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 March 31, 1999
( )TRANSITION REPORT PURSUANT TO SECTION 13
OR 15 (d) OF THE SECURITIES EXCHANGE ACT
COMMISSION OF 1934
For the Transition period March 31, 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)
(805)-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
March 31, 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
March 31, 1999. (Unaudited) . . . . .3
Balance Sheet. . . . . . . . . . . . .3
Income Statement . . . . . . . . . . .5
Statement of Cash Flow . . . . . . . .7
Item 2: Management's Discussion and Analysis of
Financial Condition and Results of Operations.
. . . . . . . . . . . . . . . . . . . . . . . .9
Y2K (Year 2000 Problem). . . . . . . 11
PART II. . . . . . . . . . . . . . . . . . . . 12
Item 1: Legal Proceedings . . . . . . . . 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURE. . . . . . . . . . . . . . . . . . . 13
PART 1: FINANCIAL INFORMATION
Item I: Financial Statements for the three months ending
March 31, 1999. (Unaudited)
Balance Sheet of Advanced Oxygen Technologies, Inc. for
the three months ending March 31, 1999 (UNAUDITED)
ASSETS
<TABLE> 1999
<S> <C>
Current Assets 03/31/99
Regular Checking Account <2,454.16
Payroll Checking Account <6,424.67>
Money Market Account 15,021.63
Client Fees Receivables 19,715.86
Contracts Receivables 53,543.96
ITSMA Receivables <7,685.50>
Mecklermedia InternetWorld 1,608.59
Other Receivables <1,276.00>
Allowance for doubtful Account <1,295.00>
Database Management Receivable 18,625.43
Inventory 156.26
Inventory 6,051.15
Inventory CD's <200.00>
Total Current Assets 95,381.68
Property and Equipment
Furniture and Fixtures 31,869.00
Office Equipment 17,882.00
Equipment 98,858.00
Capitalized Equipment 25,406.00
Other Depreciable Property 911,391.00
Accum. Depreciation-Furniture <4,008.36>
Accum. Depr. Office equipment <1,788.00>
Accum. Depreciation-Equipment <62,728.12>
A/D Capitalized Equipment <2,118.00>
Accum. Depreciation Other <76,547.40>
Total Property & Equipment 938,216.12
Other Assets
Deposits 4,092.50
Total Assets 1,037,690.30
LIABILITIES AND CAPITAL
CURRENT LIABILITIES
Accounts Payable 11,284.20
Accounts Payable 177,625.59
Sales Tax Payable <27.06>
Sales Tax Payable 2,274.80
Health Care Contributions 5,894.07
Federal Payroll Taxes payable 42,805.66
State Payroll Taxes Payable 5,246.46
SUTA Tax Payable <154.40>
IMA Short Term Note Payable 450.00
State Tax Payable 800.00
Total Current Liabilities 245,299.32
LONG TERM LIABILITIES
Capital Lease Obligation 23,637.00
Note Payable, Crossfield 6,500.00
Note Payable, Crossfield <4,260.50>
ICON 2 year Note 15,000.00
Other Long-Term Liabilities 1.00
Other Long-Term Liabilities 10,625.50
Total Long Term Liabilities 51,503.00
Total Liabilities 296,802.32
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 <20,444,662.14>
Net Income 973,766.12
Total Capital 740,887.98
Total Liabilities and Capital 1,037,690.30
</TABLE>
Income Statement for Advanced Oxygen Technologies, Inc. for
the Three Months Ending December 31, 1998 (UNAUDITED)
<TABLE>
<S> <C> <C>
3 months 9 months
REVENUES
Income Consulting 0.00 105,200.00
CA Registrations 0.00 346,034.17
CD Sales Santa Clarita 1,419.00 142,931.96
CA Sponsor/Ad Income 11,835.00 11,835.00
CA Client Contract Income 0.00 12,190.19
CA Database Management 7,071.51 20,104.83
Commission 0.00 69,099.00
TOTAL REVENUES 20,325.51 707,395.15
COST OF SALES
Cost of Goods 14.20 7,648.86
Cost of Sales Freight 0.00 <5,387.90>
Independent Contractors 0.00 52,339.75
Royalty Fees on Sales 0.00 16,008.53
Purchase Returns/allowances 0.00 510.00
TOTAL COST OF SALES 14.20 71,119.24
GROSS PROFIT 20,311.66 636,275.35
EXPENSES
IC Reimbursable Expense <137.00> 274.00
Advertising Expense 0.00 <6,177.08>
Accounting/Prof. Fee 287.25 32,665.00
Auto Expenses 198.35 198.35
Bad Debt Expense 0.00 <45,554.00>
Bank Charges 533.94 7,437.14
Closing Costs 0.00 26,910.15
Commissions & Fees Exp 0.00 <572.42>
Credit Card Charges 0.00 1,490.68
Depreciation Expense 40,697.22 62,751.96
Dues 151.19 1,756.19
Employee Benefit 751.48 7,359.57
Freight Expense 382.43 <1,956.79>
Interest Expense 4,036.01 28,252.07
Cleaning Expense 0.00 <3.00>
Cleaning Expense 290.06 1,422.49
Legal/Professional 0.00 <24,821.00>
Legal/Professional 139.00 <8,120.89>
Maintenance Expense 0.00 718.00
Moving Expense 25.00 996.36
Entertainment 638.84 591.82
Office Expense 1,965.55 2,790.65
Payroll Tax Expense 2,293.49 15,489.01
Postage Expense 620.34 5,188.12
Printing and Reproduction 777.34 18,132.58
Professional Salaries (billable) 0.00 40.00
Transfer Agent Expense 1,550.00 1,785.00
Professional Salaries, non Billable 0.00 695.74
Rent or Lease Expense 12,112.50 24,304.00
Computer/Equip Leases 11,336.69 32,379.99
Repairs Expense 0.00 550.00
Transcribing Expense 0.00 34,819.74
Salaries Expense 20,448.52 106,769.64
Employee Commission Expense 967.62 8,267.53
Subcontract fees 520.74 16,114.92
Supplies Expense 218.06 3,003.85
Computer Software Upgrades 162.35 620.11
Telephone Expense 13,489.76 54,957.58
Travel Expense 6,542.46 14,983.93
Utilities Expense 1,592.49 3,574.08
Wages Expense 4,755.94 63,465.53
CA Overtime Wage Expense 0.00 146.25
Other Expense 191.70 404.69
TOTAL EXPENSES 127,539.57 494,101.54
Extraordinary Income
Bad Receivables Income <106,244.83> <196,887.99>
Interest Income 0.87 55.00
Other Income 30.00 2,461.28
2/16/99 Forgiveness of Deb 1,021,894.11 1,021,894.11
Total Extraordinary Income 915,722.35 831,591.75
NET INCOME 808,494.09 973,766.12
</TABLE>
Statement of Cash Flow for Advanced Oxygen Technologies,
Inc. for the Three Months Ending March 31, 1999
(UNAUDITED)
<TABLE>
<S> <C> <C>
3 months 9 months
Cash Flows From Operating
Activities
Net Income 808,494.09 973,766.12
Adjustments to reconcile net income
to net cash provided by operating
activities
Accum. Depreciation-Furniture 616.50 2,415.00
Accum. Dep. Office Equipment 0.00 894.00
Accum Dep. Equipment 39,631.89 57,785.52
A/D Capitalized Equipment 0.00 1,059.00
Accum. Depreciation, other 448.83 598.44
Client Fees Receivables 106,285.33 77,675.15
Contracts Receivable <396.97> <52,729.54>
Knowledge Alliance Receivables 2,390.00 2,390.00
ITSMA Receivables 4,190.00 40,350.50
DMDNY Receivables 0.00 4,000.00
NMS Receivables 0.00 1,190.00
M3 Learning 0.00 4,590.00
Mecklermedia 310.00 8,048.41
Other Receivables 1,202.00 9,642.26
Allowance for Doubtful accounts 0.00 1,295.00
Database Receivables <5,586.24> <18,619.56>
A/R Reserve 0.00 <45,554.00>
Inventory 0.00 <156.26>
Inventory 14.20 <2,526.70>
Inventory CD's 0.00 200.00
Accounts Payable 71.63 1,477.73
Accounts Payable 23,523.21 120,941.59
Accrued Expenses 0.00 <24,821.00>
Accrued Expenses 0.00 <16,484.00>
Sales Tax Payable 61.22 598.81
Health Care Contributions 842.96 4,543.13
Federal Payroll Taxes 6,578.26 15,644.88
State Payroll Taxes Payable 502.08 3,605.74
SUTA Tax Payable 26.04 65.14
IMA Short Term Note Payable <450.00> <450.00>
Payable to Client 0.00 <61,418.00>
Deferred Income Commission 0.00 <7,681.00>
TOTAL ADJUSTMENTS 180,260.94 128,570.79
Net Cash Provided by Operations 988,755.03 1,102,336.91
CASH FLOWS FROM INVESTING
Net cash used in investing <55.00> <4,092.50>
Cash flows from financing activities
Proceeds from:
Notes Payable Jens Olsen 0.00 8,400.00
Notes Payable Crossfield 0.00 5,314.50
ICON 2 year Note 15,000.00 15,000.00
Preferred Stock 0.00 10,000.00
Used for:
Notes Payable Olsen 0.00 <1,740.50>
Notes Payable Jens Olsen 0.00 <8,400.00>
Note Payable Crossfield 0.00 <1,500.00>
Note Payable Crossfield 0.00 <19,500.00 >
Note Payable IMA <516,714.06> <528,466.48>
Other Long Term Liabilities 0.00 <4,374.50>
Preferred Stock 0.00 <10,000.00>
Paid in Capital <500,000.00> <500,000.00>
Net Cash Used in Financing <1,001,714.06> <1,035,266.98>
Net Increase (decrease) in cash <13,014.03> 62,977.43
</TABLE>
SUMMARY
<TABLE>
<S> <C> <C>
Cash Balance at End 6,142.80 6,142.80
of Period
Cash Balance at beginning 678.52 56,834.63
of period
Net Increase <decrease> in cash 6,821.32 62,977.43
</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").
The Company uses the Assets to generate revenues from sales
of Multi-Media CD-ROMS, database management and fax
broadcasting.
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 s.f. of premises
on November 06,1998 in Santa Clarita for its CA location.
Currently, this is the only California location of the Company.
On November 6, 1998, the Company completed its move
to its new California location, 26883 Ruether Avenue, Santa
Clarita, CA 91351. Currently this location is the only location the
Company has operations.
On November 10, 1998 the Company entered into a lease
with NEC Leasing company for a lease of NEC NEAX 2000 IVS
phone system for the Santa Clarita, CA location.
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 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. The
Company also continues to explore potential mergers, acquisitions,
sales and purchases with other companies.
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 possibly
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.
PART II
Item 1: Legal Proceedings
On September 09, 1998 the Company appeared before the
Santa Clarita County small claims court to represent itself in a
motion ("Motion") filed by a plaintiff, Alpha Graphics, against
John Teuber for a judgement on July 06, 1998 from a case filed
May 29,1998, to be amended to the Company. The Motion was
denied and the judgement was not amended to reflect the
Company as a defendant.
On February 10, 1999 in the Municipal Court of California,
county of Los Angeles, Newhall Judicial District, America-United
Enterprises, Inc. filed suit against Advanced Oxygen
Technologies, Inc, case no. 99U00109, alleging that the February,
1999 rent due on February 01, 1999 had not been paid by
Advanced Oxygen Technologies, Inc. The suit has been settled
out of court and Advanced Oxygen Technologies, Inc. has
tendered the monies owed in full.
On February 19, 1999, Written Communications, Inc. filed
suit against Advanced Oxygen Technologies, Inc. in the small
claims court in Van Nuys CA Municipal Court, Case no.
99V12825 for unpaid service rendered in the amount of $4,875.00.
The company will dispute the amount owed.
On January 16, 1999, A Better Type filed suit against
Advanced Oxygen Technologies, Inc. in the small claims court of
the Municipal Court of California, San Diego Judicial District,
Case no.691493 alleging non payment for services rendered of
$5,000. On March 17, 1999 a judgement was entered against
AOXY for $5,000.
On March 23, 1999 Corestaff Services filed suit against
Advanced Oxygen Technologies, Inc. in the small claims court
Newhall CA Judicial district case no 99S00349 for lack of
payment in the amount of $4,106. The case has been settled out
of court and the company has agreed to pay Corestaff $500.00 on
the 15 Th day of each month beginning on June 15, 1999 until any
debts owed are paid in full.
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: January 27, 1999
/s/ Robert E. Wolfe/s/
Robert E. Wolfe, Chairman of the Board and
Chief Executive Officer and Principal
Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> MAR-31-1999
<CASH> 6,142
<SECURITIES> 0
<RECEIVABLES> 84,531
<ALLOWANCES> (1,295)
<INVENTORY> 5,581
<CURRENT-ASSETS> 95,381
<PP&E> 1,089,494
<DEPRECIATION> (147,189)
<TOTAL-ASSETS> 1,037,690
<CURRENT-LIABILITIES> 245,299
<BONDS> 51,503
0
50
<COMMON> 296,403
<OTHER-SE> 16,700
<TOTAL-LIABILITY-AND-EQUITY> 1,037690
<SALES> 20,325
<TOTAL-REVENUES> 20,325
<CGS> 14
<TOTAL-COSTS> 14
<OTHER-EXPENSES> 46,145
<LOSS-PROVISION> (106,244)
<INTEREST-EXPENSE> 4,036
<INCOME-PRETAX> 808,494
<INCOME-TAX> 0
<INCOME-CONTINUING> 808,494
<DISCONTINUED> 0
<EXTRAORDINARY> 1,021,966
<CHANGES> 0
<NET-INCOME> 808,494
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
