<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 JUNE 30, 2000
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
------ ACT OF 1934 FOR THE TRANITION PERIOD FROM ____________ TO
______________
Commission File Number 2-93277-D
MEDIZONE INTERNATIONAL, INC.
(Exact name of small business issuer 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 August 1, 2000, there were 155,615,798 shares of the registrant's common
stock issued and outstanding.
Transitional Small Business Disclosure Format
(Check one):
Yes __ No X
<PAGE>
MEDIZONE INTERNATIONAL, INC.
FORM 10-QSB
INDEX
June 30, 2000
Page
Number
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheet:
-June 30, 2000 and December 31, 1999..................................3
Consolidated Statement of Operations:
-For the Three Months and Six Months Ended June 30, 2000 and 1999.....4
Consolidated Statement of Cash Flow
-For the Six Months Ended
June 30, 2000 and 1999..............................................5
Notes to Consolidated Financial Statements........................6
Item 2 - Management's Discussion and Analysis or Plan of Operation.............7
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders...................9
Item 6 - Exhibits and Reports on Form 8-K ....................................10
2
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MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
June 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
ASSETS
June 30, December 31,
2000 1999
------------------- -------------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 72,037 $ 4,388
------------------- -------------------
Total Current Assets 72,037 4,388
------------------- -------------------
PROPERTY AND EQUIPMENT, net 18,168 5,667
------------------- -------------------
$ 90,205 $ 10,055
=================== ===================
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 235,037 $ 395,370
Accrued expenses 322,265 527,045
Current portion of long-term obligations 280,491 280,491
------------------- -------------------
Total Current Liabilities 837,793 1,202,906
------------------- -------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 155,616 149,888
Additional paid-in capital 13,163,754 12,676,882
Deficit accumulated during the development stage (14,066,958) (14,019,621)
------------------- -------------------
Total Stockholders' Equity (Deficit) (747,588) (1,192,851)
------------------- -------------------
$ 90,205 $ 10,055
=================== ===================
</TABLE>
See accompanying notes.
3
<PAGE>
MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
6/30/00 6/30/99 6/30/00 6/30/99
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
REVENUE $ - $ - $ - $ -
COST OF SALES - - - -
------------ ------------ ------------- ------------
Gross Profit - - - -
------------ ------------ ------------- ------------
COSTS AND EXPENSES
Research and development 25,765 - 80,808 -
Depreciation and amortization 1,595 - 2,431 -
General and administrative 212,049 13,857 367,878 41,338
------------ ------------ ------------- ------------
Total Costs and Expenses 239,409 13,857 451,117 41,338
------------ ------------ ------------- ------------
LOSS BEFORE OTHER INCOME (EXPENSE) (239,409) (13,857) (451,117) (41,338)
------------ ------------ ------------- ------------
OTHER INCOME (EXPENSE)
Restitution proceeds - - 415,000 -
Interest expense (5,610) (5,610) (11,220) (11,220)
Interest income - - - -
------------ ------------ ------------- ------------
Total Other Income (Expense) - net (5,610) (5,610) 403,780 (11,220)
------------ ------------ ------------- ------------
LOSS BEFORE INCOME TAXES (245,019) (19,467) (47,337) (52,558)
INCOME TAX BENEFIT (PROVISION) - - - -
------------ ------------ ------------- ------------
NET INCOME (LOSS) $ (245,019) $ (19,467) $ (47,337) $ (52,558)
============ ============ ============= ============
NET INCOME (LOSS) PER COMMON
SHARE
Basic $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============ ============ ============= ============
Diluted $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============ ============ ============= ============
AVERAGE COMMON AND EQUIVALENT
SHARES
Basic 155,615,798 149,148,656 155,479,131 149,111,619
============ ============ ============= ============
Diluted 155,615,798 149,148,656 155,479,131 149,111,619
============ ============ ============= ============
</TABLE>
4
See accompanying notes.
<PAGE>
MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Six months Ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
June 30, June 30,
2000 1999
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (47,337) $ (52,558)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 2,431 972
Issuance of stock for services 272,600 -
Interest expense 11,219 -
Change in operating assets and liablilites
Accounts payable and other liabilities (376,333) 28,481
----------------- ------------------
(137,420) (23,105)
----------------- ------------------
CASH FROM INVESTING ACTIVITIES
Acquisition of property and equipment (14,931) -
----------------- ------------------
(14,931) -
----------------- ------------------
CASH FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 220,000 15,556
----------------- ------------------
220,000 15,556
----------------- ------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS 67,649 (7,549)
CASH AND CASH EQUIVALENTS
Beginning of period 4,388 7,643
----------------- ------------------
End of period $ 72,037 $ 94
================= ==================
SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for:
Interest $ - $ -
================= ==================
Income taxes $ - $ -
================= ==================
NON-CASH INVESTING AND FINANCING
ACTIVITIES
Issuance of common stock for services $ 272,600 $ -
================= ==================
</TABLE>
See accompanying notes.
5
<PAGE>
MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1 - Basis of Presentation
The financial information included herein is unaudited and has 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, 1999.
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 six months ended June 30, 2000 and 1999
are not necessarily indicative of the results to be expected for the full year.
2 - Income (Loss) Per Share
Following is a reconciliation of the numerators of the basic and diluted
income (loss) per share for the six months ended June 30, 2000 and 1999:
<TABLE>
<CAPTION>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
6/30/00 6/30/99 6/30/00 6/30/99
------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net income (loss) available to common
shareholders $ (245,019) $ (19,467) $ (47,337) $ (52,558)
============= ============ ============ =============
Weighted average shares 155,615,798 149,148,656 155,479,131 149,111,619
Effect of dilutive securities - - - -
------------- ------------ ------------ -------------
155,615,798 149,148,656 155,479,131 149,111,619
============= ============ ============ =============
Basic income (loss) per share (based on
weighted average shares) $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============ ============ =============
Diluted income (loss) per share $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============= ============ ============ =============
</TABLE>
3 - Capital Stock
During the quarter ended June 30, 2000, no common shares were issued by the
Company.
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 unaudited
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Quarterly Report on 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 eight
patients infected with Hepatitis C. This study was conducted through the
guidance of Dr. William Hitt, a former 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 study of Hepatitis C, involving
10-12 patients, 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.
In March 2000, the Company received notification that it had been granted a
patent by the US Patent and Trademark Office on its application for a patent
covering the external applications of ozone for medical purposes. The patent
application, no. 09/126,504, had been filed on July 30, 1998. 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 has been granted US Patent No. 9/126504, titled External Use
of Ozone/Oxygen for Pathogenic Conditions. Foreign applications are being
processed.
In May 2000, the Company filed another patent application no. 1299-4015
under the title "Method and Apparatus for Ozone Decontamination of Biological
Liquids.
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
1999 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.
7
<PAGE>
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 June 30, 2000 compared to the Three Months Ended June 30,
1999:
There were no sales during the quarters ended June 30, 2000 or 1999. The
Company made expenditures for research and development of $25,765 in the second
quarter of 2000 and none in the second quarter of 1999. General and
administrative expenses in the second quarter of 2000 were $212,049 compared to
$13,857 during the second quarter of 1999. These expenses include professional
fees, payroll, insurance costs and travel expenses.
Interest expense accrued during the three months ended June 30, 2000 was
$5,610, compared to $5,610 in the three months ended June 30, 1999.
Six Months Ended June 30, 2000 compared to the Six Months Ended June 30, 1999:
There were no sales during the six months ended June 30, 2000 or 1999. Cash
of $415,000 was provided in the first quarter of 2000 by the receipt of
restitution payments from a former officer and director. The Company made
expenditures for research and development of $80,808 in the six months ended
June 30, 2000 and none in the six months ended June 30, 1999. General and
administrative expenses in the six months ended June 30, 2000 were $367,878
compared to $41,338 during the six months ended June 30, 1999. These expenses
include professional fees, payroll, insurance costs and travel expenses.
Interest expense accrued during the six months ended June 30, 2000 was
$11,220, compared to $11,220 in the six months ended June 30, 1999.
Liquidity and Capital Resources
At June 30, 2000, the Company had a working capital deficiency of $765,756
and stockholders' deficiency of $747,588. At December 31, 1999, the Company had
a working capital deficiency of $1,1198,518 and stockholders' deficiency of
$1,192,851.
Net cash used in operating activities was $137,420 for the six months ended
June 30, 2000. During the six months ended June 30, 1999, the Company used
$23,105 in operating activities. Cash of $415,000 was provided in the first six
months of 2000 by the receipt of restitution payments from a former officer and
director and $220,000 was provided by the sale of the Company's securities
through the exercise of outstanding stock purchase warrants.
During the six months ended June 30, 2000, the Company issued stock and
paid cash to settle outstanding liabilities. These transactions include the
following:
Payment of $27,500 to former legal counsel of the Company to retire an
outstanding obligation totaling $69,392;
Payment of $15,000 and issuance of 20,000 shares of common stock of the
Company to settle an obligation totaling $39,824 to a former legal counsel for
the Company; and
Payment of $40,000 and issuance of 100,000 shares of common stock to the
Company's patent counsel to settle an outstanding bill of $102,000.
8
<PAGE>
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 provided 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 approvals 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. Those goals 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.
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
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 for the year ended December
31, 1999 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:
o rigorous government scrutiny and regulation of the products and
planned products of the Company;
o potential effects of adverse publicity regarding ozone and related
technologies or industries;
o failure of the Company to sustain or manage growth including the
failure to continue to develop new products; and
o the ability of the Company to obtain needed financing.
Part II - Other Information
Item 4 - Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of the Company was held at the Spinnaker
Restaurant, 100 Spinnaker Dr., Sausalito, California, on Wednesday, May 31,
2000. The following business was conducted at the meeting:
1. Election of Edwin G. Marshall, Gerard V. Sunnen and Richard Garrett
Solomon, as directors of the Company, and
9
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2. Ratification of the selection of HJ & Associates (formerly Jones
Jensen & Co.) as the Company's independent public accountants.
Voting results were as follows:
For Against Abstain
Proposal 1 (Directors):
Mr. Marshall 92,520,651 150,150 850,692
Mr. Sunnen 92,520,651 150,150 850,692
Mr. Solomon 92,520,651 150,150 850,692
For Against Abstain
Proposal 2 (Auditors) 92,250,651 150,150 850,692
Item 5 - Other Information
During the quarter ended June 30, 2000, Dr. William Hitt resigned as a
member of the Board of Directors of the Company citing health concerns and a
desire to ease his professional workload. Dr. Hitt will continue to operate his
William Hitt Clinic and intends to continue to use the Company's ozone
generating equipment to further the Company's research and clinical data
gathering efforts. At the same meeting, Richard Solomon was elected to serve on
the Board.
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)
/s/ Edwin G. Marshall
Edwin G. Marshall, Chairman and Chief Executive
Officer (Principal Executive Officer)
/s/ Kevin R. Andersen
Kevin R. Andersen, Chief Financial Officer
(Principal Accounting Officer)
August 4, 2000
