<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 SEPTEMBER 30, 1999
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 November 15, 1999, there were 149,887,941 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
September 30, 1999
Page
Number
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheet:
-September 30, 1999 and December 31, 1998.............................3
Consolidated Statement of Operations:
-For the Three Months and Nine Months
Ended September 30, 1999 and 1998....................................4
Consolidated Statement of Cash Flow
-For the Nine Months Ended
September 30, 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 6 - Exhibits and Reports on Form 8-K .....................................9
2
<PAGE>
MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
September 30, 1999 and December 31, 1998
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------------- -------------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 22 $ 7,643
-------------------- -------------------
Total Current Assets 22 7,643
-------------------- -------------------
PROPERTY AND EQUIPMENT, net 6,153 7,612
-------------------- -------------------
$ 6,175 $ 15,255
==================== ===================
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C> <C>
Accounts payable $ 500,947 $ 470,132
Accrued liabilities 306,435 288,606
Current portion of long-term obligations 280,491 280,491
-------------------- -------------------
Total Current Liabilities 1,087,873 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 (13,793,719) (13,720,439)
-------------------- -------------------
Total Stockholders' Equity (Deficit) (1,081,698) (1,023,974)
-------------------- -------------------
$ 6,175 $ 15,255
==================== ===================
</TABLE>
See accompanying notes.
3
<PAGE>
MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
9/30/99 9/30/98 9/30/99 9/30/98
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUE $ - $ - $ - $ -
COST OF SALES - - - -
------------- -------------- ------------- --------------
Gross Profit - - - -
------------- -------------- ------------- --------------
COSTS AND EXPENSES
Research and development - 5,009 - 13,219
General and administrative 15,112 184,149 56,450 422,350
------------- -------------- ------------- --------------
Total Costs and Expenses 15,112 189,158 56,450 435,569
------------- -------------- ------------- --------------
LOSS BEFORE OTHER INCOME (EXPENSE) (15,112) (189,158) (56,450) (435,569)
------------- -------------- ------------- --------------
OTHER INCOME (EXPENSE)
Interest expense (5,609) (6,608) (16,829) (20,046)
Gain on sale of subsidiary - - - 133,417
Interest income - - - 420
------------- --------------
------------- -------------- ------------- --------------
Total Other Income (Expense) - net (5,609) (6,608) (16,829) 113,791
------------- -------------- ------------- --------------
LOSS BEFORE INCOME TAXES (20,721) (195,766) (73,279) (321,778)
INCOME TAX BENEFIT (PROVISION) - - - -
------------- -------------- ------------- --------------
NET INCOME (LOSS) $ (20,721)$ (195,766)$ (73,279)$ (321,778)
============= ============== ============= ==============
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 149,148,656 144,848,804 149,123,965 143,576,479
============= ============== ============= ==============
Diluted 149,148,656 144,848,804 149,123,965 143,576,479
============= ============== ============= ==============
</TABLE>
See accompanying notes.
4
<PAGE>
MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
September 30, September 30,
1999 1998
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net income (loss) $ (73,279) $ (321,778)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 1,459 2,262
Issuance of stock for services - 113,488
Issuance of stock for accrued interest - 3,238
Change in operating assets and liablilites
Prepaid expenses and deposits - 11,376
Accounts payable and other liabilities 48,643 26,445
----------------- ------------------
(23,177) (164,969)
----------------- ------------------
CASH FROM INVESTING ACTIVITIES
Acquisition of property and equipment - (2,017)
----------------- ------------------
- (2,017)
----------------- ------------------
CASH FROM FINANCING ACTIVITIES
Payments on notes payable - (3,624)
Proceeds from issuance of common stock 15,556 60,000
----------------- ------------------
15,556 56,376
----------------- ------------------
NET CHANGE IN CASH AND CASH EQUIVALENTS (7,621) (110,610)
CASH AND CASH EQUIVALENTS
Beginning of period 7,643 138,173
----------------- ------------------
End of period $ 22 $ 27,563
================= ==================
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 and interest $ - $ 116,726
================= ==================
Common stock issued for cancellation of
indebtedness $ - $ 40,000
================= ==================
</TABLE>
See accompanying notes.
5
<PAGE>
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 - Income (Loss) Per Share
Following, is a reconciliation of the numerators of the basic and diluted income
(loss) per share for the three and nine months ended September 30, 1999 and
1998:
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
9/30/99 9/30/98 9/30/99 9/30/98
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Net income (loss) available to common
shareholders $ (20,721)$ (195,766)$ (73,279)$ (321,778)
============= ============== ============= ==============
Weighted average shares 149,148,656 144,848,804 149,123,965 143,576,479
Effect of dilutive securities - - - -
------------- -------------- ------------- --------------
149,148,656 144,848,804 149,123,965 143,576,479
============= ============== ============= ==============
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>
6
<PAGE>
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 this criteria. It is anticipated that this trial will be approved in a Tier
I country during the first quarter of 1999.
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 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.
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.
7
<PAGE>
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 September 30, 1999 compared to the Three Months Ended
September 30, 1998:
There were no sales during the quarters ended September 30, 1999 or
1998. During the three months ended September 30, 1999, the Company made no
expenditures for research and development, compared to $5,009 during the same
period in 1998. General and administrative expenses in the third quarter of 1999
were $15,112, compared to $184,149 during the third quarter of 1998. These
expenses include professional fees, payroll, insurance costs and travel
expenses.
Interest expense accrued during the three months ended September 30,
1999 was $5,609, compared to $6,608 in the three months ended September 30,
1998.
Nine Months Ended September 30, 1999 compared to the Nine Months Ended September
30, 1998:
There were no sales during the nine months ending September 30, 1999 or
1998. In the second quarter of 1998, the Company had revenues of $133,417 from
the sale of a subsidiary. During the nine months ended September 30, 1999, the
Company made no expenditures for research and development, compared to $13,219
during the same period in 1998. General and administrative expenses in the nine
months ended September 30, 1999 decreased to $56,450 compared to $422,350 during
the nine months ended September 30, 1998. These expenses include professional
fees, payroll, insurance costs and travel expenses.
Interest expense accrued during the nine months ended September 30,
1999 was $16,829, compared to $20,046 for the nine months ended September 30,
1998.
Liquidity and Capital Resources
At September 30, 1999, the Company had a working capital deficiency of
$1,087,851 and stockholders' deficiency of $1,081,698. 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 $23,177 for the nine months
ended September 30, 1999. During the nine months ended September 30, 1998, the
Company used $164,969 in operating activities. Cash of $15,556 was provided in
the first nine months of 1999 by the sale of the Company's securities. During
the first nine months of 1998, $133,417 was provided from the sale of stock in a
subsidiary of the Company and $60,000 was provided 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 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.
8
<PAGE>
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, 1998 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 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
9
<PAGE>
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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 22
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 22
<PP&E> 10,626
<DEPRECIATION> 4,473
<TOTAL-ASSETS> 6,175
<CURRENT-LIABILITIES> 1,087,873
<BONDS> 280,491
0
0
<COMMON> 149,149
<OTHER-SE> (1,081,698)
<TOTAL-LIABILITY-AND-EQUITY> 6,175
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 15,112
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,609
<INCOME-PRETAX> (20,721)
<INCOME-TAX> 0
<INCOME-CONTINUING> (20,721)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (20,721)
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
