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

                                   FORM 10-KSB

(x)  Annual Report under Section 13 of 15 (d) of the Securities Exchange Act of
     1934 for the fiscal year ended December 31, 1998.

( )  Transition  report under Section 13 or 15 (d) of the  Securities  Exchange
     Act of 1934 for the transition period from ____________ to ___________

Commission File No. 0-18271

                            MAGELLAN TECHNOLOGY, INC.
                 (Name of small business issuer in its charter) 
           Utah                                         87-0467614
 (State or other jurisdiction                       (I.R.S. Employer
 of incorporation or organization)                  Identification No.)

      13526 South 110 West                                84020
          Draper, Utah                                  (Zip Code)


Issuer's telephone number, including area code:  (801) 495-2211

                Securities registered under Section 12(b) of the Act:
                                      None

                Securities registered under Section 12(g) of the Act:
                                  Common Stock
                           Par Value $.0002 per Share
                          ----------------------------
                                (Title of Class)

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

Check if there is no disclosure of delinquent  filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
issuer's knowledge,  in definitive proxy or information statements  incorporated
by  reference  in Part III of this  form  10-KSB or any  amendment  to this form
10-KSB. Yes | | No |_|
<PAGE>

The issuer's revenues for its most recent fiscal year totaled $2,605,952.

The aggregate market value of the voting stock held by  non-affiliates  computed
by  reference  to the price at which the stock was sold,  or the average bid and
asked prices of such stock as of December 31, 1998 was $6,650,350.

17,734,266 shares of the issuer's common stock were issued and outstanding as of
December 31, 1998.


            Transitional Small Business Disclosure Format (Check one):
                                 Yes |_| No |X|




                                TABLE OF CONTENTS


PART I

         Item 1.           Description of Business  . . . . . . . . . . . . . 1

         Item 2.           Description of Property . . . . . . . . . . . . . .4

         Item 3.           Legal Proceedings   . . . . . . . . . . . . . . . .5

         Item 4.           Submission of Matters to a Vote of Security 
                           Holders . . . . . . . . . . . . . . . . . . . . . .5

PART II

         Item 5.           Market for Common Equity and Related Stockholder 
                           Matters . . . . . . . . . . . . . . . . . . . . . . 6

         Item 6.           Management's Discussion and Analysis or Plan of 
                           Operation . . . . . . . . . . . . . . . . . . . . . 6

         Item 7.           Financial Statements . . . . . . . . . . . . . . .  8

         Item 8.           Changes in and Disagreements with Accountants on
                           Accounting and Financial Disclosure  . . . . . . . .9

PART III

         Item 9.           Directors, Executive Officers, Promoters and Control
                           Persons; Compliance with Section 16a of the Exchange 
                           Act . . . . . . . . . . . . . . . . . . . . . . . .10

         Item 10.          Executive Compensation  . . . . . . . . . . . . . .12

         Item 11.          Security Ownership of Certain Beneficial Owners and
                           Management . . . . . . . . . . . . . . . . . . . . 13

         Item 12           Certain Relationships and Related Transactions  .  14

PART IV

         Item 13           Exhibits and Reports on Form 8-K . . . . . . . . . 15

SIGNATURES  .  .  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
<PAGE>





                                     PART I

ITEM 1.  DESCRIPTION OF BUSINESS

Business Development

     Magellan  Technology,  Inc. (the "Company" or "Magellan") was  incorporated
under the laws of the State of Utah on June 16, 1989. Its founders organized the
Company for the  purpose of raising  capital  and  seeking  profitable  business
opportunities.

         In February  1992, the Company  completed the  acquisition of Satellite
Image Systems, Inc. ("SIS"), a Utah corporation engaged in providing image-based
data  entry  services   utilizing   licensed  and  proprietary  data  entry  and
communications  software.  The acquisition was  accomplished by merging SIS with
and into the Company's wholly owned subsidiary, SIS International, Inc. with SIS
being the surviving  corporation.  Through the merger, SIS became a wholly owned
subsidiary of the Company.  In August 1996, the Company  announced the formation
of a joint venture with United  Insurance  Companies,  Inc.  ("UICI") of Dallas,
Texas to expand UICI's presence in the medical claims processing  business.  SIS
contributed its technology,  operations and management to a newly-formed entity,
SIS,  LLC. UICI  contributed  $3 million in cash and a $2 million line of credit
for working  capital.  The Company retained a 46.5% interest in SIS, LLC. Darwin
D. Millet,  formerly President of SIS, became the Chief Executive Officer of the
newly-formed  limited  liability  company.  UICI  is a  financial  company  with
interest  in life and health  insurance  and  related  services,  including  the
administration and delivery of managed health care programs to selected markets.

         In October  1996,  the Company  completed  the  acquisition  of SkyHook
Technologies,  Inc., a Utah corporation  ("SkyHook")  organized in 1995 and
engaged in development of a proprietary,  cargo-management  systems for use with
helicopters.  SkyHook's initial cargo-management product is the SkyHook External
Cargo Management System ("ECMS") which is a  computer-controlled,  multiple-hook
cargo carrying device that attaches to a long line beneath the  helicopter.  The
acquisition  was  accomplished  through  the  exchange  of  4,874,936  shares of
Magellan  Common  Stock in  exchange  for all issued and  outstanding  shares of
SkyHook  Common  Stock.  SkyHook  then became a wholly owned  subsidiary  of the
Company.

         In April 1997, the Company  organized  Magellan Service Company ("MSC")
as  a  wholly  owned   subsidiary  to  pursue  avionics   integration   contract
opportunities  that can  utilize  the  experience  and  skills of the  personnel
presently employed by SkyHook.

         In October 1997,  the Company  completed the  acquisition  of BioSource
Inc.  ("BioSource"),  a Utah S corporation  organized in 1983 and engaged in the
development and sales of the "LISTEN"  biofeedback  information  system which is
marketed and sold to healthcare  practitioners in the  complementary  healthcare
marketplace. The acquisition was ultimately accomplished through the exchange of
$190,000 in cash and 225,000 shares of Magellan Common Stock in exchange for all
issued  and   outstanding   shares  of  BioSource   Common  Stock.   BioMeridian
International, Inc. ("BioMeridian") was formed as the surviving entity.
<PAGE>

         In May 1998,  the Company  completed the sale of its 46.5%  interest in
SIS, LLC to UICI of Dallas,  Texas resulting in the complete  divestiture of the
Company's involvement in image-based data entry services.  The company completed
the sale  primarily  for the  purpose of raising  funds for the  acquisition  of
additional entities deemed strategically beneficial to the Company. The sale was
completed for $1,500,000 and resulted in a gain on sale of $180,023.

         In May 1998 the Company  completed the acquisition of certain  licenses
and technology of Digital Health,  LLC, a Utah limited liability company engaged
in a business similar to that of BioMeridian.  This acquisition was completed in
an effort to improve the market share and market  position of  BioMeridian  with
its  technology  based  Meridian  Stress  Assessment  ("MSA")  equipment  in the
complementary  healthcare  marketplace through the immediate  acquisition of FDA
registration of the technology.  The  acquisition was  accomplished  through the
exchange of  1,375,000  shares of common  stock and  $250,000 in cash payable in
monthly installments of $15,000. The operations of Digital Health, LLC were then
combined with BioMeridian.

Business of the Company

         BioMeridian

         Products.  BioMeridian  manufactures  and  sells  the  BEST  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 BEST 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 BEST
system  is  registered  with  the  U.S.  Food  and  Drug   Administration  as  a
stress-monitoring device.

         Markets.  The emerging market for Meridian Stress Assessment  equipment
is  worldwide,  crossing the  boundaries  of health care  disciplines.  The BEST
system  is  useful  in  the  practice  of  medicine,   osteopathy,   homeopathy,
naturopathy, acupuncture, and other disciplines.

         Competition.  There are at least nine other devices sold throughout the
world that are somewhat  similar to the BEST system.  These products are grouped
into two general categories:  (1) Simple electronic  measurement devices,  which
are older and less dynamic  technology and (2) computerized  devices,  which are
similar in approach to the BEST system.

         Manufacturing.  BioMeridian  currently contracts with a third party for
the  assembly  of the BEST  system in a facility  located in Orem,  Utah.  Other
subassemblies  of the  product are also  currently  subcontracted  with  various
vendors.  BioMeridian  is currently in the process of preparing for the in-house
manufacture  and  assembly  of certain  subassemblies  for the BEST system in an
effort to gain efficiencies with cost and availability of the product.

        Intellectual  Property.  BioMeridian  is presently  pursuing  copyright
and other protection for the BEST software and other design property.

         Government  Regulation.  Use  of the  BEST  system  internationally  is
subject to various  regulatory  requirements on a country by country basis.  The
product has received  various forms of regulatory  compliance for use in Canada,
Australia,  South Africa and Germany.  In the United States, the BEST system has
current FDA registration.
<PAGE>

         Employees.  BioMeridian  currently  employs 37 persons  full-time  with
three  part-time  employees.  Ten employees are in  administration  and finance,
eleven in sales and marketing, five in training and education, three in customer
support,   eight  in  engineering  with  five  full-time  and  three  part-time.
BioMeridian has established independent representatives in outlying geographical
locations  domestically.  The  Company has  current  contracts  with 25 domestic
independent  representatives in various geographical locations across the United
States.  The  Company  has also  established  relationships  with 9  independent
international distributors.

         SkyHook

         Products. Since formation in February 1995, 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
air crew to more fully utilize a  helicopter's  load capacity  while  minimizing
flight time.

         The  load-bearing  components of the SkyHook devices are constructed of
hhigh-quality  chrome-moly  steel. The air frame for the heavy lift device known
as the External Cargo  Management  System  ("ECMS") is capable of lifting 27,000
pounds of cargo in a three  hook  configuration  or 36,000  pounds in a six hook
configuration.  SkyHook has also developed a lighter collapsible  airframe known
as  the  Light  Aerial  Delivery  System  ("LADS")  in  a  three  or  four  hook
configuration   capable  of   lifting   12,000   pounds.   These   devices   are
aerodynamically  designed for stable flight,  loaded or empty.  Product features
include  aggregate and individual  hook payload weight  readouts,  various fault
condition  warnings and safety warnings and load release  commands  allowing the
drop of one or multiple loads  simultaneously.  Navigation,  identification  and
other  lighting  systems  are  controlled  by the  operator.  The  products  are
currently being tested and demonstrated with potential customers.

         Markets.  The  market  for  the  SkyHook  device  consists  of  utility
helicopters  worldwide  with a cargo lift capacity  ranging from 3,000 pounds to
36,000  pounds.  Approximately  60%  of  utility  helicopters  are  operated  by
government entities,  with the military being the principal operator. The United
States  military is the largest  single owner of utility  helicopters,  with the
U.S. Army owning more than any other entity,  domestically  or  internationally.
Design changes to the device have resulted  principally  from testing  conducted
with the U.S.  military.  SkyHook expects to market its products directly in the
United  States  (principally  to the  U.S.  military)  and  through  independent
representatives in international markets. No devices have been sold to date and,
notwithstanding  favorable test results, there is no assurance that marketing of
these products will be successful.

         Competition.  SkyHook is aware of one multi-hook cargo transport device
which is offered in four and nine hook  configurations and is a commercial-grade
product  offering  with  an  electronically-activated  selective  load  release.
SkyHook  believes,  however,  that its  products  have been  designed to address
significantly  different markets requiring much greater cargo capacities with an
emphasis on military and industrial applications.
<PAGE>

         Manufacturing. In March 1998, SkyHook opened a facility in Draper, Utah
where the  manufacture  and  assembly of both the ECMS and LADS will take place.
This has resulted in  efficiencies  with both cost and  engineering improvements
better  positioning  SkyHook to adapt to and meet the needs of the marketplace.

         Intellectual  Property.  SkyHook has been awarded two  separate  United
States  patents that pertain to the ECMS. A third patent for unique  features of
the LADS has been applied  for.  The  validity and breadth of claims  covered in
patents  involve  complex  legal  and  factual  questions  and  are,  therefore,
uncertain.  Whether or not SkyHook's additional patent applications are granted,
others may receive  patents which contain  claims having a scope broad enough to
cover  products  developed by SkyHook.  SkyHook has also  developed  proprietary
software  utilized  in its cargo  management  system and has filed and  received
approval on its  application  to register the "SkyHook"  logo as a United States
trademark.

         Government   Regulation.   In  addition  to  military  air   worthiness
requirements,  the  SkyHook  products  are  required  to comply with the Federal
Aviation  Administration  Regulations  applicable to its  products.  Because the
products  are  exterior  to the  aircraft,  can  be  operated  with a  hand-held
controller and can be jettisoned, the compliance process is not expected to have
a material  adverse  impact on the Company's  business.  Military  customers may
purchase the products as  "commercial  off-the-shelf"  or may seek a militarized
version meeting certain military specifications. The U.S. Department of Commerce
has  evaluated  the SkyHook  products  and  determined  that they do not require
export licenses.

         Employees.  SkyHook currently employs 3 persons full-time and 2 persons
part-time. The three full-time employees continue the sales and marketing effort
of the products to various potential customers including the U.S. military.  The
two  part-time  employees  continue  to refine  engineering,  manufacturing  and
assembly  specifications.  The  Company  intends to  maintain  a small  staff by
outsourcing  activities  when  possible.  SkyHook also  maintains  sales offices
through independent representatives in Atlanta, Georgia; Seattle, Washington and
Washington, D.C.

ITEM 2.  DESCRIPTION OF PROPERTY

         BioMeridian

         BioMeridian  currently  leases four  facilities.  One in Orem, Utah and
three in Draper, Utah. The Orem facility consists of a 4,100 square-foot office.
The lease expires in May 1999 and will not be renewed.  The primary Draper, Utah
facility is the headquarters for Magellan, SkyHook and BioMeridian.  It consists
of a 4,200 square-foot  office and a 3,000 square-foot  high-bay shop. The lease
term has an  initial  three-year  term  commencing  July  1997 and a  three-year
option.  A separate  manufacturing  and  assembly  facility  is also  located in
Draper, Utah. This facility has a 1,800 square-foot office and 7,000 square foot
warehouse and  manufacturing  area.  The lease term has an initial  thirty-month
term commencing January 1998 and a three-year option. An additional  facility is
also located in Draper,  Utah and consists of 2,850 square feet of office space.
The lease term has an initial  two-year  term  commencing in June 1998 and three
one-year renewal options.
<PAGE>

         SkyHook

         SkyHook  shares  space for  manufacturing  and assembly in the facility
located in Draper,  Utah that has a 1,800  square-foot  office and 7,000  square
foot  warehouse  and  manufacturing   area.  This  lease  term  has  an  initial
thirty-month term commencing January 1998 and a three-year option.

ITEM 3.  LEGAL PROCEEDINGS

         The Company is party to one proceeding that is not product related and
is considered by Management to be routine litigation incidental to the business.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

         On August 25, 1998, the Company held its annual meeting of shareholders
(the "Annual  Meeting") at which the following  matters were submitted to a vote
of the shareholders: 1) Proposal to elect five directors of the Company, each to
serve until the next annual  meeting of  shareholders,  2) Proposal to amend the
Company's  Articles of  Incorporation  to  increase  the number of shares of the
Common  Stock of the  Company  which the  Company  is  authorized  to issue from
25,000,000 to 50,000,000 shares, 3) Proposal to amend the Company's Stock Option
Incentive Plan (the "Option  Plan") to increase by 2,000,000,  from 2,500,000 to
4,500,000 the number of shares of Common Stock  available for issuance  pursuant
to grants under the Option Plan,  and 4) Proposal to ratify the  appointment  of
Tanner + Company as  independent  auditor  of the  Company  for the year  ending
December 31, 1998.

         The proposal to elect five directors of the Company and the proposal to
appoint  Tanner + Company  as  independent  auditor  were both  approved  by the
shareholders  with 12,846,607  shares voting in favor, no shares voting against,
65,834 shares abstaining from voting, and no broker non-votes.

         The  proposal  to amend the  Company's  Articles  of  Incorporation  to
increase  the  number of shares of the  Common  Stock of the  Company  which the
Company is authorized to issue from 25,000,000 to 50,000,000 shares was approved
with 12,844,607 shares voting in favor, no shares voting against,  67,834 shares
abstaining from voting, and no broker non-votes.

         The proposal to amend the Option Plan were approved by the shareholders
with 12,844,607 shares voting in favor, no shares voting against,  67,834 shares
abstaining from voting,  and no broker  non-votes.  The amendments to the Option
Plan were  proposed  in order to effect  changes,  which the Board of  Directors
believes were necessary,  to increase the number of shares  available for making
grants of stock options  under the Option Plan to adequately  attract and retain
qualified  individuals  to manage and promote the  subsidiary  operations of the
Company.


<PAGE>


                                     PART II

ITEM 5.           MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Market Information. The Company's common stock is traded on the over-the-counter
market. The following table sets forth the range of quotations for the Company's
common stock for the quarters  indicated.  Such quotations reflect  inter-dealer
prices, without retail mark-up, mark-down or commission, and may not necessarily
represent actual transactions.

Fiscal Year Ended December 31, 1998

                                                            High         Low
                                                            Bid          Bid

                           First Quarter  . . . . . . . . . $1.50    $   .87
                           Second Quarter  . . . . . . . . .$1.56    $   .69
                           Third Quarter  . . . . . . . . . $1.69    $   .81
                           Fourth Quarter  . . . . . . . . .$1.28    $   .37


Fiscal Year Ended December 31, 1997

                                                            High         Low
                                                            Bid          Bid

                           First Quarter  . . . . . . . . . $1.25    $   .75
                           Second Quarter  . . . . . . . . .$1.37    $   .87
                           Third Quarter  . . . . . . . . . $1.94    $  1.00
                           Fourth Quarter  . . . . . . . . .$3.00    $   .87

         Shareholders.  The approximate  number of shareholders of record of the
Company's  common stock as of March 31, 1999 was  approximately  one hundred and
fifty (150). This number does not include  shareholders whose shares are held in
securities position listings.

         Dividends.  The Company has not paid any cash  dividends  on its common
stock, and does not anticipate paying dividends in the foreseeable  future.  The
Company presently  intends to retain future earnings,  if any, for financing the
growth and expansion of the Company.

         Unregistered sale of securities. In June 1998 the Company completed the
acquisition of Digital Health,  LLC through the issuance of 1,375,000  shares in
exchange for all the outstanding common stock of Digital Health, LLC. The shares
were issued at 87.5 cents per share.

         The Company  converted  various  notes  payable due William A. Fresh or
entities  controlled  by him to common stock during the year ended  December 31,
1998.  The total amount of the notes payable prior to conversion  was $1,150,000
and the number of shares of common stock  exchanged by the Company was 1,533,333
at 75 cents per share.  Accrued  interest payable of $37,906 to William A. Fresh
or entities  controlled  by him was also  converted to common stock  through the
exercise of stock  warrants.  Warrants  for 108,338  shares of common stock were
issued at 30 cents per share and 14,608 shares of common stock were issued at 37
cents per share.
<PAGE>

         The Company converted one note payable due Richard I. Winwood to common
stock during the year ended  December  31, 1998.  The amount of the note payable
prior to  conversion  was  $250,000  and the  number of  shares of common  stock
exchanged  by the Company was  333,333 at 75 cents per share.  Accrued  interest
payable of $8,645 to Richard I. Winwood or entities  controlled  by him was also
converted to common stock through the exercise of stock  warrants.  Warrants for
28,816 shares of common stock were issued at 30 cents per share.

         The Company  converted  one note  payable due Judith  Edwards to common
stock during the year ended  December  31, 1998.  The amount of the note payable
prior to  conversion  was  $250,000  and the  number of  shares of common  stock
exchanged by the Company was 333,333 at 75 cents per share.

         The Company sold 125,000  shares of stock for 81 cents per share to one
individual pursuant to the Company's stock incentive plan.  During the year 
ended December 31, 1998.

         In October 1997 the Company completed a share exchange pursuant to an
Agreement and Plan of Share Exchange between the Company, BioSource, Inc.  The
issuance of shares of common stock of the Company to individuals or entities
pursuant to such share exchange was made in reliance upon the exemption
provided by section 4 (2) of the Securities Act of 1933.

        The Company sold 26,667 shares of stock for 37 cents per share to two
individuals pursuant to the Company's stock incentive plan.  The proceeds
were used for operating purposes of the Company.  The issuance of the shares
of stock were made in reliance upon the exemption provided by the section 4 (2)
of the Securities Act of 1933.

         The  preceding  issuance  of shares of common  stock of the  Company to
individuals  or entities  pursuant to such share  exchange  was made in reliance
upon the exemption provided by section 4 (2) of the Securities Act of 1933.

ITEM 6.  MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

         During 1998 Magellan  continued its efforts to position the Company for
future growth opportunities.

         In May 1998,  the Company  completed the sale of its 46.5%  interest in
SIS, LLC to UICI of Dallas,  Texas resulting in the complete  divestiture of the
Company's involvement in image-based data entry services.  The company completed
the sale  primarily  for the  purpose of raising  funds for the  acquisition  of
additional entities deemed strategically beneficial to the Company. The sale was
completed for $1,500,000 and resulted in a gain on sale of $180,023.

         In May 1998 the Company  completed the acquisition of certain  licenses
and technology of Digital Health,  LLC, a Utah limited liability company engaged
in a business similar to that of BioMeridian.  This acquisition was completed in
an effort to improve the market share and market  position of  BioMeridian  with
its technology based meridian stress  assessment  equipment in the complementary
healthcare  marketplace through the immediate acquisition of FDA registration of
the  technology.  The  acquisition  was  accomplished  through  the  exchange of
1,375,000  shares of common  stock  and  $250,000  in cash  payable  in  monthly
installments  of  $15,000.  The  operations  of  Digital  Health,  LLC were then
combined with BioMeridian.  As part of the transaction,  the Company recorded an
asset for the  Licenses &  Technology  of Digital  Health,  LLC in the amount of
$1,453,125.  The combination of Digital Health,  LLC into the Magellan family of
companies  has  effectively  positioned  BioMeridian  to compete in the emerging
"Complementary Health Care" marketplace.

Results of Operations

         BioMeridian

         The 1998 financial  statements of the Company reflect the operations of
BioMeridian  for the entire year with the resulting  effect of the operations of
Digital Health,  LLC from May 1998 through December 31, 1998. During that period
BioMeridian  achieved sales of $2,605,952  that resulted in an operating loss of
$1,001,063 for the year ended December 31, 1998.
<PAGE>

         SkyHook

         SkyHook did not have any  revenues in 1998 or 1997.  SkyHook  continued
its marketing  efforts of the SkyHook ECMS and LADS during 1998 through  various
demonstrations and marketing pursuits. In addition to aggressively marketing the
system to potential customers,  particularly the United States military, SkyHook
continued  to refine its  products.  There can be no  assurance,  however,  that
SkyHook will not encounter unanticipated events or problems that could delay the
marketing  and  distribution  of the SkyHook ECMS or LADS,  that SkyHook will be
able to successfully  market the SkyHook  products,  or that these products will
achieve significant market acceptance.

Liquidity and Capital Resources

         The Company's  sources of liquidity  have  historically  been cash from
operations,  working  capital  lines of credit  and debt and  equity  financing.
SkyHook is still in the development stage, has not sold any products and has not
generated any revenue. Although BioMeridian has generated an increased amount of
revenues, it was not able to achieve profitable operations during the year ended
December 31, 1998.

         As a result,  the Company is currently  relying heavily on debt and its
ability to raise  additional  debt and equity  financing in order to finance the
continued marketing efforts of SkyHook and its respective products and services.
For the year ended December 31, 1998, BioMeridian incurred a loss of $1,001,063.
Management of the Company  projects that  BioMeridian will achieve positive cash
flow from  operations  in the second  quarter of 1999.  On-going  operations  of
SkyHook  currently  consume  approximately  $70,000  of cash each  month and the
Company expects to continue to incur additional  expenses in connection with the
marketing and introduction of the SkyHook products into the market place.

         During 1998 and 1997 the Company  entered  into several  agreements  to
borrow necessary funds.

         During 1998 a  Director/Shareholder  who also serves as the Chairman of
the Board loaned $2,590,000 to the Company through either himself or entities in
which he held a  controlling  interest.  The notes bear  interest at 12% and are
payable  upon  demand.  During  1998,  $1,150,000  of these notes  payable  were
converted to common stock of the Company.  In addition,  the interest payable of
$37,906 was used by the  Director/Shareholder  to exercise  warrants to purchase
common stock.

         During 1998 a Director/Shareholder  converted $250,000 of notes payable
to common stock of the Company. In addition,  the interest payable of $8,645 was
used by the  Director/Shareholder to exercise warrants to purchase common stock.
Also, an additional note payable held by an individual of $250,000 was converted
to common stock.

         During  1997 a  Director/Shareholder  who  also  served  as  the  Chief
Executive  Officer loaned $500,000 to the Company through five separate $100,000
notes  through  either  himself  or  entities  in  which  he held a  controlling
interest. The notes bear interest at 12% and are payable upon demand.  Effective
February 27, 1998 these notes were converted to common stock of the Company.  In
addition,  the  interest  payable  of  approximately  $35,500  was  used  by the
Director/Shareholder to exercise warrants to purchase common stock. In addition,
the  Director/Shareholder  loaned $400,000 to the Company subsequent to the year
ended December 31, 1997.  Effective  February 27, 1998 the  Director/Shareholder
converted  these  notes  payable  to  common  stock.  The  interest  payable  of
approximately $2,500 was used by the  Director/Shareholder  to exercise warrants
to purchase common stock.
<PAGE>

         The Company has entered into a revolving line-of-credit agreement. This
agreement is for a $3,000,000 line-of-credit. This line of credit bears interest
at a variable rate of prime plus 1.0% and matures on May 31, 1999. Inventory and
the personal  guarantees of three  individuals;  the  Company's  Chairman of the
Board,  another member of the Board,  and a major  shareholder  have jointly and
severally personally guaranteed this line of credit. As of December 31, 1998 the
line of credit had an outstanding  balance  $2,996,153.  This line of credit has
been used to fund the operations of the Company.

         The Company had a deficit in working capital as of December 31, 1998 of
$5,742,685  as  compared  to a deficit in working  capital of  $3,136,800  as of
December  31,  1997.  As indicated  above,  the Company will require  additional
equity and/or debt financing in order to fund continued operations. There can be
no assurance,  however, that such financing will be available on terms favorable
to the Company, if at all. If the Company is unable to raise additional capital,
the ability of the Company to  successfully  market and  distribute its products
and services and its financial condition would be materially adversely affected.

     Year 2000

     The Company has conducted diagnostic examinations in an effort to assess
the potential impact of Year 2000 issues on its operations.  Based upon the 
preliminary examinations, the company does not believe the Year 2000 issue will
have a significant impact on the Company's internal operations or on products
sold by the Company.  There can be no assurance, however, that the Company
will not experience interruptions of operations because of the Year 2000 
problems or become involved in disputes with clients regarding Year 2000 
problems involving solutions developed or implemented by the company or the 
interaction of such solutions with other applications.  Year 2000 problems
could require the company to incur unanticipated expenses and such expenses
could have a material adverse effect on the Company's business, financial 
condition or results of operations.  Furthermore, the purchasing patterns of
clients or potential clients may be affected by Year 2000 issues as companies
expend significant resources to correct their current systems for Year 2000
compliance.  These expenditures may result in reduced funds available to 
purchase services offered by this company.  

Factors Affecting Future Results

         The Company's  future  operations and liquidity will be affected by the
ability BioMeridian has to continue to sell and market the BEST system,  compete
with existing competitors, and satisfy the needs of current and future customers
to the extent that profitability will be achieved.

         Likewise,  the  Company's  future  operations  and  liquidity  will  be
affected  by,  among  other  factors,  the  amount of time it takes to bring the
SkyHook products to the market, new products introduced by competitors,  and the
ability of the Company to successfully  market and sell the SkyHook  products at
acceptable prices.

         If the Company is unable to raise  sufficient debt or equity capital in
order to  finance  continued  operations,  BioMeridian  is unable  to  achieve a
profitable level of operations, the market acceptance of the SkyHook products is
delayed, or if the SkyHook products do not achieve market acceptance, this would
have a material adverse affect on the Company's  financial condition and results
of operations.

ITEM 7.  FINANCIAL STATEMENTS

         The   consolidated   financial   statements  of  the  Company  and  its
wholly-owned  subsidiaries  can be found on pages F-1 through  F-21 of this Form
10-KSB.

ITEM 8.  CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND 
         FINANCIAL DISCLOSURES

                  None

<PAGE>


                                    PART III

ITEM 9.  DIRECTORS,  EXECUTIVE OFFICERS,  PROMOTERS AND CONTROL PERSONS;  
         COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT

Directors and Executive Officers

         The table below sets forth the name,  age and  positions  or offices of
each  director  and  executive  officer  of  Magellan  Technology  (MTI) and its
subsidiaries,   SkyHook  Technologies,   Inc.  (STI),  ProHealth,   Inc.  (PHI),
BioMeridian  International,  Inc. (BII) and Magellan  Service Company (MSC). The
Board of Directors of MTI also serve as the Board of Directors of STI,  PHI, BII
and MSC. Each Director of the Company will serve until the next annual meeting
of the Shareholders.

Name                           Age              Position

William A. Fresh               70     Chairman of the Board, MTI, STI, 
                                      PHI, BII and MSC
                                      Chief Executive Officer, MTI
Reginald Hughes                54     Director; Vice President, BII
Darwin Millet                  46     Director
Richard I. Winwood             56     Director, MTI
Blair K. Blacker               55     President and Chief Operating Officer, MTI
                                      President and Chief Executive Officer STI,
                                      PHI, BII, & MSC
Douglas M. Angus               39     Secretary, Vice President, and Chief Fin-
                                      ancial Officer, MTI,STI, PHI, BII and MSC
Irving Monclova                67     Director
Robert S. Lawrence             48     Vice President of Engineering, BII & STI

         William  A.  Fresh  has  served  as  Chairman  of the  Board  and Chief
Executive  Officer  of  Magellan  since its  incorporation  in June of 1989.  He
currently serves as a director of Cerprobe Corporation,  a manufacturer of probe
cards  utilized  in the final test of ICs in the  semi-conductor  industry.  Mr.
Fresh is a past director of EFI Electronics Corporation, a Utah manufacturer and
marketer of surge suppression  equipment for computer,  industrial,  medical and
telecommunications  devices.  Mr.  Fresh  founded  EFI in 1981 and  subsequently
served  as its  chairman  and  president  until  1986.  Mr.  Fresh is  currently
chairman,  president  and  owner of Orem  Tek  Development  Corporation,  a Utah
consulting and business park development  corporation.  Mr. Fresh also serves on
the  Board  of  Directors  of  Sento  Technical   Innovations   Corporation,   a
publicly-traded software company.

         Reginald  Hughes was elected to the Board of Directors in 1996. He is a
Vice President for BioMeridian  International,  Inc., and a director of Magellan
Technology,  Inc.;  He co-founded  STI in 1995.  From 1981 to 1994, he served in
various  capacities with Eyring  Corporation,  a high tech firm in Provo,  Utah,
specializing in defense contracting.  While with Eyring, Mr. Hughes was promoted
to the  positions  of Director and Vice  President of Finance.  Prior to joining
Eyring   Corporation,   Mr.  Hughes  had  a  successful  career  as  a  Hospital
Administrator.
<PAGE>

        Richard I. Winwood joined the Board of Directors of the Company in 1995.
Mr.  Winwood is involved in several  aviation  business  concerns.  In 1983, Mr.
Winwood co-founded  Franklin Covey Co., and subsequently served as its Executive
Vice President and Chief Operating  officer.  Franklin Covey is a multinational,
time  management  training  and  products  company  traded on the New York Stock
Exchange.  Prior to  co-founding  Franklin  Covey,  Mr. Winwood had a successful
career in the computer  services  industry,  working with General  Electric Co.,
Automatic Data Processing, Inc. and Computer Sciences Corporation.

         Darwin D. Millet has been a member of the Board  since 1994.  He is the
past President and Chief Operating  Officer of SIS, LLC. Prior to coming to SIS,
Mr. Millet served as Executive Vice President of Layton  Construction  Co., Inc.
("LCC") from 1992 to 1993, and as Chief Financial Officer from 1986 to 1991.

         Blair K. Blacker is President and Chief  Operating  Officer of Magellan
Technology,  Inc. He also serves as President  and CEO of STI,  PHI, BII, & MSC.
From 1991 until joining  SkyHook in 1996,  Mr.  Blacker served as a Site Manager
and Deputy Director of Raytheon E Systems' Serv-Air in Lexington,  Kentucky. Mr.
Blacker  served in the United  States  Army for 26 years.  His  military  career
culminated  in the  command  of an  Aviation  Brigade  consisting  of  over  200
helicopters and 1,700 soldiers. He retired as a full Colonel.

         Douglas M. Angus serves as Secretary to the Board and Vice President of
Finance and Chief Financial Officer for Magellan Technology Inc. and each of its
subsidiaries.  Mr. Angus joined the Magellan family of companies in late 1996 as
Vice President and Chief Financial Officer. Prior to joining Magellan, Mr. Angus
served as the General Manager of Arcadia International,  a private manufacturing
concern.  From  1991  to  1994  Mr.  Angus  was CFO  and  Treasurer  for  Eyring
Corporation (a high tech software defense contractor).  Mr. Angus also worked as
a Certified Public Accountant for seven years with the international  accounting
firm of Deloitte and Touche where he was promoted to the position of Manager.
         
         Irving  Monclova  serves on Magellan's  Board of  Directors.  He joined
Magellan in late 1996.  Mr.  Monclova  began his career in the military.  He had
tours in  Europe,  Korea,  Republic  of  Vietnam,  Panama and  Puerto  Rico.  He
culminated his military career as Commander of readiness programs of the reserve
forces.  In 1982,  he joined  Serv-Air,  Inc. In 1989,  he was  promoted to Vice
President  of  Operations  and  Maintenance  and  transferred  to  Headquarters,
Serv-Air,  Inc.,  Greenville,  Texas.  In January  1993,  he was promoted to the
position of Vice President and Chief of Special Operations Programs.

         Robert S. Lawrence  is Vice President of  Engineering  for  BioMeridian
International,  Inc. and for SkyHook Technologies, Inc. Prior to joining SkyHook
in late 1997 Mr. Lawrence was employed with the Bluegrass  Avionics  Division of
Raytheon  E-Systems  where he served as Manager  of  Avionics  Integration.  Mr.
Lawrence  enjoyed a  twenty-two  year career in the U.S.  Army where he received
many awards and began the  development of his  unparalleled  experience in rotor
wing avionics and avionics integration.

Committees  and  Meetings.  The Board of  Directors  met 8 times during the 1998
fiscal year. Each of the directors  attended at least 75% of the meetings of the
Board of Directors and of the committees on which he served.
<PAGE>

         The  Board of  Directors  maintains  standing  Audit  and  Compensation
Committees.  The members of the Audit  Committee are William A. Fresh and Darwin
Millet. The Committee met one (1) time during the fiscal year ended December 31,
1998.  Its  functions  are (i) to review and approve the  selection  of, and all
services  performed by, the Company's  independent  auditor;  (ii) to review the
Company's  internal  controls;  and (iii) to  review  accounting  and  financial
controls of the Company.

         The  members of the  Compensation  Committee  are  William A. Fresh and
Richard I.  Winwood.  The  Committee  met four (4) times  during the fiscal year
ended December 31, 1998. Its functions are to determine and approve compensation
arrangements  for  executive  officers  of the  Company and to oversee any stock
option, stock award or other employee benefit plan or arrangement established by
the Board of Directors for the benefit of executive  officers of the Company and
management.

Section 16(a) Beneficial Ownership Reporting.  Section 16(a) of the Exchange Act
requires the Company's executive officers and directors and persons who own more
than 10% of the Common  Stock,  to file with the U.S.  Securities  and  Exchange
Commission  (the  "Commission")  initial  reports of  ownership  and  reports of
changes in ownership of the Common Stock and other  securities from which shares
of the Common Stock may be derived. Such directors,  officers and 10% owners are
required by  Commission  regulations  to furnish the Company  with copies of all
Section 16(a) reports they file.  Based solely on a review of the copies of such
reports received by the Company, the Company believes that the following reports
were not filed on a timely  basis:  Douglas M.  Angus's  Form 3 due  6/12/97 was
filed on 2/17/98;  Richard I.  Winwood's Form 4 due 3/10/98 was filed on 3/11/98
(reflecting 9  transactions);  Richard I.  Winwood's Form 5 for 1994 due 2/14/95
was filed on 2/11/98  (reflecting 5  transactions);  Richard I. Winwood's Form 5
for 1995 due 2/14/96 was filed 2/11/98 (reflecting 10 transactions);  Richard I.
Winwood Revocable Living Trust's Form 3 due 7/10/98 was filed 11/6/98; and Blair
K. Blacker's Form 3 due 10/30/98 was filed on 12/29/98.

ITEM 10. EXECUTIVE COMPENSATION

         Summary  Compensation  Table.  The following table sets forth,  for the
three  fiscal  years ended  December  31,  1998,  the  compensation  paid to the
Company's Chief Executive Officer.  No executive officer of the Company received
salary and bonus compensation in excess of $100,000. The Chairman and CEO of the
Company  has  agreed to serve  without  salary  compensation  until the  Company
achieves profitable operations.  In April 1998, the Board granted a stock option
to the Company's CEO for 150,000 shares of common stock. In April 1997 the Board
granted a stock option to the Company's CEO for 250,000 shares of common stock.
<PAGE>

<TABLE>
<S>                        <C>                                                       <C>    

                                                                                      Long-term
                                        Annual Compensation                           Compensation
                           ------------------------------------------                 -----------
</TABLE>

<TABLE>
<S>     <C>                 <C>        <C>           <C>          <C>                 <C>
       
          Name                                                       Other
           and                                                       Annual           Securities
         Principle                     Salary        Bonus        Compensation        Underlying
         Position           Year          ($)         ($)             ($)             Options
          ----------------------------------------------------------------------      -----------

William A. Fresh             1998         -0-         -0-             -0-              150,000
Chief Executive Officer      1997         -0-         -0-             -0-              250,000
                             1996         -0-         -0-             -0-                  -0-
---------------------

</TABLE>

Option Grants in Last Fiscal Year

The following  table sets forth the options  granted by the Company to executive
officers in the last fiscal year.

                                       % of Options
   Name and           Number           Granted to
   Principle          of Options       Employees in    Exercise      Expiration
   Position           Granted          Fiscal Year      Price          Date
-------------------------------------------------------------------------------

William A Fresh        150,000             12%           .87         April 2005
CEO

Douglas M. Angus        50,000              4%           .87         June 2005
Vice President

Blair K. Blacker        75,000              4%           .87         April 2005
President
-------------------------------------------------------------------------------
<PAGE>


Aggregated Option Exercises in Last Fiscal Year and Year End Option Values

The following  table sets forth the aggregate value of options to acquire shares
of the Common Stock held by the Chief Executive Officer on December 31, 1998.

                                                       Value of Unexercised
                            Number of Unexercised     In-the-Money Options at
                             Options at FY-End(#)          FY-End    ($)(1)
                          -------------------------  --------------------------
         Name             Unexercisable/Exercisable  Unexercisable/Exercisable
----------------          -------------------------  --------------------------
William A. Fresh                 400/400,400                    0/0

(1)  Calculated based on the difference between the exercise price and the price
     of a share of the Company's Common Stock on December 31, 1998.

     Director  Compensation.  Directors of the Company are currently paid no fee
for their  service on the Board of  Directors.  Directors are also not currently
paid a fee for, or reimbursed for expenses  incurred with respect to, attendance
at board or committee meetings.
<PAGE>

ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

         The  following  table  lists the  number  of  shares  of  Common  Stock
beneficially  owned as of December  31, 1998 by each person known by the Company
to be the  beneficial  owner of more than five percent (5%) of the Common Stock,
by each  director of the Company,  by the Chief  Executive  Officer,  and by all
officers and directors of the Company as a group.  Unless noted otherwise,  each
person  named has sole voting and  investment  power with  respect to the shares
indicated.  The  percentages  set forth have been  computed  based on 17,724,266
shares,  which is the  number of  shares of the  Common  Stock  outstanding  and
exercisable  warrants  and options  held by officers  and  directors,  excluding
treasury shares held by the Company, outstanding as of December 31, 1998.

                                                Beneficial Ownership
                                               As of December 31, 1998
                                                              Percentage
                                             Number of         of Class
Name and Address of Beneficial Owner           Shares        Outstanding
------------------------------------        -----------     -------------
William A. Fresh                            5,815,713 1             29.6%
2238 E. Gambel Oak Drive
Sandy, Utah  84092

Richard Winwood                             3,647,715 2             18.6%
7069 S. Highland Drive, Suite 102
Salt Lake City, Utah  84121

Ballard Investments                         1,724,987 3              8.8%
2611 East 1300 South
Salt Lake City, Utah  84108

Reginald Hughes                               504,991 4              2.4%
1482 East 920 South
Provo, Utah  84606


Darwin D. Millet                              302,170 5              1.7%
12090 South Woodridge Road
Sandy, Utah  84124


Irving Monclova                                56,846 6               .3%
1064 Heather Gate Court
Lexington, KY  40511

Judith Edwards                              1,144,169                5.8%
809 17th Ave.
Salt Lake City, Utah  84103

Digital Health, LLC                         1,375,000 7              7.0%
253 East Bridge Road
Orem, Utah  84057

Other Executive Officers                      388,517 8              2.0%

All officers and directors 
as a group (7 persons)                     10,715,952               54.55%
--------------------------------
<PAGE>

1    Includes 1,603,417 shares held by WAF Investment Company, a Utah Limited
partnership, of which Mr. Fresh is a general partner, 1,133,332 shares held by
Reva Luana Fresh, spouse, 50,000 shares held by the William A. and Reva Luana
Fresh Family Living Trust, 216,667 shares held by William A. and Reva Luana 
Fresh Charitable Remainder Trust, 60,000 shares held in trusts in which Reva
Luana Fresh is the custodian, 316,667 shares held by Orem Tek Development, a 
Utah limited partnership, of which Mr. Fresh is a general partner, 637,392 
shares issuable upon the exercise of currently exercisable warrants, and 400,500
shares issuable upon presently exercisable options.

2    3,501,531 shares are held by Richard I. Winwood Revocable Living Trust.
Includes 146,184 shares issuable upon the exercise of currently exercisable 
warrants.

3    Includes 185,837 shares issuable upon the exercise of currently exercisable
warrants.  Craig Ballard, a general partner of Ballard Investments, has the 
power to vote the shares and to make investment decisions with respect to the 
shares on behalf of Ballard Investments.

4    Includes 93,836 shares issuable upon presently exercisable warrants or 
options that become exercisable in 60 days.  The shares are held by a Utah 
limited liability partnership of which Mr. Hughes is a general partner.

5    Includes 35,000 shares issuable upon presently exercisable warrants or 
options that become exercisable in the next 60 days.

6    Includes 43,333 shares issuable upon presently exercisable options.

7    These shares are held by Digital Health LLC, a Utah Limited Liability 
Company controlled by Mr. Vaughn Cook.

8    Includes 355,000 shares of presently exercisable options or options which
become exercisable in the next 60 days.



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         Revolving  Line of Credit  Guaranties.  The Company has entered  into a
revolving line-of-credit  agreement.  This agreement is for a $3,000,000 line of
credit. This line of credit bears interest at a variable rate of prime plus 1.0%
and matures on May 31,  1999.  Inventory  and the  personal  guarantee  of three
individuals  including the Company's  Chairman of the Board,  a director,  and a
major  shareholder  jointly  and  severally  personally  guarantee  this line of
credit.  As of December 31, 1998 the line of credit had an  outstanding  balance
$2,996,153.  This line of credit  has been  used to fund the  operations  of the
Company.

         Notes Payable to Shareholders.  During 1998 a Director/Shareholder who
also  serves as the  Chairman  of the Board  loaned  $2,590,000  to the  Company
through either himself or entities in which he held a controlling interest.  The
notes bear interest at 12% and are payable upon demand.  During 1998, $1,150,000
of these  notes  payable  were  converted  to common  stock of the  Company.  In
addition,  the interest payable of $37,906 was used by the  Director/Shareholder
to exercise  warrants to purchase common stock. As of December 31, 1998, a total
of $1,740,000 of notes payable was outstanding and payable to this shareholder.
<PAGE>

During 1998 another Director/Shareholder converted $250,000 of notes payable to
common stock of the company.  In addition, the interest payable of $8,645 was
used by the Director/Shareholder to exercise warrants to purchase common stock.

         Notes  Payable.  As of December 31, 1998, the Company owed $27,693 to a
government   entity.   Terms  of  the  note  include  interest  at  8%,  monthly
installments of $2,507. The note is secured by inventory and personal guarantees
from a Director and two  individuals.  The two  individuals  are former  SkyHook
officers, the director is also an officer of one of the Company's subsidiaries.





                                     PART IV

ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K

(a)Exhibits. The following documents are furnished as exhibits to this 
   Form 10-KSB

   S-B                                                  Incorporated     Filed
Item No.                   Description                  by Reference    Herewith

 3-1         Articles of Incorporation of the Company       (1)

 3-2         Amendment to Articles of Incorporation 
             approved March 8, 1996                         (2)
             

 3-3         Bylaws of the Company                          (3)

10-1         Settlement Agreement with the 
             Shareholders of BioSource                                     X

21-1         Subsidiaries of the Company                                   X

27-1         Financial Data                                                X
<PAGE>

-----------------------

(1)      This  exhibit  was  filed  with the  Commission  as an  exhibit  to the
         Company's  Registration  Statement on Form S-18, filed on September 20,
         1989, and is incorporated herein by reference.

(2)      This was  incorporated  with the Company's Annual Report on Form 
         10-KSB for the year ended December 31, 1995 filed on March 29, 1996.

(3)      This exhibit was filed  previously with the Commission as an exhibit to
         the  Company's  Annual Report on Form 10-KSB for the fiscal year ending
         December 31, 1992, filed on October 15, 1993.

         (b) Reports on Form 8-K.

(A) The  Company  filed a Report on Form 8-K dated June 30, 1998 and a Report on
Form 8-K / A dated  August 14, 1998  reporting  the  acquisition  and  financial
position of Digital Health, LLC. The financial statements of Digital Health, LLC
were filed as part of the report.


<PAGE>


                                   SIGNATURES

         In  accordance  with  Section  13 or 15(d)  of the  Exchange  Act,  the
registrant  caused  this  report to be signed on its behalf by the  undersigned,
thereunto duly authorized.

                            MAGELLAN TECHNOLOGY, INC.


                                         By: /s/  Douglas M. Angus
                                         -----------------------------------
                                         Douglas M. Angus, Vice President & CFO

                                         Date:  March 29, 1999

         In accordance  with the Exchange Act, this report has been signed below
by the following  persons on behalf of the  registrant and in the capacities and
on the dates indicated.

<TABLE>

<S>                                 <C>                                                <C>    

         Name                               Position                                    Date

/s/ William A. Fresh                Chairman of the Board of Directors and              March 29, 1999
---------------------------
          William A. Fresh          Chief Executive Officer (Principal Executive
                                    and Financial Officer)

/s/ Reginald Hughes                 Director                                            March 29, 1999
---------------------------         
          Reginal Hughes


/s/ Richard I. Winwood              Director                                            March 29, 1999
---------------------------
          Richard I. Winwood

/s/ Darwin D. Millet                Director                                            March 29, 1999
---------------------------
          Darwin D. Millet

/s/ Irving Monclova                 Director                                            March 29, 1999
---------------------------          
          Irving Monclova

/s/ Blair K. Blacker                Director                                            March 29, 1999
---------------------------
          Blair K. Blacker

/s/ William Crouch                  Director                                            March 29, 1999
          William Crouch

</TABLE>

<PAGE>


                                   EXHIBIT 22

                              LIST OF SUBSIDIARIES


1.        SkyHook Technologies, Inc., a Utah corporation

2.        ProHealth, Inc., a Utah corporation

3.        Satellite Image Systems (Jamaica) Ltd.

4.        Magellan Service Company, a Utah corporation

5.        BioMeridian International, Inc., a Utah corporation



                                   EXHIBIT 27

                                 FINANCIAL DATA


MAGELLAN TECHNOLOGY, INC.
Consolidated Financial Statements
December 31, 1998 and 1997




<PAGE>



                                     MAGELLAN TECHNOLOGY, INC.
                                     Index to Consolidated Financial Statements

-------------------------------------------------------------------------------









                                                                           Page

Independent auditors' report                                               F-2

Consolidated balance sheet                                                 F-3

Consolidated statement of operations                                       F-4

Consolidated statement of stockholders'
deficit                                                                    F-5

Consolidated statement of cash flows                                       F-6

Notes to consolidated financial statements                                 F-7



                                                                              


<PAGE>


                                                  INDEPENDENT AUDITORS' REPORT



To the Board of Directors and Stockholders
of Magellan Technology, Inc.


We have audited the consolidated balance sheet of Magellan Technology, Inc. (the
Company) as of December 31, 1998,  and the related  consolidated  statements  of
operations,  stockholders'  deficit and cash flows for the years ended  December
31,  1998  and  1997.   These   consolidated   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards.  Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement.  An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements.  An audit also includes
assessing the  accounting  principles  used and  significant  estimates  made by
management,  as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of Magellan Technology,
Inc. as of December 31, 1998, and the results of their operations and their cash
flows  for the years  ended  December  31,  1998 and 1997,  in  conformity  with
generally accepted accounting principles.

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements,  there is substantial doubt about the ability
of the Company to continue as a going concern.  Management's  plans in regard to
that matter are also described in note 2. The consolidated  financial statements
do not  include  any  adjustments  that might  result  from the  outcome of this
uncertainty.


                                                                  TANNER + CO.



Salt Lake City, Utah
February 23, 1999

<PAGE>
                                                                              


                                                      MAGELLAN TECHNOLOGY, INC.

                                                      Consolidated Balance Sheet

                                                       December 31, 1998
--------------------------------------------------------------------------------



              Assets

Current assets:
     Cash                                                    $          159,109
     Accounts receivable, net                                           272,052
     Inventories, net                                                   938,999
     Other current assets                                               172,230
                                                              ------------------

                  Total current assets                                1,542,390

Licenses and technology, net                                          1,283,593
Property and equipment, net                                             938,350
Goodwill, net                                                           269,248
Long-term receivables                                                    42,591
                                                              ------------------

                  Total assets                               $        4,076,172
                                                              ------------------

--------------------------------------------------------------------------------
<PAGE>

              Liabilities and Stockholders' Deficit

Current liabilities:
     Accounts payable                                        $        1,096,586
     Accrued expenses                                                   405,439
     Related party notes payable                                      1,840,000
     Notes payable                                                    2,996,158
     Current portion of long-term debt                                  667,225
                                                              ------------------

                  Total current liabilities                           7,005,408

Long-term debt                                                          617,144
                                                              ------------------

                  Total liabilities                                   7,622,552
                                                              ------------------

Commitments                                                                -

Stockholders' deficit:
     Common stock, par value $.0002 per share, 
     50,000,000 shares authorized, 17,724,266 
     shares issued and outstanding                                        3,545
     Additional paid-in capital                                       9,890,574
     Unearned compensation                                             (130,868)
     Accumulated deficit                                            (13,309,631)
                                                              ------------------

              Total stockholders' deficit                            (3,546,380)
                                                              ------------------

              Total liabilities and stockholders' deficit    $        4,076,172
                                                              ------------------
                                 
--------------------------------------------------------------------------------
<PAGE>
                                     
                                           Magellan Technology, Inc.

                                           Consolidated Statement of Operations

                                           Years Ended December 31,
--------------------------------------------------------------------------------




                                                      1998              1997
                                             -----------------------------------

Net sales                                   $       2,605,952$          319,611
                                             -----------------------------------

Costs and expenses:
     Costs of sales                                   521,931            57,180
     General and administrative                     6,126,123         2,764,150
     Compensation expense - stock options             206,382           252,000
     Impairment loss                                  687,500                 -
                                             -----------------------------------

                                                    7,541,936         3,073,330
                                             -----------------------------------

                  Loss from operations             (4,935,984)       (2,753,719)
                                             -----------------------------------

Other income (expense):
     Equity in loss of joint venture                   (5,050)          (68,960)
     Gain on sale of investment                       180,023                 -
     Interest expense                                (424,622)         (161,843)
     Other, net                                       256,225           (12,870)
                                             -----------------------------------

                                                        6,576          (243,673)
                                             -----------------------------------

        Loss before benefit for income taxes       (4,929,408)       (2,997,392)

Benefit for income taxes                                    -                 -
                                             -----------------------------------

                  Net loss                  $      (4,929,408)$      (2,997,392)
                                             -----------------------------------

                  Net loss per share - 
                  basic and diluted         $            (.29)             (.22)
                                             -----------------------------------




--------------------------------------------------------------------------------

<PAGE>



                                MAGELLAN TECHNOLOGY, INC.

                                Consolidated Statement of Stockholders' Deficit

                                Years Ended December 31, 1998 and 1997
--------------------------------------------------------------------------------




<TABLE>
<S>                        <C>                           <C>            <C>             <C>                


                                                         Additional     Unearned
                                  Common Stock            Paid-In                       Accumulated
                           --------------------------
</TABLE>
<TABLE>
<S>                         <C>              <C>         <C>            <C>              <C>             <C>
                       
                                 Shares       Amount       Capital      Compensation       Deficit         Total
                           ----------------------------------------------------------------------------------------

Balance, January 1, 1997      13,620,838 $     2,724  $   6,309,353  $         -     $   (5,382,831)  $    929,246

Issuance of common stock for:
  Acquisition of subsidiary      225,000          45         83,205            -               -            83,250
  Cash                            26,667           5          9,861            -               -             9,866

Issuance of compensatory
stock options and
amortization of unearned               
compensation                          -            -        488,000       (236,000)            -           252,000


Net loss                              -            -            -              -         (2,997,392)    (2,997,392)
                           ----------------------------------------------------------------------------------------

Balance, December 31, 1997    13,872,505        2,774     6,890,419       (236,000)      (8,380,223)    (1,723,030)

Issuance of common stock for:
  Debt                         2,351,761          471     1,696,080            -               -         1,696,551
  Acquisition of subsidiary    1,375,000          275     1,202,850            -               -         1,203,125
  Services                       125,000           25       101,225            -               -           101,250

Amortization of unearned
compensation                           -            -            -         105,132             -           105,132

Net loss                               -            -            -             -         (4,929,408)    (4,929,408)
                           ----------------------------------------------------------------------------------------

Balance, December 31, 1998    17,724,266  $     3,545  $  9,890,574  $    (130,868)  $  (13,309,631)  $ (3,546,380)
                           ----------------------------------------------------------------------------------------
</TABLE>




--------------------------------------------------------------------------------
<PAGE>
                                                                    
                                       MAGELLAN TECHNOLOGY, INC.

                                       Consolidated Statement of Cash Flows

                                       Years Ended December 31,
--------------------------------------------------------------------------------



<TABLE>
<S>                                                                    <C>                     <C>  
 
                                                                                  1998              1997
                                                                          -----------------------------------
Cash flows from operating activities:
     Net loss                                                          $      (4,929,408)  $    (2,997,392)
     Adjustments to reconcile net loss to
       net cash used in operating activities:
         Depreciation and amortization                                           375,401            41,489
         Equity in loss from joint venture                                         5,050            68,960
         Stock compensation                                                      206,382           252,000
         Gain on sale of interest in joint venture                              (180,023)                -
         Loss on disposal of property and equipment                                4,578                 -
         Provision and reserves for losses on assets                             358,800                 -
         Other non-cash expenses                                                 687,500            74,946
         (Increase) decrease in:
              Accounts receivable                                               (521,443)           18,500
              Inventories                                                     (1,402,506)         (367,993)
              Other current assets                                                22,585          (188,690)
         Increase (decrease) in:
              Accounts payable                                                   617,884           376,800
              Accrued expenses                                                   245,241           117,362
                                                                          -----------------------------------
                      Net cash used in
                      operating activities                                    (4,509,959)       (2,604,018)
                                                                          -----------------------------------

Cash flows from investing activities:
     Purchase of property and equipment                                         (737,585)         (288,157)
     Proceeds from sale of investment in joint venture                         1,500,000                 -
     Net cash paid in acquisition                                                      -          (102,890)
                                                                          -----------------------------------
                      Net cash provided by (used in)
                      investing activities                                       762,415          (391,047)
                                                                          -----------------------------------

Cash flows from financing activities:
     Increase in notes payable                                                   786,136         2,185,000
     Proceeds from related party notes payable                                 2,940,000           750,000
     Payments on related party notes payable                                    (200,000)                -
     Proceeds from long-term debt                                              1,046,560           111,429
     Payments on long-term debt                                                 (777,445)          (38,515)
     Proceeds from issuance of common stock                                            -             9,866
                                                                          -----------------------------------
                      Net cash provided by
                      financing activities                                     3,795,251         3,017,780
                                                                          -----------------------------------

                      Net increase in cash                                        47,707            22,715

Cash, beginning of year                                                          111,402            88,687
                                                                          -----------------------------------

Cash, end of year                                                      $         159,109  $        111,402
                                                                          -----------------------------------
</TABLE>
<PAGE>


                                  Magellan Technology, Inc.

                                  Notes to Consolidated Financial Statements

                                  December 31, 1998 and 1997
--------------------------------------------------------------------------------


1.   Organization
     and
     Accounting
     Policies

Organization

The consolidated financial statements consist of Magellan Technology,  Inc. (the
Company)  and  its  wholly  owned  subsidiaries,  ProHealth,  Inc.  (ProHealth),
BioMeridian International,  Inc. (BioMeridian) (formerly BioSource, Inc.), which
the Company acquired effective October 15, 1997, and SkyHook Technologies,  Inc.
(SkyHook).


On June 15, 1998,  the Company  acquired  licenses and  technology  from Digital
Health, LLC (Digital). The acquisition included the issuance of 1,375,000 shares
of the  Company's  common  stock and debt of $250,000.  The Company  recorded an
intangible asset in the amount of $1,453,125 related to this 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.  As part of
the transaction, the Company recognized goodwill of $358,997.


Business Activity

The Company's operations consist of:  1) manufacturing and distribution
of a medical device used by health care practitioners (conducted by
BioMeridian), and 2)manufacturing and distributing a helicopter cargo
management system (conducted by SkyHook).


Separate  information  concerning  the assets,  revenue and  operations  of each
segment are included in the financial statements.


Principles of Consolidation

The consolidated  financial  statements include the financial  statements of the
Company  and its  subsidiaries,  Digital  subsequent  to June  15,  1998 and all
others.  All  significant  intercompany  balances  and  transactions  have  been
eliminated.
<PAGE>


Estimates  in  the  Preparation  of  Financial  Statements  The  preparation  of
financial statements in conformity with generally accepted accounting principles
requires  management to make estimates and assumptions  that affect the reported
amounts  of assets and  liabilities  and  disclosure  of  contingent  assets and
liabilities at the date of the financial  statements and the reported amounts of
revenues and expenses during the reporting  period.  Actual results could differ
from those estimates.

--------------------------------------------------------------------------------



                                                                     


                                  MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued

--------------------------------------------------------------------------------



1.   Organization
     and
     Accounting
     Policies
     Continued

Concentration of Credit Risk

Financial  instruments which potentially subject the Company to concentration of
credit risk consist  primarily  of trade  receivables.  In the normal  course of
business, the Company provides credit terms to its customers.  Accordingly,  the
Company  performs  ongoing  credit  evaluations  of its  customers and maintains
allowances for possible losses which, when realized,  have been within the range
of management's expectations.


The Company  maintains its cash in bank deposit  accounts which,  at times,  may
exceed federally  insured limits.  The Company has not experienced any losses in
such accounts and believes it is not exposed to any  significant  credit risk on
cash and cash equivalents.

<PAGE>

Cash and Cash Equivalents

For purposes of the  statement of cash flows,  the Company  considers all highly
liquid  debt  instruments  with a  maturity  of three  months or less to be cash
equivalents.


Inventories
Inventories are recorded at the lower of cost or market,  cost being  determined
on a first-in, first-out (FIFO) method.


Property and Equipment

Property  and  equipment  are  stated  at cost  less  accumulated  depreciation.
Depreciation and amortization is determined using the straight-line  method over
the  estimated  useful lives of the assets.  Expenditures  for  maintenance  and
repairs are expensed when incurred and  betterments are  capitalized.  Gains and
losses on sale of property and equipment are reflected in operations.


Goodwill

Goodwill  reflects the excess of the costs of purchasing  BioMeridian  (formerly
BioSource,  Inc.) over the fair value of the  related  net assets at the date of
acquisition, and is being amortized on the straight-line basis over five years.


Licenses and Technology

Licenses  and  technology  reflects  the  issuance  of common  stock and debt in
exchange for certain assets of Digital Health, LLC and is being amortized on the
straight-line basis over five years.


--------------------------------------------------------------------------------

<PAGE>

                                MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued
                                   
--------------------------------------------------------------------------------



1.   Organization
     and
     Accounting
     Policies
     Continued

Revenue Recognition

Revenue is recognized upon performance of services. Revenue from equipment sales
is recognized when equipment has been shipped and installed.


Income Taxes

Deferred  income  taxes are  provided  in amounts  sufficient  to give effect to
temporary  differences between financial and tax reporting,  principally related
to depreciation.


Earnings Per Common and Common Equivalent Share

The  computation  of basic  earnings  per  common  share is  computed  using the
weighted average number of common shares outstanding during the year.


The  computation  of diluted  earnings per common share is based on the weighted
average  number  of  shares  outstanding  during  the  year  plus  common  stock
equivalents  which would arise from the  exercise of stock  options and warrants
outstanding  using the treasury  stock  method and the average  market price per
share during the year.  Common stock equivalents are not included in the diluted
earnings per share calculation when their effect is antidilutive.


2.   Going
     Concern

The accompanying  consolidated  financial statements have been prepared assuming
that the Company will continue as a going concern.  As of December 31, 1998, the
Company  had a deficit in  working  capital of  $5,463,018,  and an  accumulated
deficit of  $13,309,631  and  incurred a loss of  $4,929,408  for the year ended
December 31, 1998. These conditions raise substantial doubt about the ability of
the  Company  to  continue  as  a  going  concern.  The  consolidated  financial
statements do not include any adjustments  that might result from the outcome of
this uncertainty.
<PAGE>


The  Company's  ability  to  continue  as a  going  concern  is  subject  to the
attainment of profitable  operations or obtaining necessary funding from outside
sources.  Management  anticipates  that sales of the helicopter  cargo transport
equipment and operations of BioMeridian  will provide  positive cash flow during
1999. However, there can be no assurance they will be successful.



--------------------------------------------------------------------------------
<PAGE>

                                 MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued
                                                                    
--------------------------------------------------------------------------------



3.   Detail of
     Certain
     Balance
     Sheet
     Accounts

Accounts receivable:
     Trade receivables                                              251,073
     Sales representative receivables                               270,370
     Less allowance for doubtful accounts                          (206,800)
                                                          -----------------

                                                                    314,643

Less long-term portion                                              (42,591)
                                                          -----------------

                                                          $         272,052
                                                          -----------------




Inventories:

Raw materials                                                       620,140
Finished goods                                                      470,859
Less allowance for obsolescence                                    (152,000)
                                                          -----------------

                                                          $         938,999
                                                          -----------------




                                                     December 31
                                        -----------------------------------
                                               1998             1997
                                        -----------------------------------

Licenses and technology:
     Accumulated amortization           $    169,532$            -
     Amortization expense               $    169,532$            -

Goodwill:
     Accumulated amortization           $     89,749$          14,958
     Amortization expense               $     74,791$          14,958
--------------------------------------------------------------------------------
<PAGE>

                                 MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued
--------------------------------------------------------------------------------


4.   Property and
     Equipment

Property and equipment consist of the following:


Equipment                                                 $         966,857
Leasehold improvements                                              112,479
Software                                                             46,921
                                                          -----------------

                                                                  1,126,257

Accumulated depreciation and
 amortization                                                      (187,907)
                                                          -----------------

                                                          $         938,350
                                                          -----------------



5.   Related
     Party Notes
     Payable

At  December  31,  1998,  the  Company  had  unsecured   notes  payable  due  to
shareholders and entities owned by a shareholder totaling $1,840,000.  Each note
has a stated  interest rate of 12% and is payable on demand.  As of December 31,
1998 accrued  interest  payable on these notes  totaled  approximately  $49,000.
During 1998 and 1997,  interest expense of  approximately,  $81,000 and $30,000,
respectively, was recognized on obligations due to shareholders of the Company.


6.   Notes
     Payable

The Company has a revolving  line-of-credit agreement with a bank. The agreement
allows the Company to borrow up to  $3,000,000  at an interest rate equal to the
bank's prime rate plus 1% (8.75% at December 31, 1998).  The balance,  including
all unpaid interest,  is due May 19, 1999. The  line-of-credit is secured by the
assets of the Company and  guaranteed by certain  shareholders.  At December 31,
1998 the balance outstanding on the line-of-credit totaled $2,996,158.



--------------------------------------------------------------------------------
<PAGE>

                                 MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued

--------------------------------------------------------------------------------


7.   Long-term
     Debt

Long-term debt is comprised of the following:


Unsecured  notes  payable to a former  subsidiary,  
principal  due in  aggregate monthly installments 
of $13,889 and interest payable quarterly at the
prime rate minus 1%                                       $         500,000

Note payable to a bank due in monthly installments 
of $6,346, including interest at 9.5% secured by 
the personal guarantees of certain
shareholders and equipment                                          285,992



Unsecured notes payable to a company, due on
demand, with interest at prime rate plus 2%                         195,212

Unsecured, non-interest bearing note payable to a
company, due in  monthly installments of $15,000                    160,000

Unsecured note payable to a company due in
monthly installments of $1,210, including interest at
9%                                                                   23,354



Note payable to a  governmental  entity due in 
monthly  installments  of $2,507, including  
interest  at  8%,  secured  by the  personal  
guarantees  of  certain shareholders, inventory, 
equipment and receivables                                            14,697

Capital lease obligation (see note 8)                               105,114
                                                          -----------------

                                                                  1,284,369

Less current portion                                               (667,225)
                                                          -----------------

                                                          $         617,144
                                                          -----------------

--------------------------------------------------------------------------------
<PAGE>

                                 MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued

--------------------------------------------------------------------------------



7.   Long-term
     Debt
     Continued

Future maturities of long-term debt are as follows:


                               Year Ended December 31:              Amount
                                                              ------------------

                               1999                           $          667,225
                               2000                                      256,066
                               2001                                      214,230
                               2002                                       98,081
                               2003                                       48,767
                                                              ------------------

                                                              $        1,284,369
                                                              ------------------


<PAGE>

8.   Capital
     Lease
     Obligation

The Company leases equipment under a noncancellable  lease agreement.  The lease
provides  the  Company the option to purchase  the  equipment  at the end of the
initial lease term.  The  equipment  under capital lease is included in property
and equipment at a cost of $125,750 and accumulated amortization of $13,473.


Depreciation and amortization  expense for the equipment under capital lease for
the year ended December 31, 1998 was $13,473.


The capital lease  obligation has an imputed  interest rate of 9% and is payable
in monthly  installments  through December 2002.  Future minimum payments on the
capital lease obligation are as follows:


     Year                                                           Amount
    ------                                                    ------------------

     1999                                                     $           31,680
     2000                                                                 31,680
     2001                                                                 31,680
     2002                                                                 31,661
                                                              ------------------

                                                              $          126,701
Less amount representing interest                                       (21,587)
                                                              ------------------

Present value of future minimum capital lease                           $105,114
                                                              ------------------




--------------------------------------------------------------------------------

<PAGE>

                                 MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued

--------------------------------------------------------------------------------



9.   Income
     Taxes

The benefit for income taxes is different  than amounts  which would be provided
by applying the  statutory  federal  income tax rate to loss before  benefit for
income taxes for the following reasons:

 
                                                      Years Ended
                                                      December 31,
                                        -----------------------------------
                                                 1998             1997
                                        -----------------------------------

Federal income tax benefit
   at statutory rate                    $       1,675,000 $      1,019,000
Meals and entertainment                           (13,000)          (2,000)
Change in valuation allowance                  (1,662,000)      (1,017,000)
                                        -----------------------------------

                                        $            -    $           -
                                        -----------------------------------



Deferred tax assets (liabilities) are comprised of the following:


Net operating loss carryforwards                          $       2,916,000
Subsidiaries stock basis                                            869,000
Stock options and warrants                                           86,000
Amortization of intangibles                                          69,000
Valuation allowance                                              (3,940,000)
                                                          -----------------

                                                          $            -
                                                          -----------------



At  December  31,  1998,  the  Company has a net  operating  loss  carryforwards
available to offset future taxable  income of  approximately  $8,575,000,  which
will  begin to  expire  in  2008.  The  utilization  of the net  operating  loss
carryforwards  is  dependent  upon  the tax laws in  effect  at the time the net
operating  loss  carryforwards  can be  utilized.  The  Tax  Reform  Act of 1986
significantly limits the annual amount that can be utilized for certain of these
carryforwards as a result of the change in ownership.


<PAGE>

--------------------------------------------------------------------------------
                                 MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued

--------------------------------------------------------------------------------



10.  Impairment
     Loss

During  1998,  the  Company  made  significant  changes in the design of certain
products  available for sale.  Management has determined that certain  inventory
related to the old design is now impaired.  Consequently, an adjustment totaling
$687,500 was made to write-down inventory to its estimated realizable value.


11.  Supplemental
     Cash Flow
     Information

During the year ended December 31, 1998:

o    The Company  purchased  licenses  and  technology  totaling  $1,453,125  in
     exchange for a $250,000 note payable and common stock of $1,203,125.


o    Notes payable to certain shareholders totaling $1,650,000 were converted to
     common  stock.  In  addition,  accrued  interest  payable  to  shareholders
     totaling $46,551 was exchanged by the shareholders to exercise warrants for
     common stock.


During 1997, the Company purchased all of the outstanding common
stock of BioMeridian International, Inc. (formerly BioSource, Inc.) in a
purchase transaction.  The Company paid cash of $105,000 for the
common stock and recorded net assets from the acquisition as follows:


Cash                                                      $           2,110
Accounts receivable                                                  18,500
Inventory                                                             8,000
Property and equipment, net                                           9,188
Intangibles                                                         358,997
Accounts payable                                                    (57,955)
Accrued expenses                                                    (14,132)
Long-term debt                                                      (26,436)
Notes payable                                                       (25,022)
                                                          -----------------

                                                                    273,250

Less amount financed with long-term debt                            (85,000)
Less common stock issued                                            (83,250)
Less cash received                                                   (2,110)
                                                          -----------------

                               Net cash paid              $         102,890
                                                          -----------------



--------------------------------------------------------------------------------

<PAGE>

                                 MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued

--------------------------------------------------------------------------------



11.  Supplemental
     Cash Flow
     Information
     Continued

Actual amounts paid for:


                                                     Years Ended
                                                     December 31,
                                        -----------------------------------
                                               1998             1997
                                        -----------------------------------

Interest                                $     400,132   $      161,843
                                        -----------------------------------

Income taxes                            $        -      $         -
                                        -----------------------------------


12.  Stock Options
     and Warrants
The Company has a stock option plan (the Option Plan), which allows a maximum of
4,500,000 options to be granted to purchase common stock at prices generally not
less than the fair market value of common stock at the date of grant.  Under the
Option  Plan,  grants  of  options  may be made  to  selected  officers  and key
employees  without  regard  to any  performance  measures.  The  options  may be
immediately  exercisable  or may vest  over time as  determined  by the Board of
Directors. However, the maximum term of an option may not exceed five years.


Information regarding the stock options and warrants is summarized below:


                                          Number of               Price Per
                           --------------------------------
                                   Options         Warrants         Share
                           ------------------------------------------------
Outstanding at
January 1, 1997                     904,336         233,342 $   .20 to 1.20
  Granted                         1,159,000         412,500     .37 to 1.00
  Exercised                         (26,667)              -             .37
  Forfeited                         (13,333)              -             .37
                           ------------------------------------------------

Outstanding at
December 31, 1997                 2,023,336         645,842     .20 to 1.20
  Granted                         1,264,000         441,000     .01 to 1.19
  Exercised                        (125,000)              -             .01
  Forfeited                        (309,669)       (151,762)     .30 to .37
                           ------------------------------------------------

Outstanding at
December 31, 1998                 2,852,667         935,080 $   .01 to 1.20
                           ------------------------------------------------


--------------------------------------------------------------------------------

<PAGE>

                                 MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued

--------------------------------------------------------------------------------



13.  Stock-Based
     Compensation

The Company has adopted the disclosure only provisions of Statement of Financial
Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based  Compensation."
Accordingly,  no  compensation  expense has been  recognized  for stock  options
granted to employees.  Had compensation  expense for the Company's stock options
been determined based on the fair value at the grant date for awards in 1998 and
1997,  consistent with the provisions of SFAS No. 123, the Company's  results of
operations would have been reduced to the pro forma amounts indicated below :


                                                          Years Ended
                                                          December 31,
                                            ------------------------------------
                                                     1998              1997
                                            ------------------------------------

Net loss - as reported                      $    (4,929,408) $       (2,997,392)
Net loss - pro forma                        $    (6,053,299) $       (4,166,227)
Loss per share - as reported                $          (.$9)               (.22)
Loss per share - pro forma                  $          (.$6)               (.30)
                                            ------------------------------------



The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following assumptions:


                                                         December 31,
                                            -----------------------------------
                                                     1998             1997
                                            -----------------------------------

Expected dividend yield                     $          -                -
Expected stock price volatility                      188%             203%
Risk-free interest rate                              5.0%             5.5%
Expected life of options                        2 to 10 years    5 to 10 years
                                            -----------------------------------



The weighted  average fair value of each option granted during 1998 and 1997 are
$.82 and $1.55, respectively.

--------------------------------------------------------------------------------

<PAGE>

                                 MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued

--------------------------------------------------------------------------------


13.  Stock-Based
     Compensation
     Continued

The  following  table  summarizes  information  about stock options and warrants
outstanding at December 31, 1998:


                            Outstanding                      Exercisable
              ------------------------------------------------------------------
                             Weighted
                              Average
                 Number      Remaining    Weighted      Number       Weighted
   Range of    Outstanding  Contractual    Average    Exercisable    Average
   Exercise        at          Life       Exercise         at        Exercise
    Prices      12/31/98      (Years)       Price      12/31/98       Price
--------------------------------------------------------------------------------

$.20 to .30      374,855       4.75 $       0.26       374,855 $       0.26
 .35 to .50    2,099,892       4.89         0.38     1,501,225         0.37
 .75 to 1.00   1,149,000       4.99         0.91       312,800         0.92
1.19 to 1.20     164,000       6.49         1.19         2,800         1.20
--------------------------------------------------------------------------------

$.20 to 1.20   3,787,747      $4.97         0.56     2,191,680 $       0.43
--------------------------------------------------------------------------------



14.  Earnings Per
     Share

Financial  accounting  standards require companies to present basic earnings per
share (EPS) and diluted  earnings per share along with additional  informational
disclosures.  Information  related  to  earnings  per  share is as  follows  (in
thousands, except per share amounts):


                                                        Years Ended
                                                        December 31,
                                            ------------------------------------
                                                   1998              1997
                                            ------------------------------------
Basic EPS and Diluted:
  Net loss available to common
    stockholders                            $   (4,929,408)  $   (2,997,392)
                                            ------------------------------------

  Weighted average common shares                16,752,000       13,685,000
                                            ------------------------------------

  Net loss per share                        $       (.29)             (.22)
                                            ------------------------------------




--------------------------------------------------------------------------------

<PAGE>

                                 MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued

--------------------------------------------------------------------------------

15.  Business
     Segments

The Company operates in two business segments: 1) Medical device
manufacture and distribution, 2) Helicopter cargo management systems
manufacture and distribution.


The following tables present  financial  information by business segment for the
years ended December 31, 1998 and 1997.


                                          Helicopter
                                            Cargo
                                           Manage-    Corporate
                                Medical      ment    and Elimi-   Consoli-
1998                            Devices    Systems     nations     dated
--------------------------------------------------------------------------

Sales to unaffiliated
customers                   $ 2,605,952       -           -    $ 2,605,952
Operating loss                 (991,675) (3,314,166)  (630,143) (4,935,984)
Identifiable assets             697,863   1,797,736  1,580,573   4,076,172
Capital expenditures            159,132     578,453          -     737,585
Depreciation and amortization    29,579     101,499    244,323     375,401




                                          Helicopter
                                             Cargo
                                            Manage-   Corporate
                                 Medical     ment     and Elimi-   Consoli-
1997                             Devices    Systems    nations       dated
---------------------------------------------------------------------------

Sales to unaffiliated
customers                    $   319,611  $     -     $     -    $   319,611
Operating loss                   (89,501) (2,254,339)   (409,879) (2,753,719)
Identifiable assets              119,796     900,882   1,667,019   2,687,697
Capital expenditures              49,958     238,199        -        288,157
Depreciation and amortization      4,709      21,822      14,958      41,489



16.  Fair Value of
     Financial
     Instruments

None of the  Company's  debt  instruments  are held for  trading  purposes.  The
Company  estimates that the fair value of all financial  instruments at December
31, 1998, does not differ  materially from the aggregate  carrying values of its
financial  instruments recorded in the accompanying balance sheet. The estimated
fair value amounts have been  determined by the Company using  available  market
information and appropriate valuation  methodologies.  Considerable judgement is
necessarily required in the interpreting market data to develop the estimates of
fair value, and,  accordingly,  the estimates are not necessarily  indicative of
the amounts that the Company could realize in a current market exchange.

--------------------------------------------------------------------------------

<PAGE>

                                 MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued

--------------------------------------------------------------------------------



17.  Commitments

Operating Leases

The Company is  obligated  under  certain  non-cancelable  operating  leases for
rental of office and  manufacturing  space.  Total  lease  expense for the years
ended  December  31,  1998 and 1997,  was  approximately  $58,000  and  $99,000,
respectively.  Future  minimum lease  payments  under  noncancellable  operating
leases with  initial  terms of one year or more are as follows at  December  31,
1998:


Years Ended December 31,                                       Amount
                                                          -----------------

                           1999                           $         206,334
                           2000                                      96,096
                                                          -----------------

                                                          $         302,430
                                                          -----------------

Royalty Agreement

During  1998,  the Company  entered  into a license  agreement  which grants the
Company the right to include  certain  software in its medical  device  product.
Under the agreement, the Company is obligated to pay $28 for each unit produced.
During  the year ended  December  31,  1998  royalties  expense  related to this
agreement totaled $16,268.


Employment Agreement

The Company has an employment agreement with one of its employees which requires
annual  payments  of $75,000  and a bonus  based on  earnings  of the  Company's
medical device division. The agreement expires on September 30, 2000.


Litigation

The  Company  may  become or is subject to  investigations,  claims or  lawsuits
ensuing  out  of the  conduct  of  its  business,  including  those  related  to
environmental  safety and health,  product liability,  commercial  transactions,
etc.  The  Company is  currently  not aware of any such items  which it believes
could have a material effect on its financial position.


18.  Pro Forma
     Condensed
     Combined
     Statement of
     Operations

The following  condensed  pro forma  combined  statements of operations  for the
years ended December 31, 1998 assumes the acquisition of Digital Health, LLC, by
Magellan as of the beginning of the years then ended.


--------------------------------------------------------------------------------

<PAGE>

                                 MAGELLAN TECHNOLOGY, INC.
        
                                 Notes to Consolidated Financial Statements
                                            
                                                                 Continued

--------------------------------------------------------------------------------


18.  Pro Forma
     Condensed
     Combined
     Statement of
     Operations
     Continued

The pro forma  results  of  operations  are not  necessarily  indicative  of the
results of operations that would actually have been obtained if the transactions
had  occurred  as of the  beginning  of the years then ended.  These  statements
should be read in  conjunction  with the  historical  financial  statements  and
related notes.




Pro forma information for the year ended December 31, 1998 is as follows:


                    Magellan
                   Technology     Digital
                      Inc.      Health, LLC    Total    Adjustments   Combined
                  --------------------------------------------------------------

Net sales         $      -     $ 3,140,114 $ 3,140,114 $      -     $ 3,140,114
Other income          440,580         -        440,580        -         440,580
Costs and
expenses           (4,368,925)  (4,163,221) (8,532,146)       -      (8,532,146)
                  --------------------------------------------------------------

Net loss          $(3,928,345) $(1,023,107)$(4,951,452)$      -     $(4,951,452)
                  --------------------------------------------------------------

Net loss
  per share       $       (.25)                               $            (.29)
                  ------------                                     -------------

Weighted average
number of common
shares outstanding  15,833,000                                        17,208,000
                  ------------                                     -------------



19.  Recent
     Accounting
     Pronounce-
     ments

In June  1998,  the  FASB  issued  SFAS  No.  133,  "Accounting  for  Derivative
Instruments and Hedging Activities." This statement  establishes  accounting and
reporting standards for derivative  instruments and requires  recognition of all
derivatives as assets or liabilities in the statement of financial  position and
measurement of those  instruments at fair value.  The statement is effective for
fiscal  years  beginning  after June 15,  1999.  The Company  believes  that the
adoption  of SFAS  133  will  not have  any  material  effect  on the  financial
statements of the Company.

-
-------------------------------------------------------------------------------