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, 1999
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.)
26883 Ruether Avenue Santa Clarita, CA 91351
(Address of principal executive offices) (Zip Code)
661-298-3333
(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, 1999, Issuer's revenues were $741,153.96
The aggregate market value of Common Stock at June 30, 1999 held
by non-affiliates approximated $1,534,375 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, 1999, 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 . . . . . . . . . . . . . . . . . . . . . 5
ITEM 1- DESCRIPTION OF BUSINESS . 5
The Patent Sale . . . . . . . . . 5
Stock Acquisition Agreement, 12/18/975
Purchase Agreement, 12/18/97. . . 5
Waiver Agreement, 12/18/97. . . . 6
Change of Directors . . . . . . . 6
Trust Agreement, 12/18/97 . . . . 6
Acquisition or Disposition of Assets, March
09,1998. . . . . . . . . . . 7
Teuber Employment Agreement Termination
. . . . . . . . . . . . . . 7
Set Off of Promissory Note, 9/4/987
Gaylord Employment Agreement Termination
. . . . . . . . . . . . . . 7
California Facilities, 9/30/98. . 7
Demand for Indemnification, 12/9/988
Purchase Agreement of 1/29/99 . . 8
Employees . . . . . . . . . . . . 8
ITEM 2. DESCRIPTION OF PROPERTY . . 8
ITEM 3. LEGAL PROCEEDINGS . . . . 8
Pending Matters . . . . . . . . . 8
Settled Matters:. . . . . . . . . 9
ITEM 4. SUBMISSION OF MATTERS TO A VOTE
OF SECURITY HOLDERS . . . . . . . 9
PART II. . . . . . . . . . . . . . . . . . . . .10
ITEM 5. MARKET OF REGISTRANT'S
COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . .10
ITEM 6. PLAN OF OPERATION. . . .10
Business Plan . . . . . . . . . .10
Client and Industry Representation11
Y2K (Year 2000 Problem) . . . . .11
Forward Looking Statements. . . .11
ITEM 7. FINANCIAL STATEMENTS. . . . .13
Advanced Oxygen Technologies, Inc.
Financial Statements;. . . .13
Statement of Operations . . . . .14
Statement of Cash Flow. . . . . .15
Statement of Shareholder's Equity16
Year ended June 30, 1999. . . . .16
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-K29
SIGNATURES . . . . . . . . . . . . . .30
PART I
ITEM 1- DESCRIPTION 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. From May of
1995 through December of 1997 AOXY had minimal operations and
was seeking funding for operations and companies to which it could
merge or acquire. In March of 1998 AOXY began operations in
California. The business consists of producing and selling CD-
ROMS for conference events, advertisement sales on the CD's,
database management and event marketing all associated with
conference events.
THE PATENT SALE
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 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. Subsequently these royalties and associated liabilities were
transferred to a trust (see Trust Agreement 12/18/97 below).
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. (Belize) 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") 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. 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 purchase price of $2,000,000 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.
TEUBER EMPLOYMENT AGREEMENT TERMINATION
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.
SET OFF OF PROMISSORY NOTE, 9/4/98
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.
GAYLORD EMPLOYMENT AGREEMENT TERMINATION
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.
CALIFORNIA FACILITIES, 9/30/98
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.
DEMAND FOR INDEMNIFICATION, 12/9/98
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.
PURCHASE AGREEMENT OF 1/29/99
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.
EMPLOYEES
As of June 30, 1999 the Company had a total of 7 employees.
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
PENDING MATTERS
The Company is a party to the following legal proceedings:
1. On April 30, 1999 NEC America Filed suit
against Advanced Oxygen Technologies, Inc.
In the Los Angeles Superior Court, North
Valley Branch, Case Number PC 023087X
alleging default of the Lease Agreement of
November, 1998 in the amount of $57,167.28.
AOXY has answered the suit and denies some
or all of the allegations, and believes that the
jurisdiction of the case should be in New
York.
2. A previous employee, Tim Rafalovich has
filed suit against Advanced Oxygen
Technologies, Inc. in the Small Claims court
of New Hall, CA alleging that AOXY has not
paid approximately $5,000 in wages, case
number 99S00761. The appeal is pending and
AOXY denies all allegations, and will defend
the case.
3. On June 14, 1999 Airborne Express, Inc. filed
suit against Advanced Oxygen Technologies,
Inc., case # 99-C00738 in small claims court
of Los Angeles CA Municipal district,
Newhall Judicial District for $5,093.95,
including court costs and attorney's fees
alleging monies owed. AOXY denies the
allegations and plans to defend the claim and
believes that some or all of the shipping
charges cited were from a previously shared
location in Santa Clarita.
SETTLED MATTERS:
1. 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.
2. 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.
3. 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 paid the amount in full.
4. 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. The
Company paid the amount in full.
5. 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
was 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 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, 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
Fiscal Year Ended June 30, 1999 High Low
First Quarter 0.220 0.055
Second quarter 0.047 0.015
Third Quarter 0.031 0.015
Fourth Quarter 0.200 0.015
At September 30, 1999, the closing bid price of the Company's
Common Stock as reported by the National Quotation Bureau, Inc,
was $0.0625
ITEM 6. PLAN OF OPERATION.
BUSINESS PLAN
The Company currently has two locations. The location in New
York is the location for some of the administrative operations and
through June 30, 1999 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 operations. The Company currently has four areas of
concentration: CD-ROM production/sales, event sales, database
management and marketing.
The Company began producing and selling educational
CD-ROMS in March of 1998. The content of the CD-ROMS is
derived from conferences, held by clients of the Company. AOXY
produces a CD-ROM of the conferences including the audio, video,
graphics and/or verbatim transcripts of the conference. AOXY sells
CD's direct to the client and public, and/or sells advertisement space
on the CD's and produces the CD at no cost to the conference
organizer. All CD's are in HTML format and are directly linked to
the Internet sites of AOXY and the Client. The sales efforts are
conducted on the Internet and in the Santa Clarita CA location. In
addition, the Company began selling event registrations for
conferences where AOXY is producing CD-ROMS. The Company
sells the events through fax broadcasting, direct mail, and
telemarketing from Santa Clarita CA.
In March 1998, AOXY began database management which
includes managing client databases, assisting clients in effective
marketing with databases, providing database information to clients,
list rentals, and utilizing and structuring databases for fax
broadcasting. Currently the Company has the ability to fax broadcast
or email broadcast to a large number of contacts.
The Company continues it efforts to raise capital to support
operations and growth, and is actively searching acquisition or
merger with another company that would compliment AOXY or
increase its earnings potential.
CLIENT AND INDUSTRY REPRESENTATION
During this reporting period, 7 client contracts were concluded.
There were 4 active clients as of June 30, 1999. Because the company
represents a variety of clients in a variety of industries, the operation
of each client account is unique. In addition to the CD Production
Clients of AOXY, AOXY has 2 active contracts for Database
Management. AOXY fulfils these contracts by providing, selling,
updating and/or renting database information.
Y2K (YEAR 2000 PROBLEM)
Y2K, or the Year 2000 Problem is a potential problem for
computers whereby the system would not recognize the date 2000 as
year 2000 but instead as 1900 due to the fact that the computer
industry standard for dating was a 2 digit system and not 4 digits.
Each date represented was the last two digits of the year, i.e.: 1998
was 98. This problem could render important computer and
communication systems inoperable which could have a significant
effect on the Company's operations. The Company's current exposure
to potential Y2K systems that could be affected include (but not
limited to): computers, telephones, all forms of electronic
communications, switches, routers, software, accounting software,
banking, electricity, credit card processors, electronic data exchange,
security systems, fax broadcasting software and hardware, database
software, archives, data, records, and others.
In an effort to minimize the Company's exposure to the
potential Y2K problem, the Company has contacted each of our
vendors to assess how Y2K will affect our operations. Although some
vendors make verbal assurances of Y2K compliance, there can be no
certainty that the systems that the Company use will not be affected.
AOXY continues to examine the risks associated with its most
reasonable worst case Year 2000 scenarios. Scenarios might include
a possible but presently unforeseen failure of key supplier or
customer business, processes, or systems. These situations could
conceivably persist for some months after the millennium transition
and could lead to possible revenue losses. The Company also may
not have the applicable capital resources to correct or replace certain
systems to be compliant with Y2K. The Company may be able to
replace or correct the Y2K problem within the organization, and still
be affected by outside utilities and or vendors.
The Company may not directly experience any effect from the
Y2K problem, but the suppliers, vendors, clients or other associates
of the Company, may be affected and could cause the Company harm
by loss of clients, loss of contracts, inability to receive supplies, etc.
The Y2K element alone could significantly alter the Company's
operations and profitability.
FORWARD LOOKING STATEMENTS
Certain statements contained in this report, including statements
concerning the Company's future and financing requirements, the
Company's ability to obtain market acceptance of its products and the
competitive market for sales of small production business' and other
statements contained herein regarding matters that are not historical
facts, are forward looking statements; actual results may differ
materially from those set forth in the forward looking statements,
which statements involve risks and uncertainties, including without
limitation to those risks and uncertainties set forth in any of the
Company's Registration Statement's under the heading "Risk
Factors" or any other such heading. In addition, historical
performance of the Company should not be considered as an indicator
for future performance, and as such, the future performance of the
Company may differ significantly from historical performance.
ITEM 7. AUDITED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT CERTIFIED PUBLIC
ACCOUNTANTS
BOARD OF DIRECTORS AND STOCKHOLDERS
ADVANCED OXYGEN TECHNOLOGIES, INC.
We have audited the accompanying balance sheet of Advanced
Oxygen Technologies, Inc. as of June 30, 1999 and the related
statements of income and accumulated deficit, cash flows and
stockholders' equity 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, 1999 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 an operating loss before
extraordinary item of $324,865 during the fiscal year ended June 30,
1999, and as of that date, the Company's current liabilities exceeded
its current assets by $198,612. The foregoing raise substantial doubt
about the Company's ability to continue as a going concern. The
Company's continuation as a going concern is dependent on the
attainment of profitable operations and meeting it obligations on a
timely basis. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Bernstein Pinchuk & Kaminsky LLP
New York, NY
September 9, 1999
ADVANCED OXYGEN TECHNOLOGIES, INC. FINANCIAL
STATEMENTS;
<TABLE>
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Advanced Oxygen Technologies Inc.
Balance Sheet for the year ending
June 30, 1999
Assets
1999
Current Assets
Cash 54,788
Database management receivable 15,315
Receivables, net of allowance 59,908
of $1,295 (note 3)
Inventory (note 3) 6,759
Total Current Assets 136,770
Property and Equipment, At
Cost, net
accumulated depreciation and 748,545
amortization (Note3 & 4)
Other Assets
Deposits 4,093
Total Other Assets $4,093
Total Assets 889,408
Liabilities and Stockholder's Equity
Current Liabilities
Accounts Payable 180,690
Payroll and sales taxes payable 55,299
Corporation taxes payable 1,900
Employee deferred saving payable 58,226
Accrued salaries and expenses 10,868
Due to Affiliate (note 7) 28,399
Total Current Liabilities 335,382
Long Term Liabilities
Capital lease obligation 85,273
Other long term liabilities 11,886
Total Long Term Liabilities 97,159
Commitments and Contingencies
(Note 6)
Stockholders' deficiency (notes
1 and 2)
Convertible preferred stock, 50
Series 2, par value $0.01;
authorized 10,000,000 shares;
issued and outstanding
5,000 shares
convertible preferred stock, 16,700
Series 3 par value $0.01;
authorized and issued,
1,670,000 shares
Convertible preferred stock, 0
Series 4; issued and
outstanding, 2 shares
Convertible preferred stock, 0
Series 5; issued and
outstanding, 1 shares
Common Stock, par value $0.01; 296,403
authorized, 30,000,000
shares; issued and outstanding, 29,640,252
Additional paid-in capital
20,398,631
Additional Paid-in Capital (20,247,633)
Less treasury stock, at cost- (7,284)
1,670,000 shares of
convertible preferred stock,
Series 3
456,867
Total Liabilities & Capital 889,408
</TABLE>
See the accompanying accountants' report and notes to
financial statements.
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
<TABLE>
<S> <C>
Advanced Oxygen Technologies Inc.
Income Statement for the year ending
June 30, 1999
1999
Revenues (Note 1)
California Registrations 277,305
Compact Disk Sales 142,617
Consulting and other fees 27,542
Commissions 69,099
Sponsor Sales 32,602
Database Management 32,516
Total Revenues 581,681
Cost and Expenses
Cost of Product 2,830
Commission 57,483
Sales Royalties 16,009
Salaries and wages 191,696
Advertising 2,207
Professional fees 33,012
Rent 37,293
Computer and equipment leases 7,788
Transcribing Total Cost of Sales 35,588
Subcontracting 16,940
Telephone 53,506
Travel 15,967
Utilities 5,658
Payroll and other taxes 16,950
Depreciation 347,748
Postage, printing and repoduction 15,650
Bank and Credit card charges 15,937
and fees
Other costs and expenses 13,090
Total 884,838
Loss from operations before (303,157)
other income
(expense), income tax
expense, and extraordinary
gain.
Other income (expenses)
Interest expense (22,148)
Bad debt expense (4,742)
Interest Income 68
Other Income 5,914
Total Other Income (20,908)
LOSS BEFORE INCOME TAX (324,065)
EXPENSE AND EXTRAORDINARY
GAIN (NOTE 9)
INCOME TAX EXPENSE (NOTE 9) 800
LOSS BEFORE EXTRAORDINARY GAIN (324,865)
EXTRAORDINARY GAIN ON 521,894
FORGIVENESS OF DEBT
NET INCOME 197,029
ACCUMULATED DEFICIT AT (20,444,662)
BEGINNING OF YEAR
ACCUMULATED DEFICIT AT END OF YEAR(20,247,633)
BASIC AND DILUTED EARNINGS
PER SHARE:
LOSS BEFORE EXTRAORDINARY GAIN (0.01)
EXTRAORDINARY GAIN ON 0.02
FORGIVENESS OF DEBT
NET INCOME 0.01
</TABLE>
See the accompanying accountants' report and notes to
financial statements.
STATEMENT OF CASH FLOW
<TABLE>
<S> <C>
Advanced Oxygen Technologies Inc.
Statement of Cash Flow
June 30, 1999
1999
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income 197,029
Adjustments to reconcile net
income to Net Cash by
operating activities
Depreciation and amortization 347,748
Extraordinary gain on (521,894)
forgiveness of debt
Changes in operating assetss and liabilities
Decrease in accounts receivable 40,287
Increase in inventories (3,234)
Increase in other assets (4,093)
Increase in accounts payable 114,200
Increase in payroll and sales 23,717
taxes payable
Decrease in accrued liabilities (99,536)
Increase in income taxes payable 1,100
Increase in due to affiliate 2,161
Net cash provided by operating activities 96,971
Cash flow from investing activities:
Cash payments for the purchase (94,811)
of property
Net cash used in investing activities (94,811)
Cash from financing activities:
Proceeds from issuance of 58,521
long-term debt
Cash payment for purchase of (7,284)
treasury stock
Proceeds from employee deferred savings 58,226
Net cash provided by financing activities 109,463
NET INCREASE IN CASH 111,623
Cash and equivalents, beginning (56,835)
of year
Cash and equivalents, end of year 54,788
Supplemental Disclosures
Income taxes paid 0
Interest expense paid 20,968
</TABLE>
STATEMENT OF SHAREHOLDER'S EQUITY
YEAR ENDED JUNE 30, 1999
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances Balances
Purchase of
June 30, 1998 Preferred StockNet IncomeJune
30, 1999
Preferred Stock SharesAmount Shares Amount SharesAmount
5,000 $50 5,000 $50
Series 2
$16,700 $16,700
Series 31,670,000 1,670,000
2 2
Series 4
1 1
Series 5
Common Stock $296,403
29,640,252 $296,403 29,640,252
AdditionalPaid inCapital
$20,398,631 $20,398,631
Accum.Deficit ($20,444,662 ) ($20,2247,633)
$197,029
$464,151
$267,122 $197,029
Less cost of ($7,284)
preferredstock, 16,700,000 $7,284 1,670,000
Series 3
$464,151
$267,122 $7,284 $197,029
</TABLE>
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
NOTE 1 - ORGANIZATION AND LINE OF BUSINESS
ORGANIZATION:
Advanced Oxygen Technologies, Inc. (formerly Aquanautic
Corporation) (the "Company") 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 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 operation 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 dated as of December 18, 1997, the
Company issued 23,750,000 shares of its common stock, par value
$0.01 per share, to several investors for $60,000 in cash, plus
consulting services with a fair value of $177,500.
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.
NOTE 1 - (Continued)
ORGANIZATION: (Continued):
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
rights 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 10, 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.
Pursuant to a Purchase Agreement dated January 28, 1999, the
Company purchased the 1,670,000 shares of the Series 3 convertible
preferred stock and the promissory note discussed in the preceding
paragraph. As part of the agreement, the Company paid $15,000 to
IMA, assumed a certain computer equipment lease with remaining
obligations totaling $44,811 and executed a one-year $5,000
promissory note to IMA. In addition, both IMA and the Company
provided mutual liability releases to each other.
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,
database management, and fax broadcasting.
The following is a description of these business activities:
CD-ROM Production/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.
NOTE 1 - (continued)
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 before extraordinary gain, and had negative working
capital at June 30, 1999. 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 sufficient to provide the Company with the ability to continue in
existence:
- Increase its business volume and customer base.
- Acquire additional debt or equity financing.
- Control its costs in order to achieve its profit goals.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES:
Revenue Recognition:
Product Sales:
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 Earnings per Share:
For the year ended June 30, 1999, 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.
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
NOTE 3 - (continued)
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 years
Office equipment 5 years
Computers and computer equipment 5 years
Capitalized leased equipment 5 years
Capitalized database cost 3 years
Concentration of Credit Risk:
For the year ended June 30, 1999, two of the Company's largest
customers accounted for approximately 43 % of the Company's
revenue. In addition, one of the customers accounted for
approximately 72 % of accounts receivable at June 30, 1999.
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.
NOTE 4 - FURNITURE AND EQUIPMENT:
Furniture and equipment at June 30, 1999 consisted of the following:
Furniture and fixtures $ 31,869
Office equipment 17,882
Computers and computer equipment 98,858
Capitalized equipment 120,217
Capitalized database cost 911,391
Sub Total 1,180,217
Less accumulated depreciation and
amortization 431,672
Total $ 748,545
Depreciation and amortization expense for the year ended June 30,
1999 was $347,234.
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 was $911,391.
The cost of the database records is being amortized over a three-year
period.
NOTE 6 - COMMITMENTS AND CONTINGENCIES:
Lease:
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,
2000
$ 50,352
2001
53,204
2002
56,052
2003
58,904
2004
19,952
$238,464
Litigation:
The Company is a defendant in various legal proceedings and claims
that have arisen in the ordinary course of business. Under current
circumstances, no determination can be made as to the ultimate
outcome of the legal proceedings and claims or as to the necessity for
any provision, in the accompanying financial statements, for any
liability that may result from final adjudications.
NOTE 7 - DUE TO AFFILIATE
Due to affiliate at June 30, 1999 consisted of advances
payable to Crossfields, Inc., a related party, which are
uncollateralized, non-interest bearing, and payable upon demand.
NOTE 8 - CAPITAL LEASE OBLIGATIONS:
The obligation includes three separate leases payable to the
lessors, collateralized by equipment, and requires a combined
total of principal and interest payments of $2,704 per month with
interest rates ranging from 10.47% to17.6% interest per annum
through 2003.
Total minimum future principal payments on the leases are as
follows:
Year Ending June 30,
2000
$23,071
2001
26,094
2002
26,357
2003
9,751
$85,273
NOTE 9 - INCOME TAXES
The current provision for income taxes is the minimum tax due to the
State of California.
As of June 30, 1999, the Company had federal and state net operating
loss carryforwards of approximately $7,600,000. These
carryforwards, 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 10 - 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 theten
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 March 1, 2000 is less than sixty-six cents
($0.66) per share. (See Note 1)
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 and Bernstein Pinchuk & Kaminsky, Llp, Seven
Penn Plaza, New York, NY, 10001
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 June 30, 1999. All directors are
elected for one-year terms, which expire as of the date of the
Company's annual meeting.
Name Age Positions Director Since
Robert E. Wolfe 36 Chairman of the
Board and 1997
Chief Executive Officer
Joseph N. Noll 76 Director
1997
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 $250,000 annual
for the year ending June 30, 1999. 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, 1999 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,
1999.
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, 1999. There were no other corporate officers in any of the last
three fiscal years.
Executive Compensation
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Name Yr SalaryBonus Other RestrictedAwardsLTIPAllOther
Compen- Pay Security
sation outs
Harry 0 0 0 0 0 0 0
Edelson
RobertWolfe0 0 0 0 0 0 0
</TABLE>
OPTION GRANTS DURING 1999; 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, 1999 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 # % of TotalOptions toEmployerExerciseExpirationDate
SecuritiesunderlyingOptionPrice
Harry 0 0 n/a n/a
Edelson
Robert 0 0 n/a n/a
Wolfe
</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, 1999 1,000,000 shares of Common Stock were
available for issuance under future option grants.
Board of Directors Compensation
As of June 30, 1999 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, 1999, 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,
1999, 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.
Beneficial Ownership
Name and Address of Shares Fully Diluted
Percent
Beneficial Owner
Crossland, Ltd. (Belize) 6,312,500 21.30%
60 Market Square
PO Box 364
Belize City, Belize, Central America
Eastern Star, Ltd. 5,937,500
20.03%
104B Saffrey Square
Bank Lane and Bay Street
Box N-1612
Nassau, Bahamas
Coastal Oil, Ltd. 5,937,500 20.03%
40 Santa Rita Road
Corazal, Belize, Central America
Crossland, Ltd. 5,937,500 20.03%
104B Saffrey Square
Nassau, Bahamas
Robert E. Wolfe 50,000 0.17%
Joseph Noll 0 0.00%
Note:
AOXY Purchase 1,670,000 Preferred Shares of Advanced Oxygen
Technologies, Inc from IMA (see Purchase Agreement, 1/29/99) and
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
the Company could be caused to redeem the converted shares for the
aggregate sum of $500,000 upon receiving notice of intention to
redeem the converted shares within 10 business day. This stock is
now treasury stock.
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
p) America United Lease, dated September 23, 1998 incorporated
by reference to the Registrant's report form 10-QSB dated November
16, 1998
q) NEC Lease, date November 10, 1998, incorporated by
reference to the Registrant's report form 10-QSB dated January 28,
1999 as Exhibit I.
r) Purchase Agreement of 1/29/99, dated January 29, 1999,
incorporated by reference to the Registrant's report form 8-K dated
February 17, 1999 as Exhibit I
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 February 17, 1999 and reported
under Item 2 the Purchase of Specified Assets from Integrated
Marketing Agency, Inc. The assets purchased consisted of 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.
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: October 13, 1999 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: October 13, 1999 By (Signature and title):
/s/Joseph Noll /s/
-------------------------
Joseph N. Noll
Director
