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, 1999
( ) 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, 1999
----- ------------------
Common Stock, $.0002 par value 27,531,291 shares
<PAGE>
FORM 10-QSB
Financial Statements and Schedules
Magellan Technology, Inc.
For the Quarter Ended September 30, 1999
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 Sheets for
September 30, 1999 and year-end for December
31, 1998 3
Condensed Consolidated Statements of
Operations for the three months and nine
months ended September 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash
Flows for the nine months ended September 30,
1999 and 1998 5
Notes to Condensed Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
PART II - OTHER INFORMATION
---------------------------
Item 1. Legal Proceedings 14
Item 2. Changes in Securities 14
Item 3. Defaults upon Senior Securities 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other information 14
Item 6(a) Exhibits 14
Item 6(b) Reports on Form 8-K 14
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
<TABLE>
<CAPTION>
Sep 30, 1999 Dec 31, 1998
ASSETS (Unaudited) (Audited)
------------ ------------
<S> <C> <C>
Current Assets:
Cash $ 184,134 $ 217,428
Accounts Receivable 1,132,217 474,875
Inventories 910,737 1,100,313
Prepaid Expenses 5,785 133,489
Other Current Assets 69,012 38,896
------------ ------------
Current Assets 2,301,885 1,965,001
------------ ------------
Property and Equipment, net 857,184 973,550
Goodwill, net 975,058 1,204,214
Licenses & Technology, net 1,188,672 1,283,594
------------ ------------
Total Assets $ 5,322,799 $ 5,426,358
============ ============
LIABILITIES
Current Liabilities:
Accounts Payable $ 1,211,049 $ 1,320,328
Accrued Personnel Costs 169,664 143,706
Accrued Liabilities 399,919 186,718
Accrued Interest Payable 272,157 135,332
Line of Credit 2,996,158 3,032,315
Related Party Notes Payable 835,000 1,840,000
Notes Payable 725,694 355,212
Current Portion of long-term debt 744,707 647,939
------------ ------------
Current Liabilities 7,354,347 7,661,549
Long-Term Debt 370,048 1,075,748
------------ ------------
Total Liabilities 7,724,394 8,737,297
------------ ------------
STOCKHOLDERS' EQUITY
Common Stock, par value $.0002 per share;
50,000,000 shares authorized, 27,531,291 shares
issued and outstanding as of September 30, 1999. 5,506 4,150
Additional Paid-in Capital 13,883,646 11,461,507
Unearned Compensation (85,506) (130,868)
Accumulated Deficit (14,645,728) (9,306,760)
Current Earnings/(Loss) (1,559,514) (5,338,968)
------------ ------------
Total Stockholders' equity (2,401,595) (3,310,939)
------------ ------------
Total Liabilities and Stockholders' Equity $ 5,322,799 $ 5,426,358
============ ============
</TABLE>
3
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended September 30 Ended September 30
1999 1998 1999 1998
------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Net Sales $ 2,042,817 $ 1,270,277 $ 5,871,283 $ 3,026,881
Cost of Sales 220,850 213,722 930,409 630,993
------------- ------------ ------------- --------------
Gross Margin 1,821,967 1,056,555 4,940,874 2,395,888
Variable Selling Costs 319,733 168,395 1,098,647 330,981
------------- ------------ ------------- --------------
Contribution Margin 1,502,234 888,160 3,842,227 2,064,908
Operating Expenses:
Administration & Finance 443,867 464,657 1,178,838 1,267,754
Customer Support 34,377 138,996
Logistics Support Facility 76,854 76,854
Operations & Engineering 174,692 447,741 574,590 1,089,461
Sales - Domestic 581,369 999,182 1,990,872 2,318,738
Sales - International 109,340 217,441
Training & Education 178,985 539,687
------------- ------------ ------------- --------------
Total Operating Expenses 1,599,484 1,911,580 4,717,278 4,675,953
------------- ------------ ------------- --------------
Income/(Loss) from Operations: (97,249) (1,023,420) (875,051) (2,611,045)
Other (Income)/Expense:
Other (Income)/Expense 28,428 27,915
Equity in Loss of Joint Venture 5,050
(Gain)/Loss on Sale of Assets 1,165 151 (180,023)
------------- ------------ ------------- --------------
EBITDA (126,842) (1,023,420) (903,117) (2,436,072)
Depreciation Expense 52,389 39,415 155,836 86,915
Amortization of Licenses & Goodwill 156,073 113,202 464,703 279,242
Interest Expense 156,158 112,803 494,359 345,797
------------- ------------ ------------- --------------
Net Income/(Loss) before Taxes (491,462) (1,288,839) (2,018,014) (3,148,026)
Provision for Income Taxes - -
------------- ------------ ------------- --------------
Net Income/(Loss) before Extraordinary Item (491,462) (1,288,839) (2,018,014) (3,148,026)
Extraordinary (Income)/Expense (451,111) (458,500)
------------- ------------ ------------- --------------
Net Income/(Loss) $ (40,351) $ (1,288,839) $ (1,559,514) $ (3,148,026)
============= ============ ============= ==============
Net Income/(Loss) per share (0.00) (0.07) (0.06) (0.16)
============= ============ ============= ==============
Weighted average shares outstanding 24,021,013 19,164,059 24,021,013 19,164,059
============= ============ ============= ==============
</TABLE>
4
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net Income/(Loss) $ (1,559,514) $ (3,148,026)
Adjustments to Reconcile Net Income/(Loss)
to Net Cash used in Operating Activities:
Provision for Bad Debt 18,400
Stock Compensation 45,362 180,099
Issusance of common stock for services 35,000
Forgiveness of Debt (458,500)
Depreciation Expense 155,836 86,915
Amortization of Licenses & Goodwill 464,703 279,242
Loss from Discontinued Operations -
Loss on Joint Venture 5,050
(Gain) on Sale of Assets 151 (180,023)
(Increase)/Decrease in:
Accounts Receivable (723,342) (406,032)
Inventory 189,576 (1,506,135)
Prepaid Expenses 127,704 15,273
Other Current Assets (30,116) -
Increase/(Decrease) in:
Accounts Payable (19,197) 558,908
Accrued Personnel Costs 25,958 272,130
Accrued Liabilities 213,201
Accrued Interest Payable 147,858
------------- -------------
Net Cash Used in Operating Activities (1,366,920) (3,842,599)
------------- -------------
Cash Flows from Investing Activities:
Purchase of Property & Equipment (45,426) (733,867)
Sale of Property & Equipment 3,804
Acquisition of Greenberg Asset Management Corp (500,000)
Sale of Investment in Joint Venture - 1,500,000
------------- -------------
Net Cash Provided by/(Used in) Investing Activities (41,622) 266,133
------------- -------------
Cash Flows from Financing Activities:
Issuance of Common Stock 311,838 580,000
Proceeds from Related Party Notes 1,240,000 1,940,000
Principal Payments on Related Party Notes (345,000) (20,141)
Proceeds from Notes Payable 400,000
Principal Payments on Notes Payable (45,000)
Proceeds from Line of Credit 13,843 849,374
Principal Payments on Line of Credit (50,000) (356)
Proceeds from Long-term Debt 18,798 346,560
Principal Payments on Long-term Debt (169,231) (209,385)
------------- -------------
Net Cash Provided by/(Used in) Financing Activities: 1,375,248 3,486,052
------------- -------------
Net Decrease in cash (33,293) (90,413)
Cash, Beginning of Period 217,428 233,506
------------- -------------
Cash, End of Period $ 184,134 $ 143,093
============= =============
</TABLE>
5
<PAGE>
MAGELLAN TECHNOLOGY, INC.
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months
Ended September 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash paid during the period for:
Interest $ 345,610 249,039
============= =============
Income Taxes $ - $ -
============= =============
</TABLE>
Noncash Financing and Investing Activities:
Nine Months Ended September 30, 1998:
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 nine months ended September 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.
During January 1998, the Company acquired the net assets of the Greenberg
Asset Management Corp for $750,000 cash and the issuance of a note payable in
the amount of $750,000 payable to an individual. This transaction was accounted
for as a "purchase".
Nine Months Ended September 30, 1999:
During the nine months ended September 30, 1999, the Company converted
$1,900,000 of notes payable and $11,033 of accrued interest payable into common
stock.
During the nine months ended September 30, 1999, the Company issued 250,000
shares of common stock in exchange for the rights to certain technology known
known as the P.I.C.E. Technology. The value of stock issued was $140,625.
During the nine months ended September 30, 1999, the Company converted
accounts payable balances to a certain vendors to common stock and notes
payable. The amounts converted were $25,000 and $62,192.81 respectively.
During the nine months ended September 30, 1999, the Company applied an
accounts receivable balance from a customer in the amount of $47,600 to the
outstanding balance of a note payable to this same individual.
During the nine months ended September 30, 1999, the Company issued 100,000
shares of common stock in exchange for services performed by an individual. The
share were issued at $.35 per share for a total amount of $35,000.
During the nine months ended September 30, 1999, the Company recognized
extraordinary income in the amount of $451,111 as a result of the forgiveness of
debt by a certain creditor.
During the nine months ended September 30, 1999, the Company acquired all
of the issued and outstanding stock of Biological Technologies International,
Inc. in exchange for 3,024,024 shares of Magellan Technology, Inc. common stock.
This transaction was accounted for using the "Pooling of Interests" method of
accounting.
6
<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, BioMeridian International, Inc. (BioMeridian)
(formerly known as BioSource, Inc.) which the Company acquired
effective October 15, 1997, and Biological Technologies International,
Inc. (BTI) which the Company acquired effective September 17, 1999. 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. The
acquisition of BTI included the issuance of 3,024,024 shares of
Magellan common stock for all of the outstanding shares of BTI common
stock. The transaction was accounted for as a "pooling of interests"
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. On
February 16, 1999, the Company acquired certain assets known as the
P.I.C.E. technology from an individual in exchange for 250,000 shares
of common stock.
(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, 1999 and the results of
operations for the three months and nine months ended September 30,
1999 and 1998 and cash flows for the nine months ended September 30,
1999 and 1998. The results of operations for the three months ended
September 30, 1999 are not necessarily indicative of quarterly results
to be expected for the remainder of the year.
(3) The amount of the loss per share is based on the weighted average
number of shares outstanding at September 30, 1999 and 1998,
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
7
<PAGE>
funds was used for working capital purposes. On August 31, 1999, the
Company entered into an agreement whereby the previous agreement for
additional payments to be earned over time would be terminated in
exchange for the immediate forgiveness of the remainder of an
outstanding note payable obligation to SIS, LLC. As a result, the
Company recognized an extraordinary gain of $451,111.
(5) On May 19, 1998 the company entered into a $3,000,000 revolving line of
credit agreement. During the three months ended September 30, 1999 the
Company made no additional borrowings under this revolving line of
credit. This revolving line of credit matures on December 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, 1999 the Company
had an outstanding balance of $2,996,158 under this revolving line of
credit.
(6) During the nine months ended September 30, 1999 the Company borrowed a
net amount of $295,000 from the Company's Chief Executive Officer, or
from entities controlled by this individual, under two separate
$100,000 unsecured note payable agreements, one $50,000 unsecured note
payable agreement, one $30,000 unsecured note payable agreement, and
one $15,000 unsecured note payable agreement. Each note payable bears
interest at 12% and is payable upon demand. In addition, the Company
borrowed $20,000, $30,000 and $25,000 under separate unsecured note
payable agreements from stockholders. Each note payable bears interest
at 12% and is payable upon demand. The Company also borrowed $50,000
from an entity under an unsecured note payable agreement that bears
interest at 10%. The Company has since acquired this entity.
8
<PAGE>
(7) During the nine months ended September 30, 1999, the Company also
borrowed $350,000 and $250,000 from unrelated parties under separate
convertible note payable agreements. Each convertible note payable
bears interest at 12% and contains a provision for the conversion of
the principal amount to common stock at a specified price. On March 31,
1999, both convertible note payable agreements were converted to common
stock at $.35 per common share. In addition, the Company borrowed
$200,000, $100,000 and $25,000 from unrelated parties under separate
convertible note payable agreements. Each bears interest at 12% and
contains a provision for the conversion of the principal amount to
common stock at a specified price. The funds from these transactions
were used to finance operations. In addition, the Company converted
certain accounts payable to a vendor into a note payable in the amount
of $39,313. This note payable bears interest at 9% and is payable at
the end of six months from the date of issuance.
(8) Effective March 31, 1999, $1,300,000 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 $11,033 was used
by the related parties to exercise warrants to purchase common stock.
(9) Magellan has signed an agreement to merge SkyHook Technologies, Inc.,
its wholly owned subsidiary, into EnviroFoam Technologies, Inc., a
Department of Defense ("DoD") contractor located in Phoenix, AZ. With
this action, Magellan has exited the Aviation and Department of Defense
marketplace to position itself to be a leader in the Alternative Health
Care Marketplace through the operations of its wholly owned subsidiary:
BioMeridian International, Inc. Terms of the merger are to be finalized
in the near future
9
<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, 1999 compared to the nine-month period
ended September 30, 1998.
Results of BioMeridian
BioMeridian International, Inc. (BioMeridian) manufactures and sells the MSA-21
system to healthcare practitioners. This equipment is used to assess stress and
assist healthcare practitioners in the analysis and treatment of certain
conditions. If stress or imbalance is detected, the MSA-21 system is used to
recommend a course of treatment or therapy to alleviate the stress or to restore
balance to the body's meridian systems. BioMeridian also provides training
classes and support services for health care practitioners that utilize the BEST
system. The MSA-21 system is registered with the U.S. Food and Drug
Administration.
For the nine months ended September 30, 1999 BioMeridian achieved sales revenues
of $4,712,042 that resulted in an operating loss of $342,820 compared with sales
revenues of $1,855,079 that resulted in an operating loss of $387,675 for the
nine months ended September 30, 1998. The significant increase in sales is the
result of the synergies of the acquired assets and technology of BioSource and
Digital Health and the expanded user base along with improved sales techniques
and performance of independent and in-house sales representatives. The continued
operating loss is primarily due to unusually high selling expenses and operating
overhead costs. The increased overhead costs are the result of improved
marketing strategies and improved customer training and support personnel.
Although BioMeridian has experienced operating losses during the nine-month
period ended September 30, 1999, the Company believes that BioMeridian has now
reached a sustainable revenue level in excess of $500,000 per month and is
poised to achieve profitable operations again in the fourth quarter as was
achieved in the third quarter of 1999.
Results of BTI
BTI (Biological Technologies International, Inc.) is the leader in the field of
biological terrain assessment, and the only company in the United States that
produces a biological terrain assessment device. The principal product of BTI is
the BTA S-2000. This product tests blood, saliva, and urine for the factors of
pH (acid-alkaline balance), rH2 (oxidative stress), and r (gross mineral
concentration) and provides the practitioner with an immediate, objective
assessment of a patient's individual biochemistry.
For the nine months ended September 30, 1999 BTI achieved sales revenues of
$904,383 that resulted in an operating loss of $136,598 compared with sales
revenues of $1,171,802 that resulted in an operating loss of $347,910 for the
nine months ended September 30, 1998. The decrease in sales and the reduction in
the operating loss are primarily the result of closing the eastern U.S. sales
office located in Manchester, MA. In addition, non-recurring legal costs of
approximately $50,000 were incurred by BTI in the third quarter in connection
with the acquisition of BTI. Although BTI has experienced operating losses
10
<PAGE>
during the nine-month period ended September 30, 1999, the Company believes that
BTI can increase its revenue level using the existing sales network of
BioMeridian and can, thereby, achieve profitable operations in the fourth
quarter of 1999.
Results of SkyHook
Since its formation in February 1995, SkyHook Technologies, Inc. (SkyHook) has
been engaged in the development of computer-controlled multi-hook cargo
transport devices that SkyHook believes will improve the efficiency and safety
of helicopter missions by enabling the selective delivery and retrieval of
multiple external payloads during a single mission. SkyHook also believes that
its devices will allow an aircrew to more fully utilize a helicopter's load
capacity while minimizing flight time.
SkyHook's patented products include the SkyHook External Cargo Management System
(SkyHook ECMS) and the SkyHook Light Ariel Delivery System (SkyHook LADS). The
SkyHook LADS is a lower cost system 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 potential customers. SkyHook has invested over $8.0
million in the development, testing and marketing of its unique products. The
Company continues an aggressive marketing campaign with the U.S. Military as its
primary potential customer.
During the nine months ended September 30, 1999, the Kansas National Guard
issued a purchase order for one Light Aerial Delivery System (LADS). The LADS
system was delivered to the Kansas National Guard in late April 1999. SkyHook
anticipates additional revenues from the sale of SkyHook products near the end
of 1999. However, currently the Company must rely 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 SkyHook and its products.
SkyHook was recently awarded a contract with Envirofoam Technologies, Inc.
(Envirofoam) that provides for the marketing and contract management of a
patented fire suppression device that is targeted for sale to the U.S. Military.
During the nine months ended September 30, 1999 SkyHook recognized revenues of
$214,500 under this contract with Envirofoam. Magellan has signed an agreement
to merge SkyHook Technologies, Inc., its wholly owned subsidiary, into
EnviroFoam Technologies, Inc., a Department of Defense ("DoD") contractor
located in Phoenix, AZ. With this action, Magellan has exited the Aviation and
Department of Defense marketplace to position itself to be a leader in the
Alternative Health Care Marketplace through the operations of its wholly owned
subsidiary: BioMeridian International, Inc. Terms of the merger are to be
finalized in the near future.
SkyHook was recently awarded a sole source Indefinite Delivery/Indefinite
Quantity Logistics Support Facility (LSF) contract plus a Facilities Use
contract, with a contract ceiling value of $48 million. The period of
performance is for 6 years, which includes three option years. The scope of work
provides a broad spectrum of opportunities ranging from general aviation
modification and repair, vehicle and watercraft maintenance, engineering
services, manufacturing and production, etc.
11
<PAGE>
Three-month period ended September 30, 1999 compared to the three-month period
ended September 30, 1998.
Results of BioMeridian
For the three months ended September 30, 1999 BioMeridian achieved sales
revenues of $1,651,633 which resulted in operating income of $210,710 compared
with sales revenues of $876,493 which resulted in an operating loss of $205,056
for the three months ended September 30, 1998. The significant increase in sales
is the result of the synergies of the acquired assets and technology of
BioSource and Digital Health and the expanded user base along with improved
sales techniques and performance of independent and in-house sales
representatives. The increase in operating income is due to increased sales
accompanied by management's changes in and drive for more efficient operating
overhead levels.
Results of BTI
For the three months ended September 30, 1999 BTI achieved sales revenues of
$291,870 that resulted in an operating loss of $66,374 compared with sales
revenues of $393,784 that resulted in an operating loss of $118,553 for the
three months ended September 30, 1998. The decrease in sales and the reduction
in the operating loss are primarily the result of closing the eastern U.S. sales
office located in Manchester, MA. In addition, non-recurring legal costs of
approximately $50,000 were incurred by BTI in the third quarter in connection
with the acquisition of BTI.
Although BTI has experienced operating losses during the three-month period
ended September 30, 1999, the Company believes that BTI can increase its revenue
level using the existing sales network of BioMeridian and can, thereby, achieve
profitable operations in the fourth quarter of 1999.
Results of SkyHook
SkyHook anticipates additional revenues from the sale of SkyHook products near
the end of 1999. However, currently the Company must rely 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 SkyHook and its products.
SkyHook was recently awarded a contract with Envirofoam Technologies, Inc.
(Envirofoam) that provides for the marketing and contract management of a
patented fire suppression device that is targeted for sale to the U.S. Military.
During the three months ended September 30, 1999 SkyHook recognized revenues of
$99,000 under this contract with Envirofoam. Magellan has signed an agreement to
merge SkyHook Technologies, Inc., its wholly owned subsidiary, into EnviroFoam
Technologies, Inc., a Department of Defense ("DoD") contractor located in
Phoenix, AZ. With this action, Magellan has exited the Aviation and Department
of Defense marketplace to position itself to be a leader in the Alternative
Health Care Marketplace through the operations of its wholly owned subsidiary:
BioMeridian International, Inc. Terms of the merger are to be finalized in the
near future.
12
<PAGE>
Liquidity and Capital Resources
On May 19, 1998 the company entered into a $3,000,000 revolving line of credit
agreement. During the three months ended September 30, 1999 the Company made no
additional borrowings under this revolving line of credit. This revolving line
of credit matures on December 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, 1999 the
Company had an outstanding balance of $2,996,158 under this revolving line of
credit.
During the nine months ended September 30, 1999 the Company borrowed a net
amount of $295,000 from the Company's Chief Executive Officer, or from entities
controlled by this individual, under two separate $100,000 unsecured note
payable agreements, one $50,000 unsecured note payable agreement, one $30,000
unsecured note payable agreement, and one $15,000 unsecured note payable
agreement. Each note payable bears interest at 12% and is payable upon demand.
In addition, the Company borrowed $20,000, $30,000 and $25,000 under separate
unsecured note payable agreements from stockholders. Each note payable bears
interest at 12% and is payable upon demand. The Company also borrowed $50,000
from an entity under an unsecured note payable agreement that bears interest at
10%. The Company has since acquired this entity.
During the nine months ended September 30, 1999, the Company also borrowed
$350,000 and $250,000 from unrelated parties under separate convertible note
payable agreements. Each convertible note payable bears interest at 12% and
contains a provision for the conversion of the principal amount to common stock
at a specified price. On March 31, 1999, both convertible note payable
agreements were converted to common stock at $.35 per common share. In addition,
the Company borrowed $200,000, $100,000 and $25,000 from unrelated parties under
separate convertible note payable agreements. Each bears interest at 12% and
contains a provision for the conversion of the principal amount to common stock
at a specified price. The funds from these transactions were used to finance
operations. In addition, the Company converted certain accounts payable to a
vendor into a note payable in the amount of $39,313. This note payable bears
interest at 9% and is payable at the end of six months from the date of
issuance.
Effective March 31, 1999, $1,300,000 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 $11,033 was used by the related parties to
exercise warrants to purchase common stock.
The Company has made significant investment and effort over the last five years
into the establishment of a sound framework for operating entities that are well
positioned in their respective marketplaces. With the pending sale of SkyHook,
Magellan will now focus its full management attention on its profitable
Complementary Health Care initiatives. Management anticipates continued
profitable growth and feels that BioMeridian and BTI are poised for success and
future profitable operations. However, there can be no assurance that the
Company will be able to achieve profitable operations or obtain the needed debt
or equity capital required 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.
13
<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: None.
Item 6. Exhibits and Reports on Form 8-K: None.
<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
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
MAGELLAN TECHNOLOGY, INC. 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-31-2000
<PERIOD-END> SEP-30-1999
<CASH> 184,134
<SECURITIES> 0
<RECEIVABLES> 1,132,217
<ALLOWANCES> 0
<INVENTORY> 910,737
<CURRENT-ASSETS> 2,301,885
<PP&E> 1,207,349
<DEPRECIATION> 350,165
<TOTAL-ASSETS> 5,322,799
<CURRENT-LIABILITIES> 7,354,347
<BONDS> 370,048
0
0
<COMMON> 5,506
<OTHER-SE> 1,378,140
<TOTAL-LIABILITY-AND-EQUITY> 5,322,799
<SALES> 2,042,817
<TOTAL-REVENUES> 2,042,817
<CGS> 220,850
<TOTAL-COSTS> 1,599,484
<OTHER-EXPENSES> 491,462
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 156,158
<INCOME-PRETAX> (491,462)
<INCOME-TAX> 0
<INCOME-CONTINUING> (491,462)
<DISCONTINUED> 0
<EXTRAORDINARY> 451,111
<CHANGES> 0
<NET-INCOME> (40,351)
<EPS-BASIC> 0.00
<EPS-DILUTED> 0.00
</TABLE>
