Medizone International, Inc. and subsidiaries (collectively, “Medizone,” the “Company,” “we,” “us,” or “our”) is a Nevada corporation engaged in conducting research into the use of ozone in the disinfection of surgical and other medical treatment facilities and in other applications.  UntilIn September 2012, we operated as a development stage company until we began to sell our patented ozone disinfection system, AsepticSure.AsepticSure®.  Our current work is in the field of hospital disinfection, notrather than 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.

In January 2014, the United States Patent and Trademark Office issued us U.S. Patent Number 8,636,951 titled “Bio-TerrorismBio-Terrorism Counteraction Using Ozone and Hydrogen Peroxide.”  We believe with this patent and other patents previously granted to us that we now have significant intellectual property protection in place for both the health care related applications of our technology, and the government variant of AsepticSureAsepticSure® to be used for building remediation following a biological attack.  We believe this protection positions us strongly for market entry into the United States.

During the quarterthree months ended March 31,June 30, 2014, we focused primarily on raising capital which generated cashthe expansion of $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, wethe continued our approval from the U.S. Environmental Protection Agency (“EPA”) as well as continued development of a computer control systemfeature for the AsepticSureAsepticSure® system.

For the quarterthree months ended March 31,June 30, 2014, we had no revenues or associated cost of goods sold compared to revenues of $4,554$375,000 with cost of goods sold of $4,000$235,436 for the quarterthree months ended March 31,June 30, 2013.

For the quarterthree months ended March 31,June 30, 2014, we had a net loss of $394,883,$592,686, compared with a net loss of $224,907 for the quarterthree months ended March 31, 2013 of $387,298.June 30, 2013.  Our primary expenses are payroll and consulting fees, research and development costs, office expenses, interest expense and interest expense.additional stock-based compensation expense recorded as a result of options granted to directors, employees and consultants.  The increase for the three months ended June 30, 2014 compared to the prior year was primarily due to higher stock-based compensation expense for options granted as well as the fact that we had no revenues in the current year period.

For the quartersthree months ended March 31,June 30, 2014 and 2013, we incurred $289,531$445,004 and $285,211,$308,068, respectively, in general and administrative expenses. The majority of these expenses comprise payroll and consulting fees and professional fees.  The increase for the quarterthree months ended March 31,June 30, 2014 over the comparable period in the prior year comparable period was primarily due to additional professional expenses.higher stock-based compensation expense for options granted to certain directors, consultants and an employee.

For the quartersthree months ended March 31,June 30, 2014 and 2013, we incurred $87,071$129,422 and $85,771,$34,111, 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 remained consistent withdevelopment.  The increase for the three months ended June 30, 2014 over the comparable period in the prior year period.was due to higher stock-based compensation expense for options granted to certain consultants and an employee.

 

Principal amounts owed on notes payable totaled $301,700$292,845 and $295,496 as of March 31,June 30, 2014 and December 31, 2013, respectively.  Interest expense on these obligations for the quartersthree months ended March 31,June 30, 2014 and 2013, was $6,376$6,083 and $6,366,$6,389, respectively. The applicable interest rates on this debt ranged from 4.63% to 10.00% per annum.

As of March 31,June 30, 2014, our working capital deficiency was $2,648,898,$3,008,013, compared to a working capital deficiency of $3,333,251 as of December 31, 2013. We have incurred significant losses from inception through March 31,June 30, 2014, which have resulted in an accumulated deficit of $31,816,867.$32,409,552.  The stockholders’ deficit as of March 31,June 30, 2014 was $2,424,492,$2,788,473, compared to $3,107,800 as of December 31, 2013.  This change is due to the sale of restricted shares of common stock being greater than the net loss for the quartersix months ended March 31,June 30, 2014.

 

We will continue to require additional financing to fund operations and to undertake our new business plans to further the ongoingon-going testing, and to market our hospital and medical disinfection system.  We believe we will need approximately $1,500,000 over the next 12 months for continued production manufacturing, research, development, and marketing activities, as well as for general corporate purposes.  

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 on Form 10-Q, 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 shareholders.stockholders.

The statements contained in this report on Form 10-Q that are not 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 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, 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 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.

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

None.

We maintain “disclosure controls and procedures,” 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 1934.1934 (the “Exchange Act”). Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in the Company’sour reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer to allow timely decisions regarding required disclosure.

As of the end of the period covered by this quarterly report, our management, with the participation of our principal executive officer and principal financial officer, evaluated the Company’sour disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period covered by this quarterly report, our disclosure controls and procedures were effective.

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 the quartersix months ended March 31,June 30, 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 quartersix months ended March 31,June 30, 2014 relative to the legal matters previously disclosed by the Company.

During the quartersix months ended March 31,June 30, 2014, we sold an aggregate of 16,050,000 restricted shares of common stock to 19 accredited investors for cash proceeds totaling $1,049,250 at prices ranging from $0.05 to $0.085 per share, as follows:

On January 31, 2014, we sold 1,000,000 shares of common stock to two accredited investors for $50,000, or $0.05 per share.

In February and March 2014, we sold 7,000,000 shares of common stock to three accredited investors for $350,000, or $0.05 per share.

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

On various dates in March 2014, we sold a total of 6,610,000 shares of common stock to 15 accredited investors for $561,850, or $0.085 per share.

On March 21, 2014, we sold 440,000 shares of common stock to a director of the Company for $37,400, or $0.085 per share.

The purchasers of the shares in these private placements included a director of the Company as well as existing stockholders 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.

None.

Not applicable.