<PAGE>
 
                    U.S. SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549

                                  FORM 10-QSB

             (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
             For the quarterly period ended September 30, 1997 or

             ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
                    OF THE SECURITIES EXCHANGE ACT OF 1934
      For the Transition period from ________________ to ________________

                         Commission file number 0-9951

                      ADVANCED OXYGEN TECHNOLOGIES, INC.
       (Exact name of small business issuer as specified in its charter)

       Delaware                                         91-1143622
(State of Incorporation)                    (I.R.S. Employer Identification No.)

                              300 Tice Boulevard
                           Woodcliff Lake, NJ 07675
                   (Address of principal executive offices)

                                 201-930-8900
                          (Issuer's telephone number)


    Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.

                           Yes  X                No
                               ---                  ---

The number of shares of common stock outstanding as of September 30, 1996 was
4,796,252.

Transitional Small Business Disclosure Format (check one):

                           Yes                   No  X
                               ---                  ---
<PAGE>
 
                       ADVANCED OXYGEN TECHNOLOGIES, INC.


                                     INDEX
                                        
                                                            Page
                                                            ----

PART I - FINANCIAL INFORMATION
  Item 1. Financial Statements
 
    Balance sheet as of September 30, 1997                    1
 
    Statement of income for the three month period ended
    September 30, 1997                                        2
 
    Statement of cash flows for the three month period
    ended September 30, 1997                                  3
 
  Item 2. Management's discussion and analysis of
  financial condition and results of operations               4
 
PART II - OTHER INFORMATION
 
  Item 6.  Exhibits and Reports on Form 8-K                   4

SIGNATURE
<PAGE>
 
                      Advanced Oxygen Technologies, Inc.
                                 BALANCE SHEET
                              SEPTEMBER 30, 1997


                                       ASSETS
                                       ------
<TABLE>
<S>                                              <C>             <C>            <C>
CURRENT ASSETS
  CASH                                           $     398
    TOTAL CURRENT ASSETS                                         $     398*
 
OTHER ASSETS
  DEPOSITS                                             524
    TOTAL OTHER ASSETS                                                 524*
  
     TOTAL ASSETS                                                               $922*

<CAPTION>

                        LIABILITIES AND STOCKHOLDERS' EQUITY
                        ------------------------------------
<S>                                              <C>             <C>            <C>
CURRENT LIABILITIES
  ACCOUNTS PAYABLE-TRADE                         $      2,000
  DUE TO DIRECTORS                                    275,000
  ACCRUED LIABILITIES                                  71,375
    TOTAL CURRENT LIABILITIES                                    $ 348,375*
 
STOCKHOLDERS' EQUITY
  CAPITAL STOCK                                        47,963
  PREFERRED STOCK                                       1,770
  ADDITIONAL PAID IN CAPTAL                        19,797,051
  RETAINED EARNINGS                               (20,187,361)    
  NET INCOME/LOSS                                      (6,875)
    TOTAL STOCKHOLDERS' EQUITY                                    (347,453)*
 
     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                 $922*
</TABLE>
<PAGE>
 
                      Advanced Oxygen Technologies, Inc.
                               INCOME STATEMENT
                 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
                                          --- Year to Date ---
                                             Actual Percent
                                          ====================
 
<S>                                       <C>           <C>
OPERATING EXPENSES
  INTEREST                                  $ 6,875     0.0
                                            -------     ---
* TOTAL OPERATING EXPENSES                    6,875     0.0
                                            -------     ---
* INCOME FROM OPERATIONS                     (6,875)    0.0
                                            -------     ---
* OTHER INCOME/(EXPENSE)                     (6,875)    0.0
                                            -------     ---
* NET INCOME BEFORE TAXES                    (6,875)    0.0
                                            -------     ---
* NET INCOME AFTER TAXES                    $(6,875)    0.0
                                            =======     ===
</TABLE>
<PAGE>
 
                       Advanced Oxygen Technologies, Inc.
                            STATEMENT OF CASH FLOWS
                 FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1997

<TABLE>
<CAPTION>
                                                 Current     Year to Date
<S>                                              <C>         <C>
 CASH FLOWS-OPERATIONS
   NET INCOME (LOSS-)                            $(6,875)      $(6,875)
   NET CHANGE ACCRUED EXPENSES                     6,875         6,875
                                                 -------       -------
    TOTAL CASH FLOWS-OPERATIONS                        0             0
                                                 -------       -------
    NET CHANGE IN CASH                           $     0       $     0
                                                 =======       =======
  CASH AT BEGINNING OF PERIOD                    $   398       $   398
                                                 -------       -------
    CASH AT END OF PERIOD                        $   398       $   398
                                                 =======       =======
</TABLE>
<PAGE>
 
Item 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
         RESULTS OF OPERATIONS.

PLAN OF OPERATIONS

      The Company has ceased operations since the sale of its technology to W.R.
Grace.  Several offers to acquire the shell have been examined and deemed
inadequate.  The Company continues to explore potential mergers with companies
desiring to go public by acquiring its shell.  If these efforts fail, the
Company will most likely implement its Contingent Plan of Liquidation and form a
Liquidating Trust to receive and ultimately distribute royalties (if any) from
the use of its former technology by W.R. Grace.  Royalties would first be paid
to debt holders and then to preferred stockholders and finally to common
stockholders.  To this date, no royalties have been forthcoming from W.R. Grace.

PART II - OTHER INFORMATION

Item 6.  Exhibits and Reports on Form 8-K
         (a)  No exhibits
         (b)  No report on Form 8-K was filed during the quarter for which this
              report is filed.

                                   SIGNATURE

      In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.

Date: December 15, 1997       /s/ Harry Edelson
                              -------------------------------------------------
                              Harry Edelson, Chairman of the Board and Chief
                              Executive Officer and Principal Financial Officer