U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(x)QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended September 30, 1999
( )TRANSITION REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT
COMMISSION OF 1934
For the Transition period September 30, 1999
Commission file number 0-9951
ADVANCED OXYGEN TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
Delaware 91-1143622
(State of Incorporation) (IRS Employer Identification No.)
26883 Ruether Avenue, Santa Clarita, CA 91351
(Address of principal executive offices)
(661)-298-3333
(Issuer's telephone number)
Check whether the issuer (1) has filed all reports required to be
filled by Section 13 or 15(d) of the Exchange Act during the past
12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
The number of shares of common stock outstanding as of
September 30, 1999 was 29,640,252.
Transitional Small Business Disclosure Format (check one):
Yes No X
ADVANCED OXYGEN TECHNOLOGIES, INC.
INDEX
PART 1: FINANCIAL INFORMATION. . . . . . . . . .3
Item I: Financial Statements for the three months ending
September 30, 1999. (Unaudited) . . .3
Balance Sheet, September 30, 1999. . .3
Income Statement . . . . . . . . . . .5
Statement of Cash Flow . . . . . . . .6
Statement of Changes . . . . . . . . .8
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations.
. . . . . . . . . . . . . . . . . . .9
PART II. . . . . . . . . . . . . . . . . . . . 13
Item 1: Legal Proceedings . . . . . . . . 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURE. . . . . . . . . . . . . . . . . . . 14
PART 1: FINANCIAL INFORMATION
Item I: Financial Statements for the three months ending
September 30, 1999. (Unaudited)
BALANCE SHEET, SEPTEMBER 30, 1999
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Current Assets
Cash on Hand $2,607.75
Accounts Receivable $106,527.21
Allowance for Doubtful Accounts $(1,295.00)
Database Management Receivables $23,400.00
Inventory $7,682.80
- -------------------------------------------
Total Current Assets $138,922.76
Property and Equipment
Furniture and Fixtures $31,869.00
Office Equipment $17,882.00
Equipment $98,858.00
Capitalized Equipment $125,352.40
Other Depreciable Property $911,391.00
Accum. Depreciation $(228,584.32)
- -------------------------------------------
Total Property & Equipment $956,768.08
Other Assets
Deposits $4,092.50
Total Other Assets $4,092.50
===========================================
Total Assets $1,099,783.34
Liabilities and Capital
Current Liabilities
Accounts Payable $216,227.60
Sales Tax Payable $2,669.94
Health Care Contributions $5,894.06
Due to Employees $6,374.59
Federal Payroll Taxes Payable $52,919.92
State Payroll Taxes Payable $5,842.31
SUTA Tax Payable $(122.91)
IMA Short Term Note Payable $(3,150.00)
State Tax Payable $800.00
- -------------------------------------------
Total Current Liabilities $287,455.51
Long Term Liabilities
Capital Leases Obligation $123,583.40
Note Payable Crossfield $17,083.75
Note Payable Icon $15,000.00
Other Long Term Liabilities $1.00
401 K T Account $32,325.51
- -------------------------------------------
Total Long Term Liabilities $187,993.66
===========================================
Total Liabilities $475,449.17
Capital
Beginning Balance Equity $16,700.00
Preferred Stock $50.00
Common Stock $296,403.00
Paid In Capital $19,898,631.00
Retained Earnings $(19,533,698.82)
Net Income $(53,751.01)
- -------------------------------------------
Total Capital $624,334.17
===========================================
Total Liabilities & Capital $1,099,783.34
</TABLE>
INCOME STATEMENT
FOR THE THREE MONTHS ENDING SEPTEMBER 30, 1999
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Revenues 3 Months Ending 9/30/99
CA Registrations $45,991.47
CD Sales $3,698.00
Advertising Sales $8,880.00
Database Management $15,043.28
Interest Income $211.17
- -------------------------------------------
Total Revenues $73,826.92
Cost of Sales
Cost of Goods $1,977.23
Contractor Commissions $738.08
Purchase Returns $6,000.00
- -------------------------------------------
Total Cost of Sales $8,715.31
Gross Profit $65,108.61
Expenses
Accounting Fees $7,362.50
Auto Expenses $1,739.61
Bank Charges $434.95
Commissions $1,471.05
Credit Card Charges $36.71
Depreciation Expense $40,697.22
Employee Benefit $555.00
Freight Expense $240.70
Laundry/Cleaning $3.00
Legal/Professional $907.34
Meals/Entertainment $887.88
Office Expense $744.60
Payroll Tax Expense $2,238.55
Postage Expense $263.74
Rent $12,112.50
Computer Leases $883.87
Repairs Expense $391.26
Salaries Expense $10,323.00
Employee Commissions $723.34
Subcontractor Fees $652.00
Software Upgrades $74.90
Telephone Expense $7,899.37
Travel Expense $1,735.36
Utilities Expense $2,289.42
Wages Expense $15,804.40
Other Expense $387.35
- -------------------------------------------
Total Expenses $118,859.62
Net Income $(53,751.01)
</TABLE>
STATEMENT OF CASH FLOW
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
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Cash Flows from Operations
Net Income $(53,751.01)
Adjustments to reconcile net
income to net
cash provided
Accum Depreciation $40,697.22
Accounts Receivable $(45,324.28)
Database Management Receivable $(8,084.68)
Inventory $(923.77)
Accounts Payable $36,297.49
Sales Tax Payable $92.61
Federal Payroll Taxes $6,374.42
State Payroll Taxes $406.72
SUTA Tax Payable $16.88
IMA Short Term Note $(1,350.00)
- -------------------------------------------
Total Adjustments $28,202.61
Net Cash from Operations $(25,548.40)
Cash from Investing Activities $0.00
Net Cash Used in Investing $0.00
Cash From Financing Activities
Used For
401 K T Account $(25,900.94)
Net Cash used in Financing $(25,900.94)
Net increase (decrease) in cash$(51,449.34)
Summary
Cash Balance at end of Period $2,607.75
Cash Balance at Beginning of Period$(32,757.26)
Net Increase (decrease) in Cash $ (30,149.51)
</TABLE>
STATEMENT OF CHANGES
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999
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Source of Working Capital
Net Income $(53,751.01)
Add back items not
requiring working
capital
Accum Depreciation $40,742.22
Working Capital from Operations $(13,053.79)
Total Sources $(13,053.79)
Uses of working Capital
401 K T account $(25,900.94)
Total uses $(25,900.94)
Analysis of components of changes
Increase (decrease) in
current assets
Cash of hand $(51,449.34)
Accounts Receivable $45,324.28
Database Management Receivables $8,084.68
Inventory $923.77
(Increase) Decrease in CurrentLiabilities
Accounts Payable $36,297.49
Sales Tax $(92.61)
Federal Payroll Taxes $(6,374.42)
State Payroll Taxes $(406.72)
SUTA Tax $(16.88)
IMA Short Term Loan $1,350.00
Net Change $(38,954.73)
</TABLE>
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations.
On March 9, 1998, pursuant to an Agreement for Purchase
and Sale of Specified Business Assets ("Purchase Agreement"), a
Promissory Note ("Note"), and a Security Agreement ("Security
Agreement") all dated March 9, 1998, Advanced Oxygen
Technologies, Inc.(the "Company") purchased certain tangible and
intangible assets (the "Assets") including goodwill and rights under
certain contracts, from Integrated Marketing Agency, Inc., a
California Corporation ("IMA").
Pursuant to an employment agreement dated March 09,
1998 between the Company and John Teuber ("Employment
Agreement"), on September 04, 1998 the Company terminated
John Teuber for cause without relinquishing any of its rights or
remedies.
Pursuant to the Note, the Purchase Agreement, and the
Security Agreement between the Company and ("IMA"), the
Company on September 04, 1998 exercised its right of "Set Off"
of the Note, as defined therein due to IMA's breach of numerous
representations, warranties and covenants contained in the Note
and certain ancillary documents. The Company further reserved
any and all rights and remedies available to it under the Note,
Purchase Agreement and Security Agreement.
The Company entered into a two year employment
agreement ("NAG Agreement" as contained in Exhibit I of the
registrants SEC Form 10-K for the period ending June 30, 1998)
with Nancy Gaylord on March 13, 1998. On September 18, 1998,
Nancy Gaylord terminated her employment with the Company.
The NAG Agreement had no provision for this termination.
The Company entered into a lease agreement as contained
in Exhibit I of the registrants SEC Form 10-QSB for the period
ending September 30, 1998 with America-United Enterprises Inc.
on October 01, 1998 and took possession of 4,700 sf. of premises
on November 06,1998 in Santa Clarita for its CA location.
Currently, this is the only California location of the Company.
On December 9, 1998 the company delivered to IMA,
"Notification to Indemnifying Party and Demand for
Indemnification for $2,251,266." Pursuant to the Note, the
Purchase Agreement, the Security Agreement, and the Employment
Agreement (collectively the "Agreements"), the Company
demanded that IMA pay $2,251,266 or defend the Company
against the Liabilities (as defined therein) due to, among other
things, IMA's breach, representations, warranties, and violation of
the Agreements.
On January 29, 1999, pursuant to the Purchase Agreement
of 1/28/99, Advanced Oxygen Technologies, Inc. ("AOXY")
purchased 1,670,000 shares of convertible preferred stock of
Advanced Oxygen Technologies, Inc. ("STOCK") and a $550,000
promissory note issued by Advanced Oxygen Technologies, Inc
("Note") from Integrated Marketing Agency, Inc.("IMA"). The
terms of the Purchase Agreement were: AOXY payed $15,000 to
IMA, assumed a Citicorp Computer Equipment Lease,
#010-0031648-001 from IMA, delivered to IMA certain tangible
business property (as listed in Exhibit A of the Purchase
Agreement), executed a one year $5,000 promissory note with
IMA, and delivered to IMA a Request For Dismissal of case
#PS003684 (restraining order) filed in Los Angeles county superior
court. IMA sold, transferred, and delivered to AOXY the Stock
and the Note. IMA sold, transferred, assigned and delivered the
Note and the Stock to AOXY, executed documents with Citicorp
Leasing, Inc. to effectuate an express assumption by AOXY of the
obligation under lease #010-0031648-001 in the amount of
$44,811.26, executed a UCC2 filing releasing UCC-1 filing
#9807560696 filed by IMA on March 13, 1998, and delivered such
documents as required. In addition, both IMA and AOXY
provided mutual liability releases for the other.
The location in Santa Clarita, CA is the location for operations.
The Company currently has four areas of concentration: CD-ROM
production/sales, event sales, database management and marketing.
The Company produces and sells educational CD-ROMS.
The content of the CD-ROMS is derived from conferences, held by
clients of the Company. AOXY produces a CD-ROM of the
conferences including the audio, video, graphics and/or verbatim
transcripts of the conference. AOXY sells CD's direct to the
client and public, and/or sells advertisement space on the CD's and
produces the CD at no cost to the conference organizer. All CD's
are in HTML format and are directly linked to the Internet sites of
AOXY and the Client. The sales efforts are conducted on the
Internet and in the Santa Clarita CA location. In addition, the
Company began selling event registrations for conferences where
AOXY is producing CD-ROMS. The Company sells the events
through fax broadcasting, direct mail, and telemarketing from Santa
Clarita CA.
During this period, the Company completed production of
CD's for the Interactive Music Expo, Health, the Healthy Living
and Holistic Health Expo, and Independent Insurance Association
of Indiana.
Database management includes managing client databases,
assisting clients in effective marketing with databases, providing
database information to clients, list rentals, and utilizing and
structuring databases for fax broadcasting. Currently the Company
has the ability to fax broadcast or email broadcast to a large
number of contacts.
The Company has a database management contract with
Dunn and Bradstreet, and during this period, the Company entered
into a contract with Walter Karl, Inc., a division of InfoUSA, Inc.
whereby, Walter Karl, Inc. will broker the company's database .
The Company continues it efforts to raise capital to support
operations and growth, and is actively searching acquisition or
merger with another company that would compliment AOXY or
increase its earnings potential. The Company continues its effort
to increase the CD-ROM production and associated sales. The
Company expects difficulty in financing the growth of the
increased business and has been concentrating on raising capital or
obtaining a line of credit.
Y2K (Year 2000 Problem)
Y2K, or the Year 2000 Problem is a potential problem for
computers whereby the system would not recognize the date 2000
as year 2000 but instead as 1900 due to the fact that the computer
industry standard for dating was a 2 digit system and not 4 digits.
Each date represented was the last two digits of the year, i.e.: 1998
was 98. This problem could render important computer and
communication systems inoperable which could have a significant
effect on the Company's operations. The Company's current
exposure to potential Y2K systems that could be affected include
(but not limited to): computers, telephones, all forms of electronic
communications, switches, routers, software, accounting software,
banking, electricity, credit card processors, electronic data
exchange, security systems, fax broadcasting software and
hardware, database software, archives, data, records, and others.
In an effort to minimize the Company's exposure to the
potential Y2K problem, the Company has contacted each of our
vendors to assess how Y2K will affect our operations. Although
some vendors make verbal assurances of Y2K compliance, there
can be no certainty that the systems that the Company use will not
be affected. AOXY continues to examine the risks associated with
its most reasonable worst case Year 2000 scenarios. Scenarios
might include a possible but presently unforeseen failure of key
supplier or customer business, processes, or systems. These
situations could conceivably persist for some months after the
millennium transition and could lead to possible revenue losses.
The Company also may not have the applicable capital resources to
correct or replace certain systems to be compliant with Y2K. The
Company may be able to replace or correct the Y2K problem
within the organization, and still be affected by outside utilities
and/or vendors.
The Company may not directly experience any effect from
the Y2K problem, but the suppliers, vendors, clients or other
associates of the Company, may be affected and could cause the
Company harm by loss of clients, loss of contracts, inability to
receive supplies, etc. The Y2K element alone could significantly
alter the Company's operations and profitability.
Forward Looking Statements
Certain statements contained in this report, including statements
concerning the Company's future and financing requirements, the
Company's ability to obtain market acceptance of its products and
the competitive market for sales of small production business' and
other statements contained herein regarding matters that are not
historical facts, are forward looking statements; actual results may
differ materially from those set forth in the forward looking
statements, which statements involve risks and uncertainties,
including without limitation to those risks and uncertainties set
forth in any of the Company's Registration Statement's under the
heading "Risk Factors" or any other such heading. In addition,
historical performance of the Company should not be considered
as an indicator for future performance, and as such, the future
performance of the Company may differ significantly from
historical performance.
PART II
Item 1: Legal Proceedings
On April 30, 1999 NEC America Filed suit against Advanced
Oxygen Technologies, Inc. In the Los Angeles Superior Court,
North Valley Branch, Case Number PC 023087X alleging default
of the Lease Agreement of November, 1998 in the amount of
$57,167.28. AOXY has answered the suit and denies some or all
of the allegations, and believes that the jurisdiction of the case
should be in New York.
A previous employee, Tim Rafalovich has filed suit against
Advanced Oxygen Technologies, Inc. in the Small Claims court of
New Hall, CA alleging that AOXY has not paid approximately
$5,000 in wages, case number 99S00761. The appeal is pending
and AOXY denies all allegations, and will defend the case.
On June 14, 1999 Airborne Express, Inc. filed suit against
Advanced Oxygen Technologies, Inc., case # 99-C00738 in small
claims court of Los Angeles CA Municipal district, Newhall
Judicial District for $5,093.95, including court costs and attorney's
fees alleging monies owed. AOXY denies the allegations and plans
to defend the claim and believes that some or all of the shipping
charges cited were from a previously shared location in Santa
Clarita.
Item 6. Exhibits and Reports on Form 8-K
A report on Form 8-K was filed on February 16, 1999 and
reported under Item 2 the Purchase of Specified Assets from
Integrated Marketing Agency, Inc. The assets purchased consisted
a promissory note of $550,000 payable to IMA and issued by
Advanced Oxygen Technologies date March 09, 1998 and
1,670,000 Preferred Shares of Advanced Oxygen Technologies.
IMA, and Advanced Oxygen Technologies, Inc. provided each
other a mutual release of liability. Exhibit 1, contained therein
defined the terms and conditions of the transaction.
SIGNATURE
In accordance with the requirements of the Exchange Act, the
Registrant has caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Date: November 12, 1999
/s/ Robert E. Wolfe/s/
Robert E. Wolfe, Chairman of the Board and
Chief Executive Officer and Principal
Financial Officer
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> SEP-30-1999
<CASH> 2,607
<SECURITIES> 0
<RECEIVABLES> 166,224
<ALLOWANCES> (1,295)
<INVENTORY> 7,682
<CURRENT-ASSETS> 138,922
<PP&E> 1,185,352
<DEPRECIATION> (228,584)
<TOTAL-ASSETS> 1,099,783
<CURRENT-LIABILITIES> 287,455
<BONDS> 187,993
16,700
50
<COMMON> 296,403
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,099,783
<SALES> 73,826
<TOTAL-REVENUES> 73,826
<CGS> 8,715
<TOTAL-COSTS> 8,715
<OTHER-EXPENSES> 118,859
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (53,751)
<INCOME-TAX> 0
<INCOME-CONTINUING> (53,751)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (53,751)
<EPS-BASIC> (.002)
<EPS-DILUTED> (.002)
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