10QSB/A 1 quarterlyreportamended.txt AMENDED QUARTERLY REPORT UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 FORM 10-QSB (Mark One) X QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ----- ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2001 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 July 18, 2001, there were 155,338,019 shares of the registrant's common stock issued and outstanding. Transitional Small Business Disclosure Format (Check one): Yes No X -- --- MEDIZONE INTERNATIONAL, INC. FORM 10-QSB INDEX June 30, 2001 Page Number Part I Financial Information Item 1 Financial Statements Condensed Consolidated Balance Sheet: June 30, 2001 (Unaudited) and December 31, 2000.......................3 Condensed Consolidated Statement of Operations (Unaudited): For the Three Months and Six Months Ended June 30, 2001 and 2000......4 Condensed Consolidated Statement of Cash Flow (Unaudited) For the Six Months Ended June 30, 2001 and 2000.......................5 Notes to Condensed Consolidated Financial Statements..................6 Item 2 Management's Discussion and Analysis or Plan of Operation........7 Part II Other Information Item 2 Changes in Securities and Use of Proceeds........................9 2 MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY (A Development Stage Company) CONDENSED CONSOLIDATED BALANCE SHEET June 30, 2001 and December 31, 2000
ASSETS June 30, December 31, 2001 2000 --------------------- -------------------- (Unaudited) CURRENT ASSETS Cash and Cash Equivalents $ 10,749 $ 2,368 Total Cash and Cash Equivalents $ 10,749 $ 2,368 Total Current Assets $ 10,749 $ 2,368 PROPERTY AND EQUIPMENT, net $ 12,267 $ 14,977 --------------------- -------------------- Total Assets $ 10,749 $ 2,368 ===================== ==================== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) CURRENT LIABILITIES Accounts payable $ 363,525 $ 339,774 Accrued expenses $ 509,630 $ 371,651 Current portion of long-term obligations $ 280,491 $ 280,491 --------------------- -------------------- Total Current Liabilities $ (1,153,646) $ 991,916 ===================== ==================== STOCKHOLDERS' EQUITY (DEFICIT) Common stock $ 155,338 $ 153,916 Additional paid in capital $ 15, 455,220 $ 15,201,661 Deficit accumulated during the development stage $ (16,741,188) $ (16,330,148) --------------------- -------------------- Total Stockholders' Equity (Deficit) $ (1,130,630) $ (974,571) --------------------- -------------------- Total Liabilities and Stockholders' Equity (Deficit) $ 23,016 $ 17,345 ===================== ====================
See accompanying notes. 3 MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY (A Development Stage Company) CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited)
Three Three Six Six Inception Months Months Months Months 1/31/86 Ended Ended Ended Ended Through 6/30/01 6/30/00 6/30/01 6/30/00 6/30/01 ------------- ------------- ------------- ------------- --------------- REVENUE $ - $ - $ - $ - $ 133,349 COST OF SALES - - - - 103,790 Gross Profit - - - - 29,559 ------------- ------------- ------------- ------------- --------------- COSTS AND EXPENSES Research and development 44,542 25,765 67,095 80,808 2,644,948 Depreciation and amortization 1,196 1,595 2,710 2,431 35,729 Expense on extension of warrants - - - - 1,866,857 General and administrative 187,627 212,049 330,015 367,878 12,495,444 ------------- ------------- ------------- ------------- --------------- Total Costs and Expenses 233,365 239,409 399,820 451,117 17,042,978 ------------- ------------- ------------- ------------- --------------- LOSS BEFORE OTHER INCOME (EXPENSES) (233, 365) (239,409) (399,820) (451,117) (17,013,419) ------------- ------------- ------------- ------------- --------------- OTHER INCOME (EXPENSES) Minority interest in loss - - - - 26,091 Gain on sale of subsidiary - - - - 208,417 Interest expense (5,610) (5,610) (11,220) (11,220) (876,795) Other income - - - - 10,780 -------------- -------------- -------------- -------------- ---------------- Total Other Income (Expense) - net (5,610) (5,610) (11,220) (11,220) (622,507) ------------- ------------- ------------- ------------- --------------- LOSS BEFORE EXTRAORDINARY ITEMS (238,975) (245,019) (411,040) (462,337) (17,635,926) EXTRAORDINARY ITEMS Restitution receipt - - - 415,000 415,000 Debt forgiveness - - - - 479,738 ------------- ------------- ------------- -------------- ---------------- Total Extraordinary Items - - - 415,000 894,738 ------------- ------------- ------------- -------------- ---------------- NET INCOME (LOSS) $ (238,975) $ (245,019) $ (411,0450) $ (47,337) $ (16,741,188) ============= ============= ============= ============== ================ BASIC INCOME (LOSS) PER SHARE Loss from operations $ (0.00) $ (0.00) $ (0.00) $ (0.00) Extraordinary Items 0.00 0.00 0.00 0.00 -------------- Basic Income (Loss) Per Share $ (00.00) (0.00) $ (0.00) $ (0.00) ============= ============= ============= -------------- AVERAGE COMMON AND EQUIVALENT SHARES Basic 154,860,242 155,615,798 155,338,019 155,479,131
See accompanying notes. 4 MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARY (A Development Stage Company) CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS For the Six Months Ended June 30, 2001 and 2000 (Unaudited)
Inception 1/31/86 June 30, June 30, Through 2001 2000 6/30/01 ----------------- --------------- --------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ (411,040) $ (47,337) $ (16,741,188) Adjustments to reconcile net loss to net Cash provided by operating activities Depreciation and amortization 2,710 2,431 25,729 Issuance of stock for services - 272,600 3,015,916 Expense for extension of warrants - - 1,866,857 Bad debt expense - - 48,947 Minority interest in loss - - (26,091) Loss on disposal of assets - - 693,752 Gain on settlement of debt - - (188,510) Gain on lawsuit settlement - - (415,000) Change in operating assets and liabilities Deposits - - (48,947) Accounts payable and other liabilities 161,730 (365,114) 1,651,257 ----------------- ---------------- --------------- (246,600) (137,420) (10,107,278) ----------------- --------------- --------------- CASH FROM INVESTING ACTIVITIES Organization costs - - (8,904) Acquisition of property and equipment - (14,931) (39,090) ----------------- ---------------- ---------------- - (14,931) (47,994) ----------------- --------------- --------------- CASH FROM FINANCING ACTIVITIES Proceeds from restitution settlement - - 415,000 Principal payments on notes payable - - (192,774) Cash received from notes payable - - 1,106,518 Capital contributions - - 421,847 Stock issuance costs - - (105,312) Increase in minority interest - - 14,470 Proceeds from issuance of common stock 254,981 220,000 8,506,272 ----------------- --------------- --------------- 254,981 220,000 10,166,021 ----------------- --------------- --------------- NET CHANGE IN CASH AND CASH EQUIVALENTS 8,381 67,649 10,749 CASH AND CASH EQUIVALENTS Beginning of period 2,368 4,388 - ----------------- --------------- --------------- End of period $ 10,749 $ 72,037 $ 10,749 ================= =============== =============== SUPPLEMENTAL CASH FLOW INFORMATION Cash paid during the period for: Interest $ - $ - $ 26,483 ================= =============== =============== Income taxes $ - $ - $ - ================= =============== =============== NON-CASH INVESTING AND FINANCING ACTIVITIES Issuance of common stock for services $ - $ 272,600 $ 3,015,916 Stock Issued for debt conversion $ - $ - $ 4,071,493 Stock issued for license agreement and patent $ - $ - $ 683,752
See accompanying notes. 5 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, 2000. 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 months and six months ended June 30, 2001 and 2000 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 loss per share for the three months and six months ended June 30, 2001 and 2000:
Three Three Six Six Months Months Months Months Ended Ended Ended Ended 6/30/01 6/30/00 6/30/01 6/30/00 -------------- --------------- -------------- -------------- Net income (loss) available to common Shareholders $ (238,975) $ (245,019) $ (411,040) $ (47,337) ============== =============== ============== ============== Weighted average shares 154,860,242 155,615,798 155,338,019 155,479,131 Effect of dilutive securities - - - - -------------- --------------- -------------- -------------- 154,860,242 155,615,798 155,338,019 155,479,131 ============== =============== ============== ============== Basic income (loss) per share (based on weighted average shares) $ (0.00) $ (0.00) $ (0.00) $ (0.00) ============== =============== ============== ==============
3 - Capital Stock As of June 30, 2001, the Company had 155,338,019 shares of common stock outstanding. During the quarter ended June 30, 2001, the Company issued 722,221 common shares for $124,981 at prices ranging from $0.15 to $0.18 per share. Item 2 - Management's Discussion and Analysis or Plan of Operation The following discussion and analysis of 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. Medizone International 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. We are also pursuing the development of external applications of its technology for medical purposes. We have not generated, and cannot predict when or if we will generate, significant revenues or sufficient cash flow to fund continuing operations. We have funded operations to date primarily through the sale of our securities. Our 6 technology and its uses are subject to regulations of the U.S. Food and Drug Administration ("FDA") and its counterparts in foreign countries. We do not intend to sell equipment or supplies for ozone-generating purposes in a particular jurisdiction until we receive required government approvals for that jurisdiction. Beginning in 1998 and concluding in 2000, we accumulated patient data for 40 participants in a developmental human pilot trial investigating ozone treatment of hepatitis C. This trial was conducted during the normal course of practice by William Hitt, Ph.D., M.D., at his clinic, The William Hitt Center, in Tijuana, Mexico. Dr. Hitt is a former member of the Medizone board of directors. While this trial was not conducted as a blind study as required by the FDA and the results can serve only as anecdotal information, we are very encouraged by the results. In this developmental ozone trial, patients were treated using major autohemotherapy, a blood therapy treatment protocol, on an outpatient basis. The average treatment period was 30 days. Viral load testing (detecting the levels of the virus present), as well as standardized SGOT and SGPT tests of liver enzyme levels were conducted before the start of the treatment, immediately following treatment, and six months after treatment without any further medical intervention during the post-treatment period. No adverse side effects were observed or reported in any of the participants. SGOT and SGPT scores returned to normal ranges and viral load reductions averaged 5 log or 99.9% reduction. In the six-month post-treatment follow up testing, 38 of the 40 patients tested at inactive viral levels for hepatitis C virus, indicating the possibility that the disease had been cleared by the ozone therapy they received. Two of the patients had increased viral levels at the end of the treatment test period; however, even those patients enjoyed significantly reduced viral load levels when compared to pre-treatment test results. We have entered into a research agreement with the national research center of a foreign country to proceed with a Phase I/II human hepatitis C trial. The protocols for the proposed testing are designed with the intention of producing a peer-reviewed, journal-published article on our ozone therapy for the hepatitis C virus. The trial will be blind and the data produced will be shared by the country of origin and laboratories in Canada. We intend to pursue future research initiatives in Canada in the near future and this proposed trial is considered a major step toward that objective. There will be substantial collaborative efforts made to share information with appropriate regulatory bodies in both countries. We will not be able to pursue this additional testing without additional financing. Results of Operations General From its inception in January 1986, Medizone International has been a development stage company primarily engaged in research into the medical uses of ozone. We have not generated, and cannot predict when or if we will generate revenues or sufficient cash flow to fund our continuing operations. Three Months Ended June 30, 2001 compared to the Three Months Ended June 30, 2000 There were no sales during the quarters ended June 30, 2001 or 2000. We made expenditures for research and development of $44,542 in the second quarter of 2001, compared to $25,765 during the second quarter of 2000. Since inception we have spent a total of $2,644,948 for research and development. General and administrative expenses in the second quarter of 2001 were $187,627 compared to $212,049 during the second quarter of 2000. These expenses include professional fees, payroll, insurance costs and travel expenses. Interest expense accrued during the three months ended June 30, 2001 was $5,610, compared to $5,610 in the three months ended June 30, 2000. Six Months Ended June 30, 2001 compared to the Six Months Ended June 30, 2000: There were no sales during the six months ended June 30, 2001 or 2000. We made expenditures for research and development of $67,095 in the six months ended June 30, 2001, compared to $80,808 during the six months ended June 30, 2000. General and administrative expenses in the first six months of 2001 were $330,015 compared to $367,878 during the first six months of 2000. These expenses include professional fees, payroll, insurance costs and travel expenses. Interest expense accrued during the six months ended June 30, 2001 was $11,220, compared to $11,220 in the six months ended June 30, 2000. 7 Liquidity and Capital Resources At June 30, 2001, we had a working capital deficiency of $1,142,897 and stockholders' deficiency of $1,130,630. At December 31, 2000, we had a working capital deficiency of $989,548 and stockholders' deficiency of $974,571. Net cash used in operating activities was $246,600 for the six months ended June 30, 2001. Cash of $254,981 was provided during the first six months of 2001 from the issuance of common stock. During the six months ended June 30, 2000, net cash used in operating activities was $137,420. Cash of $220,000 was provided in the first six months of 2000 by the sale of common stock through the exercise of outstanding stock purchase warrants. We will continue to require additional funding to enable us to fund research necessary to make the appropriate regulatory application and continue operations. We expect that these funds will be provided by the sale of our securities. We recognize that, if we are unable to raise additional capital, we 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 our expectations, hopes, beliefs, anticipations, commitments, intentions and strategies regarding the future. They may be identified by the use of the words or phrases "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 or Plan of Operation regarding our financial performance, revenue and expense levels in the future and the sufficiency of 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 our Annual Report on Form 10-KSB for the year ended December 31, 2000 under the headings "Description of Business" and "Risk Factors." The fact that some of the risk factors may be the same or similar to past reports filed with the Securities and Exchange Commission means only that the risks are present in multiple periods. We believe that many of the risks detailed here and in our SEC filings are part of doing business in the industry in which we operate and compete 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 we assume 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 our the business, financial condition, performance, development, and results of operations include: o Rigorous government scrutiny and regulation of our products and planned products; o Potential effects of adverse publicity regarding ozone and related technologies or industries; o Failure to sustain or manage growth including the failure to continue to develop new products; and o The ability to obtain needed financing. Part II--Other Information Item 2. - Changes in Securities and Use of Proceeds During the six months ended June 30, 2001, the company sold 722,221 common shares for $124,981 at prices ranging from $0.15 to $0.18 per share. The purchasers of these securities were accredited investors as that term is defined under the Securities Act of 1933 and the securities were sold in a private transaction pursuant to an exemption from the registration requirements under the Securities Act, specifically the exemption under Section 4(2) of the Securities Act applicable to offers and sales made to accredited investors only and offers and sales that are not made in a public offering. 8 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) July 23, 2001