Medizone International, Inc. and subsidiaries (collectively, “Medizone,” the “Company,” “we,” “us,” or “our”) had beenis a Nevada corporation engaged in the development stage conducting research into the use of ozone in the disinfection of surgical and other medical treatment facilities and in other applications through the second quarter of 2012.  During the third quarter ofapplications.  Until 2012, we emerged from theoperated as a development stage ascompany until we began to sell our patented ozone disinfection system, AsepticSure®.AsepticSure.  Our current work is in the field of hospital disinfection, not human therapies.  We cannot predict when or if we will generate sufficient cash flows from operating activities to fund continuing or planned operations.  If we fail to obtain additional funding, we will be forced to suspend or permanently cease operations, and may need to seek protection under U.S. bankruptcy laws.

During the third quarter ended March 31, 2014, we focused on raising capital which generated cash of 2012,$1,049,250 through the sale of 16,050,000 shares of common stock to accredited investors.  This capital will facilitate the next round of product manufacturing, expand our current distribution channels and be used for other operating expenses.  Also, we exitedcontinued our approval from the U.S. Environmental Protection Agency (“EPA”) as well as development stage as we commenced planned principal operations and had revenues of $150,000 with cost of revenues of $86,725.  Duringa computer control system for the AsepticSure system.

For the quarter ended September 30, 2013,March 31, 2014, we had no revenues or associated cost of revenues. Allgoods sold compared to revenues of our revenues have been from$4,554 with cost of goods sold of $4,000 for the sale of AsepticSure® devices.

For the three monthsquarter ended September 30, 2013,March 31, 2014, we had a net loss of $345,691,$394,883, compared with a net loss for the three months ended September 30, 2012 of $1,072,381.  The reduction in net loss for the quarter ended September 30,March 31, 2013 compared to the same quarter of 2012, was due to lower research and development, general and administration expenses as well as significantly lower additional expense recorded as a result of options granted to directors, employees and consultants in 2012.$387,298.  Our primary expenses are cost of manufacturing, payroll and consulting fees, research and development costs, office expenses and interest expense.

For the three monthsquarters ended September 30,March 31, 2014 and 2013, and 2012, we incurred $263,385$289,531 and $932,872,$285,211, respectively, in general and administrative expenses. The majority of these expenses includecomprise payroll and consulting fees and professional fees.  The decrease duringincrease for the three monthsquarter ended September 30, 2013March 31, 2014 over the prior year comparable period was primarily the result of the expense associated with options granteddue to directors, employees and consultants in 2012.  The remaining general and administrative expenses include rent, office and traveladditional professional expenses.

For the three monthsquarters ended September 30,March 31, 2014 and 2013, and 2012, we incurred $64,761$87,071 and $187,126,$85,771, respectively, in research and development expenses.  Research and development expenses include consultant fees, interface development costs, prototypes, and research stage ozone generator and instrument development, and significantly decreased fromremained consistent with the prior year period as we have now commenced planned operations.period.

 

Principal amounts owed on notes payable totaled $310,334$301,700 and $298,536$295,496 as of September 30, 2013March 31, 2014 and December 31, 2012,2013, respectively.  Interest expense on these obligations duringfor the three monthsquarters ended September 30,March 31, 2014 and 2013 was $6,376 and 2012 was $6,125 and $6,097,$6,366, respectively. The applicable interest rates on this debt ranged from 7.75% to 10.00% per annum.

As of September 30, 2013,March 31, 2014, our working capital deficitdeficiency was $2,980,355,$2,648,898, compared to a working capital deficitdeficiency of $3,307,973$3,333,251 as of December 31, 2012.2013. We have incurred significant losses from inception through September 30, 2013,March 31, 2014, which have resulted in an accumulated deficit of $31,042,888.$31,816,867.  The stockholders’ deficit as of September 30, 2013March 31, 2014 was $2,979,965,$2,424,492, compared to $3,314,099$3,107,800 as of December 31, 2012.2013.  This change is due to the sale of restricted shares of common stock being greater than the net loss for the quarter ended March 31, 2014.

 

In the third quarter of 2012, we emerged from the development stage.  We will continue to require additional financing to fund operations and to undertake our new business plans to further the ongoing testing, and to market our hospital and medical disinfection system.  We believe that we will need approximately $2,000,000$1,500,000 over the next 12 months for continuingcontinued production manufacturing, research, expenses,development, and marketing product manufacturing and related activities, as well as for general corporate purposes.

During the nine monthsquarter ended September 30, 2013,March 31, 2014, we generated cash of $1,160,250$1,049,250 through the sale of 26,891,41216,050,000 shares of common stock to 2619 accredited investors at prices ranging from $0.03$0.05 per share to $0.06$0.085 per share.  We anticipate that we will be able to raise additional funds, as needed, from certain of the accredited investors who have purchased shares during previous years, although we have no agreements at this time with any of these investors to purchase our securities, and there is no assurance that these investors will purchase additional shares.

Our unaudited condensed consolidated financial statements included in this report have been prepared on the assumption that the Company will continue as a going concern. There is substantial doubt that the Company will be able to continue as a going concern.  Through the date of this report, it has been necessary to rely upon financing from the sale of our equity securities to sustain operations as indicated above. Additional financing will be required if we are to continue as a going concern. If additional financing is not obtained in the near future, we will be required to curtail or discontinue operations, or seek protection under the bankruptcy laws. Even if additional financing becomes available, there can be no assurance that it will be on terms favorable to the Company. In any event, this additional financing will likely result in immediate and possibly substantial dilution to existing stockholders.shareholders.

The statements contained in this report on Form 10-Q that are not historical are “forward-looking statements”"forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements discuss 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 Financial Condition and Results of Operations 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-K for the year ended December 31, 2012.2013.

 

We believe that many of the risks previously discussed in our SEC filings are part of doing business in the industry in which we operate 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 business, financial condition, performance, development, and results of operations include:

 

We commenced commercial sales and emerged from the development stage in 2012.  We recognize revenue when a contractual arrangement exists, product is shipped, payment from the customer is reasonably assured, and the price is fixed or determinable.  We record customer deposits that have not yet been earned as unearned revenue. Revenue is recognized only when title and risk of loss passes to customers.

AnyOur inventory consists of our AsepticSure®AsepticSure product and is valued on a specific“specific identification basis.”  We purchase our inventory as a finished product from unrelated manufacturing companies. We write off 100% of the cost of inventory that we specifically identify and consider obsolete or excessive to fulfill future sales estimates. We did not have anyNo inventory was obsolete or excessive as of September 30, 2013.March 31, 2014.

We account for equity securities issued for services rendered at the fair value of the securities on the date of grant.

As of September 30, 2013, we updated our evaluation of the effectiveness of the design and operation of our disclosureWe maintain “disclosure controls and procedures, for purposes” as that term is defined in Rule 13a-15(e) and Rule 15d-15(e), promulgated by the SEC pursuant to the Securities Exchange Act of filing1934. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934 (the Exchange Act). This evaluation was done under the supervision and with the participation of management, including our chief executive officer and our chief financial officer. Our chief executive officer and our chief financial officer concluded that as of September 30, 2013, our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) are effective to provide reasonable assurance that information that we are required to disclose in the reports that we file or submit to the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Our disclosure controlsforms, and procedures are designed to provide reasonable assurance that such information is accumulated and communicated to our management, including our chiefprincipal executive officer and chiefprincipal financial officer as appropriate to allow timely decisions regarding required disclosure.

We maintain a system of internal control over financial reporting that is designed to provide reasonable assurance that our books and records accurately reflect our transactions and that our established policies and procedures are followed. There were no changes to our internal control over financial reporting during our lastthe quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

There were no material developments during the quarter ended September 30, 2013March 31, 2014 relative to the legal matters previously disclosed by the Company.

During the quarter ended September 30, 2013,March 31, 2014, we sold an aggregate of 5,000,00016,050,000 restricted shares of common stock to eight19 accredited investors for cash proceeds totaling $300,000, with$1,049,250, ranging from $0.05 to $0.085 per share, as follows:

On February 26, 2014, we sold 1,000,000 shares of common stock to an accredited investor who subsequently became a pricedirector of $0.06the Company for $50,000, or $0.05 per share.

The purchasers of the shares were primarily currentin these private placements included a director of the Company as well as existing stockholders of, but not otherwise affiliated with the Company.  There were no underwriters or public solicitation involved in the offer or sale of these securities. The proceeds are being used for general operating expenses and the continuing development of the AsepticSure®AsepticSure™ hospital disinfection system. The offer and sale of these securities was made without registration under the Securities Act of 1933, in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(a)(2) of the Securities Act for private and limited offers and sales of securities made solely to accredited investors.

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.