Items 6, 7 and 8, Part II are the subjects of
a Form 12b-25 and have not been included in this report.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1935
For the fiscal year ended December 31, 1996
Commission File Number: 33-16757-D
MEDIZONE CANADA LIMITED (originally KPC Investments, Inc.)
- --------------------------------------------------------------------------------
(Exact name of Registrant as stated in its corporate charter)
Utah 87-0431771
- --------------------------------------------------------------------------------
(State of incorporation) (I.R.S. Employer I.D. Number)
123 East 54th Street, #7B, New York, NY 10022
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number: (212) 421-0303
Securities registered pursuant to Section 12(b) of the Act: None
-----
Securities registered pursuant to Section 12(g) of the Act: None
-----
The Registrant has (1) has filed all reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding 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
-------- -------
Disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is
contained herein, and will be contained in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment hereto. Yes No X
------- -------
The aggregate market value of voting common stock held by non-affiliates of the
Registrant was $311,343 on March 7, 1997, based on the average bid and asked
prices of such stock as reported on the NASD OTC Bulletin Board.
According to information received from Registrant's transfer agent, as of March
14, 1997, Registrant had 36,493,333 shares outstanding (of which 26,115,242 were
restricted).
DOCUMENTS INCORPORATED BY REFERENCE: None
SUPPLEMENTAL INFORMATION: The Registrant intends to furnish its shareholders
with an annual report for 1996 and a shareholder information statement
subsequent to the filing of the 10-K.
<PAGE>
TABLE OF CONTENTS
PART I
Page
----
Item 1. Business......................................... 3
Item 2. Properties....................................... 11
Item 3. Legal Proceedings................................ 11
Item 4. Submission of Matters to a Vote of Security
Holders.......................................... 12
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.............................. 12
PART II
Item 6. Selected Financial Data.......................... 13
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 14
Item 8. Financial Statements and Supplementary Data...... 16
Item 9. Changes in and Disagreements with Accountants on
Auditing and Financial Disclosure................ 16
PART III
Item 10. Directors and Executive Officers................. 16
Item 11. Executive Compensation........................... 18
Item 12. Security Ownership of Certain Beneficial Owners
and Management................................... 20
Item 13. Certain Relationships and Related Transactions... 21
PART IV
Item 14. Exhibits, Financial Statement Schedules,
and Reports on Form 8-K.......................... 21
Exhibits Index................................... E-1
Signatures....................................... 22
-2-
<PAGE>
PART I
Item 1. Business
General
Medizone Canada Limited, a Utah corporation (the "Company" or the
"Registrant") organized in 1987, is a development stage company, which is a
majority owned subsidiary of Medizone International, Inc. ("MII"). MII is a
Nevada corporation, organized in 1986. MII is itself a development stage company
whose objective is to (i) gain regulatory approval for its drug, a precise
mixture of ozone and oxygen called MEDIZONE(R), and its process of inactivating
lipid enveloped viruses for the intended purpose of decontaminating blood and
blood products and assisting in the treatment of certain diseases; and (ii)
develop the related technology and equipment for the medical application of its
products, including its drug production and delivery system (the "Medizone
Technology"). MII also intends to develop a dedicated cost-effective,
product-specific, disposable hollow fiber cartridge device in order to utilize
its patented thin film technology. MEDIZ0NE(R) is one of two registered
trademarks of MII. Throughout this report, whether or not the trademark symbol
is used, the phrase "Medizone (the drug)" is intended to have the same effect as
if the trademark symbol had been used.
Medizone (the drug) is intended to be used as a therapeutic drug in humans
to inactivate certain viruses, and thereby afford a treatment for certain
virally-based diseases (including Human Immunodeficiency Virus ["HIV"], the AIDS
related virus, Hepatitis B, Epstein-Barr, herpes, and cytomegalovirus), and to
decontaminate blood and blood products, applications which are covered under the
Company's patent (Patent No. 4,632,980). The Medizone Technology was developed
for the production of Medizone (the drug), and has led to the design of
equipment for which a patent has been issued in the United States (Patent No.
5,052,382). Patents based on each of these patents have been obtained in various
foreign countries. See "Patents".
The Company's objective is to gain regulatory approval in Canada for
MEDIZONE(R) and to assist in the development of the Medizone Technology. The
Company's Canadian activities are carried on by its wholly owned subsidiary, MCL
Medizone Canada Ltd., a corporation organized under the laws of the Province of
British Columbia ("MedCan").
The Company's principal asset is the license granted to it and MedCan by
MII, which covers the use of MII's Canadian presently held patent and any other
patents based on the Medizone Technology which it may acquire, pursuant to a
license agreement between MII and MedCan, dated November 30, 1987 (the "License
Agreement"). See "Patents" and "License Agreement".
-3-
<PAGE>
Patents
The proprietary scope of MII is covered under a United States process
patent (U.S. Patent No. 4,632,980) entitled, "Ozone Decontamination of Blood and
Blood Products" (the "Patent") and a related United States equipment patent
(U.S. Patent No. 5,052,382) entitled "Approaches for the Control Generation and
Administration of Ozone" (the "Equipment Patent").
The Patent, which covers a procedure for ozone decontamination of blood and
blood products through the treatment of blood and blood components, is the
Company's principal asset.
The method covered by the Patent is the principal use of ozone under study
by MII and the Company and is the method incorporated in MII's and the Company's
regulatory applications. (See "Governmental Regulation" below.) In June 1990,
pursuant to MII's request for re-examination of the Patent, the U.S. Patent
Office issued a re-examination certificate, confirming the patentability of the
claims covered by the Patent. MII's United States patent protection for the
Patent will expire in 2003, subject to extension based upon the length of time
required to bring the Patent to commercial fruition. MII was granted a patent
(based on the Patent) in Canada in 1990. This Canadian patent will expire in
2007.
The Equipment Patent, which covers apparatus for the controlled generation,
monitoring and dosage of a precise admixture of ozone and oxygen (Medizone, the
drug), was developed by a consultant engineer to MII and issued and assigned to
MII in 1991. The Equipment Patent was developed to provide the physical means to
deploy the Patent. The Company has an application pending in Canada for a patent
based upon the Equipment Patent.
In late 1996, the Company became aware that a United States patent has been
issued to a Canadian corporation which the Company believes infringes on the
Patent. The Company has consulted its patent counsel and intends to take the
appropriate steps to protect its rights with respect to the Patent.
The License Agreement
By agreement dated November 30, 1987, MII granted to MedCan the exclusive
right in Canada, under the patent issued in Canada based upon the Patent and any
other patent thereafter issued in Canada relating to the Patent the Equipment
Patent or the Medizone Technology, to make, use and sell MEDIZONE(R) and any
therapy embodied in the Canadian patents. MedCan is required, pursuant to the
License Agreement, without cost or expense to MII, to implement or cause the
implementation of, research studies, to test the efficacy of MEDIZ0NE(R) and the
Medizone Technology in the treatment of Hepatitis B, various animal viruses and
other viruses, diseases and conditions existing in Canada. The License Agreement
-4-
<PAGE>
shall remain in effect until the expiration of the last patent licensed
thereunder, subject to early termination by either party in the event of a
material default. The License Agreement does not provide for the payment of a
royalty to MII.
Research and Development
Neither Company nor MII maintains laboratories or other clinical research
or testing facilities. MII has sponsored a number of research projects to
determine the safety and efficacy of using ozone in various medical
applications. The research and development activities have been directed by
MII's Scientific Advisory Board (see "Employees and Consultants"). MII has
sponsored and, along with the Company, has been the beneficiary of research to
determine, among other things, (i) whether the use of ozone, either alone or
with other modalities, is efficacious in the treatment of certain diseases and
(ii) to establish additional scientific evidence that ozone, through the use of
the patents and/or applications of scientific methodologies of a similar nature
can decontaminate blood of lipid enveloped viruses and thereby significantly
diminish the degree of transfusion related disease.
The data generated by this research has provided the seed or pilot data
which forms the basis for a number of grant applications which, if successfully
awarded, may provide additional data beneficial to the progress of MII and the
Company. The ability of (i) MII to continue to itself supply funding for
research initiatives or (ii) independent investigators interested in MII's
science to obtain funding through grant awards are and will be major factors in
the ability of MII to obtain sufficient scientific evidence in support of MII's
proprietary technology. The inability to obtain such grants, or of MII to itself
fund additional research, would have a materially adverse effect on MII and the
Company.
Research projects sponsored by MII to date include: (1) continuing studies
to test ozone's ability to inactivate HIV, conducted at the State University of
New York ("SUNY") Health Science Center at Syracuse; (2) a pilot animal study of
the potential toxicity of ozone, conducted by the Arnold & Marie Schwartz
College of Pharmacy and Health Science at Long Island University; (3) studies
investigating the effects of ozone/oxygen admixtures on human peripheral blood,
including whole blood, serum and plasma, conducted by the Blood Bank of Mt.
Sinai Medical Center, New York City; (4) preliminary animal studies of the
potential efficacy of ozone in the healing of burns, conducted at New York's
Mount Sinai Hospital; and (5) a pilot animal study of the relative toxicity of
ozone versus its ability to inactivate the Feline Immunodeficiency Virus ("FIV")
at Cornell University Feline Health Center at Ithaca, New York (the "FIV Pilot
Study"). The last two of these research initiatives were suspended prior to
conclusion because of insufficient funds.
-5-
<PAGE>
In 1990, the Canadian Blood Forces Program (under the aegis of the Canadian
Department of Defense and Agriculture and the Canadian Red Cross) requested that
MII and add the Medizone Technology to the other proprietary technology being
investigated as an experimental arm of an ozone-based blood sterilization
investigative program, in an effort to develop an effective technology for
sterilizing whole blood and blood products. With funding from the Canadian Blood
Forces Program, the Company made available the equipment necessary to conduct
the first three phases of this study investigating the ability of the Medizone
Technology to inactivate Simian Immunodeficiency Virus ("SIV"), including a live
primate (monkey) model. This research project (the "SIV Study") is under the
direction of a collaborative team of scientists representing the Canadian Red
Cross, Canadian Departments of Defense and Agriculture, Cornell University
Veterinarian Medical College and MedCan.
In October 1991, a peer-reviewed article entitled "Inactivation of Human
Immunodeficiency Virus Type I by Ozone in Vitro", was published in Blood: The
-----------
Journal of the American Society of Hematology, (Vol 78, No. 7 at 1882-1890,
- ------------------------------------------------
October 1, 1991). The article described the use of the Medizone Technology to
inactivate HIV in Factor VIII, a blood product used to treat hemophiliacs.
In June 1993, the Company and MII issued a press release announcing the
completion of the first two stages of the SIV Study, which demonstrated
preliminary scientific evidence supporting the use of the Medizone Technology in
a live primate model, further evidencing the scientific rationale toward
achieving approval for human trials. (See "Governmental Regulation" below.)
In May 1994, the Canadian Blood Forces Program finalized funding of the
third stage of the SIV Study, which was to be conducted at the New York State
College of Veterinary Medicine, Cornell University, Ithaca, New York, to further
investigate, inter alia, the Company's patented technology as a decontamination
process in red blood cells through both in vitro experimentation and in vivo
animal modeling. The Canadian Department of Defense (the "DND"), the funding arm
of the Canadian Blood Forces Program (the "CBFP"), unbeknownst to the Company,
discontinued its funding during the third stage of the SIV Study. In May 1996,
the Company learned that Cornell University had entered into a contract with a
Canadian corporation to complete the third stage of the SIV Study in a generic
framework, i.e., not utilizing any proprietary technology. At that time, the
Company initially requested formal final reports for phases one and two of the
SIV Study and a progress report for phase three of the SIV Study and, together
with Commodore (Ret.) Michael E. Shannon, former Deputy Surgeon General,
Department of Defense, Canadian Blood Forces Program, have continued such
requests during 1996 and the first quarter of 1997. The Company has been orally
advised by a representative of the CBFP that it may expect to receive the
information concerning the results of the SIV Study during the second quarter of
1997.
-6-
<PAGE>
A tangential veterinarian aspect of the Canadian research being
concurrently investigated, has resulted in the article entitled "Bacteriocidal
Effects of Ozone at Nonspermicidal Concentrations", written by members of the
SIV Study team, being accepted for publication by the Canadian Journal of
Veterinarian Research (1995; Vol. 159, pp. 183-186). The results included in
this publication provide further insight in the ability to simultaneously
exploit ozone's bacteriocidal properties while maintaining cellular integrity
and function.
Although certain of the HIV and non-toxicity studies undertaken by MII have
been concluded, MII determined that further research was required to confirm the
efficacy and safety of using ozone to inactivate the HIV virus. As noted above,
insufficient funds resulted in the suspension of the study concerning the use of
ozone to heal burns and the FIV Pilot Study prior to their conclusion. To date,
results from the blood studies provide preliminary evidence supporting the
potential use of ozone, when specifically employed as delineated in MII's
Patent, as a safe and efficacious method to inactivate viruses in human blood
and blood products.
In February 1994, MII acted as a pharmaceutical co-sponsor in a National
Heart, Lung and Blood Institute grant application submitted by The Brooklyn
Hospital Center. The proposal was entitled "Inactivation of Viruses in Blood
Components by Ozone" and was being co-investigated by both the State University
of New York at Syracuse and Cornell University Medical Veterinarian College.
This application was not awarded funding in January 1995, for reasons not having
to do with scientific matters. The proposal has been resubmitted and is pending
review.
In late 1992, the Italian Ministry of Health suspended the clinical use of
ozone until such time as sufficient scientific evidence was available to support
its use as a human therapeutic treatment. In this regard, the Italian Ministry
of Health designated the Italian Scientific Society for Ozone-Oxygen Therapy in
Bergano, Italy ("ISSOT") as the agency to select those treatment protocols
utilizing ozone as worthy of investigation and to provide those protocols to the
Italian Ministry of Health for review and approval. By letter agreement dated
March 23, 1993, with ISSOT, MII entered into a collaborative arrangement to
research and examine the efficacy of the Medizone Technology in the treatment of
various blood-related human diseases. The research is being supervised by ISSOT
in Italy, under the direction of a research group assembled by the Italian
Ministry of Health. MII's (and the Company's) president was invited to join and
has participated in this research initiative. The research is to be conducted in
accordance with the protocols approved by the United States Food and Drug
Administration (the "FDA") for human clinical trials (to be furnished by MII, at
five university-based hospitals. The ISSOT letter agreement required MII to
furnish five ozone-generating machines for use in the trials, which MII
delivered in late 1993, after it had the equipment manufactured by Camped USA of
-7-
<PAGE>
Bryn Mahr, Pennsylvania. There can be no assurance that any of the data
generated from the ISSOT research will be permitted to be utilized in connection
with MII's applications to the FDA (see "Governmental Regulation").
On May 16, 1994, MII announced that human trials were to commence at the
University of Naples ("Naples") on May 30, 1994 to study the effects of
MEDIZONE(R) on patients infected with either HIV or Hepatitis B (chronic
active). The two protocols, either for HIV or Hepatitis B patients, were
designed by MII as classical Phase I trials of the Patent and the Equipment
Patent to determine, in a dose-ranging study, the relative toxicity of this
treatment against surrogate markers of efficacy. MII was advised in April 1996
that the HIV protocol had been completed and that patients were being enrolled
for the Hepatitis B protocol. MII has announced that no interim data will be
available until a particular site has completed their respective trials, said
trials being estimated to be approximately one year in duration. To date, the
University of Naples remains the only site that has commenced these trials, with
other university-based hospitals still awaiting approval by their Italian
university authorities on a site by site basis. During the summer of 1996, MII
was advised that Naples would not enroll new patients for the Hepatitis B
protocol until trials were commenced at another site, although the trials would
continue on those patients already enrolled in the protocols. During the last
quarter of 1995, MII was advised by San Raffaele Hospital of the University of
Milan ("Milan") and the Regional Oncology Center and AIDS Treatment Center at
Avianno ("Avianno") that their respective ethics committees or investigational
review boards, as the case may be, had approved the commencement of HIV trials
(in the case of Milan) and Hepatitis B trials (in the case of Avianno), subject
to the receipt of specific affirmative approvals for these tests from the
Italian Ministry of Health.
On May 8, 1996, the Italian Ministry of Health issued its approvals, which
were thereafter communicated to MII. ISSOT will supervise these Phase I clinical
trials which were designed by MII as classical Phase I trials of its patents
(both of Medizone, the drug, and MII's technology) to determine, in a
dose-ranging study, the relative toxicity of this treatment against surrogate
markers of efficacy. Each of these trials is designed to take approximately one
year to complete, although there can be no assurance that such time-frame will
be adhered to once the trials commence.
By the terms of MII's letter agreement with ISSOT, dated March 23, 1993,
MII is required to pay for laboratory tests performed by each testing
institution that are outside the scope of the normal realm of clinical analyses
performed by the testing institutions. MII has agreed with Milan and Aviano,
respectively, that the costs of these assays will be approximately U.S. $150,000
for Milan and U.S. $180,000 for Aviano. MII is required to commit to each of
these respective fundings prior to the commencement of trials at the particular
-8-
<PAGE>
site. MII is presently without the financial wherewithal to enter into such
binding commitments with each institution to provide such funding. Accordingly,
neither trial has commenced and neither will commence until such commitment is
made by MII. MII is also required to provide each institution with ozone
generating, monitoring and delivery devices for use in the trials.
On October 17, 1996, MII executed an agreement with Multiossi-gen, S.r.L.,
an Italian corporation located in Bergamo, Italy (the "Manufacturer"), dated as
of September 13, 1996 (the "Equipment Contract"), providing for the manufacture
of ozone generating devices to be used in the human trials to be commenced
pursuant to MII's letter agreement with the ISSOT, as trials are approved by the
Italian Ministry of Health.
Pursuant to the Equipment Contract, the Manufacturer has produced a working
prototype of ozone generating devices dedicated to the use of hollow fibers or
similar gas exchange technology covered under MII's patents, satisfactory to MII
(the "Equipment"), and will make all data generated from the use of the
Equipment available to MII. The Equipment Contract calls for the Manufacturer to
manufacture twenty pieces of the Equipment at a purchase price of $9,000 per
unit, for an aggregate of $180,000, payable as follows:
(a) $25,000, paid upon approval of the prototype;
(b) $55,000, payable in fifteen installments of $3,667 with five such
installments ($18,335) being paid on each delivery of five units of
the Equipment; and
(c) one million shares of MII's common stock, bearing a restrictive
legend, 500,000 shares of which were issued on the date the Equipment
Agreement was executed with the remaining 500,000 shares issued on
March 16, 1997.
Pursuant to the Equipment Agreement, MII granted to the Manufacturer a
license to use MII's patents in Europe, subject to the regulations of all
documents necessary to protect MII s rights in and to the patents, and appointed
the Manufacturer as MII's exclusive manufacturer and distributor of the
Equipment in Europe. Notwithstanding the forgoing, the present distribution of
the Equipment shall be limited to Italy, but such distribution will be expanded
to the rest of Europe upon the mutual agreement of the parties.
The Equipment Agreement (together with its grants of license and
distribution described above) will terminate on September 13, 1998 and may be
renewed by mutual agreement of the partners at least thirty days prior to the
end of its term.
The initial five units of the Equipment were delivered to Aviano, on or
about November 15, 1996. Thereafter, units of Equipment shall be delivered in
lots of five units and shall be deliverable to the appropriate hospital site
-9-
<PAGE>
within 60 days of the written request by MII, based upon such hospital's ethics
committee granting approval to committee trials at a particular site.
Governmental Regulation
MEDIZONE(R), the Medizone Technology and any related products derived
therefrom are regulated under the Canadian Department of Health and Welfare (the
"CDHW"). The CDHW exercises broad and extensive authority in regulating the
development, production, importation, distribution and promotion of "drug"
products and "investigational devices" in Canada.
Because ozone-generation for the purposes of interfacing with blood and
blood products is regarded as a new drug delivery system, the Company is
precluded from selling or distributing Medizone (the drug) or the Medizone
Technology pursuant to the License Agreement until after CDHW approval has been
granted. In order to obtain CDHW approval, the Company will be required to
submit medical and scientific evidence sufficient to permit a body of qualified
and experienced scientists to conclude that the new drug product is safe and
effective for its recommended and proposed medical uses. In this regard, the
Company will have to demonstrate that MEDIZONE(R) and the Medizone Technology
has been successfully used in well-controlled clinical studies using human
volunteer subjects. In order to commence human trials, the Company will be
required to submit an application to the CDHW which contains adequate
information to satisfy the CDHW that known clinical studies can be conducted
without exposing the volunteer subjects to an unreasonable risk of illness or
injury while indicating some potential for clinical efficacy.
The Company has submitted an application to the CDHW to commence human
clinical trials which was placed on clinical hold pending further studies on
animal toxicity and other studies. The Company's ability to commence such
additional studies is dependent on it receiving additional funding.
In obtaining regulatory approval in Canada, the Company will be provided
with all information developed by MII and, accordingly, will be assisted by
steps taken by MII to obtain regulatory approval in the United States. In that
regard, MII will be required to obtain regulatory approval from the Federal Food
and Drug Administration (the "FDA"), which regulates the development,
production, importation, distribution and promotion of "drug" products and
"investigational devices" pursuant to the Federal Fund, Drug and Cosmetic Act.
To obtain FDA approval, MII will be required to submit a New Drug
Application ("NDA") to the FDA which will have to continue evidence that
MEDIZNE(R) and the Medizone Technology have been successfully used in human
clinical studies.
-10-
<PAGE>
In order to initiate the first phase (i.e., Phase I) of human clinical
studies required as part of an NDA, an applicant must submit to the FDA an
application for an Investigational New Drug Exemption ("IND"), which contains
adequate information to satisfy the FDA that human clinical studies can be
conducted without exposing the volunteer human subjects to an unreasonable risk
of illness or injury. MII submitted an IND application (assigned to the
Registrant by its former president) to the FDA on October 6, 1985, and requested
FDA approval to commence human clinical trials using ozone-oxygen to inactivate
HIV. The FDA deemed the IND application to be incomplete, and has requested that
MII complete additional research regarding animal toxicity and other studies,
which will require the expenditure of significant funds before MII's IND
application will be deemed complete. There can be no assurance that MII's IND
application can be granted. Until an NDA has been granted to MII, it may not
distribute ozone-generating devices, except to researchers who agree to follow
FDA guidelines, and provided the devices are labeled as "Investigational
Devices." The Company believes that it will take at least several years to for
MII to obtain FDA approval and that it will require additional infusions of
capital to obtain such approval.
The Company's ability to commercially market products is dependent on
obtaining CDHW approval. The Company believes that, at least even if CDHW
approval was obtained, the process will encompass several years. In addition,
the Company believes that research costs incident to obtaining CDHW approval
will be significant and will require the Company to obtain additional infusions
of capital.
Common Stock Purchase Warrants
Four million redeemable common stock purchase warrants, each exercisable to
purchase one share of the common stock of the Company for $.125, are
publicly-held. The Company's warrants originally had a nine-month exercise
period, but the expiration date has been extended numerous times (and is
currently December 31, 1997). There is no assurance that these warrants will
ever be exercised (an event dependent upon achievement of effectiveness of a
post-effective amendment to the Company's registration statement) or that the
Company will otherwise be funded.
Competition
The area in which the Company seeks to do business is extremely
competitive. The Company is aware of a number of domestic companies that have
commenced research into the use of ozone as a virucide in the treatment of HIV
and other diseases, or have announced the intention to do so. Other companies,
foundations, research laboratories or institutions may also be conducting
similar investigations into the use of ozone as a virucide or as a decontaminant
for blood or blood products. The Company is also aware that another company has
provided ozone-generating equipment to departments of the Canadian government
-11-
<PAGE>
conducting studies in Canada for the purposes of comparison of technologies. In
addition, as reported in scientific journals and newspapers, there are many
commercial, not-for-profit and governmental agencies investigating possible
treatments for HIV and other viral diseases, as well as a variety of
methodologies aimed toward blood fraction- ate decontamination.
Employees and Consultants
The Company has three employees, its President, its Vice-President/Chief
Financial Officer and an executive assistant. These individuals serve in the
same capacities for MII.
MII has established a Scientific Advisory Board, which also serves the
Company, which suggests and formulates avenues of research and reviews research
in progress. The Scientific Advisory Board is comprised of three members, Joseph
S. Latino, Ph.D., the Company's President and Chief Executive Officer, Fred
Quimby, D.V.M., Ph.D., Chairman, Animal Research Institute, New York State
School of Veterinarian Medicine, Cornell University, Ithica, New York, and
Bernard J. Poiesz, M.D., Head, Regional Oncology Center, S.U.N.Y. at Syracuse,
Syracuse, New York. The Scientific Advisory Board met six times in 1995. Drs.
Quimby and Poiesz are not compensated by the Company or MII for their services
on the Scientific Advisory Board, although they do apply for research grants in
connection with MII's and the Company's research and development efforts. In
that regard, Dr. Quimby is part of the SIV Study being conducted under the
auspices of the Canadian Blood Forces Program. See "Research and Development".
Insurance
The Company presently has no product liability insurance, since none of its
products are in clinical use. MII pays annual premiums of approximately $64,000
for a $1,000,000 policy of officers and directors liability insurance, which
also covers the Company's directors and officers.
Item 2. Properties.
----------
The Company's offices are provided by MII at no charge.
Item 3. Legal Proceedings.
-----------------
None.
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
No matters were submitted to a vote of securities holders during the fourth
quarter of the year ending December 31, 1995.
-12-
<PAGE>
Part II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
-------------------------------------------------
Prices/Trading Market Information
The Company's shares are traded in the over-the-counter market, with price
quotes listed on the NASD Electronic Bulletin Board under the trading symbol
"MZNC," and in the "pink sheets" published by the National Quotation Bureau.
On March 7, 1997, according to the NGB Non-NASDQ Price Report furnished by
the National Quotation Bureau, there were six market-makers submitting
quotations in the Company's shares, and the high and low bids for the shares was
$.02. Such prices reflect in- terdealer prices without retail markup, markdown
or commission; are not necessarily representative of actual transactions, or of
the value of the Company's securities; and are, in all likelihood, not based
upon any recognized criteria of securities valuation as used in the investment
banking community.
Shown below is information obtained from the National Quotation Bureau,
indicating the high bid and low bid prices for a share of the Company's common
stock at the end of each of the four calendar quarters of fiscal 1994 and 1995,
representing prices between dealers which do not include retail markup, markdown
or commission. They do not reflect actual transactions.:
Bid Price
---------
Calendar Period High Low
--------------- ---- ---
1995 First Quarter .08 .01
Second Quarter .04 .01
Third Quarter .035 .01
Fourth Quarter .04 .01
1996 First Quarter .02 .02
Second Quarter .05 .03
Third Quarter .04 .02
Fourth Quarter .025 .02
Number of Holders
On March 14, 1997, according to the Company's transfer agent, there were
223 holders of record of the Company's par value $.001 common stock.
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<PAGE>
Dividends
The Company has never paid cash dividends on its common stock. Payment of
cash dividends is subject to the discretion of the Board of Directors and is
dependent upon various factors, including the Company's earnings, capital needs
and general financial condition. The Company does not believe that it has any
immediate prospect of earnings. However, the Company anticipates that in the
foreseeable future, it will follow a policy of retaining earnings, if any, in
order to finance research and development.
Item 6. Selected Financial Data.
-----------------------
<TABLE>
<CAPTION>
Year Ended
December 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Operations Data:
Revenues $ -0- $ -0- $ -0- $ -0-
Net (loss) (3,553) (3,617) (32,357) (8,334)
Net loss) -0- -0- -0- -0-
per common share
Weighted average 36,493,000 36,493,000 36,493,000 36,493,000
common shares out-
standing
Balance Sheet
Data:
Working capital $(11,498) $ (13,498) $ (21,919) $ (15,498)
(deficiency)
Total assets -0- -0- -0- -0-
Long-term -0- -0- -0- -0-
liabilities
Accumulated (218,143) (214,590) (210,973) (178,616)
(deficit)
Stockholders' (11,498) (13,498) (21,919) (15,498)
equity
(deficiency)
</TABLE>
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
-------------------------------------------------
Results of Operations
Registrant's financial statements in prior years reflected advances to its
patent company (MII) in the amount of $142,287 as bad debt expense because of
the uncertainty of repayment of those advances. After consideration of the facts
surrounding the advances, the Registrant restated its financial statements to
reverse the bad debt expense and to reflect the financial statements as though
the transaction was an equity investment rather than a loan arrangement.
-14-
<PAGE>
The effect of this restatement was to decrease additional paid-in capital
and the deficit accumulated during development stage.
Years ended December 31, 1996 and December 31, 1995.
Research and development expenses in 1996 were $-0- and were $-0- in 1995.
General and administrative expenses in 1996 consisted of accounting fees of
and other miscellaneous expenses of $ .
- -------- --------
General and administrative expenses in 1995 consisted of accounting fees of
$2,000 and other miscellaneous expenses of $1,553.
Net cash used in operating activities was $ in 1996 as compared to $5,553
-------
in 1994. The decrease (increase) was due to decreased (increased) general and
administrative expenses.
Cash provided by funding activities (increased) decreased in 1995 to $
--------
as compared to $5,553 in 1994. These amounts represent capital received from the
parent company, MII.
Years ended December 31, 1995 and December 31, 1994
Research and development expenses in 1995 were $-0- and were $-0- in 1994.
General and administrative expenses in 1995 consisted of accounting fees of
$2,000 and other miscellaneous expenses of $1,553.
General and administrative expenses in 1994 consisted of accounting fees of
$3,342 and other miscellaneous expenses of $275.
Net cash used in operating activities was $5,553 in 1995 as compared to $12,038
in 1994. The decrease was due to decreased general and administrative expenses.
Cash provided by funding activities decreased in 1995 to $5,553 as compared to
$12,038 in 1994. These amounts represent capital received from the parent
company, MII.
Years Ended December 31, 1994 and December 31, 1993.
Research and development expenses in 1994 were $-0- and were $896 in 1993.
General and administrative expenses in 1994 consisted of accounting fees of
$3,342 and other miscellaneous expenses of $275.
-15-
<PAGE>
General and administrative expenses in 1993 consisted of public relations,
$15,400; travel, $8,926; accounting fees, $6,000; and other miscellaneous
expenses of $1,135.
Net cash used in operating activities was $12,038 in 1994 as compared to
$25,936 in 1993. The decrease was due to decreased general and administrative
expenses.
Cash provided by financing activities decreased in 1994 to $12,038 as
compared to $25,936 in 1993. These amounts represent capital received from the
parent company, MII.
Years Ended December 31, 1993 and December 31, 1992
Liquidity and Capital Resources
At December 31, 1996, Registrant had a working capital deficiency of
$ and a stockholders' deficiency of $ . At December 31, 1995,
------ ------
Registrant had a working capital deficiency of $11,498 and a stockholders'
deficiency of $11,498. At December 31, 1994, Registrant had a working capital
deficiency of $13,498 and a stockholders' deficiency of $13,498.
Registrant will continue to require additional capital in order to gain the
necessary regulatory approvals. There is no assurance that such capital will be
raised. If adequate funding cannot be obtained, Registrant may be required to
substantially reduce or cease operations.
Registrant has outstanding warrants to purchase 4,000,000 shares of common
stock at $.125 per share; however, there can be no assurance that any of the
warrants will be exercised, or that Registrant will be able to fulfill its
obligation to file a post-effective amendment to its registration statement in
order to register the shares it would issue upon any exercise of warrants. The
expiration date of the warrants was extended to December 31, 1997.
Item 8. Financial Statements and Supplementary Data.
--------------------------------------------
The financial statements and supplementary data are listed under Item 14 in
this Annual Report and commence on page F-1.
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
------------------------------------------------
None.
-16-
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant.
-----------------------------------------------
Until November 1992, the Company's affairs were controlled by its then
Board of Directors, consisting of McGrath, Watrous, Wayne Chou and Peter W.
Melera ("Former Management"). On November 17, 1992, Former Management resigned,
after having elected John M. Kells, John Pealer and George Handel as Directors
("New Manage- ment"). McGrath and Watrous also resigned their positions as,
respectively, President and Chief Executive Officer, and Vice President, Chief
Financial Officer, Secretary and Treasurer. At that time, New Management
appointed Joseph S. Latino to be the Company's President and Chief Operating
Officer. In September 1993, upon the resignation from the Board of Directors of
John M. Kells, Dr. Latino was elected to the Board by the other directors. Dr.
Latino and Messrs. Handel and Pealer were reelected to the Board at the annual
meeting of shareholders held in May 1995.
Messrs. Latino, Handel and Pealer will hold their positions as Directors
until the next annual meeting of the shareholders and until their successors
have been elected and have qualified.
(Remainder of Page Intentionally Left Blank)
-17-
<PAGE>
The following table sets forth certain information concerning the
Registrant's directors and officers.
Director Officer
Name Age since since Positions with Registrant
- ---- --- ----- ----- -------------------------
Joseph S. Latino 38 1993 1992 President; Chief Executive
Officer and Director
Arthur P. Bergeron 46 1992 Vice President, Treasurer and
Chief Financial Officer
George Handel 69 1992 1993 Secretary and Director
John D. Pealer 77 1992 Director
There are no family relationships among Registrant's officers and directors.
Joseph S. Latino, Ph.D., was appointed President and Chief Operating
Officer of the Company in November 1992 and was elected to the Board of
Directors on September 21, 1993. He was named Chief Executive Officer of the
Company in March 1995. He holds the same positions with MII. His affiliation
with MII dates from 1986, when he was named its Director of Research. Dr. Latino
received a Bachelor of Science degree in 1978 from Brooklyn College of the City
University of New York in Biology and Chemistry. He received his Doctor of
Philosophy in Biochemistry in 1984 from the City University of New York. Dr.
Latino became Director of Special Hematology/Oncology Laboratory at The Brooklyn
Hospital Center, Brooklyn, New York in 1984, where he was employed until he went
on sabbatical in December 1994. In 1994, Dr. Latino was designated as the Basic
Science Research Coordinator for The Brooklyn Hospital Center and is a member in
Investigational/Institutional Review Board of that institution. In 1986, Dr.
Latino became an Assistant Professor of Medicine, Division of Hematology at the
Health Science Center at Brooklyn, State University of New York, as well as Ad
Hoc Research Advisor for The Brooklyn Hospital Center. In 1987 he became a
Research Educator for the Hematology/Oncology Fellowship Program at the Brooklyn
Hospital Center. Dr. Latino currently devotes substantially his full time to the
operations of the Company.
George Handel became a director of the Company in November 1992 and has
served as the Company's Secretary, without compensation, since November 24,
1993. He holds the same positions with MII. Mr. Handel, who attempted Temple
University, is President of Hantex Mills, a dry goods firm established in 1975,
and vice-president of Handel & Co., a wholesale dry goods firm established in
1923.
-18-
<PAGE>
John D. Pealer became a director of the Company in November 1992. He is
also a director of MII. Mr. Pealer has been the President and Chief Executive
Officer of Pealer's Inc., a family owned corporation engaged in the business of
real estate development since 1949.
Arthur P. Bergeron became Vice President, Treasurer and Chief Financial
Officer of the Company in 1992. He holds these same positions with MII. He
received a Bachelor of Science in Accounting from Bentley College in Waltham,
Massachusetts in 1973 and a Master of Science in Taxation from Bentley College
in 1980. Mr. Bergeron is a certified public accountant and is the principal of
Arthur P. Bergeron & Co., P.C., in Wellesley, Massachusetts, a public accounting
firm which he founded in 1978. Mr. Bergeron does not devote his full time to the
affairs of the Company.
Item 11. Executive Compensation.
-----------------------
Directors Compensation
None of the directors received any compensation for serving as a director
in 1996.
Executive Compensation
The officers of the Company do not receive any compensation from the
Company. Its president and vice president/chief financial officer are
compensated by MII. The Company's secretary serves without compensation. The
following table sets forth the compensation paid by MII to Joseph S. Latino, the
Company's President and Chief Executive Officer and Arthur P. Bergeron, the
Company's Vice-President, Treasurer and Chief Financial Officer.
(Remainder of Page Intentionally Left Blank)
-19-
<PAGE>
Summary Compensation Table
--------------------------
Annual Compensation Long Term
-------------------
Compensa-
tion
---------
Other Annu-
al Compen-
Name and Principal sa-
Position Year Salary(1)) Bonus tion Options #
- -------- ---- ---------- ----- ---- ---------
1996 $180,000 -0- (2) (3)
Joseph S. Latino, 1995 $180,000 -0- (2) (3)
Ph.D., President 1994 $ 72,000 $17,800
and Chief Executive
Officer
Arthur P. Bergeron, 1996 $ 72,000 - 0 - (6)
Vice President, 1995 $ 72,000 - 0 - (5) (6)
Treasurer and Chief 1994 $ 36,0004 - 0 - (5)
Financial Officer - 0 -
- -------------
(1) In 1994, Dr. Latino and Mr. Bergeron were not paid on a salaried
basis, but were paid as consultants.
(2) In 1994, 1995 and 1996, Dr. Latino was reimbursed for certain
automobile expenses and other business expenses, in the amounts of
$21,324, $33,222 and $___________, respectively. In 1995 and 1996, MII
provided Dr. Latino with health insurance, paying premiums in the
amounts of $9,438 and $___________, respectively.
(3) Pursuant to his employment agreement with MII, Dr. Latino was granted
an option to purchase 3,000,000 shares of MII common stock with an
exercise price of $.20, which vests 33% in January 1, 1996, 33% on
January 1, 1995 and 33% on January 1, 1998, exercisable for as long as
he is employed by MII and for one year after the termination of his
employment. Dr. Latino has not exercised the vested portion of this
option as of the date of this report.
(4) From July 1, 1993 through December 31, 1994, Arthur P. Bergeron & Co.,
P.C., the accounting firm of which Mr. Bergeron is the sole
shareholder, received an aggregate of $64,825 as professional fees for
support services rendered in connection with the Company's 1992 audit,
the engagement of Coopers & Lybrand and for investigative services
rendered in connection with certain litigation engaged in by the
Company. He also received 500,000 shares of MII's common stock for his
services through December 31, 1994.
(5) In 1995 and 1996, MII provided Mr. Bergeron with health
insurance, paying premiums of $9,438 and $__________________,
respectively.
(6) Pursuant to his employment agreement with MII, Mr. Bergeron was
granted an option to purchase 1,500,000 shares of MII common stock,
with an exercise price of $.20, which vests 33% in January 1, 1996,
33% in January 1, 1997 and 33% on January 1, 1998, exercisable for as
long as Mr. Bergeron is employed by MII and for one year after the
termination of his employment. Mr. Bergeron has not exercised the
vested portion of this option as of the date of this agreement.
-20-
<PAGE>
Employment Agreements
The Company does not have employment agreements with its officers. MII has
entered into employment agreements with Dr. Latino and Mr. Bergeron pursuant to
which they are to serve as officers of the Company without additional
compensation.
Compensation Committee and Insider Participation
The Company does not have a compensation committee. Matters concerning the
compensation of executive officers are determined by the Company's Board of
Directors. Dr. Latino, who is an executive officer of the Company, is also a
member of the Company's Board of Directors and will participate in deliberations
concerning executive officer compensation, but will not vote on his own
individual compensation. However, his participation in such deliberations gives
rise to a conflict of interest which could affect his compensation.
BOARD OF DIRECTORS
------------------
Dr. Joseph S. Latino
George Handel
John Pealer
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
---------------------------------------------------
The following table sets forth certain information as of March 14, 1997,
pertaining to the beneficial ownership of Common Stock, by (i) persons known to
the Company to own 5% or more of the outstanding Common Stock, (ii) each
director and executive officer of the Company, and (iii) directors and executive
officers of the Company as a group.
Number of Shares Percentage of
Name and Address Beneficially Owned Total Outstanding
Medizone Inter- 24,304,560 66.6%
national, Inc.
123 East 54th Street
Suite 2H
New York, NY 10022
Joseph S. Latino, Ph.D. -0- *
690 East 19th Street
Brooklyn, NY 11230
- ---------------
(*) Indicates less than 1%
-21-
<PAGE>
George Handel -0-
1408 Melrose Avenue
Melrose Park, PA 19126
John D. Pealer 285,100 (*)
355 N. 21st Street
Camp Hill, PA 17011
Arthur P. Bergeron -0-
40 Grove Street
Wellesley, MA 02181
All present directors 285,000 1.46%
and executive officers
as a group (4 persons)
Item 13. Certain Relationships and Related Transactions.
-----------------------------------------------
None.
PART IV
Item 14. Exhibits, Financial Statement Schedules, Reports on
Form 8-K.
---------------------------------------------------
(a) See Index to Consolidated Financial Statements and Schedules on
Page F-1.
(b) None.
(c) See Index to Exhibits on page E-1.
(d) None.
-22-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Annual Report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MEDIZONE CANADA LIMITED
By: s\Joseph S. Latino
-----------------------------
Joseph S. Latino
President
Date: March 29, 1997
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this Annual Report has been signed below by the following
persons on behalf of the Registrant, in the capacities shown and on the date
indicated:
Date: March 29, 1997 s\Joseph S. Latino
-----------------------------------
Joseph S. Latino, President
Chief Executive Officer
and Director
Date: March 29, 1997 s\Arthur P. Bergeron
-----------------------------------
Arthur P. Bergeron,
Vice President, Treasurer and
Chief Financial Officer
Date: March 29, 1997 s\George Handel
-----------------------------------
George Handel, Director
Date: March 29, 1997 s\John D. Pealer
-----------------------------------
John D. Pealer, Director
23
<PAGE>
Exhibits and Financial Statement Schedules. - The following
Exhibits form a part of this Annual Report on Form 10-K.
Exhibit
Number Description of Exhibit
- ------ ----------------------
2 Agreement and Plan of Reorganization dated December
23, 1988.(1)
3(a) Articles of Incorporation of Registrant.(2)
3(b) By-laws of Registrant.(2)
3(c) Articles of Amendment to Registrant's Articles of
Incorporation.(1)
10(a) Agreement made and entered into as of November 30,
1987 between Medizone International, Inc. and MCL
Medizone Canada Ltd.(2)
10(b) Agreement made as of May 18, 1994, among Medizone
International, Inc., Medizone Canada Ltd., John M.
Kells, George Handel, John Pealer, Joseph S. Latino,
Terrence O. McGrath and Philip J. Watrous(3).
16 Letters re: change in certifying accountants.(3)
- -------------------------------------
(1) Incorporated by reference to the Registrant's current report on Form 8K,
reporting an event that occurred on December 23, 1988
(2) Incorporated by reference to an exhibit filed as Registrant's registration
statement on Form S-18, effective December 14, 1987
(2) Incorporated by reference to the Registrant's annual report on Form 10-K
for the period ended December 31, 1994.
E-1
