UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 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 September 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 87-0467614
- --------------------------------- -----------------------------------
(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, 1998
----- ------------------
Common Stock, $.0002 par value 17,599,536 shares
<PAGE>
FORM 10-QSB
Financial Statements and Schedules
Magellan Technology, Inc.
For the Quarter Ended September 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 September 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 4
Condensed statement of cash flows for the six months ended
June 30, 1998 and 1997 5
Notes to condensed consolidated financial statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 9
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults upon Senior Securities 12
Item 4. Submission of Matters to a Vote of Security Holders 12
Item 5. Other information 12
Item 6(a) Exhibits 12
Item 6(b) Reports on Form 8-K 12
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<TABLE>
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MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
Sep 30, 1998 Dec 31, 1997
ASSETS (Unaudited) (Audited)
------------- -------------
Current Assets:
Cash $ 110,035 $ 111,402
Accounts Receivable 296,142
Inventories 1,805,598
Other Current Assets 179,542 570,808
------------- -------------
Current Assets 2,391,317 682,210
------------- -------------
Property and Equipment, net 975,327 336,421
Licenses & Technology, net 1,404,687 -
Goodwill, net 288,541 344,039
Net Asset in Discontinued Operations - 1,325,027
------------- -------------
Total Assets $ 5,059,872 $ 2,687,697
============= =============
LIABILITIES
Current Liabilities:
Accounts Payable $ 949,394 $ 478,702
Accrued Liabilities 340,596 206,749
Line of Credit 3,020,824 2,210,022
Related Party Notes Payable 1,040,000 750,000
Notes Payable 32,097 -
Current Portion of long-term debt 440,622 173,537
------------- -------------
Current Liabilities 5,823,533 3,819,010
Long-Term Debt 679,710 591,717
------------- -------------
Total Liabilities 6,503,243 4,410,727
------------- -------------
STOCKHOLDERS' EQUITY
Common Stock, par value $.0002 per share;
50,000,000 shares authorized, 17,599,536 shares
issued and outstanding as of September 30, 1998. 3,520 2,774
Additional Paid-in Capital 9,890,599 6,890,419
Unearned Compensation (157,151) (236,000)
Accumulated Deficit (8,380,223) (5,382,831)
Current Earnings/(Loss) (2,800,116) (2,997,392)
------------- -------------
Total Stockholders' equity (1,443,371) (1,723,030)
------------- -------------
Total Liabilities and Stockholders' Equity $ 5,059,872 $ 2,687,697
============= =============
</TABLE>
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<TABLE>
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MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------- ------------- ------------- -------------
1998 1997 1998 1997
------------- ------------- ------------- -------------
Revenue from Sales $ 876,493 $ - $ 1,855,079 $ -
Cost of Sales 105,836 - 331,775 -
------------- ------------- ------------- -------------
Gross Margin 770,657 - 1,523,304 -
Operating Expenses:
Selling, General & Administrative 1,281,257 378,218 2,756,173 845,036
Depreciation & Amortization 93,710 5,329 184,301 12,988
Compensation Expense - Stock Options 26,283 - 180,099 -
R & D Expenses 446,690 207,436 1,089,461 499,103
------------- ------------- ------------- -------------
Total Operating Expenses 1,847,940 590,983 4,210,034 1,357,127
------------- ------------- ------------- -------------
Income/(Loss) from Operations: (1,077,283) (590,983) (2,686,730) (1,357,127)
Other Income/(Expense):
Equity in Income/(Loss) of Joint Venture - 29,307 (5,050) (9,251)
Interest Expense (93,002) (46,521) (288,359) (92,446)
Gain on sale of Joint Venture - - 180,023 -
Other, net - - - (7,038)
------------- ------------- ------------- -------------
Net Income/(Loss) $ (1,170,285) $ (608,197) $ (2,800,116) $ (1,465,862)
============= ============= ============= =============
Net Income/(Loss) per share $ (0.07) $ (0.04) $ (0.17) $ (0.10)
============ ============= ============= =============
Weighted average shares outstanding 16,140,035 14,448,893 16,140,035 14,448,893
============ ============= ============= =============
</TABLE>
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<TABLE>
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MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
------------- -------------
1998 1997
Cash Flows form Operating Activities: ------------- -------------
Net Income/(Loss) $ (2,800,116) $ (1,465,862)
Adjustments to Reconcile Net Income/(Loss)
to Net Cash used in Operating Activities:
Depreciation & Amortization 184,301 12,988
Stock Compensation 180,099 -
Equity in Loss of Joint Venture 5,050 9,251
(Gain) on Sale of Assets (180,023) -
(Increase)/Decrease in:
Accounts Receivable (296,142) -
Other Current Assets 15,273 (327,945)
Inventories (1,429,605) -
Increase/(Decrease) in:
Accounts Payable 470,692 204,695
Accrued Liabilities 133,847 27,936
------------- -------------
Net Cash Used in Operating Activities (3,716,624) (1,538,937)
------------- -------------
Cash Flows from Investing Activities:
Purchase of Machinery and Equipment (719,271) (42,420)
Sale of Investment in Subsidiary 1,500,000 -
------------- -------------
Net Cash Provided by/(Used in) Investing Activities 780,729 (42,420)
------------- -------------
Cash Flows from Financing Activities:
Proceeds from Related Party Notes 1,040,000 -
Net Proceeds from Notes Payable & Line of Credit 1,789,450 1,590,000
Proceeds from Issuance of Common Stock 7,500
Net Proceeds from/(Payment on) Long-term Debt 105,078 (16,931)
------------- -------------
Net Cash Provided by/(Used in) Financing Activities: 2,934,528 1,580,569
------------- -------------
Net Decrease in cash (1,367) (788)
Cash, Beginning of Period 111,402 88,687
------------- -------------
Cash, End of Period $ 110,035 $ 87,899
============= =============
</TABLE>
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
Nine Months Ended
September 30,
------------- -------------
1998 1997
Cash paid during the period for: ------------- -------------
Interest $ 247,851 $ 40,178
============= =============
Income Taxes $ - $ -
============= =============
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 nine 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.
<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 of 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 of the company as of September 30, 1998 and the
results of operations for the nine months ended September 30, 1998
and 1997 and cash flows for the nine months ended September 30,
1998 and 1997. The results of operations for the nine months ended
September 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 September 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 was used for working capital
purposes.
<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 September 30, 1998 the Company
borrowed an additional $751,158 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 September 30,
1998 the Company had an outstanding balance of $2,996,158 under
the new revolving line of credit. Notes payable at September 30,
1998 also include a small line of credit for $24,666.
(6) During the nine months ended September 30, 1998 the Company
borrowed $1,590,000 from the Company's Chief Executive Officer, or
from entities controlled by this individual, under eight separate
$100,000 unsecured note payable agreements, two separate $150,000
unsecured note payable agreements, two separate $200,000 unsecured
note payable agreements, and one $90,000 unsecured note payable
agreement. 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.
(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 $46,551 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.
<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, 1998 compared to the nine-month period
ended September 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, 1997 and the acquisition
of certain licenses and technology from Digital Health, LLC effective June 15,
1998, the focus of the company for the nine month period ended September 30,
1998 has changed significantly when compared to the activities of the nine month
period ended September 30, 1997. Accordingly, no comparison between current and
prior year's operating results is meaningful.
Operations for the three-month period ended September 30, 1998
Results of SkyHook
During the three months ended September 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 complements the SkyHook ECMS that 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 complement the ECMS
product, the company can effectively meet the varying needs of its customers.
Results of BioMeridian
For the three months ended September 30, 1998 BioMeridian achieved sales
revenues of $876,493, which resulted in a third quarter operating loss of
$205,056. Sales in the second quarter of $735,969 resulted in an operating loss
of $49,755. The increased loss is primarily due to a one-time expense of
approximately $150,000 associated with the annual symposium presented in
Phoenix, Arizona by the Company to demonstrate its products to sales
representatives and potential buyers. Benefits from the costs of the symposium
are expected to be realized during the next year resulting in increased
revenues. BioMeridian 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 for growth in the
alternative health care marketplace.
<PAGE>
Operations for the Nine-month period ended September 30, 1998
Results of SkyHook
During the nine months ended September 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 nine months ended September 30, 1998 BioMeridian achieved sales revenues
of $1,855,079 that resulted in an operating loss of $387,675. 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. BioMeridian 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 for
growth in the alternative health care marketplace.
Results of SIS, LLC
For the nine months ended September 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.
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 September 30, 1998 the Company borrowed an
additional $751,158 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 September 30, 1998 the
Company had an outstanding balance of $2,996,158 under the new revolving line of
credit.
<PAGE>
During the nine months ended September 30, 1998 the Company borrowed $1,590,000
from the Company's Chief Executive Officer, or from entities controlled by this
individual, under eight separate $100,000 unsecured note payable agreements, two
separate $150,000 unsecured note payable agreements, two separate $200,000
unsecured note payable agreements, and one $90,000 unsecured note payable
agreement. 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. 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 $46,551 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.
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 or early 1999. 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 expected to
consume approximately $200,000 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 Int'l, Inc. ("BioMeridian"), has
also experienced operating losses during the nine-month period ended September
30, 1998. The Company is forecasting profitable operations for BioMeridian
commencing the fourth 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.
<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) None.
(b) 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.
<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 15, 1998
- ------------------------ -----------------
Douglas M. Angus Date
Vice President - Finance
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Magellan Technology, Inc. Form 10-QSB 3rd Qtr 1998
and is qualified in its entirety by reference to such financial statements
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 110,035
<SECURITIES> 0
<RECEIVABLES> 296,142
<ALLOWANCES> 0
<INVENTORY> 1,805,598
<CURRENT-ASSETS> 2,391,317
<PP&E> 1,113,581
<DEPRECIATION> 138,254
<TOTAL-ASSETS> 5,059,872
<CURRENT-LIABILITIES> 5,823,533
<BONDS> 0
0
0
<COMMON> 3,520
<OTHER-SE> 1,439,851
<TOTAL-LIABILITY-AND-EQUITY> 5,059,872
<SALES> 1,855,079
<TOTAL-REVENUES> 1,855,079
<CGS> 331,775
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,210,034
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 288,359
<INCOME-PRETAX> (2,800,116)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,800,116)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,800,116)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> (.17)
</TABLE>
