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, 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 November 9, 2000, there were 153,915,798 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, 2000
Page
Number
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheet:
-September 30, 2000 and December 31, 1999..........................3
Consolidated Statement of Operations:
-For the Three Months and Nine Months Ended September .............4
30, 2000 and 1999
Consolidated Statement of Cash Flow
-For the Nine Months Ended
September 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 6 - Exhibits and Reports on Form 8-K .................................10
2
<PAGE>
MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEET
September 30, 2000 and December 31, 1999
<TABLE>
<CAPTION>
ASSETS
September 30, December 31,
2000 1999
--------------------- ------------------
CURRENT ASSETS (Unaudited)
<S> <C> <C>
Cash and cash equivalents $ 8,918 $ 4,388
--------------------- ------------------
Total Current Assets 8,918 4,388
--------------------- ------------------
PROPERTY AND EQUIPMENT, net 16,572 5,667
--------------------- ------------------
$ 25,490 $ 10,055
===================== ==================
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable $ 245,184 $ 395,370
Accrued expenses 406,374 527,045
Current portion of long-term obligations 280,491 280,491
--------------------- ------------------
Total Current Liabilities 932,049 1,202,906
--------------------- ------------------
STOCKHOLDERS' EQUITY (DEFICIT)
Common stock 153,616 149,888
Additional paid-in capital 13,165,754 12,676,882
Deficit accumulated during the development stage (14,225,929) (14,019,621)
--------------------- ------------------
Total Stockholders' Equity (Deficit) (906,559) (1,192,851)
--------------------- ------------------
$ 25,490 $ 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 Nine Nine
Months Months Months Months
Ended Ended Ended Ended
9/30/00 9/30/99 9/30/00 9/30/99
-------------- -------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUE $ - $ - $ - $ -
COST OF SALES - - - -
-------------- -------------- ------------- -------------
Gross Profit - - - -
-------------- -------------- ------------- -------------
COSTS AND EXPENSES
Research and development 7,585 - 88,392 -
Depreciation and amortization 1,595 486 4,026 1,459
General and administrative 144,181 14,626 512,061 54,991
-------------- -------------- ------------- -------------
Total Costs and Expenses 153,361 15,112 604,479 56,450
-------------- -------------- ------------- -------------
LOSS BEFORE OTHER INCOME (EXPENSE) (153,361) (15,112) (604,479) (56,450)
-------------- -------------- ------------- -------------
OTHER INCOME (EXPENSE)
Restitution proceeds - - 415,000 -
Interest expense (5,610) (5,609) (16,829) (16,829)
Interest income - - - -
-------------- -------------- ------------- -------------
Total Other Income (Expense) - net (5,610) (5,609) 398,171 (16,829)
-------------- -------------- ------------- -------------
LOSS BEFORE INCOME TAXES (158,971) (20,721) (206,308) (73,279)
INCOME TAX BENEFIT (PROVISION) - - - -
-------------- -------------- ------------- -------------
NET LOSS $ (158,971) $ (20,721) $ (206,308) $ (73,279)
============== ============== ============= =============
NET LOSS PER COMMON
SHARE
Basic $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============== ============== ============= =============
AVERAGE COMMON AND EQUIVALENT
SHARES
Basic 153,615,798 149,148,656 154,191,354 149,123,965
============== ============== ============= =============
</TABLE>
See accompanying notes.
4
<PAGE>
MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
For the Nine Months Ended September 30, 2000 and 1999
<TABLE>
<CAPTION>
September 30, September 30,
2000 1999
----------------- ------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $ (206,308) $ (73,279)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 4,026 1,459
Issuance of stock for services 272,600 -
Change in operating assets and liablilites
Accounts payable and other liabilities (270,857) 48,643
----------------- ------------------
(200,539) (23,177)
----------------- ------------------
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 4,530 (7,621)
CASH AND CASH EQUIVALENTS
Beginning of period 4,388 7,643
----------------- ------------------
End of period $ 8,918 $ 22
================= ==================
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 $ - $ -
================= ==================
</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-KSB 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 nine months ended September 30, 2000 and 1999
are not necessarily indicative of the results to be expected for the full year.
2 - Loss Per Share
Following is a reconciliation of the numerators of the basic and diluted loss
per share for the three and nine months ended September 30, 2000 and 1999:
3 - Capital Stock
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
9/30/00 9/30/99 9/30/00 9/30/99
-------------- -------------- ------------- -------------
Net loss available to common
<S> <C> <C> <C> <C>
shareholders $ (158,971) $ (20,721) $ (206,308) $ (73,279)
============== ============== ============= =============
Weighted average shares 153,615,798 149,148,656 154,191,354 149,123,965
Effect of dilutive securities - - - -
-------------- -------------- ------------- -------------
153,615,798 149,148,656 154,191,354 149,123,965
============== ============== ============= =============
Basic loss per share (based on
weighted average shares) $ (0.00) $ (0.00) $ (0.00) $ (0.00)
============== ============== ============= =============
</TABLE>
During the quarter ended September 30, 2000, 2,000,000 common shares were
canceled by the Company.
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 Condensed
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. A
double blind Phase II human trial into HCV is now in the planning stage and
should be announced in the next 90 days.
The Company has also conducted a proof-of-concept pilot trial study on forty
patients infected with Hepatitis C. This study was conducted under the guidance
of Dr. William Hitt, a former member of the Company's Board of Directors. The
trial, conducted during the normal course of Dr. Hitt's medical practice at his
clinic in Mexico, indicated significant reductions in liver enzyme levels as
measured by SGOT and SGPT standard test procedures of the patients participating
in the study. All of the patients' SGOT and SGPT measures returned to the normal
range. In addition on average, 5 log viral load reductions (99.9%) were
achieved. Six-month post treatment viral load tests, without further medical
intervention during that time, indicated the viral load during the post
treatment period did not increase in 38 of the 40 patients. In two of the
patients, both of which were genotype 1A, there was a viral load increase in the
six-month post treatment period. No toxic side effects were reported or observed
in any of the patients.
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. Due to
streamlining of equipment development, completion of Phase II is not now
anticipated prior to September of 2001.
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, 2000 compared to the Three Months Ended
September 30, 1999:
There were no sales during the quarters ended September 30, 2000 or 1999. The
Company made expenditures for research and development of $7,585 in the third
quarter of 2000 and none in the third quarter of 1999. General and
administrative expenses in the third quarter of 2000 were $144,182 compared to
$14,626 during the third quarter of 1999. These expenses include professional
fees, payroll, insurance costs and travel expenses.
Interest expense accrued during the three months ended September 30, 2000 was
$5,610, compared to $5,609 in the three months ended September 30, 1999.
Nine Months Ended September 30, 2000 compared to the Nine Months Ended September
30, 1999:
There were no sales during the nine months ended September 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 $88,392 in the nine months ended
September 30, 2000 and none in the nine months ended September 30, 1999. General
and administrative expenses in the nine months ended September 30, 2000 were
$512,062 compared to $54,991 during the nine months ended September 30, 1999.
These expenses include professional fees, payroll, insurance costs and travel
expenses.
Interest expense accrued during the nine months ended September 30, 2000 was
$16,829, compared to $16,829 in the nine months ended September 30, 1999.
Liquidity and Capital Resources
At September 30, 2000, the Company had a working capital deficiency of $923,131
and stockholders' deficiency of $906,559. At December 31, 1999, the Company had
a working capital deficiency of $1,198,518 and stockholders' deficiency of
$1,192,851.
Net cash used in operating activities was $200,539 for the nine months ended
September 30, 2000. During the nine months ended September 30, 1999, the Company
used $23,177 in operating activities. Cash of $415,000 was provided in the first
nine 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.
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, 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 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
9
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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)
November 14, 2000
