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

                                   FORM 10-QSB
(Mark One)

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
                 For the quarterly period ended: August 31, 1998
                                                 ---------------

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
      EXCHANGE ACT OF 1934
                For the transition period from         to 
                                               -------    -------

Commission file number 0-21320 
                       -------

                                 MAGNA-LAB INC.
        -----------------------------------------------------------------
        (Exact name of small business issuer as specified in its charter)

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

                           P.O. 780, Syosset, NY 11791
                    ----------------------------------------
                    (Address of principal executive offices)

                                 (516) 595-2111
                           ---------------------------
                           (Issuer's telephone number)

      ---------------------------------------------------------------------
      (Former name, former address and former fiscal year, if changed since
      last report)

Check  whether the issuer (1) filed all reports  required to be filed by Section
13 or 15(d) of the  Exchange  Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports),  and (2) has been
subject to such filing requirements for the past 90 days. Yes ( ) No (X)

                      APPLICABLE ONLY TO CORPORATE ISSUERS

State the number of shares outstanding of each of the issuer's classes of common
 equity as of the latest practicable date - October 9, 1998

   Class A Common Stock, $.001 Par Value                     19,422,142
 -----------------------------------------------------     ---------------

   Class B Common Stock, $.001 Par Value                        764,858
 -----------------------------------------------------     ---------------
                 Class                                         Shares





    Transitional Small Business Disclosure Format (check one) Yes ( ) No (X)
<PAGE>

                          MAGNA-LAB INC. AND SUBSIDIARY


                                    CONTENTS



PART 1 - FINANCIAL INFORMATION (UNAUDITED)

         ITEM 1. - FINANCIAL STATEMENTS

                  CONDENSED CONSOLIDATED BALANCE SHEETS                        1

                  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS              2

                  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS              3

                  CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY    4

                  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS     5 - 9

         ITEM 2.   - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
                           OF OPERATION                                   9 - 11


PART II - OTHER INFORMATION

         ITEM 1 - LEGAL PROCEEDINGS                                           11

         ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K                            11























All items which are not  applicable or to which the answer is negative have been
omitted from this report.


<PAGE>


PART I: FINANCIAL INFORMATION

    ITEM 1. - FINANCIAL STATEMENTS

<TABLE>
<CAPTION>

                          MAGNA-LAB INC. and Subsidiary

                      CONDENSED CONSOLIDATED BALANCE SHEETS
                August 31, 1998 (unaudited) and February 28, 1998

                                                                                    August 31,        February 28,
                                                                                         1998                1998
<S>                                                                             <C>                 <C>   
                                     ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                                                     $     109,000       $     599,000
  Accounts receivable, net of allowance for doubtful accounts of $356,000                   -                   -
  Inventory, net of allowance for estimated
      non-realizable value of approximately $532,000                                        -                   -
  Deposits and other, net of amounts written off                                            -                   -     
                                                                                --------------      --------------
        Total current assets                                                          109,000             599,000
                                                                                --------------      --------------

PROPERTY AND EQUIPMENT, less accumulated depreciation and amortization
 and write-offs of approximately $793,000 and $791,000, respectively                   16,000              17,000
                                                                                --------------      --------------
                                                  
OTHER ASSETS                                                                                -                   -
                                                                                --------------      --------------

                                                                                $     125,000       $      616,000
                                                                                ==============      ===============


                      LIABILITIES AND STOCKHOLDERS' EQUITY

CURRENT LIABILITIES:
  Accounts payable                                                              $     261,000       $      254,000
  Accrued and other current liabilities                                               569,000              511,000
                                                                                --------------      ---------------
        Total current liabilities                                                     830,000              765,000
                                                                                --------------      ---------------


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, 19,422,142 and
   19,322,142 shares issued and outstanding, respectively.                             19,000               19,000
  Common stock, Class B, par value $.001 per share,
   3,750,000 shares authorized, 1,875,000 shares issued,
   764,858 and 764,858 shares outstanding, respectively.                                1,000                1,000
  Capital in excess of par value                                                   15,354,000           15,334,000
  Accumulated deficit                                                             (16,079,000)         (15,503,000)
                                                                                --------------      ---------------
        Total stockholders' equity                                                   (705,000)            (149,000)
                                                                                --------------      ---------------
                                                                                $     125,000       $      616,000
                                                                                ==============      ===============


                 See accompanying notes to financial statements

</TABLE>
                                        1


<PAGE>

<TABLE>
<CAPTION>





                          MAGNA-LAB INC. and Subsidiary

                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                                   (unaudited)









                                                            Three months ended                Six months ended
                                                                August 31,                        August 31,

                                                         1998            1997               1998             1997
                                                       --------------------------------------------------------------------
<S>                                                <C>             <C>                <C>              <C>    

REVENUES

COSTS AND EXPENSES:
  General and administrative                       $   72,000      $  104,000         $  158,000       $  302,000
  Selling and marketing                                     -               -                  -           39,000
  Research and development                            207,000               -            422,000           42,000
                                                   -----------     -----------        -----------      -----------
                                                      279,000         104,000            580,000          383,000
                                                   -----------     -----------        -----------      -----------

OTHER INCOME (EXPENSE):
  Other income                                              -               -                  -                -
  Interest and financing expense                            -          (2,000)                 -           (5,000)
  Interest income                                       1,000               -              4,000                -
                                                   -----------     -----------        -----------      -----------
 
NET LOSS                                           $ (278,000)     $ (106,000)        $ (576,000)      $ (388,000)
                                                   ===========     ===========        ===========      ===========



WEIGHTED AVERAGE NUMBER
 OF SHARES OUTSTANDING                             20,187,000       4,890,000         20,187,000        4,890,000
                                                   ===========     ===========        ===========      =========== 

NET LOSS PER SHARE                                 $    (0.01)     $    (0.02)        $    (0.03)      $    (0.08)
                                                   ===========     ===========        ===========      ===========








                 See accompanying notes to financial statements
</TABLE>

                                        2


<PAGE>

<TABLE>
<CAPTION>

                          MAGNA-LAB INC. and Subsidiary


                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                Increase (Decrease) in Cash and Cash Equivalents
                                   (unaudited)



                                                                                         Six Months ended August 31,
                                                                                          1998                1997
<S>                                                                             <C>                 <C>   
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net loss                                                                      $     (576,000)     $     (388,000)
                                                                                ---------------     ---------------
  Adjustments:
    Depreciation and amortization                                                            -               1,000
  Effect on cash of changes in operating assets and liabilities:
    Accounts receivable                                                                      -              64,000
    Accounts payable and accrued liabilities                                            86,000             377,000
                                                                                ---------------     ---------------
           Total adjustments                                                            86,000             442,000
                                                                                ---------------     ---------------

NET CASH USED IN OPERATING ACTIVITIES                                                 (490,000)             54,000
                                                                                ---------------     ---------------

CASH FLOWS FROM INVESTING ACTIVITIES:
    None                                                                                     -                   -
                                                                                ---------------     ---------------
NET CASH USED IN INVESTING ACTIVITIES                                                        -                   -
                                                                                ---------------     ---------------

CASH FLOWS FROM FINANCING ACTIVITIES:
    Repay note to related party                                                              -             (64,000)
                                                                                ---------------     ---------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                                          -             (64,000)
                                                                                ---------------     ---------------

NET INCREASE (DECREASE) IN CASH
 AND CASH EQUIVALENTS                                                                 (490,000)            (10,000)
CASH AND CASH EQUIVALENTS:
  Beginning of period                                                                  599,000              10,000
                                                                                ---------------     ---------------
  End of period                                                                 $      109,000      $            -
                                                                                ===============     ===============


SUPPLEMENTAL INFORMATION ON NON-CASH TRANSACTIONS
    Common stock issued to settle account payable                               $       20,000      $            -
                                                                                ===============     ===============




                 See accompanying notes to financial statements

</TABLE>

                                        3


<PAGE>

<TABLE>
<CAPTION>

                          MAGNA-LAB INC. and Subsidiary


                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

              For the six months ended August 31, 1998 (unaudited)















                                                               Common Stock
                                            -------------------------------------------------       Capital in
                                                    Class A                     Class B                 Excess
                                            ----------------------        -------------------           Of Par    Accumulated
                                              Shares        Amount        Shares       Amount        Value (a)        Deficit
                                        -------------------------------------------------------------------------------------
<S>                                       <C>             <C>            <C>        <C>            <C>            <C>

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

CONVERT B SHARES TO A                              -             -             -            -                -              -

SHARES ISSUED TO SETTLE LIABILITY            100,000             -             -            -           20,000              -

NET LOSS                                           -             -             -            -                -       (576,000)
                                          ------------------------------------------------------------------------------------

BALANCES, August 31, 1998 (unaudited)     19,422,142     $  19,000       764,858    $   1,000      $15,354,000    (16,079,000)
                                          ===========    ==========      ========   ==========     ============   ============















                 See accompanying notes to financial statements
</TABLE>

                                        4

<PAGE>





                          MAGNA-LAB INC. and Subsidiary

              NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
                                   (Unaudited)

NOTE 1 - BASIS OF PRESENTATION:

The accompanying  financial statements have been prepared in accordance with the
instructions  to Form  10-QSB  and do not  include  all of the  information  and
disclosures   required  by  generally  accepted   accounting   principles.   All
adjustments  which are of a normal  recurring  nature  and,  in the  opinion  of
management,  necessary  for  a  fair  presentation  have  been  included.  These
statements should be read in conjunction with the more complete  information and
financial  statements and notes thereto  included in the Company's annual report
on Form 10-KSB for the year ended February 28, 1998.

NOTE 2 - DISCUSSION OF THE COMPANY'S  ACTIVITIES/PRODUCTS AND CASH REQUIREMENTS;
GOING CONCERN CONSIDERATION:

BACKGROUND/HISTORY  - Since  commencement  of  operations  on February 10, 1992,
Magna-Lab  Inc. and  Subsidiary  (the  "Company")  has developed and intended to
manufacture  and market the MAGNA-SL,  the first of a planned  series of anatomy
specific MRI (Magnetic  Resonance  Imaging)  products which are smaller and cost
less to own,  install and operate  than present  "whole  body" MRI systems.  The
Company's  efforts to market and sell the MAGNA-SL  did not generate  sufficient
revenues to sustain the Company's planned operations.

Since  receiving US marketing  clearance for the MAGNA-SL in September 1994 from
the Food and Drug  Administration,  the Company sold and delivered four MAGNA-SL
scanners.  Three such sales were made to a related  party with which the Company
had  entered  into a sales,  marketing  and  distribution  agreement.  The third
scanner  delivered to this  related  party has not been paid for by such related
party  and  the  Company  has  recorded  a 100%  valuation  allowance  for  this
receivable.  The Company is  presently  unable to support  this  product and the
passage of time may make it impossible to realize any value from this product.

CURRENT  ACTIVITIES  - In  February  1997,  the  Company  commenced  a  plan  of
restructuring of the Company's operations (the "Plan") to reposition itself into
a development and,  hopefully under a then existing or other agreement,  royalty
company in the near-term.  The Company's activities under the Plan in the fiscal
year  ended  February  28,  1998  included   elimination   of   Company-directed
production,  marketing,  administration and systems  engineering and development
related to the MAGNA-SL and  attempting  to  strengthen  the  relationship  with
Elscint  Cryomagnetics,  Ltd.  ("Elscint"  - See Note 5) which was begun in June
1996.  A critical  component  of the  repositioning  involves a new  development
initiative  in  Cardiac  MRI (the  "Cardiac  MRI  Initiative")  through  a joint
collaboration  with the Cardiac  Institute of the Mount Sinai School of Medicine
(New York City) ("MSSM"),  as well as raising sufficient financing to pursue the
Cardiac  MRI  Initiative.  The Company  received a proposal  from  Elscint  (the
"Elscint Proposal") to support the  license/royalty  element of the Plan and has
continued  to have  discussions  with  Elscint  regarding  certain  work that is
integral to the Plan.  The Company  has,  however,  been unable to finalize  the
Elscint  Proposal  because  of various  difficulties  in its  negotiations  with
Elscint,  including a lack of adequate funds and the Company's belief that plans
submitted by Elscint did not represent an adequate opportunity for the Company's
shareholders.

In  accordance  with the Plan,  in March 1997,  the  majority  of the  Company's
workforce  including the entire sales and marketing  staff,  the  production and
engineering and  administrative  staff were  terminated.  Further,  the Company,
shortly thereafter,  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.   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 deposits made
with strategic vendors which are  non-refundable,  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 is
adequate.  At August 31, 1998, only the Company's President and Chief Scientific
Officer is in the full time employ of the Company.

When the Company  vacated its principal  production,  development  and executive
facility, it placed certain inventory and

                                        5
<PAGE>

equipment in storage and several key  individuals  continued  the search for new
capital and the advancement of the development  collaboration with the MSSM. The
Company's operations were, therefore, severely curtailed at that time.

In  December  1997,  the  Company's  efforts to raise  additional  financing  to
initiate the Cardiac MRI Initiative were successful in raising $1.884 million in
a private  placement of 15,072,000  shares of common stock (the  "December  1997
Financing").  Such financing was conditioned on the Company initiating a program
to pay its existing liabilities on a reduced basis (the "Debt Reduction Program"
- See Note 9). Since  December 1997, the Company has: (1) initiated and advanced
the Cardiac MRI  Initiative,  (2) continued the Debt  Reduction  Program and (3)
continued to have  discussions  with Elscint with the objective of advancing the
Elscint  Proposal (such  discussions have not resulted in concluding the Elscint
Proposal). The December 1997 Financing was believed to be sufficient to fund the
Company's operations until approximately July 1998, assuming success in its Debt
Reduction Program and discussions with Elscint. The Company has deferred certain
payments due to MSSM and others in order to maintain its  resources  beyond July
1998.  The Company now  requires  significant  additional  financing in order to
support  the Plan.  It is  expected  that the  Company's  ability to obtain such
additional  financing  will be dependent  upon the success of the Debt Reduction
Program,  the  success  of  development  activities  with MSSM and,  to a lesser
extent, negotiations regarding the Elscint Proposal.

Activities  during the six months ended August 31, 1998 included  advancement of
the Cardiac Initiative through collaborative research with MSSM, discussion with
Elscint, business planning and capital raising activities.

The Company is continuing its efforts to: (1) raise additional capital, (2) move
forward with the Cardiac MRI Initiative, (3) complete the Debt Reduction Program
and (4) either complete the Elscint  Proposal,  if possible on acceptable terms,
or enter into a strategic  arrangement  with others,  if  possible.  There is no
assurance  that any of these efforts will be successful or that the Company will
be able to continue even its  significantly  reduced  operations,  for which the
Company presently requires additional capital.

GOING CONCERN  CONSIDERATION AND RISK FACTORS - As indicated in the accompanying
unaudited consolidated financial statements,  as of August 31, 1998, the Company
had negative working capital,  approximately  $830,000 of liabilities,  negative
net worth of  approximately  ($705,000) and a development  agenda which requires
immediate  additional  financing in order to continue its efforts.  Further,  as
indicated in the accompanying unaudited  consolidated financial statements,  the
Company has incurred a cumulative  loss of  approximately  $16.1  million  since
inception  and has no present,  or  projected  near-term,  revenue.  Losses have
continued since August 31, 1998. These factors, among others,  indicate that the
Company  is in need of  immediate  significant  additional  financing  and/or  a
strategic  business  arrangement  in order to  continue  the Plan.  The  Company
believes that its cash  resources at August 31, 1998 are not  sufficient to fund
its  operations  in the  quarter  beginning  on  September  1,  1998 and that it
presently requires  additional capital to continue its planned  operations.  The
Company has been in contact with various  existing and  potential  investors and
believes, but cannot assure, that it may be successful in raising the additional
capital that it needs to continue  the  operation of the Plan in the short term.
The  current  turmoil  in  the  domestic  and  global  financial  markets  is  a
significant  "risk factor" in the  Company's  efforts to attempt to continue its
Plan.

Management's plans discussed in the preceding paragraphs are subject to numerous
"risk  factors"   including  the   availability  of  capital  (which  is  needed
immediately) on acceptable terms and in an uncertain market,  the uncertainty of
success of  developments  under the Cardiac MRI  Initiative,  the uncertainty of
continued success of the Debt Reduction Program,  the risks and uncertainties of
any  new  technology  development  program,  competitive  factors,  the  limited
availability and difficulty in retention of competent  scientific and management
personnel,  uncertainties  related  to  existing  or new  potentially  competing
technologies,  necessary regulatory  approvals for products  contemplated by the
Cardiac MRI Initiative,  uncertainties of intellectual  property  protection for
new  technology,  difficulties  in  concluding  the  Elscint  Proposal  or other
potential license arrangements and other factors associated with the development
and  potential  growth  of a  business  from a new  technology.  There can be no
assurances that management's plans described in the preceding paragraphs will be
realized.  These factors, among others,  indicate that the Company may be unable
to continue operations as a going concern.


NOTE 3 - LOSS PER SHARE OF COMMON STOCK:

Net loss per share is computed  based on the weighted  average number of Class A
Common  and  Class  B  Common  shares  outstanding  after  subtracting   certain
(1,000,000)  Class B shares,  which were  forfeited  at March 31,  1998  because

                                       6

<PAGE>

certain  performance  objectives  were  not  met,  from  shares  outstanding  in
computing net loss per share. Dilutive options and warrants outstanding would be
considered in the  computation  of net income per share under the treasury stock
method when their effect is to reduce reported net income per share.

NOTE 4 -  RELATIONSHIP  WITH THE CARDIAC  INSTITUTE OF THE MOUNT SINAI SCHOOL OF
MEDICINE:

In May 1997,  the Company  entered into a three-year  agreement with the Cardiac
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 and payments of $300,000
were made to MSSM during the fiscal year ended  February 28,  1998.  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,  subsequent  to the  delayed  start  of  payments
mentioned above. For the quarter and six months ended August 31, 1998,  $150,000
and $300,000,  respectively, was charged to research and development expense for
this arrangement.

NOTE 5 - RELATIONSHIP WITH ELSCINT:

In June 1996,  the Company  and Elscint  entered  into an  agreement  covering a
strategic  business  arrangement in which Elscint would manufacture the MAGNA-SL
for  marketing  and sale by Elscint in certain  non-United  States  territories,
principally  Europe, the Peoples Republic of China, parts of the Middle East and
other  territories.   The  Company  would  be  paid  royalties  on  each  system
manufactured  and sold by Elscint.  To maintain its rights under the  agreement,
Elscint was required to sell a minimum number of systems as defined therein,  or
to cure, as defined therein, shortfalls.  Additionally,  Elscint and the Company
agreed to  cooperate  in various  other  matters.  Importantly,  the Company was
required to complete certain development tasks and enhancements,  which were not
completed to Elscint's  satisfaction as described  below.  The Company agreed to
provide  certain  ongoing  research and  development  support which is no longer
practical  given the Company's  resources.  Elscint was granted a right of first
negotiation on certain new products.

The  Company  was   obligated  to  complete   certain   development   tasks  and
enhancements,  which,  if not  completed  by  November  1996,  could  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 has  reserved  all of its rights  including  to  complete  the tasks
itself at the  Company's  expense or to terminate the agreement and seek damages
from the Company. Elscint has presented to the Company the Elscint Proposal (See
Note  2) to  assume  the  uncompleted  tasks  and  make a major  alteration  and
improvement of certain  systems  comprising the MAGNA-SL.  The Elscint  Proposal
required a development  payment of $500,000 plus certain support activities from
the Company.  The Company  initially agreed to proceed with the Elscint Proposal
but has been unsatisfied  with certain aspects of Elscint's  expressed plans and
has had difficulties in making the required payments to initiate or complete the
Proposal.  The Company has continued to attempt to have discussions with Elscint
regarding the Elscint  Proposal but there can be no assurance that this proposal
will go forward (See Note 9).  Further,  the Company  believes  that Elscint has
recently  divested itself of the business which would have included the MAGNA-SL
and that the Elscint Proposal may no longer be available to the Company.


NOTE 6 - PROPERTY AND EQUIPMENT:

Details of property and equipment at August 31, 1998 are as follows:

         Machinery and equipment                               $760,000
         Purchased software                                      49,000
                                                               ---------
                                                                809,000
         Less: accumulated depreciation and amortization        392,000
               amounts written off in restructuring charge      400,000
                                                               ---------
                                                               $ 17,000
                                                               ---------

                                       7
<PAGE>

NOTE 7 - ACCRUED LIABILITIES:

Included in accrued  liabilities at August 31, 1998 are  approximately  $150,000
for accrued restructuring costs.

NOTE 8 - OTHER

Restructuring charge recouped in May 1997 quarter - During the quarter ended May
31,  1997,  inventories  which had been written off to  restructuring  charge at
February 28, 1997  totaling  approximately  $60,000 were returned to vendors for
credit. This amount has been credited to general and administrative costs during
the quarter ended May 31, 1997.

NOTE 9 - COMMITMENTS AND CONTINGENCIES:

DEBT  REDUCTION  PROGRAM - By  November  30,  1997,  the  Company  had  recorded
liabilities of approximately $2,528,000 (unaudited), no cash and no other assets
which were realizable in the near-term. After a period of seeking new investment
into the Company to advance the Plan,  new investors  were  identified.  The new
investors indicated their willingness to invest in the Company's Plan if certain
conditions  were met including the  reduction of recorded  liabilities  (through
creditor concessions) by a very material amount. In approximately October, 1997,
with the assistance of  reorganization  counsel  retained for this purpose,  the
Company commenced the Debt Reduction Program.

Under the Debt Reduction Program,  the Company commenced a program of contacting
its  creditors,  informing  them  of the  Company's  dire  financial  condition,
advising  such  creditors  of the  Debt  Reduction  Program  agreed  to with the
potential new investors and the Company's  willingness to settle liabilities for
a reduced  amount.  The Company has  offered its trade and other  creditors  the
opportunity to settle the Company's obligations to them for a reduced amount. As
of August 31,  1998,  certain  vendor  claims have been agreed to be settled for
reduced amounts and efforts are still in process to settle remaining  amounts in
an orderly manner.

In total,  approximately $1,650,000 of liabilities at November 30, 1997 has been
either paid or agreed to be reduced.  The difference  between recorded  payables
and accruals and amounts paid for  settlement  has been included in other income
in the consolidated financial statements.

The  Company  has  received  statements  of account  from one vendor for amounts
(approximately  $132,000 plus claimed interest)  materially in excess of amounts
recorded by the Company  (approximately  $22,000) for amounts  alleged to be due
from this  vendor.  The vendor  statements  indicate  billings of  approximately
$83,000 in January  1997 and  $16,000  in April 1997 for  components  fabricated
which were not  received by the  Company.  The Company does not have a record of
being  billed for such  amounts nor for receipt of such  fabricated  components.
This matter is being investigated for resolution.

The  Company's  Debt  Reduction  Program is ongoing and the Company has been the
subject of several threatened,  and certain actual, legal actions for nonpayment
of  obligations.  While the principal  legal actions have been settled,  various
other  creditors have  threatened the Company with litigation to recover amounts
due them.  While the Company has had success in  reducing  its  liabilities  and
negotiating  with its creditors  and others in accordance  with the Plan and the
Debt Reduction Plan, the ultimate liabilities in these matters are not known and
the vendors (or other  parties),  in some cases,  may seek  damages in excess of
amounts recorded in the consolidated financial statements. The Company believes,
but no  assurance  can be made,  that its  liability  will  not  exceed  amounts
recorded in the consolidated financial statements.

WARRANTY,  SERVICE, PRODUCT LIABILITY - The Company has been unable to honor its
obligations for warranty and service for the MAGNA-SL since  approximately March
1997.  Additionally,  product  liability  claims relating to the MAGNA-SL 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. In the event
of an uninsured or inadequately  insured product  liability claim, the Company's
business and financial condition could further be materially adversely affected.

AGREEMENT WITH ELSCINT - Elscint has informed the Company on several  occasions,
including  in May 1998,  that it  believes  the  Company to be in default of its
obligations  under the June 1996  agreement  with  Elscint  described in Note 5.
Elscint may assert damages against the Company. The Company has not recorded any

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<PAGE>

liability to its consolidated  financial statements for this contingency because
it is unable to determine what, if any, liability it could have to Elscint after
any defenses and counterclaims which it may make against Elscint.  The Company's
intention  is, and it continues to work toward,  a negotiated  settlement of the
business  issues  (including  the "Elscint  Proposal"  described in Note 2) with
Elscint.  However,  during the quarter  ended August 31, 1998  discussions  with
Elscint have not resulted in a conclusion and the Company  believes that Elscint
has recently  divested  itself of the business which would include the potential
business  of the  MAGNA-SL.  Therefore,  the  Company  is not  presently  in the
position to conclude  that the  possibility  of any business  arrangement  being
concluded with Elscint or its potential successors will be possible.

AGREEMENT WITH THIRD PARTY  DEVELOPER - In May 1998, the Company entered into an
agreement  with  a  third  party  developer  ("Developer")  under  which  it  is
contemplated  that  Developer  will  provide  the Company  with  design  review,
pre-production prototypes, regulatory compliance services, production prototypes
and ultimately production of the first product under the Cardiac MRI Initiative.
The Company  made  payments to  Developer  of  approximately  $35,000 in the six
months  ended August 31, 1998 to initiate the  relationship.  This  relationship
will involve  costs of several  hundred  thousand  dollars in the first year and
will be dependent upon the Company's ability to obtain additional capital.



ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

       THIS REPORT 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. ACTUAL RESULTS AND EVENTS
                  COULD DIFFER MATERIALLY FROM THOSE PROJECTED

     (b) Management's Analysis and Discussion or Plan of Operations -

BACKGROUND/HISTORY  - Since  commencement  of  operations  on February 10, 1992,
Magna-Lab  Inc. and  Subsidiary  (the  "Company")  has developed and intended to
manufacture  and market the MAGNA-SL,  the first of a planned  series of anatomy
specific MRI (Magnetic  Resonance  Imaging)  products which are smaller and cost
less to own,  install and operate  than present  "whole  body" MRI systems.  The
Company's  efforts to market and sell the MAGNA-SL  did not generate  sufficient
revenues to sustain the Company's planned operations.

Since  receiving US marketing  clearance for the MAGNA-SL in September 1994 from
the Food and Drug  Administration,  the Company sold and delivered four MAGNA-SL
scanners.  Three such sales were made to a related  party with which the Company
had  entered  into a sales,  marketing  and  distribution  agreement.  The third
scanner  delivered to this  related  party has not been paid for by such related
party  and  the  Company  has  recorded  a 100%  valuation  allowance  for  this
receivable.  The Company is  presently  unable to support  this  product and the
passage of time may make it impossible to realize any value from this product.

CURRENT  ACTIVITIES  - In  February  1997,  the  Company  commenced  a  plan  of
restructuring of the Company's operations (the "Plan") to reposition itself into
a development and,  hopefully under a then existing or other agreement,  royalty
company in the near-term.  The Company's activities under the Plan in the fiscal
year  ended  February  28,  1998  included   elimination   of   Company-directed
production,  marketing,  administration and systems  engineering and development
related to the MAGNA-SL and  attempting  to  strengthen  the  relationship  with
Elscint  Cryomagnetics,  Ltd.  ("Elscint"  - See Note 5) which was begun in June
1996.  A critical  component  of the  repositioning  involves a new  development
initiative  in  Cardiac  MRI (the  "Cardiac  MRI  Initiative")  through  a joint
collaboration  with the Cardiac  Institute of the Mount Sinai School of Medicine
(New York City) ("MSSM"),  as well as raising sufficient financing to pursue the
Cardiac  MRI  Initiative.  The Company  received a proposal  from  Elscint  (the
"Elscint Proposal") to support the  license/royalty  element of the Plan and has
continued  to have  discussions  with  Elscint  regarding  certain  work that is
integral to the Plan.  The Company  has,  however,  been unable to finalize  the
Elscint  Proposal  because  of various  difficulties  in its  negotiations  with
Elscint,  including a lack of adequate funds and the Company's belief that plans
submitted by Elscint did not represent an adequate opportunity for the Company's
shareholders.

In  accordance  with the Plan,  in March 1997,  the  majority  of the  Company's
workforce  including the entire sales and marketing  staff,  the  production and
engineering and  administrative  staff were  terminated.  Further,  the Company,
shortly thereafter,  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.   The  Company  recorded  a

                                       9
<PAGE>

restructuring  charge of approximately  $1.5 million in the fourth quarter ended
February 28, 1997 for write downs of fixed assets, inventories and deposits made
with strategic vendors which are  non-refundable,  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 is
adequate.  At August 31, 1998, only the Company's President and Chief Scientific
Officer is in the full time employ of the Company.

When the Company  vacated its principal  production,  development  and executive
facility,  it placed certain  inventory and equipment in storage and several key
individuals  continued  the search for new  capital and the  advancement  of the
development   collaboration  with  the  MSSM.  The  Company's  operations  were,
therefore, severely curtailed at that time.

In  December  1997,  the  Company's  efforts to raise  additional  financing  to
initiate the Cardiac MRI Initiative were successful in raising $1.884 million in
a private  placement of 15,072,000  shares of common stock (the  "December  1997
Financing").  Such financing was conditioned on the Company initiating a program
to pay its existing liabilities on a reduced basis (the "Debt Reduction Program"
- See Note 9). Since  December 1997, the Company has: (1) initiated and advanced
the Cardiac MRI  Initiative,  (2) continued the Debt  Reduction  Program and (3)
continued to have  discussions  with Elscint with the objective of advancing the
Elscint  Proposal (such  discussions have not resulted in concluding the Elscint
Proposal). The December 1997 Financing was believed to be sufficient to fund the
Company's operations until approximately July 1998, assuming success in its Debt
Reduction Program and discussions with Elscint. The Company has deferred certain
payments due to MSSM and others in order to maintain its  resources  beyond July
1998.  The Company now  requires  significant  additional  financing in order to
support  the Plan.  It is  expected  that the  Company's  ability to obtain such
additional  financing  will be dependent  upon the success of the Debt Reduction
Program,  the  success  of  development  activities  with MSSM and,  to a lesser
extent, negotiations regarding the Elscint Proposal.

Activities  during the six months ended August 31, 1998 included  advancement of
the Cardiac Initiative through collaborative research with MSSM, discussion with
Elscint, business planning and capital raising activities.

The Company is continuing its efforts to: (1) raise additional capital, (2) move
forward with the Cardiac MRI Initiative, (3) complete the Debt Reduction Program
and (4) either complete the Elscint  Proposal,  if possible on acceptable terms,
or enter into a strategic  arrangement  with others,  if  possible.  There is no
assurance  that any of these efforts will be successful or that the Company will
be able to continue even its  significantly  reduced  operations,  for which the
Company presently requires additional capital.

GOING  CONCERN  CONSIDERATION,  LIQUIDITY AND RISK FACTORS - As indicated in the
accompanying unaudited consolidated financial statements, as of August 31, 1998,
the Company had negative working capital, approximately $830,000 of liabilities,
negative net worth of  approximately  ($705,000) and a development  agenda which
requires  immediate  additional  financing  in order to  continue  its  efforts.
Further,  as  indicated in the  accompanying  unaudited  consolidated  financial
statements,  the Company has incurred a cumulative loss of  approximately  $16.1
million since  inception and has no present,  or projected  near-term,  revenue.
Losses have  continued  since  August 31, 1998.  These  factors,  among  others,
indicate  that  the  Company  is in need  of  immediate  significant  additional
financing and/or a strategic business arrangement in order to continue the Plan.
The  Company  believes  that its  cash  resources  at  August  31,  1998 are not
sufficient to fund its operations in the quarter  beginning on September 1, 1998
and that it presently requires  additional  capital  (virtually  immediately) in
order to continue  its  planned  operations.  The  Company's  development  plans
involve planned expenditures with MSSM of approximately $600,000 over the coming
twelve  months and in excess of  $500,000  (potentially  very  significantly  in
excess  of  $500,000)  with the  Developer.  These  costs,  in  addition  to the
Company's  operating  costs  indicate a short term (one year)  financing need of
approximately  $2.5  million.  The  Company  has been in  contact  with  various
existing and potential investors and believes, but cannot assure, that it may be
successful  in raising the  additional  capital  that it needs to  continue  the
operation of the Plan in the short term. The current turmoil in the domestic and
global financial markets is a significant "risk factor" in the Company's efforts
to attempt to continue its Plan.

Management's plans discussed in the preceding paragraphs are subject to numerous
"risk  factors"   including  the   availability  of  capital  (which  is  needed
immediately) on acceptable terms and in an uncertain market,  the uncertainty of
success of  developments  under the Cardiac MRI  Initiative,  the uncertainty of
continued success of the Debt Reduction Program,  the risks and uncertainties of
any  new  technology  development  program,  competitive  factors,  the  limited
availability and difficulty in retention of competent  scientific and management
personnel,  uncertainties  related  to  existing  or new  potentially  competing
technologies, necessary regulatory approvals for products contemplated by the

                                       10
<PAGE>

Cardiac MRI Initiative,  uncertainties of intellectual  property  protection for
new  technology,  difficulties  in  concluding  the  Elscint  Proposal  or other
potential license arrangements and other factors associated with the development
and  potential  growth  of a  business  from a new  technology.  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.


RESULTS OF OPERATIONS -

     Operations  in the quarter and six months ended August 31, 1998 resulted in
a net  loss of  approximately  $278,000  and  $576,000,  respectively.  The loss
results  principally from the Cardiac MRI Initiative  development  activities in
collaboration with the Mount Sinai School of Medicine.  Cost of the MSSM portion
of the collaboration  were  approximately  $150,000 and $300,000 of the net loss
for the quarter and six months,  respectively,  ended  August 31,  1998.  In May
1998, the Company  initiated a design  review/regulatory/contract  manufacturing
relationship  with a third  party.  Expenses  with such third party have totaled
approximately  $35,000 in the six months  ended  August 31,  1998.  General  and
administrative  expenses  consisted of  executive,  administrative  and business
development  consultants as well as certain occupancy,  storage and professional
costs.

     Operations  in the quarter and six months ended August 31, 1997 resulted in
a net loss of approximately $106,000 and $378,000. The majority of the workforce
was terminated between March 5 and March 15, 1997, however,  six senior managers
and  executives  continued  to devote  their  efforts to the  Company's  Plan of
restructure  during a portion of the six months  ended  August 31,  1998.  Their
payroll,  which was accrued but not paid during the six months, is the principal
cost in the  accompanying  Statement of  Operations.  Net loss also includes the
reversal in the six months  ended  August 31, 1997 of  approximately  $60,000 of
restructuring charge as a result of the return for credit of inventory which was
written off to restructuring charge at February 28, 1997.

     The Company's  belief about its liquidity,  financing  plans and prospects,
Elscint  Proposal and  arrangements  with Mount Sinai  School of  Medicine,  the
Developer,  as well as other information contained in this report (including its
prospects  for surviving as a going  concern) are based upon present  conditions
and  anticipated  developments.  This belief is further based upon estimates and
assumptions  including,  among other things,  completion of additional financing
necessary to fund the planned  activities,  timely and successful  completion of
development   milestones,   competitive  and  intellectual   property   factors,
cooperation  of  creditors  and  others  with the Debt  Reduction  Program,  and
successful  efforts to conclude an  arrangement  with  Elscint or others,  among
other matters.  In the event that the Company's  estimates and assumptions prove
materially  incorrect,  the  Company  does  not  presently  have  the  financial
resources to fund planned  operations.  The  foregoing  information  constitutes
forward-looking   statements  within  the  meaning  of  Section  21E  under  the
Securities Exchange Act of 1934, as amended.



PART II - OTHER INFORMATION

ITEM 1. - LEGAL PROCEEDINGS

Reference is made to Part I - Item 3 of Form 10-KSB for the year ended  February
28, 1998 for discussion of legal proceedings commenced or threatened against the
Company  (including by Devcom, by the Company's former landlord Heartland Rental
Properties  Partnership  and  by  Elscint)  as  well  as for  discussion  of the
settlements  of the DevCom and Heartland  Rental  Properties  Partnership  legal
proceedings. The Company continues to be subject to judgments for lesser amounts
and other litigation and/or threatened litigation.

ITEM 6. - EXHIBITS AND REPORTS ON FORM 8-K

         (a) Exhibits

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

               (11)      Statement  re:  computation  of  loss  per  share  -  A
                         statement  regarding the  computation of loss per share
                         is   omitted   because   computation   can  be  clearly
                         determined   from  the   material   contained  in  this
                         Quarterly Report
                         on Form 10-QSB.
               (27)      Financial Data Schedule

                                       11
<PAGE>

         (b) The  Company  did not file  reports on Form 8-K during the  quarter
             ended August 31, 1998.




                                   SIGNATURES

In accordance with the  requirements of the Exchange Act, the registrant  caused
this  report to be  signed on its  behalf  by the  undersigned,  thereunto  duly
authorized.


                                                     MAGNA-LAB INC.
                                                     --------------
                                                     (Registrant)


Date:  October  15,  1998        By:    /s/ Daniel M. Mulvena
               ----                     --------------------------------------
                                        Daniel M. Mulvena , Chairman of the
                                        Board of Directors, Chief Executive
                                        Officer  (Principal Executive Officer),
                                        Acting Treasurer (Principal Financial
                                        and Accounting Officer)



























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