<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934 FOR THE TRANSITION PERIOD FROM
____________ TO ______________
Commission File Number 2-93277-D
MEDIZONE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Nevada 87-0412648
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
144 Buena Vista
P.O. Box 742
Stinson Beach, CA 94970
(Address of principal executive offices, zip code)
(415) 868-0300
(Registrant's telephone number, including area code)
Check whether the issuer (1) 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 [ ]
At May 15, 1999, there were 149,173,656 shares of the registrant's common stock
issued and outstanding.
Transitional Small Business Disclosure Format
(Check one):
Yes __ No X
--
1
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MEDIZONE INTERNATIONAL, INC.
FORM 10-QSB
INDEX
March 31, 1999
Page
Number
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheet:
-March 31, 1999 and December 31, 1998.................................3
Consolidated Statement of Operations:
-For the Three Months Ended March 31, 1999 and 1998...................4
Consolidated Statement of Cash Flow
-For the Three Months Ended
March 31, 1999 and 1998.............................................5
Notes to Consolidated Financial Statements........................6
Item 2 - Management's Discussion and Analysis or Plan of Operation.............7
Part II - Other Information
Item 2 - Changes in Securities and Use of Proceeds............................10
Item 6 - Exhibits and Reports on Form 8-K ....................................10
2
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MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
March 31, 1999 and December 31, 1998
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------- -------------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 507 $ 7,643
------------------- -------------------
Total Current Assets 507 7,643
------------------- -------------------
PROPERTY AND EQUIPMENT, net 7,126 7,612
------------------- -------------------
$ 7,633 $ 15,255
=================== ===================
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 474,436 $ 470,132
Accrued liabilities 294,215 288,606
Current portion of long-term obligations 280,491 280,491
------------------- -------------------
Total Current Liabilities 1,049,142 1,039,229
------------------- -------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 149,149 148,926
Additional paid-in capital 12,562,872 12,547,539
Deficit accumulated the development stage (13,753,530) (13,720,439)
------------------- -------------------
Total Stockholders' Equity (Deficit) (1,041,509) (1,023,974)
------------------- -------------------
$ 7,633 $ 15,255
=================== ===================
</TABLE>
See accompanying notes.
3
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MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
3/31/99 3/31/98
--------------- ---------------
<S> <C> <C>
REVENUE $ - $ -
COST OF SALES - -
--------------- ---------------
Gross Profit - -
--------------- ---------------
COSTS AND EXPENSES
Research and development - 8,050
General and administrative 27,481 155,693
--------------- ---------------
Total Costs and Expenses 27,481 163,743
--------------- ---------------
LOSS BEFORE OTHER INCOME (EXPENSE) (27,481) (163,743)
--------------- ---------------
OTHER INCOME (EXPENSE)
Interest expense (5,610) (6,831)
Interest income - 404
--------------- ---------------
Total Other Income (Expense) - net (5,610) (6,427)
--------------- ---------------
LOSS BEFORE INCOME TAXES (33,091) (170,170)
INCOME TAX BENEFIT (PROVISION) - -
--------------- ---------------
NET INCOME (LOSS) $ (33,091) $ (170,170)
=============== ===============
NET INCOME (LOSS) PER COMMON
SHARE
Basic $ (0.00) $ (0.00)
=============== ===============
Diluted $ (0.00) $ (0.00)
=============== ===============
AVERAGE COMMON AND EQUIVALENT
SHARES
Basic 149,074,582 138,126,991
=============== ===============
Diluted 149,074,582 138,126,991
=============== ===============
</TABLE>
See accompanying notes.
4
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MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three Months Ended March 31, 1999 and 1998
<TABLE>
<CAPTION>
March 31, March 31,
1999 1998
-------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (33,091) $ (170,170)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 486 653
Issuance of stock for accrued interest - 3,238
Interest expense 5,610 -
Change in operating assets and liablilites
Current and other assets - 7,194
Accounts payable and other liabilities 4,303 (8,749)
-------------- --------------
(22,692) (167,834)
-------------- --------------
CASH FROM INVESTING ACTIVITIES - -
-------------- --------------
- -
-------------- --------------
CASH FROM FINANCING ACTIVITIES
Issuance of common stock 15,556 60,000
-------------- --------------
15,556 60,000
-------------- --------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (7,136) (107,834)
CASH AND CASH EQUIVALENTS
Beginning of period 7,643 138,173
-------------- --------------
End of period $ 507 $ 30,339
============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid during the period for:
Interest $ - $ -
============== ==============
Income taxes $ - $ -
============== ==============
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for interest $ - $ 3,238
============== ==============
Issuance of common stock for cancellation of note
payable $ - $ 40,000
============== ==============
</TABLE>
See accompanying notes.
5
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MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - Basis of Presentation
The financial information included herein is unaudited and have been prepared
consistent with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, these financial statements do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. These statements should be read in
conjunction with the audited financial statements and notes thereto included in
the Company's annual report on Form 10-K for the year ended December 31, 1998.
In the opinion of management, these financial statements contain all adjustments
(consisting solely of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair statement of results for the interim period
presented.
The results of operations for the three-month and nine-month periods ended
September 30, 1999 and 1998 are not necessarily indicative of the results to be
expected for the full year.
2 - Capital Stock
During the quarter ended March 31, 1999, 222,222 common shares were issued to an
officer and director of the Company for $15,555 in cash.
3 - Income (Loss) Per Share
Following, is a reconciliation of the numerators of the basic and diluted income
(loss) per share for the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Three
Months Months
Ended Ended
3/31/99 3/31/98
------------ ------------
<S> <C> <C>
Net income (loss) available to common
shareholders $ (33,091) $ (170,170)
------------ ------------
Weighted average shares 149,074,582 138,126,991
Effect of dilutive securities - -
------------ ------------
149,074,582 138,126,991
------------ ------------
Basic income (loss) per share (based on
weighted average shares) $ (0.00) $ (0.00)
------------ ------------
Diluted Income (loss) per share $ (0.00) $ (0.00)
------------ ------------
</TABLE>
6
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Item 2 - Management's Discussion and Analysis or Plan of Operation
The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Form 10-QSB.
The Company is a development stage company, primarily engaged in
research and development of ozone based treatment for diseases and health
problems caused by lipid enveloped viruses, including, for example, Acquired
Immune Deficiency Syndrome (AIDS), Hepatitis B, Hepatitis C and Herpes, and in
the development of technology for the decontamination of blood, blood products
and veterinarian serum products. The Company is also pursuing the development of
external applications of its technology for medical purposes.
The Company has not generated, and cannot predict when or if it will
generate, significant revenues or sufficient cash flow to fund its continuing
operations. It has funded its operations to date primarily through the sale of
its securities. The technology and its uses are subject to regulations of the
U.S. Food and Drug Administration ("FDA") and its counterparts in foreign
countries. The Company does not intend to sell equipment or supplies for
ozone-generating purposes until it receives required government approvals.
Testing and trials can be conducted on a limited basis for research
purposes and to establish efficacy of machines and applications, in order to
support applications for government approvals. In November of 1997, Dr. Sunnen,
the Director of Research (who later was appointed president of the Company on
April 15, 1998) was instrumental in establishing a protocol for Phase II
research to be performed at several leading Italian university research facility
under the auspices of the European Union. It has now been determined, based on
information regarding the low toxicity levels demonstrated in earlier research,
that European Union health authorities will accept completion of a small-scale
Phase I clinical study with 8-10 patients prior to starting the Phase II trial.
The Company is currently preparing submission papers for a study designed to
meet these criteria.
The Company also has recently conducted trial treatment studies on four
patients infected with Hepatitis C. This study was conducted through the
guidance of Dr. William Hitt, a member of the Company's board of directors. The
tests indicated significant reductions in enzyme levels as measured by SGOT and
SGPT standard test procedures of the patients participating in the study.
Enrollment has begun for a new 10-12 patients study of Hepatitis C, with
clinical data analyzed by an independent facility in Los Angeles, California.
Testing will be conducted prior to, during and following the completion of
treatment and a six-week convalescence follow-up.
The Company has recently filed a patent application for the external
applications of ozone for medical purposes. Problems that might be addressed by
such uses would include treatment of severe burns, infections of ulcerations of
the skin (such as those that might be caused by advanced stages of diabetes) or
other wounds. In connection with this use of ozone, the Company filed a patent
application, no. 09/126,504, External Use of Ozone/Oxygen for Pathogenic
Conditions, with the US Patent and Trademark Office on July 30, 1998. Foreign
applications based on this application have also been made. In addition, the
Company owns patents covering its ozone decontamination technology filed in the
United States (no. 4,632,980, December 30, 1986 and no. 5,052,382, October 1,
1991), and related patents granted in several foreign countries. These patents
form the basis for the Company's technology used in the studies described above.
The Company has also been active in pursuing veterinary trials
investigating the effectiveness of ozone in deactivation of viruses in serum
products. The Phase I trial on healthy serum products was concluded in October
1998 and was deemed successful by the Company's researchers. Dr. Sunnen expects
that a Phase II trial should also be successful based on the results of the
first round. The Phase II trial commenced in November and will investigate the
deactivation rates of seven different viruses and is expected to be completed in
12 to 18 months. If the results are satisfactory, the Company believes its
technology can be used in the veterinary medicine field to form the basis for
the creation of a line of safer and more effective vaccines. If the Phase II
veterinary trials are successful, a Phase III trial would follow in the first
quarter of 1999. The study would include using the Company's ozone technology to
treat commercial quantities of serum products, possibly leading to a
commercially marketable process for large-scale viral deactivation during the
year 2000.
7
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There is no assurance that the results of such tests and studies will
be favorable to the Company or that regulatory approval will be received based
on such results.
Results of Operations
General
From its inception (January 1986), the Company has been a development
stage company primarily engaged in research into the medical uses of ozone. The
Company has not generated, and cannot predict when or if it will generate,
revenues or sufficient cash flow to fund its continuing operations.
Three Months Ended March 31, 1999 compared to the Three Months Ended March 31,
1998:
There were no sales during the quarters ended March 31, 1999 or 1998.
During the three months ended March 31, 1999, the Company made no expenditures
for research and development, compared to $8,050 for the three months ended
March 31, 1998. General and administrative expenses in the first quarter of 1999
were $27,481, compared to $8,050 during the first quarter of 1998. These
expenses included professional fees, payroll, insurance costs and travel
expenses.
Interest expense accrued during the three months ended March 31, 1999
was $5,610, compared to $6,831 in the three months ended March 31, 1998.
Liquidity and Capital Resources
At March 31, 1999, the Company had a working capital deficiency of
$1,048,635 and stockholders' deficit of $1,041,509. At December 31, 1998, the
Company had a working capital deficiency of $1,031,586 and stockholders'
deficiency of $1,023,974.
Net cash used in operating activities was $22,692 for the three months
ended March 31, 1999. During the three months ended March 31, 1998, the Company
used $167,834 in operating activities. Cash was provided during the first
quarters of 1999 and 1998, primarily by the sale of the Company's securities.
The Company will continue to require additional funding to enable it to
fund research necessary to make the appropriate regulatory application and
continue operations. It is expected that these funds will be generated by the
sale of the Company's securities.
The Company has developed a strategy, which it believes will enable it
to fund requisite research necessary to gain regulatory approval(s) and continue
operations. This strategy depends upon the sale of the Company's common stock or
other securities to certain accredited investors. The Company has also
structured and recently implemented a cohesive scientific plan encompassing a
number of research initiatives which it believes may enable it to successfully
achieve its primary goals, which include the submission of appropriate research
data to the FDA Center for Drugs and Biologics for the approval of its blood
decontamination process and to the FDA Division of Antiviral Drug Products for
approval of Phase I human clinical trial status for the treatment of AIDS and
Hepatitis. There can be no assurance that either the funding strategy or the
scientific plan will be successful. Failure to obtain requisite funding would
have a materially adverse effect on the Company and its financial condition. At
the present time, although the Company has had serious discussions with two
unrelated funding sources, there is no agreement for an investment of capital in
the Company.
The Company recognizes that, if it is unable to raise additional
capital, it may find it necessary to substantially reduce, or cease operations.
Forward-Looking Statements and Risks Affecting the Company
The statements contained in this Report on Form 10-QSB that are not purely
historical are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 and Section 21E of the Securities
Exchange Act. These statements regard the Company's expectations, hopes,
beliefs, anticipations, commitments, intentions and strategies regarding the
8
<PAGE>
future. They may be identified by the use of words or phrases such as
"believes," "expects," "anticipates," "should," "plans," "estimates," and
"potential," among others. Forward-looking statements include, but are not
limited to, statements contained in Management's Discussion and Analysis of
Financial Condition and Results of Operations regarding the Company's financial
performance, revenue and expense levels in the future and the sufficiency of its
existing assets to fund future operations and capital spending needs. Actual
results could differ materially from the anticipated results or other
expectations expressed in such forward-looking statements for the reasons
detailed in the Company's Annual Report on Form 10-K under the headings
"Description of Business" and "Risk Factors." The fact that some of the risk
factors may be the same or similar to the Company's past reports filed with the
Securities and Exchange Commission means only that the risks are present in
multiple periods. The Company believes that many of the risks detailed here and
in the Company's SEC filings are part of doing business in the industry in which
the Company operates and competes and will likely be present in all periods
reported. The fact that certain risks are endemic to the industry does not
lessen their significance. The forward-looking statements contained in this
report are made as of the date of this Report and the Company assumes no
obligation to update them or to update the reasons why actual results could
differ from those projected in such forward-looking statements. Among others,
risks and uncertainties that may affect the business, financial condition,
performance, development, and results of operations of the Company include:
. rigorous government scrutiny and regulation of the products and planned
products of the Company;
. potential effects of adverse publicity regarding ozone and related
technologies or industries;
. failure of the Company to sustain or manage growth including the failure to
continue to develop newproducts; and
. the ability of the Company to obtain financing necessary to pursue its
business plan.
9
<PAGE>
Part II - Other Information
Item 2 - Changes in Securities and Use of Proceeds
Unregistered sales of equity securities during quarter (other than in reliance
on Regulation S).
During the period covered by this report, the Company issued equity
securities that were not registered under the Securities Act of 1933, as amended
(the "Act"). Specifically, the Company issued 222,222 restricted shares for
$15,555, to an officer and director. The Company issued such shares without
registration under the Act in reliance on exemptions from registration under the
Section 4(2) and/or 3(b), as well as Regulation D promulgated under the Act. The
shares of common stock were issued as restricted securities and the certificates
representing such shares were stamped with a restrictive legend to prevent any
resale without registration under the Act or compliance with an exemption. In
each case, the recipients of the securities were accredited investors, as that
term is defined by Rule 501 under the Act, because of their current or former
affiliation with the Company.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
10
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MEDIZONE INTERNATIONAL, INC.
(Registrant)
Date: February 7, 2000 /s/ Edwin G. Marshall
---------------------------
Edwin G. Marshall, Chairman
and Chief Executive
Officer (Principal
Executive Officer)
Date: February 7, 2000 /s/ Kevin R. Andersen
--------------------------
Kevin R. Andersen, Chief
Financial Officer
(Principal Accounting
Officer)
February 4, 2000
11
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-START> Jan-1-1999
<PERIOD-END> Mar-31-1999
<CASH> 507
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 507
<PP&E> 10,626
<DEPRECIATION> 3,500
<TOTAL-ASSETS> 7,633
<CURRENT-LIABILITIES> 1,049,142
<BONDS> 280,491
0
0
<COMMON> 149,149
<OTHER-SE> (1,041,509)
<TOTAL-LIABILITY-AND-EQUITY> 7,633
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 27,481
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,610
<INCOME-PRETAX> (33,091)
<INCOME-TAX> 0
<INCOME-CONTINUING> (33,091)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,091)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
