UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
( X ) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission file number: 0-18271
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MAGELLAN TECHNOLOGY, INC.
-------------------------
(Exact name of registrant as specified in its charter)
Utah 87-0467614
--------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
13526 South 110 West
Draper, Utah 84020
-------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (801) 495-2211
--------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities and Exchange Act
of 1934 during the preceding 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___
-----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Outstanding at
Class September 30, 1997
----- ------------------
Common Stock, $.0002 par value 14,448,893 shares
<PAGE>
FORM 10-QSB
Financial Statements and Schedules
Magellan Technology, Inc.
For the Quarter Ended September 30, 1997
The following financial statements and schedules of the registrant and
its consolidated subsidiaries are submitted herewith:
Part I - Financial Information
-------------------------------
Item 1. Financial Statements
Consolidated balance sheet
for September 30, 1997 and year-end
for December 31, 1996 2
Consolidated statement of
operations for the three and nine months
ended September 30, 1997 and 1996 4
Consolidated statement of cash flows for the
nine months ended September 30, 1997
and 1996 5-6
Notes to consolidated financial statements 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 8-9
Part II - Other Information
---------------------------
Item 1. Legal Proceedings 10
Item 2. Changes in Securities 10
Item 3. Defaults upon Senior Securities 10
Item 4. Submission of Matters to a Vote of
Security Holders 10
Item 5. Other information 10
Item 6(a) Exhibits 10
Item 6(b) Reports on Form 8-K 10
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
ASSETS Sept. 30, 1997 Dec. 31, 1996
(Unaudited) (Audited)
----------------- -----------------
Current Assets:
Cash $ $87,899 $ 88,687
Other Current Assets 334,071 6,125
----------------- -----------------
Current Assets 421,970 94,812
----------------- -----------------
Property and Equipment:
Property and Equipment 114,804 72,384
Accumulated Depreciation (19,766) (6,777)
----------------- -----------------
Net Property and Equipment 95,038 65,607
----------------- -----------------
Investment in Joint Venture 1,459,682 1,468,933
----------------- -----------------
Total Assets $1,976,690 $1,629,352
================= =================
2
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Consolidated Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY Sept. 30, 1997 Dec. 31, 1996
(Unaudited) (Audited)
----------------- -----------------
Current Liabilities:
Current Portion of long-term debt $41,788 $38,516
Line of Credit 1,190,000 -
Notes Payable 400,000 -
Accounts Payable 248,642 43,947
Accrued Liabilities 103,189 75,253
----------------- -----------------
Current Liabilities 1,983,619 157,716
Long-Term Debt 522,187 542,390
----------------- -----------------
Total Liabilities 2,505,806 700,106
----------------- -----------------
Stockholders' Equity/(Deficit):
Common Stock, par value $.0002
per share; 25,000,000 shares
authorized, 14,448,893 shares
and 13,620,838 shares at
September 30, 1997 and
December 31, 1996 issued and
outstanding respectively 2,890 2,724
Additional Paid-in Capital 6,316,687 6,309,353
Accumulated Deficit (6,848,693) (5,382,831)
----------------- -----------------
Total Stockholders'
equity/(deficit) (529,116) 929,246
----------------- -----------------
Total Liabilities
and Stockholder's Equity $ 1,976,690 $ 1,629,352
================= =================
3
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Consolidated Statements of Operations
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
---------------------------- --------------------------
1997 1996 1997 1996
-------------- ------------- ------------ ------------
Revenue from Sales: $ - $ 164,130 $ - $ 1,150,046
Cost of Sales: - 117,210 - 742,759
-------------- ------------- ------------ ------------
Gross Margin: - 46,920 - 407,287
Operating Expenses:
Selling, General and Administrative 378,218 31,318 845,036 243,919
Depreciation & Amortization 5,329 20,428 12,988 138,029
R & D Expenses 207,436 - 499,103 -
-------------- ------------- ------------ ------------
Total Operating Expenses 590,983 51,746 1,357,127 381,948
-------------- ------------- ------------ ------------
Income (Loss) from Operations: (590,983) (4,826) (1,357,127) 25,339
Other Income (Expense):
Purchased in-process
research & development - (596,138) - (596,138)
Equity in Loss of Joint Venture 29,307 5,054 (9,251) 5,054
Interest Expense (46,521) (9,182) (92,446) (34,060)
"Other, net" - 1,883 (7,038) 11,472
-------------- ------------- ------------ ------------
Net Income (Loss) $(608,197) $(603,209) $(1,465,862) $(588,333)
============== ============= ============ =============
Net Income (Loss) per share $(0.04) $(0.07) $(0.10) $(0.08)
============== ============= ============ =============
Weighted average shares outstanding 14,448,893 8,250,219 14,448,893 7,636,000
============== ============= ============ =============
</TABLE>
4
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
Sept. 30,
----------------------------------------
Cash Flows form Operating Activities: 1997 1996
----------------- -----------------
Net Income (Loss) $(1,465,862) $(588,333)
Adjustments to Reconcile
Net Income (Loss)
to Net Cash used in
Operating Activities:
Depreciation 12,988 -
Equity in Loss of Joint Venture 9,251 -
(Increase) Decrease in:
Accounts Receivable - 355,263
Other Current Assest (327,945) 7,088
Cash Deposits - 37,586
Capitalized Software, Net" - 87,346
Increase (Decrease) in:
Accounts Payable 204,695 (161,956)
Accrued Liabilities 27,936 (160,765)
Deferred Revenue - -
----------------- -----------------
Net Cash used in Operating
Activities (1,538,937) (423,771)
Cash Flows from Investing Activities:
Proceeds from transfer of
equipment to SIS, LLC - 464,847
Purchase of Machinery and Equipment (42,420) -
Investment in Subsidiary (1,583,510)
----------------- -----------------
Net Cash used in
Investing Activities (42,420) (1,118,663)
Cash Flows from Financing Activities:
Proceeds from Notes Payable
and Line of Credit 1,590,000 150,000
Proceeds from the Issuance of
Common Stock 7,500 1,897,566
Reduction of Long-Term Debt (16,931) (645,875)
----------------- -----------------
Net Cash Provided by (Used in)
Financing Activities: 1,580,569 1,401,691
----------------- -----------------
Net Decrease in cash (788) (140,743)
"Cash, Beginning of Period 88,687 149,778
"Cash, End of Period $87,899 $9,035
================= =================
5
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
Sept. 30,
----------------------------------------
1997 1996
----------------- -----------------
Cash paid during the period for:
Interest $ 40,178 $ 9,155
================= =================
Income Taxes $ - $ -
================= =================
6
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) The unaudited consolidated financial statements include the
accounts of Magellan Technology, Inc. (The Company) and its wholly owned
subsidiaries, SkyHook Technologies, Inc. (SkyHook), ProHealth, Inc.
(formerly known as Satellite Image Systems, Inc. (SIS, Inc.)) and SIS
Jamaica, LTD (SIS Jamaica). The Company acquired SkyHook effective
October 15, 1996. The acquisition of SkyHook included the issuance of
4,874,936 shares of Magellan common stock and cash for all of the
outstanding shares of SkyHook common stock. The transaction was
accounted for as a purchase transaction. On August 1, 1996 the Company
transferred its interest in the assets, liabilities, and operations
conducted by SIS, Inc. to Satellite Image Systems, LLC (SIS,LLC), a
joint venture. The Company received a 49% interest in SIS, LLC whose
assets include those transferred by the Company as well as $3,000,000
cash transferred by the other party to the transaction. The financial
statements reflect the investment in SIS, LLC under the equity method of
accounting.
(2) The unaudited consolidated financial statements include
all adjustments (consisting of normal recurring items) which are, in the
opinion of management, necessary to present fairly the financial
position as of September 30, 1997 and the results of operations for the
nine months and three months ended September 30, 1997 and 1996 and cash
flows for the nine months ended September 30, 1997 and 1996. The results
of operations for the nine months ended September 30, 1997 are not
necessarily indicative of the results to be expected for the entire year.
(3) (Loss) per share is based on the weighted average number of shares
outstanding at September 30, 1997 and 1996, respectively. Shares
outstanding for 1996 and 1997 reflect the 2:1 reverse stock split that
occurred on March 8, 1996.
(4) During the nine months ended September 30, 1997, the Company borrowed
$1,190,000 under two separate line-of-credit agreements. The funds were
used to finance operations. As of September 30, 1997 one of the lines
had an outstanding balance of 745,000, and a maturity date of December
31, 1997. As of September 30, 1997 the other line had an outstanding
balance of 445,000, and matures in August 1998. Both of these lines of
credit are secured by inventory and the personal guarantees of the
Company's Chief Executive Officer, a Director, and a major shareholder.
(5) During the four month period ended September 30, 1997 the Company
borrowed $400,000 from the Company's Chief Executive Officer under four
separate $100,000 unsecured note payable agreements. Each note payable
bears interest at 12% and is payable upon demand. The funds were used
to finance operations.
7
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
----------------------------------------------------------------
Results of Operations
---------------------
Nine month period ended September 30, 1997 compared to the nine month period
ended September 30, 1996
Due to the formation of SIS, LLC effective August 1, 1996 and the acquisition
of SkyHook Technologies, Inc. effective October 15, 1996 the focus of the
company for the nine month period ended September 30, 1997 has changed
significantly when compared to the activities of the nine month period ended
September 30, 1996. Accordingly, no comparison between current and prior
year's operating results is meaningful.
Operations for the three months ended September 30, 1997
During the three months ended September 30, 1997 the Company continued to
aggressively pursue development and marketing of the SkyHook Cargo
Management System (SkyHook CMS). Production models of the SkyHook CMS
were tested and demonstrated with potential customers. Marketing and sales
professionals have participated in several trade shows and other marketing
activities. These activities included demonstrations of the product and
visits to potential customers. The SkyHook CMS product continues to receive
favorable reviews in industry publications. The Company has also introduced
the SkyHook Light Aerial Delivery System (SkyHook LADS). This new lower cost
system is designed to carry three or four separate loads with total system
load capacity of 12,000 pounds. The SkyHook LADS will compliment the SkyHook
CMS which is designed to carry three or six separate loads with a total system
capacity of 36,000 pounds. With the introduction of the LADS system to
compliment the CMS product, the company can effectively meet the varying
needs of its customers. Notwithstanding these continued favorable preliminary
results, there is no assurance that marketing of the SkyHook CMS or the
SkyHook LADS will be successful.
Results of SIS, LLC
Since the formation of SIS, LLC, the Company has accounted for the earnings
and transactions of SIS, LLC under the equity method of accounting. For the
three months ended September 30, 1997 the Company's books reflect net income
of $29,307, its 49% share of the income of SIS, LLC for the Quarter. SIS,
LLC in total earned $59,810 on revenues of $1,218,824 for the three months
ended September 30, 1997. These results compare favorably with the three
month period ended June 30, 1997 during which time period SIS, LLC in total
earned $12,508 on revenues of $998,173.
Operations for the Nine month period ended September 30, 1997
8
<PAGE>
During the nine month period ended September 30, 1997, in addition to the
activity related above, the SkyHook CMS product was successfully demonstrated
during a prolonged war games exercise with a branch of the United States
Military during the month of March 1997.
As of June 30, 1997 the company relocated the operations of SkyHook
Technologies, Inc. to a new facility in Draper, Utah. The facility provides
SkyHook with additional office and production space. The Company has also
relocated its Magellan Technology, Inc. (Parent Company) functions to the
Draper, Utah facility. The Company entered into a lease agreement in
connection with the move. The lease has a term of three years with one
three-year option.
Liquidity and Capital Resources
During the nine months ended September 30, 1997, the Company borrowed
$1,190,000 under two separate line-of-credit agreements. The funds were used
to finance operations. As of September 30, 1997 one of the lines had an
outstanding balance of 745,000, and a maturity date of December 31, 1997. As
of September 30, 1997 the other line had an outstanding balance of 445,000,
and matures in August 1998. Both of these lines of credit are secured by
inventory and the personal guarantees of the Company's Chief Executive
Officer, a Director, and a major shareholder.
On June 2, 1997 the Board of Directors approved a financing agreement for the
Company to borrow up to $600,000 in unsecured notes. The notes bear interest
at 12% and are payable on demand. The Company borrowed $400,000 in the form
of four separate $100,000 notes from the Company's Chief Executive Officer
under the financing agreement during the months of June, July and August.
SkyHook Technologies, Inc. is still in the development stage and is not
expected to generate any revenue through sales of products or services until
the fourth quarter of 1997. As a result, the Company must rely solely on its
lines-of-credit and its ability to raise additional debt and equity financing
in order to finance continued product development, sales and marketing, and
all operating activities related to the SkyHook CMS and the SkyHook LADS.
On-going operations of the Company are currently consuming approximately
$210,000 of cash each month and the Company expects to continue to incur
substantial additional expenses in connection with the finalization of the
development of the SkyHook product lines and their introduction into the
market place. There can be no assurance that the Company will be able to
obtain needed financing on terms favorable to the Company. If the company is
unable to raise additional capital, the ability of the Company to successfully
market and distribute the SkyHook CMS and its financial condition would be
materially adversely affected.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal proceedings: None.
Item 2. Changes in Securities: None.
Item 3. Defaults upon Senior Securities: None.
Item 4. Submission of Matters to a Vote of Security Holders: None.
Item 5. Other information:
On June 18, 1997 the Company signed a Letter of Intent to acquire BioSource,
Inc. of Orem, Utah. BioSource is an international leader in Electro Dermal
Screening (EDS), a revolutionary computer-based technology used to assist
healthcare practitioners to screen a broad range of health disorders.
Joe Galloway, President of BioSource , said, "In order to maintain our
Company's rapid growth, we needed additional executive and financial
resources. After considering several offers, our management unanimously
agreed to join Magellan." BioSource is expected to increase the revenues of
Magellan's subsidiary, ProHealth, Inc. (formerly known as SIS, Inc.).
ProHealth, Inc. through a Joint Venture with UICI (NASDAQ) uses data capture
technology and imaging to convert payer documents into electronic claims
submission formats for the healthcare industry.
William A. Fresh, Chairman and CEO of Magellan Technology indicated that the
addition of BioSource compliments one of the Company's present missions:
Providing technology for health services.
Item 6. Exhibits and Reports on Form 8-K:
(a) None.
(b) None.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
MAGELLAN TECHNOLOGY, INC.
-----------------------------------
(Registrant)
/s/ Douglas M. Angus November 7, 1997
- -------------------------- -----------------
Douglas M. Angus Date
Vice President - Finance
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM MAGELLAN
TECHNOLOGY, INC. SEPTEMBER 30, 1997 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 87,899
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 421,970
<PP&E> 114,804
<DEPRECIATION> 19,766
<TOTAL-ASSETS> 1,976,690
<CURRENT-LIABILITIES> 1,983,619
<BONDS> 522,187
0
0
<COMMON> 2,728
<OTHER-SE> (531,844)
<TOTAL-LIABILITY-AND-EQUITY> 1,976,690
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,357,127
<OTHER-EXPENSES> 16,289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 92,446
<INCOME-PRETAX> (1,465,862)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,465,862)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,465,862)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> (.10)
</TABLE>
