condition to the investment by the Investors in the Company.

Very truly yours,

/s/Allen Perres
---------------
Allen Perres

Accepted and agreed to this 6th day of December, 1999.

MAGNA-LAB, INC.

By: /s/Daniel M. Mulvena
------------------------

     The  undersigned,  all  directors  of the  Company,  hereby  consent to the
provisions  of this  letter  agreement  which  require  action  by the  board of
directors of the Company,  and agree that this letter agreement,  when signed by
all of such  directors,  shall be deemed a  unanimous  consent  to action by the
board of directors of the Company.

Dated:  December 6, 1999



         /s/Daniel Mulvena                             /s/Joel Kanter
         -----------------                             --------------
            Daniel Mulvena                                Joel Kanter


         /s/Lawrence A. Minkoff, Ph.D                  /s/Michael J. Rosenberg
         ----------------------------                  -----------------------
            Lawrence A. Minkoff, Ph.D                     Michael J. Rosenberg


        /s/Irwin Rosenthal                             /s/Louis E. Teicholz, MD
        ------------------                             ------------------------
           Irwin Rosenthal                                Louis E. Teicholz, MD


December 17, 1999

Mr. Itzhak Goldenberg
Noga Electrotechnica Limited

Re: Magna-Lab, Inc.

Ladies and Gentlemen,

On behalf of our client, Magna-Lab, Inc., this letter sets forth our understanding of the terms under which Noga Electrotechnica Limited and or its affiliated entities (collectively, "Noga") will commit to invest $3,000,000 in Magna-Lab.

1. Upon execution of this letter, Noga will make a nonrefundable payment to Magna-Lab of $250,000. This will entitle Noga to receive, for no additional consideration, $250,000 worth of Magna-Lab class A common stock ("common stock") at $.22 per share if and only if all further payments required to be made by Noga under this letter are timely made.

2. Within 30 days of the date of execution of this letter, Noga will purchase $250,000 worth of common stock of Magna-Lab at $.22 per share.

3. Within 60 days of the date of execution of this letter, Noga will purchase an additional $250,000 worth of common stock of Magna-Lab at $.22 per share.

4. By May 30, 2000, Noga will purchase an additional $2,250,000 worth of common stock of Magna-Lab at $.22 per share (it being understood that Noga has the right to make partial payments prior to May 30, 2000 for a pro rata number of shares); provided, however, that if, for any 5 consecutive trading days or any 10 trading days in a 30 trading day period, the bid price of Magna-Lab's common stock closes at $2.00 or more per share at any time after the date of this letter and prior to May 30, 2000, Magna-Lab shall thereafter have the right to demand, by delivery of written notice to Noga, that Noga pay such $2,250,000 amount immediately. Within 15 days of delivery of such notice, Noga shall pay to Magna-Lab such amount.

5. Noga shall have an option, exercisable at any time prior to May 30, 2000, to purchase such additional number of shares of Magna-Lab common stock at $.22 per share as is necessary for Magna-Lab to meet Nasdaq SmallCap Market minimum listing requirements.

6. Upon payment of the initial $250,000 and for a period of two years after the date of this letter, Noga shall have the right to nominate a number of directors to Magna-Lab's board of directors such that the total number of non Noga-nominated directors on the Board exceeds the number of Noga-nominated directors by one. Noga designates Jerry Feldman as its initial nominee.

7. Noga understands that Magna-Lab is currently seeking to raise up to $2,000,000 in a private placement not involving Noga. In the event Magna-Lab is required to pay to third parties an investment banking, placement agent or similar fee or commission, whether in the form of stock or cash (other than salary), for monies raised in that offering, Magna-Lab agrees to pay to Noga, for no additional consideration, an amount equal to the amount of such fee or commission; provided, however, that the total amount of stock or options, if any, payable to Noga and such third parties shall not exceed 7,000,000 shares. Notwithstanding the foregoing, if less than the full $2,000,000 is raised in the private placement not involving Noga, the number of shares of stock or options payable to Noga and such third parties shall be proportionate to the amount of funds raised. For example, if Noga provides the full $3,000,000 it has committed under this letter and such third parties raise only $1,000,000 in such financing, then Noga shall be entitled to 75% of the total stock and option compensation an such third parties shall be entitled to the remaining 25%.

8. Upon payment of the initial $250,000 hereunder, Magna-Lab agrees that any single payment or withdrawal from the company's bank account(s) of $2,000 or more shall require the signature of Jerry Feldman or such other individual designated by Noga and acceptable to Magna-Lab.

9. During the period ending two years from the date of this letter, Magna-Lab agrees to (i) hold Board meetings at least once a month or such other interval as is reasonably acceptable to the Noga-designated directors, and (ii) provide to the Board members an annual budget and monthly updates as well as a monthly business report.

10. Set forth on Schedule A attached hereto is a summary of Magna-Lab's outstanding stock, on an actual and fully diluted basis.

11. It is contemplated that a stockholder agreement between Noga and certain principal stockholders of Magna-Lab will be entered into with respect to certain voting and other matters.

12. Noga will provide appropriate investor representations necessary to establish compliance with US Securities laws with respect to this investment.

13. All rights of Noga and all agreements of Magna-Lab under this letter shall terminate and be of no further force or effect in the event that Noga fails to timely pay any amount required to be paid by it hereunder.

This letter agreement shall be governed by and construed in accordance with the laws of the State of New York (without giving effect to its rules as to conflicts of law). This letter agreement contains the entire agreement between the parties relating to the subject matter hereof and supersedes all oral statements and prior writings with respect thereto. This letter agreement may not be amended or modified except by a writing executed by each of the parties hereto. This letter agreement may not be assigned by Noga without Magna-Lab's prior written consent. This letter agreement may be executed in counterparts, each of which will be deemed an original, but all of which taken together will constitute one and the same instrument.

If the foregoing is acceptable to you, please sign in the space provided below and return a copy of this letter by fax and mail to indicate your commitment. We will then submit the proposal to Magna-Lab's board of directors for its approval. This letter will not be binding on either party unless and until signed by both parties and approved by each party's board of directors or comparable governing body.

Sincerely,

GRAHAM & JAMES LLP

By: /s/Irwin M. Rosenthal
    ---------------------
    Irwin M. Rosenthal

AGREED: NOGA ELECTROTECHNICA LIMITED

By: /s/Itzak Goldenberg
    -------------------
    Print Name: Itzak Goldenberg
    Print Title: Managing Director

AGREED: MAGNA LAB, INC.

By: /s/Irwin M. Rosenthal
---------------------
    Print Name: Irwin M. Rosenthal
    Print Title: Director


ALLAN PERRES

December 20, 1999

Mr. Irwin Rosenthal
Attorney for Magna-Lab, Inc.
Graham & James, LLP
885 Third Avenue, 21st Floor
New York, NY 10022

RE: Magna-Lab Transaction with Noga

Dear Mr. Rosenthal:

We are in receipt of a letter written to Mr. Itzhak Goldenberg dated December 17, 1999 in which the terms of a working agreement are described.

Pursuant to your request, this letter is to inform you and the Magna board of directors that: 1) we understand that our group will be issued one board seat on Magna's board of directors if our fundraising does not exceed $2 million and, 2) that we understand the terms described in paragraph #7 of the subject letter which indicates that the amount of shares and/or options granted to our group and to Noga will coincide with total funds raised.

Sincerely,

/s/Allen Perres
Allen Perres


Magna-Lab Inc.

P.O. Box 780
Syosset, NY 11791
(516) 393 5874
Writers Direct Dial: (516) 869 8265
Writers Mobile Phone: (516) 241 8523

January 24, 2000

Ms. Sharon Mias
Administrator,
Cardiovascular Institute, Mount Sinai Medical Center One Gustave Levy Plaza
New York, NY 10029-6574

Dear Ms. Mias:

The purpose of this letter is to confirm the conclusions of our meeting on January 9, 2000 relative to our May 1997 Collaborative Research Agreement with The Mount Sinai School of Medicine (the "Agreement").

At that meeting we agreed to modify the payment terms referred to in Section 2.4 of the Agreement to more appropriately reflect the status of the work efforts as follows:

$300,000 upon signing of this agreement (amount enclosed) and then No payment at the end of April 2000 and then $150,000 at the end of July and October 2000 and January and April 2001 (total $600,000).

When added to the $600,000 already paid under the project, this schedule will result in the total payments of $1,500,000 being made and will reflect actual differences in the scheduling of the work vs. that scheduling contemplated by the Agreement.

If this correctly reflects our discussion, would you kindly indicate your agreement below. Thank you.

Sincerely,
Magna-Lab Inc.

/s/Lawrence A. Minkoff
Lawrence A. Minkoff, Ph.D., President

Agreed:
Mount Sinai School of Medicine

/s/Sharon Mias
---------------
Sharon Mias, Administrator


Magna-Lab Inc

6800 Jerihco Turnpike, Suite 200
Syosset, NY 11791
(516) 393 5874
Writers Direct Dial

AMENDMENT

March 7, 2000

Noga Investments in Technologies Ltd.
Netanya, Israel

Re: Magna-Lab, Inc.

Dear Sirs;

We refer to the letter agreement between Magna-Lab, Inc. and Noga Electrotechnica Ltd., dated December 17, 1999 (the "Agreement"), it being noted that Noga Electrotechnica Ltd. has transferred its rights and obligations under the Agreement to Noga Investments in Technologies Ltd.

Kindly confirm by countersigning this letter and returning it to Magna-Lab, Inc., that paragraph 6 of the Agreement is replaced by the following paragraph 6:

QUOTE:
6. Upon payment of the initial $250,000, Noga shall have the right to nominate one (1) of six (6) directors to Magna-Lab's board of directors. If, as and when Noga will have invested the full sum of $3,000,000 in common stock of Magna-Lab and paid the said sum of $3,000,000 in full to Magna-Lab, then for a period of two years, commencing on December 17, 1999, Noga shall have the right to nominate a number of directors to Magna-Lab's board of directors such that the total number of non Noga-nominated directors on the Board exceeds the number of Noga-nominated directors by one. Noga designates Jerry Feldman as its initial nominee.
UNQUOTE

AGREED: MAGNA-LAB, INC.

By: /s/Daniel M. Mulvena
    ----------------------------------
       Print Name:  Daniel M. Mulvena
       Print Title:    Chairman and CEO

AGREED: NOGA INVESTMENTS IN TECHNOLOGIES LTD

By: /s/Eli Uzan  /s/Itzhak Goldenberg
    --------------------------------------
       Print Names: (1) Eli Uzan, (2) Itzhak Goldenberg
       Print Titles: (1) Chairman, (2) Managing Director


Magna-Lab Inc.

P.O. Box 780
Syosset, NY 11791
(516) 393 5874
Writers Direct Dial: (516) 869 8265
Writers Mobile Phone: (516) 241 8523

April 14, 2000

Ms. Sharon Mias
Administrator,
Cardiovascular Institute, Mount Sinai Medical Center One Gustave Levy Plaza
New York, NY 10029-6574

Dear Ms. Mias:

The purpose of this letter is to confirm the conclusions that have been reached in meetings and discussions with the leadership of the Cardiovascular Institute since our meeting transpired on January 9, 2000. The January 9, 2000 meeting resulted in the January 24, 2000 agreement to amend the payment terms relative to our May 1997 Collaborative Research Agreement with The Mount Sinai School of Medicine (the "Agreement") to more clearly reflect the status of the work under the Agreement (copy enclosed).

It is now the desire of the parties that the payment terms of Section 2.4 of the Agreement which were modified in the January 24, 2000 letter amendment be revised to reflect the following, again to more appropriately reflect the status of the work efforts as follows:

$150,000 payment in March 2000 (already paid) $150,000 payment in April 2000 (enclosed herewith) $150,000 at the end of July and again at the end of October 2000.

This schedule will result in the total payments of $1,500,000 being made and will reflect actual differences in the scheduling of the work vs. that scheduling contemplated by the Agreement.

If this correctly reflects our discussion, would you kindly indicate your agreement below. Thank you.

Sincerely,
Magna-Lab Inc.

/s/Lawrence A. Minkoff
Lawrence A. Minkoff, Ph.D., President

Agreed:
Mount Sinai School of Medicine

/s/Sharon Mias
--------------
Sharon Mias, Administrator


ARTICLE 5
This schedule contains summary financial information extracted from the Balance Sheet, Statements of Operations and Statements of Cash Flows, and is qualified in its entirety by reference to such financial statements.
CIK: 0000895464
NAME: Magna Lab Inc.
MULTIPLIER: 1
CURRENCY: U.S. Dollars


PERIOD TYPE YEAR
FISCAL YEAR END FEB 29 2000
PERIOD START MAR 01 1999
PERIOD END FEB 29 2000
EXCHANGE RATE 1.000
CASH 1,372,000
SECURITIES 0
RECEIVABLES 0
ALLOWANCES 0
INVENTORY 0
CURRENT ASSETS 1,502,000
PP&E 9,000
DEPRECIATION 0
TOTAL ASSETS 1,511,000
CURRENT LIABILITIES 1,225,000
BONDS 0
PREFERRED MANDATORY 0
PREFERRED 0
COMMON 31,000
OTHER SE 218,000
TOTAL LIABILITY AND EQUITY 1,511,000
SALES 0
TOTAL REVENUES 0
CGS 0
TOTAL COSTS 1,084,000
OTHER EXPENSES 0
LOSS PROVISION 0
INTEREST EXPENSE 0
INCOME PRETAX (1,035,000)
INCOME TAX 0
INCOME CONTINUING (1,035,000)
DISCONTINUED 0
EXTRAORDINARY 0
CHANGES 0
NET INCOME (1,035,000)
EPS BASIC (0.04)
EPS DILUTED (0.04)