U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-KSB
(X) ANNUAL REPORT PURSUANT TO SECTION
13 OR 15 (d)OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended June 30, 1998
Commission file number 0-9951
ADVANCED OXYGEN TECHNOLOGIES, INC.
(Name of small business Issuer in its charter)
Delaware 91-1143622
(State of incorporation) (I.R.S. Employer Identification No.)
c/o Crossfield
230 Park Avenue, Suite 1000
New York, NY 10169
(Address of principal executive offices) (Zip Code)
805-298-3333
(Issuer's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered under Section 12(g) of the Exchange
Act: Common Stock, par value $.01 per share
Check whether the Issuer (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities
Exchange Act during the preceding 12 months (or for such
shorter period that the Registrant was required to file such
reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No ______
Check if there is no disclosure of delinquent filers in
response to Item 405 of Regulation S-B contained in this
form, and no disclosure will be contained, to the best of
Registrant'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. [ x ]
For the year ended June 30, 1998, Issuer's revenues were
$344,743
The aggregate market value of Common Stock at June 30,
1998 held by non-affiliates approximated $1,053,787 based
upon the average bid and asked prices for a share of
Common Stock on that date. For purposes of this
calculation, persons owning 10% or more of the shares of
Common Stock are assumed to be affiliates, although such
persons are not necessarily affiliates for any other purpose.
As of June 30, 1998, there were 29,640,252 issued and
outstanding shares of the registrant's Common Stock, $.01
par value.
Transitional Small Business Disclosure Format (check one):
Yes ___ No X
PART I...................................................................4
ITEM 1. DESCRIPTION OF BUSINESS ...................................4
ITEM 2. DESCRIPTION OF PROPERTY....................................7
ITEM 3. LEGAL PROCEEDINGS..........................................7
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS .......7
PART II. .............................. . . . . . . . . . . . . . . . . .7
ITEM 5. MARKET OF REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS....................................................7
ITEM 6. PLAN OF OPERATION..........................................8
ITEM 7. FINANCIAL STATEMENTS.......................................9
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ........9
Advanced Oxygen Technologies Balance Sheet June 30, 1998.10
Statement of Operations for the Year ended June 30, 1998.11
Statement of Shareholders Equity, June 30, 1998......... 12
Statement of Cash Flow for the Year ended June 30, 1998..14
Notes to Financial Statements............................15
ITEM 8. Changes in and Disagreements with Accounts on Accounting and
Financial Disclosure. . . .............................. 23
PART III . . . . . . . . . . . . . . . . . .............................23
ITEM 9. Directors and Officers of the Registrant................ 23
ITEM 10. Executive Compensation ..................................24
ITEM 11. Security Ownership of Certain Beneficial Owners
and Management.......................................... 27
ITEM 12. Certain Relationships and Related Transactions.......... 28
ITEM 13. Exhibits and Reports on Forms 8-K....................... 28
SIGNATURES .................................................. 30
Exhibit 1.................................................... 31
PART I
ITEM 1- DESCRIPTION OF BUSINESS
The Patent Sale and Cessation of Business
Advanced Oxygen Technologies, Inc. ("Advanced
Oxygen Technologies", "AOXY", "AOT" or the
"Company"), incorporated in Delaware in 1981 under the
name Aquanautics Corporation, was, from 1985 until May
1995, a development stage specialty materials company
producing new oxygen control technologies.
On May 1, 1995, the Company sold its patents, and all
related technology and intellectual property rights
(collectively the "Patents Rights") to W. R. Grace & Co.
Conn., a Connecticut corporation ("Grace"). The price for the
Patents Rights was $335,000, in cash, and a royalty as
described below. Of the cash, $100,000 was paid to the
Company prior to the closing and used to cover the Patent
Sale's transnational costs and to preserve the Patent Rights.
The remaining $235,000 was paid at the closing of the sale of
the Patent Rights (the"Patent Sale").
In addition to the $335,000, the Company was to receive
a royalty until April 30, 2007 of two percent (2%) of the net
sales price of (a) all products sold by Grace that include as a
component, material that absorbs, bars, climinates, extracts
and/or concentrates oxygen that, but for the purchase of the
Patents Rights, would fringe the Patents Rights, and (b) any
mixture or compound (other than a finished product) which
includes as a component material that absorbs, bars,
climinates, extracts and/or concentrates oxygen that, but for
the purchase of the Patent Rights, would infringe the Patent
Rights. If Grace Licenses the Patent Rights during the first
three years after the Closing to a third party (other than a
Grace affiliate), the Company will receive 50% of the
royalties received by Grace form such third party but will not
receive the 2% royalty on either products or material sold by or
to that third party.
The Company has agreed to indemnify Grace for any
out of pocket costs incurred because of claims, litigation,
arbitration or other proceedings (a) relating to the validity or
ownership of the Patent Rights, (b) any infringement by the
Patent Rights of any other patent or trademark owned by a
third party, (c) any breach by Company of its representations,
warranties, covenants in the Purchase Agreement or (d)
arising from any state of affairs existing at Closing which was
not disclosed by the company to Grace. If in any one year
Grace incurs costs covered by this indemnity, the indemnity
is for all such costs up to $75,000 and for 50% of such costs
over $75,000. Amounts due Grace under the indemnity
would be paid by withholding royalties form Company.
In August 1994, in order to retain senior management,
the Company agreed to pay Mr. Kopetz, Ms. Castle, and
David Overmyer, the Company's then controller, a bonus if
the Company successfully completed a sale of the Company
or its technology by May 31, 1995. The bonus was equal to
5% of the first million dollars of the gross proceeds from such
sale, 4% of the next million dollars of such gross proceeds,
3% of the third million, 2% of the fourth million and 1% of
all amounts received from the sale of over $4 million. This
bonus was shared equally by Mr. Kopetz, Ms. Castle, and
David Overmeyer. Upon the Closing, they received an
aggregate of $16,750, or $5,583.33 each.
In addition, certain of the directors advanced $275,000
to the Company in August 1994 (the "Directors Loans").
None of these advances has been repaid. They will be repaid
from the royalties, if any. The Board retained for the
Company $57,000 from the proceeds of the Patent Sale so
that the Company could exist for a period of time to allow it
to search for and negotiate with possible acquires of the
corporate shell and/or its net operating loss carry forwards.
Stock Acquisition Agreement, 12/18/97
Pursuant to a Stock Acquisition Agreement dated as of
December 18, 1997, Advanced Oxygen Technologies, Inc.
("AOXY") has issued 23,750,00 shares of its common stock,
par value $.01 per share for $60,000 cash plus consulting
services rendered valued at $177,500, to Crossland, Ltd.,
("Crossland"), Eastern Star, Ltd., ("Eastern Star"), Coastal
Oil, Ltd. ("Coastal") and Crossland, Ltd. (Belize) ("CLB").
Crossland and Eastern Star, Ltd. are Bahamas corporations.
Coastal Oil and CLB are Belize corporations.
Purchase Agreement, 12/18/97
Pursuant to a Purchase Agreement dated as of
December 18, 1997, CLB, Triton-International, Ltd.,
("Triton"), a Bahamas corporation, and Robert E. Wolfe
purchased an aggregate of 800,000 shares of AOXY's
common stock from Edelson Technology Partners II, L.P.
("ETPII") for $10,000 cash. AOXY issued 450,000 shares
of its capital stock to ETPII in exchange
for consulting services to be rendered.
The general partner of ETPII is Harry Edelson, Chairman of
the Board and Chief Executive Officer of AOXY prior to the
transactions resulting in the change of control (the
"Transactions"). Prior to the Transactions Mr. Edelson
directly or indirectly owned approximately 25% of the issued
and outstanding common stock of AOXY, and following the
completion of Mr. Edelson's consultancy he will own approximately 1.5%.
Company/Individual # OF SHARES %
Robert E. Wolfe 50,000 shares 0.17%
Triton-International 375,000 shares 1.26%
Crossland, Ltd. (Blze) 6,312,500 shares 21.30%
Crossland, Ltd. 5,937,500 shares 20.03%
Coastal Oil, Ltd. 5,937,500 shares 20.03%
Eastern Star, Ltd. 5,937,500 shares 20.03%
The 23,750,000 shares of AOXY common stock sold
by AOXY as of December 18, 1997 to Crossland, Eastern,
Coastal and CLB pursuant to the Stock Acquisition
Agreement (the "Regulation S Shares") have not been
registered under the Securities Act of 1933, as amended, in
reliance on the exemption from registration provided by Rule 903(c)(2) of
Regulation S. Consideration for the Regulation S Shares
consisted of $60,000 cash and consulting services rendered
valued at $177,500.
Each of the purchasers of the Regulation S Shares (a
"Buyer") has represented to AOXY that (I) it is not a "U.S.
Person" as that term is defined in Rule 902 (o) of Regulation
S; (ii) the sale of the Regulation S Shares was taking place
outside of the United States; (iii) no offer was made in the
United States; (iv) it was purchasing the Regulation S Shares
for its own account and not as a nominee or for the account
of any other person or entity; (v) it had no intention to sell or
distribute the shares except in accordance with Regulation S;
(vi) it agreed that it would not transfer Regulation S Shares to
a U.S. Person before the 41st day from the date the Buyer
purchased the Regulation S Shares.
AOXY represented to the Buyers that it had not
conducted any "directed selling effort" as defined in
Regulation S, and that it had filed all reports required to be
filed under the Securities Exchange Act of 1934 during the
preceding twelve months.
Waiver Agreement, 12/18/97
Pursuant to a Waiver Agreement dated as of
December 18, 1997, Emile Battat, Richard Jacobsen, each
directors of AOXY prior to the Transactions, Sharon Castle,
a former officer of AOXY, and ETPII released AOXY from
any liability for repayment of an aggregate of $275,000 of
loans plus all interest due thereon previously made by them
to AOXY in consideration of an aggregate amount of $60,000
cash paid to them pro rata in proportion to their individual
loans outstanding by CLB, Triton and Robert E. Wolfe. The
source of funds for the Transactions was working capital and
personal funds. To the knowledge of the registrant, no
arrangements exist which might subsequently result in a
change in control of the registrant.
Change of Directors
All of the directors and officers of AOXY resigned in
connection with the Transactions on December 18, 1997.
Robert E. Wolfe and Joseph N. Noll were elected as directors
and Mr. Wolfe was appointed president.
Trust Agreement, 12/18/97
On December 18, 1997, pursuant to a Trust Agreement
dated as of November 7, 1997 and an Assignment and
Assumption Agreement dated as of November 8, 1997,
certain royalty rights associated with Grace and liabilities
related to technology AOXY sold to a third party in 1995
were transferred to a trust for the benefit of the AOXY
shareholders of record at that date. No royalties had been
paid or become due with respect to the rights transferred to
the Trust, and no value was assigned to such rights on the
books of AOXY.
Acquisition or Disposition of Assets, March 09,1998.
On March 9, 1998, pursuant to an Agreement for
Purchase and Sale of Specified Business Assets, a Promissory
Note, and a 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 assets purchased from IMA consisted primarily
of furniture, fixtures, equipment, computers, servers, software
and databases previously used by IMA in its full service
telemarketing business. The Company intends to employ the
assets purchased from IMA for the purposes of Database
Management Services. The purchase price consisted of
delivery at closing by the Company of a $10,000 down
payment, a Promissory Note in the amount of $550,000
payable to IMA periodically, with final payment due on
April 10, 2000 and accruing compounded interest at a rate of
nine percent (9%) per annum, and 1,670,000 shares of
convertible, preferred stock, par value $.01 per share, of the
Company (the "Preferred Stock"). The Preferred Stock is
automatically convertible into shares of the Company's
common stock, par value $.01 per shares (the "Common
Stock"), on March 2, 2000, at a conversion rate which will
depend on the average closing price of the Common Stock for
a specified period prior thereto. The purchase price was
determined based on the fair market value of the purchased
assets. The down payment portion of the purchase price was
drawn from cash reserves of the Company, and the cash
required for payments due under the Promissory Note will be
generated by future revenues from the Company's business.
Employees
The Company has a two year employment contract with
two key employees. Total number of employees as of 6/30/98
was 12.
ITEM 2. DESCRIPTION OF PROPERTY
The assets of the Company consist primarily of
furniture, fixtures, equipment, computers, servers, software
and databases.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any pending legal
proceeding.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
There were no submissions of matters for a vote to the
security holders.
PART II
ITEM 5. MARKET OF REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on the
Over-The-Counter Bulletin Board. The following table sets
forth the range of high and low bid quotations on the
Common Stock for the quarterly periods indicated, as
reported by the National Quotation Bureau, Inc. The
quotations are inter-dealer prices without retail mark-ups,
mark downs or commissions and may not represent actual transactions.
Fiscal Year Ended June 30, 1997 High Low
First Quarter 0.01 0.01
Second Quarter 0.01 0.01
Third Quarter 0.01 0.01
Fourth Quarter 0.01 0.01
Fiscal Year Ended June 30, 1998 High Low
First Quarter 0.07 0.010
Second quarter 0.02 0.005
Third Quarter 0.09 0.015
Fourth Quarter 0.23 0.055
At September 30, 1998, the closing bid price of the
Company's Common Stock as reported by the National
Quotation Bureau, Inc, was $0.045.
ITEM 6. PLAN OF OPERATION.
Business Plan
The Company currently has two locations. The location
in New York is the headquarters for the Company and is the
location for most of the administrative operations and through
June 30, 1998 was offered to the Company on a month to
month basis at no cost from Crossfield, Inc. Robert E. Wolfe
is president of Crossfield, Inc. The location in Santa Clarita,
CA is the location for most of the operations. The Company
is currently looking to rent space office space in the Santa
Clarita, CA area. The Company currently has four areas of
concentration: CD-ROM production/sales, event sales,
database management and fax broadcasting.
The Company began producing and selling educational
CD-ROMS in March. The content of the CD-ROMS are
from conferences, held be clients of the Company. AOXY
produces a CD-ROM of the conferences including the audio,
video, graphics and verbatim transcripts of the conferences, and
then sells them. The sales efforts are conducted at the conference
and through the Santa Clarita CA location. In addition,
the Company began selling event registrations for
conferences that AOXY is producing CD-ROMS. The
Company sells the events through fax broadcasting, direct
mail, and telemarketing from Santa Clarita CA.
In March AOXY began database management which
includes managing client databases, assisting clients in
effective marketing with databases, providing database
information to clients, 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.
Client and Industry Representation
During this reporting period, 3 client contracts were
concluded. There were 4 active clients as of June 30, 1998.
Because the company represents a variety of clients in a
variety of industries, the operation of each client account is
unique. The database for each client account is unique to its
industry and may include vendor companies, end-user
companies, service organizations and all sales and marketing
channels.
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, ie: 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 would be affected could 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 effect 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. The Company also may
not have the applicable capital resources to correct or replace
certain systems to be compliant with the 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 Y2K element alone could significantly alter the
Company's operations and profitability.
ITEM 7. FINANCIAL STATEMENTS
Advanced Oxygen Technologies, Inc. Audited Financial
Statements; Year Ended June 30, 1998
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
Board of Directors and Shareholders Advanced Oxygen
Technologies, Inc.:
We have audited the accompanying balance sheet of
Advanced Oxygen Technologies, Inc. as of June 30, 1998,
and the related statements of operations, shareholders' equity,
and cash flows for the year then ended. These financial
statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We conducted our audit 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 audit provides a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the financial position of
Advanced Oxygen Technologies, Inc. as of June 30, 1998,
and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared
assuming that the Company will continue as a going concern.
As shown in the financial statements, the Company incurred
a net loss of $257,301 during the year ended June 30, 1998,
and, as of that date, the Company's current liabilities
exceeded its current assets by $713,888. These factors, among
others, as discussed in Note 1 to the financial statements, raise
substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements
do not include any adjustments that might result from the
outcome of this uncertainty.
Singer Lewak Greenbaum & Goldstein, llp Los Angeles,
California September 30,1998
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Advanced Oxygen Technologies, Inc,
Balance Sheet June 30,1998
Assets
Current
Accounts receivable, net allowance for
Doubtful Accounts of $45,554 $65,509
Consulting Fees receivables 50,000
Inventory 3,525
Total Current Assets 119,034
Furniture and Equipment, net of accumulated
depreciation of $8,489 165,526
Capitalized cost of database records, net
of accumulated amortization of $75,949 853,442
Total Assets $1,120,002
The accompanying notes are an integral part of these statements.
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Liabilities and shareholder's Equity
Current Liabilities
Bank overdraft $56,853
Accounts payable 66,490
Accrued expenses 144,528
Advances payable-related party 32,925
Note payable 528,466
Current portion of capital lease obligations 3,678
Total current liabilities 832,922
Capital Lease obligations, net of current portion 19,959
Total Liabilities 852,881
Shareholders Equity
Preferred stock, $0.01 par value 10,000,000
shares authorized
Series 2 convertible preferred stock
5,000 shares issued & outstanding 50
Series 3, convertible preferred stock
1,670,000 shares issued & outstanding 16,700
Series 4, convertible preferred stock
2 shares issued & outstanding
Series 5, convertible preferred stock
1 shares issued & outstanding
Common Stock, $0.01 par value
30,000,000 shares authorized
29,640,252 shares issued & outstanding 296,403
Additional paid in capital 20,398,631
Accumulated deficit (20,444,663)
Total Shareholder's Equity 267,121
Total liabilities and Shareholder's Equity $1,120,002
The accompanying notes are an integral part of these financial statements.
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Advanced Oxygen Technologies Inc.
Statement of Operations
for the Year ended June 30,1998
Revenue
Product Sales $263,489
Commission on Client Registrations 31,254
Consulting income 50,000
Total Revenue 344,743
Costs of goods sold 306,511
Gross Profit 38,232
General and Administrative 572,249
Loss from Operations (543,017)
Other Income
Forgiveness of Debt 286,374
Interest Expense (8,858)
Total Other income (expense) 277,516
Loss before provision for income taxes (256,501)
Provision for income taxes 800
Net Loss ($257,301)
Basic Loss per share ($0.01)
Diluted loss per share ($0.01)
Weighted-average shares outstanding 17,033,052
The accompanying notes are an integral part of these financial statements.
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Advanced Oxygen Technologies Inc.
Statement of Shareholder's Equity
For the Year ended June 30, 1998
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Common Shares
_________________________
Issued Preferred
in ex- Issued Con- stock
for con- for version related
Issued sulting cash pre- to pur-
ex- as part as part ferred chase Debt
change of the of the stock of Pri- assumed
Bal. for Stock Stock into assets vate by Bal
6/30 consult- Acquis- Acquis- common of place- share- Net 6/30
1997 ing ition Ag.ition Ag. stock IMA ments holders loss 1998
____ ______ _______ ________ ______ ____ _____ _______ ____ ____
Pre-
ferred
Series
2 Shrs
(000) 177 (172) 5,000
Pre-
ferred
Series
2 Amt $1770 (1720) $50
Pre-
ferred
Series
3 Shrs 1,670,000 1,670,000
Pre-
ferred
Series
3 Amt 16,700 $16,700
Pre-
ferred
Series
4 Shrs 2 2
Pre-
ferred
Series
4 Amt 0
Pre-
ferred
Series
5 Shrs 1 1
Pre-
ferred
Series
5 Amt 0
Common
Stock
Share
(000) 4,796.252 750 17,750 6,000 344 29,640.252
Common
Amount
(000) $47.963 7.5 177.5 60 3.44 $296.403
Addnt
Paid
in
Captl.
(000) (1.72) 483.3 60 60 20,398.631
Accum
Deficit (257,301) (20,444,663)
Total
Amnt
(000) ($340.578) 7.5 177.5 60 500 60 60 (257.301) 267.121
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Advanced Oxygen Technologies Inc.
Statement of Cash Flow
For the Year ended June 30, 1998
Cash Flows from operating Activities <C>
Net loss ($257,301)
Adjustments to reconcile net loss to net cash
used in operating activities
Bad debt expenses 45,554
Depreciation and amortization 84,438
Forgiveness of debt (286,374)
Issuance of common stock for consulting 185,000
(Increase (decrease) in:
Accounts payable and accrued expenses 215,891
Net cash used in operating activities (176,856)
Cash flows from financing activities
Increase in book overdraft 56,835
Repayments of capital lease obligations (1,786)
Advances from related parties 32,925
Repayments of notes payable (21,534)
Proceeds from the sale of preferred stock 60,000
Proceeds from the sale of common stock 60,000
Net cash provided by financing activities 186,458
Net decrease in cash and cash equivalents (398)
Cash and cash equivalents, beginning of the year 398
Cash and cash equivalents, end of the year $0
Supplemental disclosures of cash flow information
for the year ended June 30, 1998, approximately $8,00 was paid for interest
expense.
Supplemental schedule of no-cash investing and financing activities
During the year ended June 30, 1998, the Company purchased certain assets of
Integrated Marketing Agency, Inc. in exchange for a note payable of $550,000
and 1,670,000 share of Series 3 Preferred Stock in addition to a $10,000,000
down payment.
The accompanying notes are an integral part of these financial statements.
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Advance Oxygen Technologies, Inc. Notes to Financial
Statements, June 30, 1998
NOTE 1 - Organization and Line of Business
Organization
Advanced Oxygen Technologies, Inc. (the "Company") (formerly
Aquanautics Corporation) was a specialty materials company in
the development stage (as defined by the Financial Accounting
Standards Board ("FASB") in Statement of Financial Accounting
Standards ("SFAS") No.7, "Accounting and Reporting by
Development Stage Enterprises"). The Company's core technology
consisted of a variety of materials, which have a high affinity for
oxygen. Through 1993 the Company also conducted research
through funding from various government agencies such as the
Office of Naval Research and from Small Business Innovative
Research ("SBIR") grants, as well as through its own internally
generated funds,
The Company's Patent Rights and Trademark Rights were sold to
W.R. Grace & Company - Connecticut ("Grace") in February 1995
for $236,000, net of applicable selling costs, in cash plus a royalty
of 2% of the net sales price of any products sold by Grace which
would, the sale of the Patent Rights notwithstanding, cause a patent
infringement.
The Company has agreed to indemnify Grace for any out of pocket
costs incurred because of the claims, litigation, arbitration, or other
proceedings (a) relating to the validity or ownership of the Patent
Rights. (b) relating to any infringement by the Patent Rights of any
other patent or trademark owned by a third party, (c) relating to
any breach by the Company of its representations, warranties,
covenants in the Purchase Agreement, or (d) arising from any state
of affairs existing at Closing which was not disclosed by the
Company to Grace. If in any one year Grace incurs costs covered
by this indemnity, the indemnity is for all such costs up to $75,000
and for 50% of such costs over $75,000. Amounts due Grace
under the indemnity would be paid by withholding royalties from
the Company.
The Company ceased its normal operations described above during
1995 and had dormant operations until March 1998. During 1997
the Company entered into the following agreements in preparation
of starting a new line of business:
Stock Acquisition Agreement
Pursuant to a Stock Acquisition Agreement dated as of December
1 &, 1997, the Company issued 23,750,000 shares of its common
stock, par value $0.01 per share, for $60,000 in cash, plus
consulting services with a fair value of $177,500 to several
investors.
Waiver Agreement
Three of the Company's shareholders paid $60,000 in cash to
former directors for the Company's release from liability for
repayment of an aggregate of $275,000, plus any interest accrued
thereon. In addition, the Company entered into a Trust Agreement
(described below) as additional consideration to the former
directors.
Trust Agreement
The Company assigned certain royalty rights and liabilities related
to the technology sold to Grace to a trust. As part of the
agreement, the trust assumed the obligations of the $275,000 in
advances from the former directors.
On March 9, 1998, pursuant to an Agreement of Purchase and Sale
of Specified Business Assets ("Purchase Agreement"), a
Promissory Note, and a Security Agreement, the Company
purchased certain tangible and intangible assets (the "Assets"),
including goodwill and nights under certain contracts from
Integrated Marketing Agency, Inc. ("IMA"). The assets purchased
from IMA consisted primarily of furniture, fixtures, equipment,
computers, servers, software, and databases previously used by
IMA in its full-service telemarketing business. The purchase price
consisted of (a) a cash down payment of $10,000, (b) a note
payable of $550,000, and (c) 1,670,000 shares of the Company's
Series 3 convertible preferred stock. As described in Note 8, the
preferred shares automatically convert into the Company's
common shares on March 2, 2000 in a manner that depends on the
value of the common stock during the ten trading days
immediately prior to March 1, 2000. However, as part of the
Purchase Agreement, IMA has the option to redeem the converted
shares for the aggregate sum of $500,000 by delivering written
notice to redeem the converted shares within ten business days
after the conversion date. At the time of the purchase, the fair
value of the preferred shares was not clearly evident, even though
it appeared to be less than $500,000. Therefore, the purchase price
had a fair value of at least $1,060,000 The assets purchased were
recorded based upon their fair values.
As discussed in Note 12, the Company is presently in a dispute
with IMA over alleged breaches of the Purchase Agreement.
Line of Business
After the Company purchased the assets of IMA in March 1998,
the Company began its current operations of CD-ROM
production/sales, event sales, database management, and fax
broadcasting. The following is a description of these business
activities:
CD-ROM Production and Sales
The Company produces a CD-ROM of client conferences,
including the audio, video, graphics, and verbatim transcripts of
the conferences and sells them through telemarketing
Event Sales
The Company sells event registrations for conferences for its
clients. The Company receives a commission on each registration
sold.
Database Management
The Company consults clients in effective marketing with
databases and database management
Fax Broadcasting
The Company will fax broadcast or e-mail broadcast to a large
number of contacts for its clients.
NOTE 2- Going Concern and Basis of Presentation
The accompanying financial statements have been prepared in
accordance with generally accepted accounting principles, which
contemplate continuation of the Company as a going concern. As
shown in the financial statements, the Company incurred a large
operating loss, had negative cash flows from operations, and had
negative working capital for the year ended June 30, 1998. These
factors raise substantial doubt about the Company's ability to
continue as a going concern.
In view of the matters described in the preceding paragraph,
continued operations are dependent upon the Company's ability to
continue to raise capital and generate positive cash flows from
operations. These financial statements do not include any
adjustments relating to the classification of recorded asset amounts
or amounts and classifications of liabilities that' might be
necessary should the Company be unable to continue its existence.
Management plans to take the following steps which it believes
will be provide the Company with the ability to continue in
existence:
1. Increase its business volume and customer base.
2. Acquire additional debt or equity financing.
3. Control its costs until its profit goals have been reached.
NOTE 3 - Summary of Significant Accounting Policies
Revenue Recognition
Product Sales
Revenue is recognized on product sales at the time of shipment.
Commission Income
Revenue is recognized after the reservation has been made and the
time period for the registrant to cancel the registration and still
receive a refund has expired.
Consulting Income
Revenue is recognized at the time the consulting work is
performed.
Income Taxes
The Company accounts for income taxes under the asset and
liability method of accounting. Under this method, deferred tax
assets and liabilities are recognized for the future tax consequences
attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years
in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. A valuation allowance is required
when it is less likely than not that the Company will be able to
realize all or a portion of its deferred tax assets.
Net Loss Per Share
For the year ended June 30, 1998 the Company adopted
SFAS No: 128, "Earnings per Share." Basic earnings per
share is computed by dividing income available to common
shareholders' by the weighted-average number of common
shares available. Diluted earnings per share is computed
similar to basic earnings per share except that the
denominator is increased to include the number of additional
common shares that would have been outstanding if the
potential common shares had been issued and if the additional
common shares were dilutive. Since the Company had a net
loss for the year ended June 30, 1998, basic earnings per share
and diluted earnings per share are the same.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company
considers all highly-liquid investments purchased with original
maturities of three months or less to be cash equivalents.
Inventory
Inventory is stated at the lower of cost (first-in-first-out method)
or market.
Furniture and Equipment
Furniture and equipment, including capitalized leases, are stated at
cost less accumulated depreciation and amortization The Company
provides for depreciation and amortization using the straight-line
method over the estimated useful lives or the term of the lease,
whichever is shorter, as follows:
Furniture and fixtures 5 yrs
Office equipment 5 yrs
Computers and computer 5 yrs
equipment
Concentration of Credit Risk
For the year ended June 30, 1998, two of the Company's largest
customers accounted for approximately 67% of the Company's
revenue. In addition one of the customers accounted for
approximately 42% of accounts receivable at June 30, 1998
Estimates
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 disclosures of contingent assets and
liabilities at the date of the financial statements, as well as the
reported amounts of revenue and expenses during the reported
period. Actual results could differ from those estimates
Recently Issued Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income," is effective
for financial statements with fiscal years beginning after December
15, 1997. SFAS No. 130 establishes standards for reporting and
display of comprehensive income and its components in a full set
of general-purpose financial statements. The Company does not
believe the adoption of SFAS No.130 will have a material impact
on its financial position or results of operations.
SFAS No. 131, "Disclosures about segments of an Enterprise
and Related Information." is effective for fiscal years
beginning after December 15,1997. SFAS No.131 requires a
company to report certain information about its operating
segments, including factors used to identify the reportable
segments and types of products and services from which each
reportable segment derives its revenues. The Company has
not determined the impact this new standard will have on its
financial statements.
NOTE 4 - Furniture and Equipment
Furniture and equipment at June 30,1998 of the following:
Furniture and fixtures $31,869
Office equipment 43,288
Computers and computer equipment 98,858
174,015
Less accumulated 8,489
depreciation
Total 165,526
Depreciation expense for the year ended June 30,1998 was $8,489.
NOTE 5 - Capitalized Cost of Database Records
The database records were part of the assets purchased from IMA
in the Agreement of purchase and sale of Specified Business
Assets on March 9,1998. The records consist of information
on individuals for marketing purposes. There were
approximately 742,000 individuals included in the database
at the time of purchase. The records were recorded at their
estimated fair value at the time of purchase, which is
$911,391. The cost of the database records are being
amortized over a three- year period.
NOTE 6- Accrued Expenses
Accrued expenses at June 30, 1998 consisted of the following:
Accrued legal $ 24,821
Accrued payroll 28,582
and payroll
taxes
Accrued 61,418
registration fees
payable to clients
OTHER ACCRUED LIABILITIES 29,707
TOTAL $ 144,528
NOTE 7-Commitments and Contingencies
On October 1,1998, the Company entered into a non-cancelable lease agreement
for its operating facilities in Santa Clarita, California.
Monthly rent of $4,038 is due with annual increases starting October 1, 1999.
Minimum annual non-cancelable commitments under the lease are as follows:
Year Ending
June 30
- -1999 $32,304
- -2000 50,352
- -2001 53,204
- -2002 56,052
- -2003 58,904
- -Thereafter 19,952
- -Total $270.768
NOTE 8- Advances Payable - Related Party
Advances payable - related party at June 30, 1998 consisted of
advances payable to Crossfield, Inc., a related party, which are
uncollateralized, non-interest bearing, and payable upon demand.
NOTE 9 - Note Payable
The note payable of $528,466 was issued in connection with the
purchase of certain assets from IMA and is secured by the assets
purchased pursuant to the Purchase Agreement. The note requires
monthly principal and interest payments of $9,912 through April
2000 and a balloon payment of $398,382 on April 10, 2000. As
discussed in Note 12, the Company believes that IMA has
breached various representations, warranties, and covenants
contained in the Purchase Agreement, and as a result, it stopped
making payments on the note as of October 1998. The Company and
IMA are presently in negotiations to settle the dispute. The
entire note payable balance has been classified as current on the
balance sheet due to the uncertainties in settling the dispute.
NOTE 10 - Capital Lease Obligations
The obligation is payable to the lessor, collateralized by
equipment, and requires principal and interest payments of
$1,212 per month with 17.6% interest per annum through
February 2003.
Minimum future principal payments on the lease are as follows:
Year Ending
June 30
- -1999 3,678
- -2000 4,325
- -2001 5,087
- -2002 5,984
- -2003 4,563
- -Total $23,637
NOTE 11 - Income Taxes
The current provision for income taxes is the minimum tax due
to the State of California. The components of the Company's
net deferred taxes as of June 30, 1998 are as follows:
<TABLE>
<S> <C>
Deferred tax assets
Net operating loss $90,712
carryforward
</TABLE>
<TABLE>
<S> <C>
Bad debt allowance 19,515
Other 272
Total deferred tax assets 110,499
Deferred tax liabilities
State tax (7,733)
Valuation allowance (102.766)
</TABLE>
<TABLE>
<S> <C>
Net deferred taxes $ --
</TABLE>
The Company has established a valuation allowance based on a
number of factors which impact the likelihood the deferred tax
assets will be recovered. Based upon weighing all available
evidence, management believes that there is no basis to project
significant United States-sourced taxable income. Therefore, it
is more likely than not that the deferred tax assets will not be
realized, and a full valuation allowance has been established.
As of June 30, 1998, the Company had federal and state net
operating loss carry forwards of approximately $7,600,000 of
which $211,000 were from the year ended June 30, 1998. These
carry forwards, if unused, begin to expire from 2010 to 2013.
Section 382 of the Internal Revenue Code imposes substantial
restrictions on the utilization of net operating loss and tax credit
carry-forwards when a change in ownership occurs.
The overall effective tax rate differs from the federal statutory tax
rate of 34% due to operating losses and other deferred assets not
providing benefit for income tax purposes.
NOTE 12 - Shareholders Equity
Preferred Stock
The Company is authorized to issue 10,000,000 shares of $0.01 par
value preferred stock. The Company may issue any class of
preferred shares in series. The board of directors has the authority
to establish and designate series and to fix the number of shares
included in each such series.
Series 2 Convertible Preferred Stock
Each Series 2 preferred share is convertible into two shares of
common stock at the option of the holder. Each Series 2 preferred
share also includes one warrant to purchase two common shares
for $5.00. The warrants are exercisable over a three year period.
In the event of the liquidation of the Company, holders of Series
2 preferred stock would be entitled to receive $5.00 per share, plus
any unpaid dividends declared on the Series 2 preferred stock from
the funds remaining after the Company's creditors, including
directors, have been paid. There have been no dividends declared.
During November 1997, 172,000 shares of Series 2 preferred stock
were converted into 344,000 shares of the Company's common
stock.
Series 3 Convertible Preferred Stock
Each share automatically converts on March 2, 2000 into either (a)
one (1) share of the Company's common stock
if the average closing price of the common stock during the ten
trading days immediately prior to March 1, 2000 is equal to or
greater than sixty-six cents ($0.66) per share, or (b) one and one-
half (1 1/2) shares of common stock if the average closing price of
the common stock during the ten trading days immediately prior
to March 1, 2000 is less than sixty-six cents ($0.66) per share.
On March 9, 1998, as described in Note 1, the Company issued
1,670,000 shares of Series 3 Preferred Stock in connection with
the purchase of IMA's assets. As part of the Purchase Agreement,
IMA has the option to redeem the converted shares for the
aggregate sum of $500,000 by delivering written notice to redeem
the converted shares within ten business days after the conversion
date.
Series 4 Convertible Preferred Stock
Each share can be converted for either $31,250 or common shares
equal to $50,000 based upon the common share value as
determined by the previous 30-day closing price as quoted by the
exchange on which the stock is trading. The Company issued two
shares of Series 4 convertible preferred stock during 1998 to raise
capital.
Series 5 Convertible Preferred Stock
Each share can be converted for either $15,000 or common shares
equal to $20,000 based upon the common share value as
determined by the previous 30-day closing price as quoted by the
exchange on which the stock is trading. The Company issued one
share of Series 5 convertible preferred stock during 1998 to raise
capital.
Common Stock
As described above, 172,000 shares of Series 2 preferred stock
were converted into 344,000 shares of the Company's common
stock. In addition, during the year ended June 30,1998, the
Company issued 18,500,000 shares of common stock for
consulting services.
Stock Options
The purpose of the 1981 Plan and 1988 Plan (the "Option Plans")
is to provide an incentive to eligible directors, consultants, and
employees whose present potential contributions to the Company
are or will be important to the success of the Company. This will
allow them an opportunity to acquire a proprietary interest in the
Company and to enable the Company to enlist and retain in its
employ the best available talent for the successful conduct of its
business. The Compensation Committee believes that the stock
option grants provide an incentive that focuses the executives'
attention on managing the Company from the perspective of an
owner with an equity stake in the business.
Generally, stock options vest ratably over a four-year period, and
the executive must be employed by the Company in order to vest
the options. The option grants are issued at no less than 85% of the
market price of the stock at the date of grant.
The 1981 Plan was adopted by the Board of Directors in May 1981
and approved by the Company's stockholders in March 1982. A
total of 500,000 shares had been authorized for issuance under the
1981 Plan. With the adoption of the 1988 Plan, no additional
awards can be made under the 1981 Plan. As a result, the 500,000
remaining shares under the 1981 Plan are now available under the
1988 Plan.
The 1988 Plan provides for the grant of options to purchase
common stock to employees (including officers) and consultants
of the Company and any parent or subsidiary corporation. The
500,000 shares, which remained available for issuance under the
1981 Plan as of the effective date of the 1988 Plan, plus an
additional 500,000 shares of common stock, or a total of 1,000,000
shares, are authorized for issuance under the 1998 Plan.
Options granted under the 1988 Plan may either be immediately
exercisable for the full number of shares purchasable thereunder or
may become exercisable in cumulative increments over a period of
months or years as determined by the Compensation Committee.
The exercise price of options granted under the 1988 Plan may not
be less than 85% of the fair market value of the common stock on
the date of the grant, and the maximum period during which any
option may remain outstanding may not exceed ten years from the
date of grant. The option exercise price may be paid in cash, in
shares of the Company's common stock, or through a broker-
dealer, same-day sale program involving a cash-less exercise of the
option. One or more optionees may also be allowed to finance his
or her option exercises through Company loans, subject to the
approval of the Compensation Committee.
As of June 30, 1998, no stock options were outstanding.
NOTE 13 - Related Party Transactions
As described in Note 1, the Company entered to a Waiver
Agreement during 1997 in preparation for starting a new line of
business. As part of this agreement, certain shareholders of the
Company paid an aggregate of $60,000 in cash to former directors
for the Company's release from liability for repayment of an
aggregate of $275,000, plus accrued interest thereon.
During the year ended June 30, 1998, Crossfield, Inc., a
corporation owned by the Company's President, advanced the
Company a total of $32,925. The terms of the advances are
described in Note 6.
NOTE 14 -YEAR 2000 ISSUE
The Company is conducting a comprehensive review of its
computer systems to identify the systems that could be affected by
the Year 2000 Issue and is developing an implementation plan to
resolve the Issue.
The Issue is whether computer systems will properly recognize
date-sensitive information when the year changes to 2000. Systems
that do not properly recognize such information could generate
erroneous data or cause a system to fail. The Company is
dependent on computer processing in the conduct of its business
activities.
Based on the review of the computer systems, management does
not believe the cost of implementation will be material to the
Company's financial position and results of operations.
NOTE 15 -SUBSEQUENT EVENTS
The Company is presently in dispute with IMA over alleged
breaches of representation, warrants, and covenants contained in
the Purchase Agreement with respect to :
- -the extent of, and IMA'S title to and interest in, the assets sold by
IMA,
- -the express disclaimer by the Company of any obligations or
liabilities of IMA in connection with the sale of the assets,
- -the absence of litigation with respect to the assets,
- -the validity and existence of certain contract rights assigned by
IMA to the Company under the Agreement, and
- -the obligations of the parties with the respect to confidentiality.
Based upon the alleged breaches listed above, the Company
stopped making payments on the note payable (see Note 9) issued
to IMA in connection with the Purchase Agreement as of October
1998.
The Company and IMA are presently in negotiations to settle the
dispute. The Company's management has represented that a
settlement may include a discounted pay-off of the note and a
buyback of the convertible preferred shares issued accompanied by
mutual, general releases.
ITEM 8. Changes in and Disagreements with Accounts on
Accounting and Financial Disclosure
The Company has no disagreements with accountants on
accounting and financial disclosure. During this time AOXY has
engaged Singer, Lewak Greenbaum & Goldstein, LLP, 10960
Wilshire Blvd, Los Angeles, CA 90024.
PART III
ITEM 9.Directors and Officers of the Registrant
Set forth below is information regarding the Company's
directors and executive officers, including information furnished
by them as to their principal occupations for the last five years,
other directorships held by them and their ages as of September 8,
1998. All directors are elected for one-year terms, which expire as
of the date of the Company's annual meeting.
<TABLE>
<S> <C> <C> <C>
Name Age Positions Director Since
Robert E. Wolfe 35 Chairman of the Board 1997
and Chief Executive
Officer
Joseph N. Noll 75 Director 1997
</TABLE>
Robert Wolfe has been the Chairman and CEO for AOXY, Inc.
since 1997. Concurrently he has been the President and CEO of
Crossfield, Inc. and Crossfield Investments, llc , both corporate
consulting companies. From 1992-1993 he was Vice President and
partner for CFI, NY Ltd. A Subsidiary of Corporate Financial
Investments, PLC, London.
Joseph N. Noll has been a director of the Company since 1997.Mr.
Noll was president and CEO of Franco Machine Corp (a
manufacturer of machine tools) for 25 years. Mr. Noll was the
Secretary of the State of Wisconsin department of Labor, Industry
and Human Relations, from 1983 to 1985. Mr. Noll was also
President and CEO of Columbia Car Company, a manufacturer of
golf carts.
ITEM 10. Executive Compensation
Robert Wolfe, Chairman and CEO has waived his $175,000 annual salary
for the year ending June 30, 1998. No officer or director received
any compensation from the Company during the last fiscal year.
The Company paid no bonuses in the last three fiscal years ended
June 30, 1998 to officers or other employees. Prior to the Stock
Acquisition of December 12, 1998, the Company's Chief executive
officer and Chairman of the Board was Harry Edelson. Mr.
Edelson received no compensation during the fiscal year ending
June 30, 1998.
The following table sets forth the total compensation paid or
accrued to its Chief Executive Officer, Robert E. Wolfe and former
Chief Executive officer Harry Edelson during the fiscal year
ending June 30, 1998. There were no other corporate officers in
any of the last three fiscal years.
Executive Compensation
<TABLE>
<S> <C> <C>
Name Harry Robert
Edelson Wolfe
Yr '98 '98
Salary 0 0
Bonus 0 0
Other
Compen- 0 0
sation
Restricted 0 0
Awards
LTIP Pay 0 0
outs
All
Securities 0 0
Other 0 0
</TABLE>
OPTION GRANTS DURING 1998; VALUE OF OPTIONS
AT YEAR-END
The following tables set forth certain information covering the
grant of options to the Company's Chief Executive Officer, Mr.
Robert E. Wolfe and the former Chief Executive Officer, Mr.
Harry Edelson during the fiscal year ended June 30, 1998 and
unexercised options held as of that date. Neither Mr. Wolfe or Mr.
Edelson exercised any options during fiscal 1998.
<TABLE>
<S> <C> <C> <C> <C>
Name # Securities % of Exercise Expiration
underlying Price Date
Option
Harry Edelson 0 0 n/a n/a
Robert Wolfe 0 0 n/a n/a
</TABLE>
Compensation Committee Report
The Compensation Committee of the Board of Directors was
responsible for reviewing and approving the Company's
compensation policies and the compensation paid to executive
officers. Mr. Wolfe and Mr. Noll, who comprise the Compensation
Committee are employee and non-employee directors respectively.
Compensation Philosophy
The general philosophy of the Company's compensation program,
which has been reviewed and endorsed by the Committee, was to
provide overall competitive compensation based on each
executive's individual performance and the Company's overall
performance.
There are two basic components in the Company's executive
compensation program: (I) base salary and (ii) stock option
awards.
Base Salary
Executive Officers' salaries are targeted at the median range for
rates paid by competitors in comparably sized companies. The
Company recognizes the need to attract and retain highly skilled
and motivated executives through a competitive base salary
program, while at the same time considering the overall
performance of the Company and returns to stockholders.
Stock Option Awards
With respect to executive officers, stock options are generally
granted on an annual basis, usually at the commencement of the
new fiscal year. Generally, stock options vest ratably over a
four-year period and the executive must be employed by the
Company in order to vest the options. The Compensation
Committee believes that the stock option grants provide an
incentive that focuses the executives' attention on managing the
Company from the perspective of an owner with an equity stake in
the business. The option grants are issued at no less than 85% of
the market price of the stock at the date of grant, hence there is
incentive on the executive's part to enhance the value of the stock
through the overall performance of the Company.
Compensation Pursuant to Plans
The Company has three plans (the "Plans") under which its
directors, executive officers and employees may receive
compensation. The principal features of the 1981 Long-Term
Incentive Plan (the "1981 Plan"), the 1988 Stock Option Plan (the
"1988 Plan"), and the Non-Employee Director Plan (the "Director
Plan") are described below. During the fiscal year ended June 30,
1994, the Company terminated its tax qualified cash or deferred
profit-sharing plan (the "401(k) Plan"). During fiscal 1998, no
executive officer received compensation pursuant to any of the
Plans except as described below.
The 1981 and 1988 Plans
The purpose of the 1981 Plan and 1988 Plan (the "Option Plans")
is to provide an incentive to eligible directors, consultants and
employees whose present and potential contributions to the
Company are or will be important to the success of the Company
by affording them an opportunity to acquire a proprietary interest
in the Company and to enable the Company to enlist and retain in
its employ the best available talent for the successful conduct of its
business.
The 1981 Plan
The 1981 Plan was adopted by the Board of Directors in May 1981
and approved by the Company's stockholders in March 1982. A
total of 500,000 shares have been authorized for issuance under the
1981 Plan. With the adoption of the 1988 Plan, no additional
awards may be made under the 1981 Plan. As a result, the shares
remaining under the 1981 Plan are now available solely under the
1988 Plan. Prior to its termination, the 1981 Plan provided for the
grant of the following five types of awards to employees (including
officers and directors) of the Company and any subsidiaries: (a)
incentive stock rights, (b) incentive stock options, (c) non-statutory
stock options, (d) stock appreciation rights, and (e) restricted stock.
The 1981 Plan is administered by the Compensation Committee of
the Board of Directors.
The 1988 Plan
The 1988 Plan provides for the grant of options to purchase
Common Stock to employees (including officers) and consultants
of the Company and any parent or subsidiary corporation. The
aggregate number of shares which remained available for issuance
under the 1981 plan as of the effective date of the 1988 Plan plus
an additional 500,000 shares of Common Stock.
Options granted under the 1988 Plan may either be immediately
exercisable for the full number of shares purchasable thereunder or
may become exercisable in cumulative increments over a period of
months or years as determined by the Compensation Committee.
The exercise price of options granted under the 1988 Plan may not
be less than 85% of the fair market value of the Common Stock on
the date of the grant and the maximum period during which any
option may be paid in cash, in shares if the Company's Common
Stock or through a broker-dealer same-day sale program involving
a cash-less exercise of the option. One or more optionees may also
be allowed to finance their option exercises through Company
loans, subject to the approval of the Compensation Committee.
Issuable Shares
As of September 20, 1995, approximately 374,000 shares of
Common Stock had been issued upon the exercise of options
granted under the Option Plans, no shares of Common Stock were
subject to outstanding options under the Options Plans and 626,000
shares of Common Stock were available for issuance under future
option grants. From July 1, 1991 to September 20, 1995, options
were granted at exercise prices ranging from $1.22 to $8.15 per
share. The exercise price of each option was equal to 85% of the
closing bid price of Company's Common Stock as reported on the
NASDAQ Over the Counter Bulletin Board Exchange. Due to
employee terminations, all options became void in August 1995.
As of September 30, 1998 1,000,000 shares of Common Stock
were available for issuance under future option grants.
Board of Directors Compensation
As of June 30, 1998 the directors did not receive any compensation
for serving as members of the Board.
In addition to any cash compensation, non-employee directors also
are eligible to participate in the Non-Employee Director Stock
Option Plan and to receive automatic option grants thereunder. The
Director Plan provides for periodic automatic option grants to
non-employee members of the Board. An individual who is first
elected or appointed as a non-employee Board member receives an
annual automatic grant of 25,000 shares plus the first annual grant
of 5,000 shares, and will be eligible for subsequent 5,000 share
grants at the second
Annual Meeting following the date of his initial election or
appointment as a non-employee Board member.
During the fiscal year ended June 30, 1998, no options were
granted to non-employee Board members.
ITEM 11. Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth certain information regarding the
beneficial ownership of the Company's Common Stock as of June
30, 1998, by ( i ) all those known by the Company to be beneficial
owners of more than 5% of its Common Stock; ( ii ) all directors;
and ( iii ) all officers and directors of the Company as a group.
<TABLE>
Beneficial Ownership <C> <C>
Name and Address of Shares Fully Diluted Percent
Beneficial Owner
Crossland, Ltd. (Belize) 6,312,500 19.63%
60 Market Square
PO Box 364
Belize City, Belize, Central America
Eastern Star, Ltd. 5,937,500 18.47%
104B Saffrey Square
Bank Lane and Bay Street
Box N-1612
Nassau, Bahamas
Coastal Oil, Ltd. 5,937,500 18.47%
40 Santa Rita Road
Corazal, Belize, Central America
Crossland, Ltd. 5,937,500 18.47%
104B Saffrey Square
Nassau, Bahamas
Robert E. Wolfe 50,000 0.15%
Joseph Noll 0 0.00%
John Teuber 1,670,000* 7.79%
</TABLE>
*Includes shares of convertible, preferred stock, par value $.01,
having the aggregate value of $1,440,000.00 w/fixed annual
dividends of $0.001 per share payable on January 1 of each year;
with an automatic conversion on 3/2/2000 of each share of
preferred stock into either a) 1 share of common stock, par value
$.01 per share if the average closing price of the common stock
during the 10 trading days immediately prior to March 1, 2000 is
equal to or greater than $0.66 per share or (b) 1 1/2 shares of
common stock if the average closing price of the common stock
during the 10 trading days immediately prior to March 1, 2000 is
less than $0.66 per share. If on the conversion date the aggregate
value of the common stock into which the preferred shares are
converted is less than $500,000, then J. Teuber shall have the
option, at his sole discretion to cause the Company to redeem the
converted shares for the aggregate sum of $500,000 by delivering
notice of his intention to redeem the converted shares within 10
business day.
ITEM 12. Certain Relationships and Related Transactions
The Company's transactions with its officers, directors and
affiliates have been and such future transactions will be, on terms
no less favorable to the company than could have been realized by
the Company in arms-length transactions with non-affiliated
persons and will be approved by a majority of the independent
disinterested directors.
ITEM 13. Exhibits and Reports on Forms 8-K
Exhibits
Material Contracts
1981 Long-Term Incentive Plan, as amended in September
1988, incorporated herein by reference to Appendix A to the
Registrant's 1986 definitive Proxy Statement.
a) 1988 Stock Option Plan, incorporated by reference to the
Registrant's 1988 definitive Proxy Statement filed pursuant to
Regulation 14A
b) Non-Employee Director Stock Option Plan incorporated by
reference to the Registrant's report on Form 10-K for the fiscal
year ended June 30, 1993
c) Patent Purchase Agreement between Advanced Oxygen
Technologic Inc., and Grace-Conn, dated February 10, 1995
incorporated by reference to the Registrant's 1995 definitive Proxy
Statement filed pursuant to Regulation 14A.
d) Contingent Plan of Liquidation dated February 10, 1995,
incorporated by reference to the Registrant's 1995 definitive Proxy
Statement filed pursuant to Regulation 14 A
e) Stock Acquisition Agreement dated December 18, 1997
incorporated by reference to the Registrant's report on form 8-K as
Exhibit A
f) Purchase Agreement of December 18, 1997 incorporated
by reference to the Registrant's report on form 8-K as Exhibit B
g) Waiver Agreement incorporated by reference to the
Registrant's report on form 8-K as Exhibit C
h) Trust Agreement incorporated by reference to the
Registrant's report on form 8-K dated, December 18, 1997 as
Exhibit D
i) Assignment and Assumption Agreement incorporated by
reference to the Registrant's report on form 8-K dated, December
18, 1997 as Exhibit D
j) Agreement For Purchase & Sale Of Specified Business
Assets incorporated by reference to the Registrant's report on form
8-K dated March 09, 1998 as Exhibit 1
k) Covenant of Non-Competition incorporated by reference to
the Registrant's report on form 8-K dated March 09, 1998 as
Exhibit B
l) Promissory Note of March 09, 1998 incorporated by
reference to the Registrant's report on form 8-K dated March 09,
1998 as Exhibit C
m) Security Agreement of March 09, 1998 incorporated by
reference to the Registrant's report on form 8-K dated March 09,
1998 as Exhibit D
n) Employment Agreement, John Teuber, incorporated by
reference to the Registrant's report on form 8-K dated March 09,
1998 as Exhibit F
o) Employment Agreement, Nancy Gaylord, dated March 13,1998
attached hereto as Exhibit 1
REPORTS ON FORM 8-K
A report on Form 8-K was filed on January 16, 1998 and
reported under Item 1 that all directors and officers of AOXY
resigned on December 18, 1997 and Robert E. Wolfe and Joseph
N. Noll were elected as directors and Mr. Wolfe was appointed
president in association with the transaction of December 18, 1997
of the Stock Acquisition Agreement, the Purchase Agreement, the
Waiver Agreement and the Trust Agreement (all exhibited
thereto). Under Item 2 that certain royalty rights and liabilities
related to technology AOXY sold to a third party was transferred
to a trust for the benefit of the AOXY shareholders of record of
date. Further reported under Item 7 was the sale of 23,750,000
shares of AOXY common stock as of December 18, 1997 that were
not registered under the Securities Act of 1933, as amended, in
reliance on the exemption from registration provided by Rule 903
( c ) (2) of Regulation S. for consideration of $60,000 cash and
$177,500 in consulting services.
A report on Form 8-K was filed on March 12, 1998 and
reported under Item 2 the Purchase of Specified Assets from
Integrated Marketing Agency, Inc. The assets purchased consisted
primarily of databases, furniture, fixtures, equipment, and
computers. The purchase price at closing was $10,000 cash,
$550,000 in the form of a Promissory note, and 1,670,000
Preferred Shares.
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.
(Registrant): ADVANCED OXYGEN TECHNOLOGIES,
INC.
Date: December 15, 1997 By (Signature and Title):
/s/ Robert E. Wolfe /s/
-----------------
Robert E. Wolfe
President
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the registrant and in the capacities and on the dates
indicated.
Date: September 27, 1998 By (Signature and title):
/s/Joseph Noll /s/
-------------------------
Joseph N. Noll
Director
Exhibit 1
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT, dated March
13,1998, for purposes of identification, is made and entered into by
and between ADVANCED OXYGEN TECHNOLOGIES, INC.,
a Delaware Corporation (hereinafter referred to as
"EMPLOYER"), and NANCY GAYLORD, a natural person,
(hereinafter referred to as "EMPLOYEE"), in the county of Los
Angeles, State of California.
1. DEFINITIONS & INTERPRETATION.
1.1 In addition to any other terms that may be defined elsewhere in
this agreement, the following shall govern the construction and interpretation
hereof:
1.1.1 The "BOARD" means and refers to the Board of Directors of Employer.
1.1.2 "CONTRACT YEAR" means and refers to a span of time which begins
on the date first set forth above in any calendar year during the term of the
employment hereunder and which ends at midnight on the day immediately
preceding the same date in subsequent calendar year.
1.2 Whenever in this agreement there appears the locative adverbs
"herein", "hereunder", "hereinbelow", "hereinabove", or any substantially
similar adverb, the same shall be deemed to refer to this agreement in its
entirety and not to any specific article, section, subsection, subpart,
paragraph or subparagraph.
2. RECITALS.
2.1 The contractual relationship created by operation of this agreement
is premised upon the following facts:
2.1.1 Employer has purchased certain assets (the"Purchased Assets") used
in the business of telemarketing services from Integrated Marketing Agency, Inc.
pursuant to that certain Agreement for Purchase and Sale of Specified Business
Assets dated the date hereof.
2.1.2 Employer's Board of Directors has determined that Employee has
substantial experience as a manager in business related to the Purchased Assets,
and by virtue of which Employee possesses skills, ability and background in and
knowledge of Employer's business and the industry which it is engaged, which
are essential to the best interests of Employer.
2.2 In consideration of the mutual duties created herein and the mutual
benefits conferred hereby, the adequacy of which is hereby acknowledged, each
of the undersigned voluntarily enters into this agreement.
3. TERM OF EMPLOYMENT; EFFECT OF EXPIRATION OF TERM.
3.1 Employer hereby employs Employee and Employee hereby accepts the
below-specified employment for a period of two (2) contract years.
3.2 If the employment created hereunder continue after expiration of
the second contract year, such employment shall automatically become at-will
such that either party may then terminate the employment at any time, with or
without cause or reason.
4. EMPLOYEE'S DUTIES.
4.1 Employee shall render services for the general management of the
Santa Clarita division for Employer in accordance with the policies established
by the Board, and consistent with Employer's employment policy manual adopted
by the Board (and as same may be hereafter amended). This agreement, and the
said policy manual, shall be construed as one contract, such that the two
together shall be deemed to set forth all the terms, conditions and covenants
of the agreement existing between Employer and Employee. In the event of any
conflict between the provisions of this agreement and said policy manual, the
terms of this agreement shall prevail to the extent permitted by law.
4.2 Employee shall devote substantially all of Employee's professional
time, attention and energy to the best of her ability and experience, and shall
loyally and conscientiously perform the duties and obligations either expressly
or implicitly required of her under this agreement and attendant to the position
for which the is employed here under, and shall carry out such duties in a
manner that is consistent with good and lawful business practices.
4.3 Nothing in this agreement shall be interpreted to prohibit or
restrict off-duty activities by Employee or outside employment of Employee;
provided, however, that Employee shall not do any of the following:
4.3.1 Participate in any other business activities during the term of
her employment hereunder on behalf of any person, firm, company or entity
(in any capacity, including but not limited to that of employee, agent,
officer, director, consultant or investor), whether for profit or not-for-
profit, which is engaged in any business that is competitive with Employer's
business;
4.3.2 Participate in any other business activities, during or after
the term of her employment hereunder which are proscribed by that certain
Covenant of Non-Competition to which Employee is a party and which is executed
by Employee contemporaneously with this agreement.
4.4 Unless and until otherwise determined by the Board, Employee shall
report directly to the CEO of Employer.
5. COMPENSATION OF EMPLOYEE; BONUS.
5.1 Employer shall compensate Employee for Employee's services
here under as follows:
5.1.1 During the first contract year hereunder Employee shall receive
compensation (the "YEAR 1 COMPENSATION" here in) for such contract year
equivalent to an amount which is equal to Sixty Thousand Dollars ($60,000.00)
paid in regular equal payments on a semi-monthly basis (less customary
withholdings of taxes and other deductions as required by law).
5.1.2 Commencing during the second contract year, abase salary at the
annual rate of Seventy thousand U.S. Dollars ($70,000.00)(the "BASE SALARY"
herein), paid in regular equal payments on a semi-monthly basis (less customary
withholdings of taxes and other deductions as required by law).
5.1.3 If, during the first contract year the gross revenues of the
Employer exceed the $4,900,000 (as evidenced in Employer's filing's with the
SEC) the Employee will be entitled to a bonus as determined by the Compensation
Committee of the Board of the Employer. If, during any other contract year
the gross revenues of the Employer exceed the previous years revenues
(as evidenced in Employer's filing's with the SEC) the Employee will be entitled
to a bonus as determined by the Compensation Committee of the Board of the
Employer. Any such Subsequent Bonus shall be payable thirty (30) days following
the end of the subject contract year (less customary withholdings of taxes
and other deductions as required by law).
6. BENEFITS.
6.1 During the term of the employment hereunder, Employee shall be
entitled to receive the following benefits generally enjoyed by all Employer's
employees:
6.1.1 Fully-paid leaves of absence for such holidays as may be granted
from time in accordance with Employer's then-current policies governing such
leaves for all employees; and
6.1.2 Leaves of absence as may be required by applicable law (including
for purposes of example, but not as a limitation, reasonable time from work to
vote in elections, to serve as a juror and to testify in legal proceedings if
subpoenaed to do); provided, however, that such leaves will be fully-paid only
where required by law and will be limited in duration as required by law; and
6.1.3 Leaves of absence on account of illness, bereavement or family
emergency in such frequency and duration as provided by Employer's then-current
policies governing such leaves for all employees.
6.2 In addition to the foregoing benefits (but not as a limitation
there on), Employee shall be entitled to be absent from her employment here
under for a total of twenty (20) business days (totaling four (4) calendar weeks
when weekends are included) as and for vacation leaves for each completed
contract year here under.
During such vacation leave, Employee shall be compensated at the rate of
her above-prescribed base salary, together with all other benefits specified
in this agreement. Such vacation leave may be taken consecutively or in separate
time segments; provided, however, that unless otherwise expressly agreed to by
the Employer-corporation's president, all accrued vacation leave must be taken
within twelve (12) months following the accrual thereof. A failure by Employee
to take vacation leave within the prescribed time shall work as a forfeiture
of Employee's right to take such time, but not as a forfeiture of Employee's
right to be paid base salary therefor. For purposes of this agreement, the term
"business day" is defined as any day which is not a Saturday, a Sunday, a day
customarily granted by Employer as a holiday or a day which Employee would
have otherwise been entitled to be absent from work under Employer's then-
current policies governing such leaves for all employees.
7. REIMBURSEMENT OF BUSINESS EXPENSES INCURRED BY EMPLOYEE.
7.1 Employer shall reimburse Employee for reasonable out-of-pocket
expenses incurred and paid by Employee during the term of the employment
hereunder in connection with the conduct of Employer's business and/or the
discharge of Employee's duties including, for purposes of example but not as a
limitation, travel expenses, food and lodging while away from home subject,
however, to the prior approval of Employer.
7.2 Employer's obligations to reimburse Employee for any expenses
specified in their agreement shall not arise unless and until Employee has
submitted to Employer written vouchers evidencing such expenses in a form as
may be prescribed from time to time by the rules of state and federal tax
authorities.
8. OBLIGATIONS NOT CONDITIONED ON OR RELATE TO OTHERS.
8.1 Employer may terminate Employee's employment: (i)by giving
Employee written notice of such termination at least 30 days in advance, and
(ii) at any time for Cause.
8.2 Employee's employment hereunder shall terminate immediately upon her
death or disability. For purposes of this Section 8.2, Employee shall be
deemed to be "disabled" if, on account of illness or other incapacity, he has
been unable to perform her duties for 60 consecutive days. The Employer shall
continue to pay Employee her base salary and other employment benefits
hereunder prior to termination by the Board of Directors pursuant to this
Section 8.1, even though Employee is disabled during the 60-day period
preceding such termination.
8.3 This Agreement may be terminated with the mutual consent of the
parties.
8.4 If Employee's employment hereunder is terminated by Employer
without Cause pursuant to the foregoing Section 8.1, Employer shall, within
30 days after the effective date of such termination make a cash payment equal
to Employee's base salary for a period of time equal to the lesser of (x) the
remaining contract year (assuming no further renewals thereof) and (y) six (6)
months.
8.5 If Employee's employment hereunder is terminated for any reason,
then all rights and obligations of the parties hereunder shall terminate
automatically thereupon, except (i) as to any right which Employee's estate or
dependents may have under "COBRA" or any other federal or state law, (ii) as
to any base salary earned by her prior to such termination, or [(iii) to the
extent otherwise specifically set forth herein (including under the foregoing
Section 8.4).]
8.6 For purposes of this Agreement:
"Cause" means, when used in connection with the termination of
Employee's employment with Employer (or the right to effect such termination):
(i) Employee's commission of any crime involving moral turpitude or any felony;
(ii) Employee's commission of an act of fraud or embezzlement upon Employer;
(iii) Willful misconduct or willful failure by employee to perform her duties
to Employer or material breach of this Agreement;
(iv) Habitual drug, alcohol or other substance abuse by Employee;
(v) Failure by Employee to disclose material, adverse personal, business or
financial information at the time of signing this Agreement which failure can
materially and adversely affect the business and affairs of Employer.
8.7 Upon termination of the employment hereunder for any reason,
Employee shall forthwith deliver back to Employer any and all property belonging
to Employer of every tape and nature, including but not limited to, keys,
documents, manuals, catalogs, correspondence, product samples and documentation
of every type and nature.
9. CONFIDENTIALITY.
9.1 Without the specific prior written consent of Employer, Employee
shall not, directly or indirectly, at any time after the date hereof, divulge
to any person or entity, or use for her own direct or indirect benefit, any
information confidential and/or proprietary to Employer concerning its business,
affairs, products, services, assets, liabilities, revenues, condition (financial
or otherwise), or prospects, customers or suppliers, including, without
limitation, any data or statistical information of or with respect to Employer
whether created or developed by Employer or on its behalf, or with respect to
which Employee may have knowledge or access, it being the intent of the parties
hereto to restrict Employee from disseminating or using any such information
of or with respect to Employer which is at the time of such use or dissemination
unpublished and not readily available or generally known to the public or in
Employer's trade; provided that nothing in this Section 9 shall prohibit such
disclosure within the scope of Employee's employment or in the best interest
of Employer.
10. MISCELLANEOUS PROVISIONS.
10.1 UNCONDITIONAL OBLIGATIONS. The legal relationship, duties and
obligations of the parties hereunder are not conditioned upon or related to the
performance or satisfaction of any terms, covenants, conditions, obligations or
discharge of any duties under any other contract or other obligation or
relationship arising or existing between the parties.
10.2 ATTORNEYS' FEES, ETC. In the event that any suit in law or equity,
or other formal proceeding is instituted by any party to this agreement, to
enforce, interpret or recover damages for breach of any provision or part of
this agreement, then the party prevailing in such action or other formal
proceeding shall be entitled to recover, in addition to the costs of suit
incurred by such prevailing party, such attorneys' fees as the tribunal
presiding in such action or other formal proceeding shall deem to have been
reasonably incurred by such prevailing party.
10.3 BINDING AGREEMENT. All terms, conditions and covenants to be
observed and performed by the parties hereto shall be applicable to and binding
upon their respective agents, servants, heirs executor's administrators,
affiliates, subsidiaries, associates, executives, successors and assigns.
10.4 CAPTIONS. All captions (paragraph headings) set forth in this
agreement are inserted only as a no matter of convenience and for reference, and
shall not be construed to define, limit, interpret, prescribe or describe the
scope of intent of this agreement, or any part hereof, nor affect its meaning,
and shall not be considered for such purposes.
10.5 COUNTERPARTS. This agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which, when
taken together, shall constitute one and the same document.
10.6 FAIR INTERPRETATION. The language appearing in other parts of this
agreement shall be construed, in all cases, according to its fair meaning and
not strictly construed for or against either party hereto.
10.7 GOVERNING LAW. This agreement shall be interpreted, construed and
governed by, in accordance with and consistent with the laws of the State of
California, which shall in all respects, including statutes of limitations, to
any disputes or controversies arising out of or pertaining to this agreement.
10.8 METHOD OF GIVING NOTICES. Any notice required or permitted to be
given hereunder shall be so given by registered or certified (return receipt)
United States Postal Service mail, postage pre-paid, unless a notice transmitted
in said manner is returned to the sender as unclaimed, refused or undeliverable,
or unless the party giving notice has a good faith reason to believe that a
notice transmitted in said manner will be so returned, in which case such
notice may be given, at the sender's option, by personal service or by first
class mail provided that such alternative method is effectuated by a
disinterested party who attests thereto by a written declaration under penalty
of perjury in a form consistent with the provisions of California Code Civil
Procedures section 1013a authorizing service by mail. Any such notice shall
be addressed to or delivered to the recipient as follows:
Employer:
ADVANCED
OXYGEN
TECHNOLOGIES
INC.
c/o Crossfield Inc.
230 Park Avenue - Suite 1000
New York, New York 10169
Attn: Robert E. Wolfe, President
Employee:
NANCY GAYLORD
In the event that notice is transmitted by U.S. Mail, such notice shall be
deemed to have been received by the addressee and service thereof shall be
effective, five (5) days following deposit thereof with the United States Postal
Service, or upon actual receipt, whichever first occurs. A party may change the
above-specified address by giving the other party notice of the new address in
the manner above-prescribed for all notices.
IN WITNESS WHEREOF the parties have subscribed their names or caused an
authorized officer to subscribe this agreement, effective on the date first
written above.
ADVANCED OXYGEN
TECHNOLOGIES, INC.
BY:
______________________________________
NAME: ROBERT E. WOLFE
ITS: PRESIDENT
______________________________________
NANCY GAYLORD
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