UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT 1
TO
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 June 30, 1998
( ) 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
MAGELLAN TECHNOLOGY, INC.
-----------------------------------------
(Exact name of registrant as specified in its charter)
Utah 87-046761
- ------------------------------- -----------------------------------
(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 June 30, 1998
-------- ------------------
Common Stock, $.0002 par value 17,599,536 shares
1
<PAGE>
FORM 10-QSB
Financial Statements and Schedules
Magellan Technology, Inc.
For the Quarter Ended June 30, 1998
The following financial statements and schedules of the registrant and
its consolidated subsidiaries are submitted herewith:
Part I - Financial Information
------------------------------------
Item 1. Financial Statements
Condensed consolidated balance sheet
for June 30, 1998 and year-end
for December 31, 1997 3
Condensed consolidated statement of
operations for the three and six months
ended June 30, 1998 and 1997 5
Condensed statement of cash flows for the
six months ended June 30, 1998
and 1997 6
Notes to condensed consolidated
financial statements 8
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of
Operations 10
Part II - Other Information
----------------------------------
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other information 13
Item 6(a) Exhibits 13
Item 6(b) Reports on Form 8-K 13
2
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
ASSETS June 30, 1998 Dec. 31, 1997
(Unaudited) (Audited)
---------------- ---------------
Current Assets:
Cash $ 189,554 $ 111,402
Other Current Assets 1,966,194 570,808
---------------- --------------
Current Assets 2,155,748 682,210
---------------- --------------
Property and Equipment, net 509,832 336,421
Licenses & Technology, net 1,443,099 -
Goodwill, net 306,574 344,039
Net Asset in Discontinued Operations - 1,325,027
--------------- -------------
Total Assets $ 4,415,253 $ 2,687,697
============== ============
3
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheet
LIABILITIES AND STOCKHOLDERS' EQUITY June 30, 1997 Dec. 31, 1997
(Unaudited) (Audited)
----------------- ---------------
Current Liabilities:
Current Portion of long-term debt $ 176,269 $ 173,537
Line of Credit 2,270,022 2,210,022
Notes Payable 175,571 -
Related Party Notes Payable 450,000 750,000
Accounts Payable 746,305 478,702
Accrued Liabilities 369,912 206,749
--------------- --------------
Current Liabilities 4,188,079 3,819,010
Long-Term Debt 526,543 591,717
--------------- --------------
Total Liabilities 4,714,622 4,410,727
--------------- --------------
Stockholders' Equity:
Common Stock, par value $.0002
per share; 25,000,000 shares
authorized, 17,599,536 shares
issued and outstanding as of June 30,
1998 3,520 2,774
Additional Paid-in Capital 9,890,599 6,890,419
Unearned Compensation (183,434) (236,000)
Retained Deficit (10,010,054) (8,380,223)
--------------- -------------
Total Stockholders' equity (299,369) (1,723,030)
--------------- -------------
Total Liabilities and Stockholder's Equity $ 4,415,253 $ 2,687,697
=============== =============
4
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------------ ------------------------------------
1998 1997 1998 1997
--------------- ----------------- ---------------- ----------------
Revenue from Sales: $ 735,969 $ - $ 978,586 $ -
Cost of Sales: 179,220 - 225,939 -
----------------- ----------------- ---------------- ----------------
Gross Margin: 556,749 - 752,647 -
Operating Expenses:
Selling, General and Administrative 907,569 239,877 1,474,916 466,585
Depreciation & Amortization 53,948 4,536 90,590 7,892
Compensation Expense - Stock Options 127,533 153,816
R & D Expenses 322,116 154,643 642,772 291,667
----------------- ----------------- ---------------- ----------------
Total Operating Expenses 1,411,166 399,056 2,362,094 766,144
----------------- ----------------- ---------------- ----------------
Income (Loss) from Operations: (854,417) (399,056) (1,609,447) (766,144)
Other Income (Expense):
Equity in Loss of Joint Venture (4,852) 6,129 (5,050) (38,558)
Interest Expense (102,212) (28,855) (195,357) (45,925)
Gain on sale of Joint Venture 180,023 180,023
Other, net (7,790) (7,038)
----------------- ----------------- ---------------- ----------------
Net Income (Loss) $ (781,458) $ (429,572) $ (1,629,831) $ (857,665)
================= ================= ================ ================
Net Income (Loss) per share $ (0.05) $ (0.03) $ (0.11) $ (0.06)
================= ================= ================ ================
Weighted average shares outstanding 15,447,560 13,628,338 15,447,560 13,628,338
================= ================= ================ ================
</TABLE>
5
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<S> <C> <C>
Six Months Ended
June 30,
Cash Flows form Operating Activities: 1998 1997
---------------- ----------------
Net Income (Loss) $ (1,629,831) $ (857,665)
Adjustments to Reconcile Net Income (Loss)
to Net Cash used in Operating Activities:
Depreciation & Amortization
90,590 7,892
Stock Compensation 153,816
Equity in Loss of Joint Venture 5,050 38,558
(Gain) on Sale of Assets (180,023)
(Increase) in:
Accounts Receivable (376,820) -
Other Current Assets (79,527) (97,690)
Inventory (939,038)
Cash Deposits - -
Capitalized Software, Net - -
Increase in:
Accounts Payable 267,603 53,780
Accrued Liabilities 163,163 31,468
Deferred Revenue - -
---------------- --------------
Net Cash used in Operating Activities (2,525,017) (823,657)
Cash Flows from Investing Activities:
Purchase of Machinery and Equipment (216,511) (23,687)
Sale of Investment in Subsidiary 1,500,000
--------------- ---------------
Net Cash used in Investing Activities 1,283,489 (23,687)
Cash Flows from Financing Activities:
Net Proceeds from Notes Payable and Line of Credit 1,382,122 830,000
Proceeds from the Issuance of Common Stock Options 7,500
Reduction of Long-Term Debt (62,442) (27,615)
--------------- --------------
Net Cash Provided by (Used in) Financing Activities: 1,319,680 809,885
--------------- --------------
Net Decrease in cash 78,152 (37,459)
Cash, Beginning of Period 111,402 88,687
--------------- --------------
Cash, End of Period $ 189,554 $ 51,228
=============== ==============
</TABLE>
6
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Six Months Ended
June 30,
----------------------------
1998 1997
------------ ------------
Cash paid during the period for:
Interest $ 152,630 $ 28,379
============ ============
Income Tax $ - $ -
Nonmonetary Financing and Investing Activities
During May 1998, the Company acquired the net assets of Digital Health
for $1,453,125 with the issuance of common stock and additional debt.
During the first six months of 1998, $1,650,000 of notes payable to
related parties and $46,551 of accrued interest payable were converted
to common stock of the Company.
7
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(1) The unaudited condensed consolidated financial statements include the
accounts of Magellan Technology, Inc. (The Company) and its wholly
owned subsidiaries, BioMeridian Corporation (formerly known as
ProHealth, Inc. and prior to that known as Satellite Image Systems,
Inc. (SIS, Inc.)) and SIS Jamaica, LTD (SIS Jamaica), SkyHook
Technologies, Inc. (SkyHook), which the Company acquired effective
October 15, 1996, and BioMeridian International, Inc. (BioMeridian)
(formerly BioSource, Inc.) which the Company acquired effective October
15, 1997. 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. The acquisition of BioSource included the
issuance of 225,000 shares of Magellan common stock and cash for all of
the outstanding shares of BioSource common stock. The transaction was
accounted for as a purchase transaction. The Company recognized
goodwill of $358,997 in connection with the BioSource 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. On May 12, 1998 the Company
sold its 46.5% interest in SIS, LLC. In connection with the sale the
company recognized a gain of $180,023. On June 15, 1998 the Company
completed the acquisition of certain licenses and technology of Digital
Health, LLC in exchange for 1,375,000 shares of common stock and
$250,000 in cash payable in monthly installments of $15,000.
(2) The unaudited condensed 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 June 30, 1998 and the results of operations for the six
months ended June 30, 1998 and 1997 and cash flows for the six months
ended June 30, 1998 and 1997. The results of operations for the six
months ended June 30, 1998 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 June 30, 1998 and 1997, respectively.
(4) Effective May 12, 1998 the Company entered into an agreement to sell
its 46.5% interest in SIS, LLC. Terms of the agreement include an
initial payment of $1,500,000 and additional payments not to exceed
$1,000,000 that will be earned over the next 27 months based upon the
operating results of SIS, LLC. $1,200,000 of the funds received were
used to retire a non-revolving term line of credit. The balance of the
funds were used for working capital purposes.
8
<PAGE>
(5) On May 19, 1998 the company entered into a new $3,000,000 revolving
line of credit agreement. Obligations under prior separate line of
credit agreements for $750,000 and $745,000 were retired with proceeds
from the new revolving line of credit. During the three months ended
June 30, 1998 the Company borrowed an additional $750,000 under the new
revolving line of credit. The proceeds were used to purchase inventory
and fund operations. The new revolving line of credit matures on May
19, 1999 and is secured by the Company's inventory and receivables and
by the personal guarantees of the Company's Chief Executive Officer, a
Director, and a major shareholder. As of June 30, 1998 the Company had
an outstanding balance of $2,245,000 under the new revolving line of
credit. Notes payable at June 30, 1998 also include a small line of
credit for approximately $25,000.
(6) During the six months ended June 30, 1998 the Company borrowed
$1,000,000 from the Company's Chief Executive Officer, or from entities
controlled by this individual, under seven separate $100,000 unsecured
note payable agreements and under two separate $150,000 unsecured note
payable agreements. Each note payable bears interest at 12% and is
payable upon demand. The Company also borrowed $350,000 from two of its
major shareholders under two separate note payable agreements for
$250,000 and $100,000 respectively. Each note payable bears interest at
12% and is payable upon demand. The funds from these transactions were
used to finance operations.
(7) Effective February 27, 1998, $1,150,000 of related party notes payable
were converted to common stock of the Company. In addition, accrued
interest payable on the related party notes payable of approximately
$46,500 was used by the related parties to exercise warrants to
purchase common stock. Effective April 29, 1998, $500,000 of related
party notes payable were converted to common stock of the Company.
9
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Six-month period ended June 30, 1998 compared to the six-month period ended June
30, 1997
Due to the formation of SIS, LLC effective August 1, 1996 and the acquisition of
SkyHook Technologies, Inc. effective October 15, 1996, the acquisition of
BioMeridian (formerly BioSource) effective October 21, 1998 and the acquisition
of certain licenses and technology from Digital Health, LLC effective June 15,
1998, the focus of the company for the six month period ended June 30, 1998 has
changed significantly when compared to the activities of the six month period
ended June 30, 1997. Accordingly, no comparison between current and prior year's
operating results is meaningful.
Operations for the three-month period ended June 30, 1998
Results of SkyHook
During the three months ended June 30, 1998 the Company continued to
aggressively pursue development and marketing of the SkyHook External Cargo
Management System (SkyHook ECMS). The Company also continued to improve the
SkyHook Light Ariel 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 compliments the SkyHook ECMS 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 ECMS
product, the company can effectively meet the varying needs of its customers.
Results of BioMeridian
For the three months ended June 30, 1998 BioMeridian achieved sales revenues of
$735,969 which resulted in a second quarter operating loss of $49,755. This
compares favorably with first quarter sales of $242,617 which resulted in a
first quarter operating loss of $132,864. On June 15, 1998 the Company completed
an agreement to acquire certain licenses and technology of Digital Health, LLC,
a competitor to BioMeridian in the Meridian Stress Assessment ("MSA")
marketplace. The combined companies have pooled their resources and expertise.
BioMeridan continues to focus its efforts on enhancing domestic and
international distribution channels for its MSA products. Management of
BioMeridian believes that the company is now well positioned to for growth in
the alternative health care marketplace.
10
<PAGE>
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. On May 12, 1998
the Company entered into an agreement to sell its 46.5% interest SIS, LLC. Terms
of the agreement include a $1,500,000 initial payment and additional payments
not to exceed $1,000,000 that will be earned over the next 27 months based upon
the performance of SIS, LLC. For the three months ended June 30, 1998 the
Company's books reflect a net loss of $4,852, its 46.5% share of the loss of
SIS, LLC through May 12, 1998.
Operations for the Six-month period ended June 30, 1998
Results of SkyHook
During the six months ended June 30, 1998 both the SkyHook ECMS and SkyHook LADS
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. Both products have received favorable reviews in
industry publications. Notwithstanding these continued favorable preliminary
results, there is no assurance that marketing of the SkyHook ECMS or the SkyHook
LADS will be successful.
Results of BioMeridian
For the six months ended June 30, 1998 BioMeridian achieved sales revenues
of $978,586 which resulted in an operating loss of $182,619.
Results of SIS, LLC
For the six months ended June 30, 1998 the Company's books reflect a net loss of
$5,050, its 46.5% share of the loss of SIS, LLC through May 12, 1998. On May 12,
1998 the Company entered into an agreement to sell its 46.5% interest SIS, LLC.
Terms of the agreement include a $1,500,000 initial payment and additional
payments not to exceed $1,000,000 that will be earned over the next 27 months
based upon the performance of SIS, LLC.
11
<PAGE>
Liquidity and Capital Resources
On May 19, 1998 the company entered into a new $3,000,000 revolving line of
credit agreement. Obligations under prior separate line of credit agreements for
$750,000 and $745,000 were retired with proceeds from the new revolving line of
credit. During the three months ended June 30, 1998 the Company borrowed an
additional $750,000 under the new revolving line of credit. The proceeds were
used to purchase inventory and fund operations. The new revolving line of credit
matures on May 19, 1999 and is secured by the Company's inventory and
receivables and by the personal guarantees of the Company's Chief Executive
Officer, a Director, and a major shareholder. As of June 30, 1998 the Company
had an outstanding balance of $ 2,245,000 under the new revolving line of
credit.
During the six months ended June 30, 1998 the Company borrowed $1,000,000 from
the Company's Chief Executive Officer, or from entities controlled by this
individual, under seven separate $100,000 unsecured note payable agreements and
under two separate $150,000 unsecured note payable agreements. Each note payable
bears interest at 12% and is payable upon demand. The Company also borrowed
$350,000 from two of its major shareholders under two separate note payable
agreements, one for $250,000 and one for $100,000. Each note payable bears
interest at 12% and is payable upon demand. The funds from these transactions
were used to finance operations.
The Company's wholly owned subsidiary, SkyHook Technologies, Inc. ("SkyHook"),
is still in the development stage and is not expected to generate any revenue
through sales of products or services until late 1998. 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 and its
products. 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.
Another wholly owned subsidiary, BioMeridian International, Inc.
("BioMeridian"), has also experienced operating losses during the six-month
period ended June 30, 1998. The Company is forecasting profitable operations for
BioMeridian commencing the third quarter 1998.
There can be no assurance that the Company will be able to obtain needed debt or
equity capital required to operate 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 its products and services through its
operating subsidiaries, and its financial condition would be materially
adversely affected.
12
<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:
Item 6. Exhibits and Reports on Form 8-K:
(a) The Company filed a Report on Form 8-K dated June 15, 1998
reporting the acquisition of Certain licenses and technology
of Digital Health, LLC.
(b) None.
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 August 12, 1998
- ------------------------ ---------------
Douglas M. Angus Date
Vice President - Finance
EXHIBIT 6 (a)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Magellan Technology, Inc. Form 10-QSB
and is qualified in its entirety by reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 189,554
<SECURITIES> 0
<RECEIVABLES> 376,820
<ALLOWANCES> 0
<INVENTORY> 1,315,032
<CURRENT-ASSETS> 2,155,748
<PP&E> 610,822
<DEPRECIATION> (100,990)
<TOTAL-ASSETS> 4,415,253
<CURRENT-LIABILITIES> 4,188,079
<BONDS> 526,543
0
0
<COMMON> 3,520
<OTHER-SE> (302,889)
<TOTAL-LIABILITY-AND-EQUITY> 4,415,253
<SALES> 978,586
<TOTAL-REVENUES> 978,586
<CGS> 225,939
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,362,094
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 195,357
<INCOME-PRETAX> 1,629,831
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,629,831
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,629,831)
<EPS-PRIMARY> (.11)
<EPS-DILUTED> (.11)
</TABLE>
