U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
___ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2000
__ 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 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 May 10, 2000, there were 155,140,798 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
March 31, 2000
Page
Number
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheet:
-March 31, 2000 and December 31, 1999 3
Consolidated Statement of Operations:
-For the Three Months Ended March 31, 2000 and 1999 4
Consolidated Statement of Cash Flow
-For the Three Months Ended
March 31, 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 9
<PAGE>
MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED BALANCE SHEET
March 31, 2000 and December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, December 31,
2000 1999
------------------ -----------------
(Unaudited)
Cash and cash equivalents $ 309,495 $ 4,388
------------------ -----------------
Total Current Assets 309,495 4,388
------------------ -----------------
19,763 5,667
------------------ -----------------
Receivable from affiliate - -
------------------ -----------------
Total Other Assets - -
------------------ -----------------
$ 329,258 $ 10,055
================== =================
Accounts payable $ 234,681 $ 395,370
Accrued expenses 316,655 527,045
Current portion of long-term obligations 280,491 280,491
------------------ -----------------
Total Current Liabilities 831,827 1,202,906
------------------ -----------------
Common stock 155,616 149,888
Additional paid-in capital 13,163,754 12,676,882
Deficit accumulated the development stage (13,821,939) (14,019,621)
------------------ -----------------
Total Stockholders' Equity (Deficit) (502,569) (1,192,851)
------------------ -----------------
$ 329,258 $ 10,055
================== =================
</TABLE>
See accompanying notes.
<PAGE>
MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
3/31/00 3/31/99 6/30/00 6/30/99
------------ ------------ ----------- ----------
REVENUE $ - $ - $ - $ -
COST OF SALES - - - -
------------ ------------ ----------- ----------
Gross Profit - - - -
------------ ------------ ----------- ----------
COSTS AND EXPENSES
Research and development - - - -
Depreciation and amortization 835 486
General and administrative 210,873 26,995 - -
------------ ------------ ----------- ----------
Total Costs and Expenses 211,708 27,481 - -
------------ ------------ ----------- ----------
LOSS BEFORE OTHER INCOME (EXPENSE) (211,708) (27,481) - -
------------ ------------ ----------- ----------
OTHER INCOME (EXPENSE)
Restitution proceeds 415,000 -
Interest expense (5,610) (5,610) - -
Interest income - - - -
------------ ------------ ----------- ----------
Total Other Income(Expense)- net 409,390 (5,610) - -
------------ ------------ ----------- ----------
LOSS BEFORE INCOME TAXES 197,682 (33,091) - -
INCOME TAX BENEFIT (PROVISION) - - - -
------------ ------------ ----------- ----------
NET INCOME (LOSS) $ 197,682 $ (33,091) $ - $ -
============ ============ =========== ==========
NET INCOME (LOSS) PER COMMON
SHARE
Basic $ 0.00 $ (0.00) #DIV/0! #DIV/0!
============ ============ =========== ==========
Diluted $ 0.00 $ (0.00) #DIV/0! #DIV/0!
============ ============ =========== ==========
AVERAGE COMMON AND EQUIVALENT
SHARES
Basic 155,342,465 149,074,582 - -
============ ============ =========== ==========
Diluted 181,203,014 149,074,582 - -
============ ============ =========== ==========
Three Three Six Six
Months Months Months Months
Ended Ended Ended Ended
3/31/00 3/31/99 6/30/00 6/30/99
------------ ------------ ----------- ----------
Net income (loss) available to
common shareholders $ 197,682 $ (33,091) $ - $ -
============ ============ =========== ==========
Weighted average shares 155,342,465 149,074,582 - -
Effect of dilutive securities 25,860,549 - - -
------------ ------------ ----------- ----------
181,203,014 149,074,582 - -
============ ============ =========== ==========
Basic income (loss) per share (based
on weighted average shares) $ 0.00 $ (0.00) #DIV/0! #DIV/0!
============ ============ =========== ==========
Diluted income (loss) per share $ 0.00 $ (0.00) #DIV/0! #DIV/0!
============ ============ =========== ==========
</TABLE>
See accompanying notes.
<PAGE>
MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY
(A Development Stage Company)
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Three months Ended March 31, 2000 and 1999
<TABLE>
<CAPTION>
<S> <C> <C>
March 31, March 31,
2000 1999
----------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 197,682 $ (33,091)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Depreciation and amortization 835 486
Issuance of stock for services 272,600 -
Interest expense 5,610 5,610
Change in operating assets and liablilites
Prepaid expenses and deposits - -
Accounts payable and other liabilities (376,689) 4,303
----------------- ---------------
100,038 (22,692)
----------------- ---------------
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 305,107 (7,136)
CASH AND CASH EQUIVALENTS
Beginning of period 4,388 7,643
----------------- ---------------
End of period $ 309,495 $ 507
================= ===============
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.
<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 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 three-month periods ended March 31,
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 three months ended March 31, 2000 and
1999:
Three Three
Months Months
Ended Ended
3/31/00 3/31/99
------------ ------------
Net income (loss) available to
common shareholders $ 197,682 $ (33,091)
============ ============
Weighted average shares 155,342,465 149,074,582
Effect of dilutive securities 25,860,549 -
------------ ------------
181,203,014 149,074,582
============ ============
Basic income (loss) per share (based
on weighted average shares) $ 0.00 $ (0.00)
============ ============
Diluted income (loss) per share $ 0.00 $ (0.00)
============ ============
3 - Capital Stock
During the quarter ended March 31, 2000, the Company issued 3,142,857 common
shares from the exercise of warrants at $0.07 per share. The Company also issued
2,115,000 shares and 470,000 shares for services at $0.09 per share and $0.175
per share, respectively.
<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 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 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.
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 a US Patent titled External Use of
Ozone/Oxygen for Pathogenic Conditions. Foreign applications are being
processed.
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.
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.
<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 March 31, 2000 compared to the Three Months Ended March
31, 1999:
There were no sales during the quarters ended March 31, 2000 or 1999.
Cash of $415,000 was provided in the first three months of 2000 by the receipt
of restitution payments from a former officer and director. The Company made no
expenditures for research and development in either period. General and
administrative expenses in the first quarter of 2000 were $211,708 compared to
$27,481 during the first quarter of 1999. These expenses include professional
fees, payroll, insurance costs and travel expenses.
Interest expense accrued during the three months ended March 31, 2000
was $5,610, compared to $5,610 in the three months ended March 31, 1999.
Liquidity and Capital Resources
At March 31, 2000, the Company had a working capital deficiency of
$522,332 and stockholders' deficiency of $502,569. At December 31, 1999, the
Company had a working capital deficiency of $1,198,518 and stockholders'
deficiency of $1,192,851.
Net cash provided from operating activities was $100,038 for the three
months ended March 31, 2000. During the three months ended March 31, 1999, the
Company used $22,692 in operating activities. Cash of $415,000 was provided in
the first three 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 quarter ended March 31, 2000, the Company issued stock and
paid cash to settle outstanding liabilities. These transactions include the
following:
1. Payment of $27,500 to former legal counsel of the Company to
retire an outstanding obligation totaling $69,392;
2. 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
3. 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.
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
<PAGE>
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:
|X| rigorous government scrutiny and regulation of the products and planned
products of the Company; |X| potential effects of adverse publicity regarding
ozone and related technologies or industries; |X| failure of the Company to
sustain or manage growth including the failure to continue to develop new
products; and
|X| the ability of the Company to obtain needed financing.
Part II - Other Information
Item 1 - Legal Proceedings
On December 3, 1999, the Company filed a complaint in the Third
Judicial District Court of Salt Lake County, Utah (Civil No. 990912073) against
its former Chief Financial Officer, Arthur P. Bergeron. Among other things, the
complaint filed by the Company sought a declaration from the court regarding the
enforceability of Mr. Bergeron's employment contract, the right of the Company
to terminate his employment and other relief. On April 14, 2000, the parties
entered into a settlement agreement, under the terms of which the Company agreed
to withdraw its complaint with prejudice and paid Mr. Bergeron $35,000. Mr.
Bergeron waived any further claim for wages or other compensation under his
employment agreement and consented to the cancellation of 2,000,000 shares of
common stock issued to him during the tenure of the Company's former President
and CEO, Joseph R. Latino. Both parties executed mutual releases of all claims
against each other.
Following the takeover and management change of June 12, 1997, new
management learned that there had been serious irregularities and possible fraud
perpetrated upon the Company by the former President & CEO, Mr. Latino. As the
seriousness of those past events became more evident, management presented the
information it had gathered to the New York District Attorney's Office. That
office commenced a criminal investigation that ultimately resulted in charges
being brought against Mr. Latino. On January 25, 2000, Mr. Latino was sentenced
to serve 1.5 to 4.5 years and pay restitution in the amount of $415,869 to
Medizone under a plea bargain that dropped all felony charges except for one
count of Grand Larceny in the Second Degree.
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit No. Description
27 Financial Data Schedule
<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)
/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)
May 12, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-2000
<PERIOD-START> Jan-1-2000
<PERIOD-END> Mar-31-2000
<CASH> 309,495
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 309,495
<PP&E> 25,556
<DEPRECIATION> 5,793
<TOTAL-ASSETS> 329,258
<CURRENT-LIABILITIES> 831,827
<BONDS> 280,491
0
0
<COMMON> 155,616
<OTHER-SE> (658,185)
<TOTAL-LIABILITY-AND-EQUITY> (502,569)
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 211,708
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,610
<INCOME-PRETAX> 197,682
<INCOME-TAX> 0
<INCOME-CONTINUING> 197,682
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 197,682
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
