-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, A9DBxZHG57Tg6PKoWlieXBy9jkxOvRjIx2LhdgYEZCT7oxjBRkdSdtNFn2C218vo pdDOoxqQsYJcubsHKARRUA== 0000352991-99-000009.txt : 19990429 0000352991-99-000009.hdr.sgml : 19990429 ACCESSION NUMBER: 0000352991-99-000009 CONFORMED SUBMISSION TYPE: 10KSB/A PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980630 FILED AS OF DATE: 19990428 FILER: COMPANY DATA: COMPANY CONFORMED NAME: ADVANCED OXYGEN TECHNOLOGIES INC CENTRAL INDEX KEY: 0000352991 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 911143622 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10KSB/A SEC ACT: SEC FILE NUMBER: 000-09951 FILM NUMBER: 99602433 BUSINESS ADDRESS: STREET 1: 26883 RUETHER AVENUE STREET 2: 230 PARK AVE STE 1000 CITY: SANTA CLARITA STATE: CA ZIP: 91351 BUSINESS PHONE: 805-298-3333 MAIL ADDRESS: STREET 1: ADVANCED OXYGEN TECHNOLOGIES, INC. STREET 2: 26883 RUETHER AVENUE CITY: SANTA CLARITA STATE: CA ZIP: 91351 10KSB/A 1 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 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.
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.
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.
Advanced Oxygen Technologies Inc. Statement of Shareholder's Equity For the Year ended June 30, 1998 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
Advanced Oxygen Technologies Inc. Statement of Cash Flow For the Year ended June 30, 1998 Cash Flows from operating Activities 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.
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: Deferred tax assets Net operating loss $90,712 carryforward
Bad debt allowance 19,515 Other 272 Total deferred tax assets 110,499 Deferred tax liabilities State tax (7,733) Valuation allowance (102.766)
Net deferred taxes $ --
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. Name Age Positions Director Since Robert E. Wolfe 35 Chairman of the Board 1997 and Chief Executive Officer Joseph N. Noll 75 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 $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 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
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. 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
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. Beneficial Ownership 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%
*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 EX-27 2
5 12-MOS JUN-30-1998 JUN-30-1998 0 0 161,063 (45,554) 3,525 119,034 174,015 (8,489) 1,120,002 832,922 0 0 16,750 20,695,034 (20,444,663) 1,120,002 263,489 344,743 306,511 1,120,002 285,875 0 8,858 (256,501) 800 (257,301) 0 0 0 (257,301) (0.01) (0.01)
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