Item
15. Exhibits, Financial Statement Schedules
(a)
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The following documents are filed as part of this report:
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(1) Financial Statements
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Report of Independent Registered Public Accounting Firm
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Consolidated Balance Sheets as of December 31, 2015 and 2014
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Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2015 and 2014
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Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2015 and 2014
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Consolidated Statements of Cash Flows for the Years Ended December 31, 2015 and 2014
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Notes to the Consolidated Financial Statements
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(2) Schedules – None
(3) Exhibits
:
Exhibit No.
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Description
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2
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Agreement and Plan of Reorganization, March 12, 1986 (1)
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3(i)(a)
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Articles of Incorporation (1)
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3(i)(b)
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Articles of Amendment to Articles of Incorporation (2)
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3(i)(c)
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Articles of Amendment to Articles of Incorporation (3)
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3(ii)
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Bylaws (1)
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10(a)
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Distribution Agreement (4)
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31.1*
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31.2*
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32.1*
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32.2*
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101.INS*
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XBRL Instance Document
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101.SCH*
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XBRL Taxonomy Extension Schema
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101.CAL*
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XBRL Taxonomy Extension Calculation Linkbase
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101.DEF*
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XBRL Taxonomy Extension Definition Linkbase
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101.LAB*
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XBRL Taxonomy Extension Label Linkbase
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101.PRE*
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XBRL Taxonomy Extension Presentation Linkbase
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* Filed herewith.
(1)
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Incorporated by reference to Registration Statement on Form S-18 (no. 2-93277-D), May 14, 1985.
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(2)
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Incorporated by reference to Annual Report on Form 10-KSB for period ended December 31, 1986.
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(3)
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Incorporated by reference to Quarterly Report on Form 10-Q for period ended September 30, 2009.
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(4)
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Incorporated by reference to Current Report on Form 8-K filed November 17, 2015.
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Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Medizone International, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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MEDIZONE INTERNATIONAL, INC.
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Dated: March 3, 2016
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By:
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/s/ Edwin G. Marshall
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Edwin G. Marshall, Chief Executive Officer
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Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
Name
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Title
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Date
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/s/ Edwin G. Marshall
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Chief Executive Officer (Principal Executive Officer) and Director
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March 3, 2016
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Edwin G. Marshall
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/s/ Michael E. Shannon
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President and Director
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March 3, 2016
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Michael E. Shannon
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/s/ Daniel D. Hoyt
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Director
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March 3, 2016
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Daniel D. Hoyt
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/s/ David A. Esposito
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Director
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March 3, 2016
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David A. Esposito
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/s/ Vincent C. Caponi
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Director
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March 3, 2016
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Vincent C. Caponi
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/s/ Tommy E. Auger
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Chief Financial Officer (Principal Accounting
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March 3, 2016
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Tommy E. Auger
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and Financial Officer)
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
Medizone International, Inc.
We have audited the accompanying consolidated balance sheets of Medizone International, Inc. and affiliate (collectively, the Company) as of December 31, 2015 and 2014, and the related consolidated statements of comprehensive loss, stockholders’ deficit, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2015 and 2014, and the consolidated results of its operations and its cash flows for the years then ended in conformity with U.S. generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 10 to the consolidated financial statements, the Company has incurred recurring losses which have resulted in a significant accumulated deficit and deficit in stockholders’ equity. Additionally, the Company has minimal cash and negative working capital as of December 31, 2015. These matters, among others, raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 10. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Tanner LLC
Salt Lake City, Utah
March 3, 2016
MEDIZONE
INTERNATIONAL, INC. AND
AFFILIATE
Consolidated Balance Sheets
ASSETS
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December 31,
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2015
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2014
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Current assets:
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Property and equipment, net
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Trademark and patents, net
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LIABILITIES AND STOCKHOLDERS’ DEFICIT
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Accounts payable – related parties
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Accrued expenses – related parties
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Total current liabilities
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Notes payable, net of current portion
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Commitments and contingencies (Notes 5 and 10)
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Preferred stock, $0.00001 par value
50,000,000 authorized: no shares outstanding
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Common stock, $0.001 par value
395,000,000 authorized: 369,434,068 and 346,034,068 shares
outstanding, respectively
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Additional paid-in capital
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Accumulated other comprehensive loss
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Total stockholders’ deficit
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Total liabilities and stockholders’ deficit
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The accompanying notes are an integral part of these consolidated financial statements.
MEDIZONE
INTERNATIONAL, INC. AND
AFFILIATE
Consolidated Statements of Comprehensive Loss
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For the Years Ended
December 31,
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2015
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2014
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General and administrative
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Depreciation and amortization
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Other comprehensive loss:
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Gain (loss) on foreign currency translation
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Basic and diluted net loss per common share
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Weighted average number of common shares outstanding
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The accompanying notes are an integral part of these consolidated financial statements.
MEDIZONE
INTERNATIONAL, INC. AND
AFFILIATE
Consolidated Statements of Stockholders’ Deficit
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Accumulated
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Common Stock
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Additional Paid-in
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Other Comprehensive
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Accumulated
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Total Stockholders’
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Shares
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Amount
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Capital
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Loss
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Deficit
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Deficit
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Balance, December 31, 2013
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322,055,496
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$
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322,055
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$
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28,018,398
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$
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(26,269
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)
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$
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(31,421,984
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)
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$
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(3,107,800
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)
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Common stock issued for cash ranging from $0.05 to $0.085 per share
|
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23,978,572
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23,979
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1,580,271
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-
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-
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1,604,250
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Stock-based compensation
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-
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-
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453,987
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-
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-
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453,987
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Loss on foreign currency translation
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-
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-
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-
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(31,829
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)
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-
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(31,829
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)
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Net loss
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-
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-
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-
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-
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(1,940,440
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)
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(1,940,440
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)
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Balance, December 31, 2014
|
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346,034,068
|
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346,034
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30,052,656
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(58,098
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)
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(33,362,424
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)
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(3,021,832
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)
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Common stock issued for cash ranging from $0.05 to $0.10 per share
|
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23,400,000
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23,400
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1,652,600
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-
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-
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1,676,000
|
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Stock-based compensation
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-
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-
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791,390
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-
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-
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791,390
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|
|
|
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|
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Gain on foreign currency translation
|
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-
|
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-
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-
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21,130
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-
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21,130
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Net loss
|
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-
|
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-
|
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-
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-
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(2,035,922
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)
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(2,035,922
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)
|
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|
|
|
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|
|
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Balance, December 31, 2015
|
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369,434,068
|
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$
|
369,434
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$
|
32,496,646
|
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|
$
|
(36,968
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)
|
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$
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(35,398,346
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)
|
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$
|
(2,569,234
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
MEDIZONE
INTERNATIONAL, INC. AND
AFFILIATE
Consolidated Statements of Cash Flows
|
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For the Years Ended
December 31,
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2015
|
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2014
|
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Cash flows from operating activities:
|
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Adjustments to reconcile net loss to net cash
used in operating activities:
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Depreciation and amortization
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Changes in operating assets and liabilities:
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Accounts payable and accounts payable – related parties
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)
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Accrued expenses and accrued expenses – related parties
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Net cash used in operating activities
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Cash flows from investing activities:
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Purchases of trademark and patents
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Net cash used in investing activities
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Cash flows from financing activities:
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Principal payments on notes payable
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Issuance of notes payable
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Issuance of common stock for cash
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Net cash provided by financing activities
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Effects of foreign currency exchanges rates
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Cash as of beginning of the year
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Cash as of end of the year
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Supplemental cash flow information:
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Non-cash financing activities:
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Financing of insurance premiums
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|
|
|
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|
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|
The accompanying notes are an integral part of these consolidated financial statements.
MEDIZONE
INTERNATIONAL, INC. AND
AFFILIATE
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
The
consolidated financial statements presented are those of Medizone International, Inc. (Medizone) and the Canadian Foundation for Global Health (CFGH), a not-for-profit foundation based in Ottawa, Canada, considered to be a variable interest entity (VIE) as described below. Collectively, they are referred to herein as the “Company”. The Company is in the business of designing, manufacturing and selling a patented system using ozone in the disinfection of surgical and other medical treatment facilities and in other applications.
In late 2008, the Company assisted in the formation of CFGH, a not-for-profit foundation. The Company helped establish CFGH for two primary purposes: (1) to establish an independent not-for-profit foundation intended to have a continuing working relationship with the Company for research purposes that is best positioned to attract the finest scientific, medical and academic professionals possible to work on projects deemed to be of social benefit; and (2) to provide a means for the Company to use a tiered pricing structure for services and products in emerging economies and extend the reach of its technology to as many in need as possible.
Accounting standards require a VIE to be consolidated by a company if that company absorbs a majority of the VIE’s expected losses and/or receives a majority of the VIE’s expected residual returns as a result of holding variable interests (ownership, contractual, or other financial interests) in the VIE. In addition, a legal entity is considered to be a VIE, if it does not have sufficient equity at risk to finance its own activities without relying on financial support from other parties. If the legal entity is a VIE, then the reporting entity determined to be the primary beneficiary of the VIE must consolidate the financial results of the VIE with it. Accordingly, the financial position and results of operations of CFGH are consolidated with Medizone as of and for the years ended December 31, 2015 and 2014.
b. Business Activities
The Company’s objective is to pursue an initiative in the field of hospital disinfection. The Company has developed an ozone-based technology, specifically for the purpose of decontaminating and disinfecting hospital surgical suites, emergency rooms, and intensive care units.
c. Basic and Diluted Net Loss Per Common Share
The computations of basic and diluted net loss per common share are based on the weighted average number of common shares outstanding during the year as follows:
|
|
For the Years Ended
December 31,
|
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|
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2015
|
|
|
2014
|
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Denominator (weighted average number of common shares outstanding)
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Basic and diluted net loss per common share
|
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|
Common stock equivalents, consisting of 20,965,000 options, have not been included in the calculation as their effect is antidilutive for the years presented.
MEDIZONE INTERNATIONAL, INC. AND
AFFILIATE
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
d. Property and Equipment
Property and equipment are recorded at cost. Any major additions and improvements are capitalized. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as gain or loss on sale of property and equipment. Depreciation is computed using the straight-line method over a period of: (1) three years for computers and software, and (2) five years for office equipment and furniture.
e. Provision for Income Taxes
The Company estimates income taxes in each of the jurisdictions in which it operates. This process involves estimating the Company’s actual current income tax exposure together with assessing temporary differences resulting from differing treatment of items for income tax and financial reporting purposes. These temporary differences result in deferred income tax assets and liabilities, the net amount of which is included in the Company’s consolidated balance sheets. When appropriate, the Company records a valuation allowance to reduce its deferred income tax assets to the amount that the Company believes is more likely than not to be realized. Key assumptions used in estimating a valuation allowance include potential future taxable income, projected income tax rates, expiration dates of net operating loss and tax credit carry forwards, and ongoing prudent and feasible tax planning strategies.
As of December 31, 2015, the Company had net operating loss (“NOL”) carryforwards of approximately $11,066,000 that may be offset against future taxable income, if any, and expire through 2034. If substantial changes in the Company’s ownership should occur, there would also be an annual limitation of the amount of the NOL carryforwards which could be utilized. No tax benefit has been reported in the consolidated financial statements as, in the opinion of management, it is more likely than not that all of the deferred income tax assets will not be realized and the NOL carryforwards will expire unused. Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. If the Company were to determine that it would be able to realize its deferred income tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase net income or decrease net loss in the period such determination was made.
Interest and penalties associated with any underpayment of income taxes would be classified as income tax provision in the statements of comprehensive loss.
A company may adopt a policy of presenting taxes assessed by a governmental authority on revenue-producing transactions either on a gross basis or a net basis within revenues. The Company has elected to present revenues net of any tax collected.
Deferred income tax assets as of December 31, 2015 and 2014 comprised the following:
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2015
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2014
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Net operating loss carryforwards
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The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income for the years ended December 31, 2015 and 2014 due to the following:
|
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2015
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2014
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Income tax benefit based on U.S. statutory rate of 34%
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Stock issued for expenses
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Change in valuation allowance
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MEDIZONE INTERNATIONAL, INC. AND
AFFILIATE
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
e. Provision for Income Taxes (continued)
The Company had no uncertain income tax positions as of December 31, 2015 and 2014.
The Company files income tax returns in the U.S. federal and California jurisdictions. With few exceptions, the Company is no longer subject to U.S. federal, state and local tax examinations for years before 2012.
f. Principles of Consolidation
T
he consolidated financial statements include the accounts of Medizone and the accounts of CFGH, a VIE.
All material intercompany accounts and transactions have been eliminated.
g. Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles (U.S. GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities as of the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
h. Advertising
The Company expenses the costs of advertising as incurred.
i. Stock Options
The Company records compensation expense in connection with the granting of stock options and their vesting periods based on their fair values. The Company estimates the fair values of stock option awards issued to employees at the grant date by using the Black-Scholes option-pricing model. For stock options issued to consultants and other non-employees, the Company estimates the related expense using the Black-Scholes option-pricing model. For stock options with a service condition, the expense is measured at the grant date and expensed over the vesting period. For stock options with a performance condition, the expense is measured when it is probable that the performance condition will be met, subsequently re-measured at each reporting date, and trued up upon the final completion of the performance condition.
j. Trademark and Patents
Trademark and patents are recorded at cost. Amortization is computed using the straight-line method over a period of seven years. The Company evaluates the recoverability of intangibles and reviews the amortization period on a continual basis. Several factors are used to evaluate intangibles, including management’s plans for future operations, recent operating results, and projected, undiscounted net cash flows.
k. Revenue Recognition Policy
The Company recognizes revenue when it ships its products, title and risk of loss passes to customers, payment from the customer is reasonably assured and the price is fixed or determinable. The Company records customer deposits received in advance of shipping products as a liability.
l. Inventory
The Company’s inventory consists of its AsepticSure® product and is valued on a specific identification basis. The Company purchases its inventory as a finished product from unrelated manufacturing companies. The Company determined that there was no obsolete or excess inventory as of December 31, 2015 and 2014.
MEDIZONE INTERNATIONAL, INC. AND
AFFILIATE
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
m. Fair Value of Financial Instruments
The Company’s financial instruments consist of cash, accounts payable, and notes payable. The carrying amounts of cash and accounts payable approximate their fair values because of the short-term nature of these instruments. The carrying amounts of the notes payable approximate fair values as the individual borrowings bear interest at rates that approximate market interest rates for similar debt instruments.
n. Recent Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09,
Revenue from Contracts with Customers,
which supersedes nearly all existing revenue recognition guidance under US GAAP. The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU No. 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing US GAAP. This ASU is effective for annual reporting periods beginning after December 15, 2016, and interim periods therein. Early adoption is not permitted. The Company is currently assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.
In August 2014, the FASB issued ASU No. 2014-15,
Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern
. This ASU sets forth management’s responsibility to evaluate, each reporting period, whether there is substantial doubt about the entity’s ability to continue as a going concern, and if so, to provide related footnote disclosures. This ASU is for annual reporting periods beginning after December 15, 2016, and interim periods within annual periods ending after December 15, 2016. The Company is currently assessing the impact, if any, of implementing this guidance on the Company’s financial reporting.
In April 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-03,
“Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs.”
To simplify presentation of debt issuance costs, the amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public companies, the ASU is effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. Early adoption of the ASU is permitted for financial statements that have not been previously issued. The Company is assessing the impact, if any, of implementing this guidance on its financial reporting.
o. Concentration of Credit Risk
The Company maintains its cash in bank deposit accounts which cash, at times, exceeds federally insured limits. As of December 31, 2015, the Company had approximately $212,000 of cash balances that exceeded federally insured limits. To date, the Company has not experienced a material loss or lack of access to its cash; however, no assurance can be provided that access to the Company’s cash will not be impacted by adverse conditions in the financial markets.
NOTE 2 - PROPERTY AND EQUIPMENT
Property and equipment consist of the following as of December 31, 2015 and 2014:
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2015
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|
|
2014
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Property and equipment, net
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|
|
MEDIZONE INTERNATIONAL, INC. AND
AFFILIATE
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE 2 - PROPERTY AND EQUIPMENT (continued)
Depreciation expense for the years ended December 31, 2015 and 2014 was $415 and $787, respectively.
NOTE 3 - TRADEMARK AND PATENTS
Trademark and patents consist of the following as of December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
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|
|
|
|
|
|
|
|
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|
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|
|
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|
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|
|
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|
|
|
|
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|
|
Trademark and patents, net
|
|
|
|
|
|
|
|
|
Amortization expense for the years ended December 31, 2015 and 2014 was $53,027 and $48,483, respectively. The future amortization as of December 31, 2015 is as follows: 2016-$53,910; 2017-$46,569; 2018-$34,028; 2019-$20,368; 2020-$14,090; and 2021-$7,121.
NOTE 4 - ACCRUED EXPENSES AND ACCRUED EXPENSES – RELATED PARTIES
Accrued expenses and accrued expenses – related parties consist of the following as of December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
Accrued payroll and consulting – related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
Accrued payroll taxes – related parties
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|
Accrued expenses – related parties consist of accrued but unpaid payroll and consulting fees (and associated taxes) for certain of the Company’s employees and consultants who are also directors, officers or stockholders.
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Litigation
The Company is subject to certain claims and lawsuits arising in the normal course of business. In the opinion of management, uninsured losses, if any, resulting from the ultimate resolution of these matters will not have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.
Rakas vs. Medizone International, Inc.
- A former consultant brought this action against the Company claiming the Company had failed to pay consulting fees under a consulting agreement. In September 2001, the parties agreed to settle the matter for $25,000. The Company, however, did not have the funds to pay the settlement and the plaintiff moved the court to enter a default judgment in the amount of $143,000 in January 2002. On May 8, 2002, the court vacated the default judgment and requested that the Company post a bond of $25,000 to cover the settlement previously entered into by the parties. The Company has been unable to post the required bond amount as of the date of this report. Therefore, the Company has recorded, as part of accounts payable, the original default judgment in the amount of $143,000, plus fees totaling $21,308, as of December 31, 2015 and 2014. The Company intends to contest the judgment if and when it is able to do so in the future.
Other Payables
As of December 31, 2015 and 2014, the Company has recorded other payables totaling $224,852 related to certain past due payables for which the Company has not received invoices or demands for over 10 years. Although management of the Company does not believe that the amounts will be paid, the amounts have been recorded as other payables until such time as the Company is certain that no liability exists.
MEDIZONE INTERNATIONAL, INC. AND
AFFILIATE
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE 5 - COMMITMENTS AND CONTINGENCIES (continued)
Operating Leases
The Company operates a certified laboratory located at Innovation Park, Queen’s University in Kingston, Ontario, Canada, which provides a primary research and development platform. The lease term is month to month with a monthly lease payment of $1,375 Canadian dollars (“CD”) plus the applicable goods and services tax (“GST”). Leases for a second laboratory space for full scale room testing and a storage unit are on a month-to-month basis with a monthly lease payment of CD$1,375 and CD$475, respectively, plus the applicable GST.
The Company has a non-cancelable lease for office space located in California, with monthly payments of approximately $2,300 through December 31, 2015 and $2,500 through December 31, 2016.
NOTE 6 - EQUITY TRANSACTIONS
Unless otherwise stated, the following equity transactions were with unrelated parties and the securities issued were restricted. There were no underwriters involved.
Common Stock for Cash – 2014
During January, February and March 2014, the Company sold an aggregate of 9,000,000 restricted shares of common stock to five accredited investors for cash proceeds totaling $450,000, or $0.05 per share.
During March 2014, the Company sold an aggregate of 7,050,000 restricted shares of common stock to 16 accredited investors for cash proceeds totaling $599,250, or $0.085 per share.
During September 2014, the Company sold an aggregate of 2,471,429 restricted shares of common stock to five accredited investors for cash proceeds totaling $173,000, or $0.07 per share.
During November 2014, the Company sold 2,907,143 restricted shares of common stock to five accredited investors for cash proceeds totaling $203,500, or $0.07 per share.
During December 2014, the Company sold 2,550,000 restricted shares of common stock to an accredited investor for cash proceeds totaling $178,500, or $0.07 per share.
Common Stock for Cash – 2015
During February 2015, the Company sold 300,000 restricted shares of common stock to an accredited investor for cash proceeds totaling $21,000, or $0.07 per share.
During February and March 2015, the Company sold an aggregate of 3,000,000 restricted shares of common stock to seven accredited investors for cash proceeds totaling $150,000, or $0.05 per share.
During April, May and June 2015, the Company sold an aggregate of 7,500,000 restricted shares of common stock to eight accredited investors for cash proceeds totaling $375,000, or $0.05 per share.
During August 2015, the Company sold an aggregate of 2,600,000 restricted shares of common stock to five accredited investors for cash proceeds totaling $130,000, or $0.05 per share.
During November 2015, the Company sold 10,000,000 restricted shares of common stock to an accredited investor for cash proceeds totaling $1,000,000, or $0.10 per share.
Recapitalization
The Company’s amended Articles of Incorporation (“AOI”) include a class of preferred stock, par value $0.00001, with authorized shares of 50,000,000. To date, no shares of preferred stock have been issued. The rights and preferences of the authorized preferred shares will be determined by the Company’s Board of Directors.
MEDIZONE INTERNATIONAL, INC. AND
AFFILIATE
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE 6 - EQUITY TRANSACTIONS (continued)
The amended AOI authorize 395,000,000 shares of common stock, par value $0.001.
NOTE 7 - COMMON STOCK OPTIONS
In May 2012, the Company granted options for the purchase of 1,000,000 shares of common stock to a consultant for distribution channel related services to be performed. The options have vested as of December 31, 2015. The options have an exercise price of $0.17 per share, and are exercisable for up to five years. The Company recognized $69,300 of expense during the year ended December 31, 2015.
In August 2013, the Company granted options for the purchase of 250,000 shares of common stock to a consultant. These options are exercisable at $0.10 per share for five years from the date of grant with 50,000 options vesting immediately and the other 200,000 options vesting upon the achievement of certain milestones, which were met in 2015. The Company recognized the remaining expense of $17,659 during the year ended December 31, 2015.
On February 26, 2014, the Company granted to a new director options for the purchase of 2,000,000 shares of common stock, with an exercise price of $0.1095 per share. Of these options, 1,000,000 vested February 26, 2015 and the remaining 1,000,000 options will vest upon the successful achievement of certain milestones. Unvested options vest immediately in the event of a change in control of the Company. The options are exercisable for five years. The Company recognized $16,017 and $80,075 during the years ended December 31, 2015 and 2014, respectively, in connection with the options that vested February 26, 2015. The Company will measure and begin recognizing the remaining expense when the achievement of the required milestones becomes probable.
On February 26, 2014, the Company granted options to six consultants and service providers for the purchase of a total of 250,000 shares of common stock at an exercise price of $0.1095 per share. Options for 200,000 shares vested immediately upon grant and options for the remaining 50,000 shares vested January 9, 2015. The options are exercisable for five years. The grant date fair value of these options was $24,023. The Company recognized expense of $800 and $23,223 during the years ended December 31, 2015 and 2014, respectively.
On April 30, 2014, the Company granted options for the purchase of a total of 1,350,000 shares of common stock for services rendered, as follows: 250,000 shares to each of four directors of the Company, 100,000 shares to each of two consultants, and 75,000 shares each to a consultant and an employee of the Company. All options vested upon grant, have an exercise price of $0.163 per share, and are exercisable for up to five years. The total value of these options at the date of grant was $193,234, which the Company recognized as an expense during the year ended December 31, 2014.
On May 6, 2014, the Company granted options to a consultant for the purchase of 100,000 shares of common stock at an exercise price of $0.19 per share. Options for 50,000 shares vested immediately upon grant and options for the remaining 50,000 vested during 2015. The options are exercisable for five years. The Company recognized expense of $8,342 and $8,342 during the years ended December 31, 2015 and 2014, respectively.
On August 15, 2014, the Company granted options to a consultant for the purchase of 75,000 shares of common stock at an exercise price of $0.13 per share. The shares will vest when certain required milestones are achieved. The options are exercisable for five years. The Company will measure and begin recognizing an expense when the achievement of the required milestones becomes probable.
On August 15, 2014, the Company granted options for services rendered to a director of the Company for the purchase of 1,000,000 shares of common stock at an exercise price of $0.13 per share. These options vested immediately upon grant. The Company recognized expense of $114,069 during the year ended December 31, 2014, which was the grant date fair value of these options.
On October 7, 2014, the Company granted to a new board member options for the purchase of 1,000,000 shares of common stock, with an exercise price of $0.16 per share. These options vested October 7, 2015. The options are exercisable for five years. The grant date fair value of the options was $140,178. The Company recognized $105,133 and $35,045 during the years ended December 31, 2015 and 2014, respectively.
MEDIZONE INTERNATIONAL, INC. AND
AFFILIATE
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE 7 - COMMON STOCK OPTIONS (continued)
On December 4, 2014, the Company granted options to four consultants for the purchase of 140,000 shares of common stock at an exercise price of $0.11 per share. The required milestones have been met and the shares are fully vested. The options are exercisable for five years. The total value of these options at the date of grant was $13,461, which the Company recognized as an expense during the year ended December 31, 2015.
.
In August 2015, the Company granted options for the purchase of a total of 7,150,000 shares of common stock for services rendered, as follows: 6,000,000 shares total to five directors of the Company, 650,000 shares total to four consultants, and 500,000 shares to an employee of the Company. All options vested upon grant, have an exercise price of $0.088 per share, and are exercisable for up to five years. The total value of these options at the date of grant was $541,687, which the Company recognized as an expense during the year ended December 31, 2015.
In August 2015, the Company granted options to a consultant for the purchase of a total of 250,000 shares of common stock at an exercise price of $0.085 per share. These options vested upon grant and are exercisable for up to five years. The total value of these options at the date of grant was $18,991, which the Company recognized as an expense during the year ended December 31, 2015.
The Company’s 2014 Equity Compensation Plan (the “2014 Plan”) was adopted on April 30, 2014 by the Board of Directors. The Company filed a registration statement on Form S-8 on July 17, 2014, to register 6,000,000 shares of common stock that may be issued under awards made pursuant to the 2014 Plan. As of December 31, 2015, the Company had 4,935,000 options available for grant under the 2014 Plan and previously adopted plans.
The Company estimates the fair value of each stock award by using the Black-Scholes option-pricing model, which model requires the use of exercise behavior data and the use of a number of assumptions including expected volatility of the Company’s stock price, the weighted average risk-free interest rate, and the weighted average expected life of the options. Because the Company does not pay dividends, the dividend rate variable in the Black-Scholes option-pricing model is zero. Expense of $791,390 and $453,987 was recorded for the years ended December 31, 2015 and 2014, respectively. Excluding options whose performance condition is not yet deemed probable as of December 31, 2015, the Company had various unvested outstanding options with related unrecognized expense of $104,647. The Company will recognize this expense when achievement of the required milestones become probable.
The Company estimated the fair value of the stock options at the date of the grant, based on the following weighted average assumptions:
Risk-free interest rate
|
|
|
1.52
|
%
|
to
|
|
|
1.60
|
%
|
Expected life
|
|
|
|
|
|
|
|
5 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the status of the Company’s outstanding options as of December 31, 2015 and changes during the year then ended is presented below:
|
|
Shares
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding, January 1, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEDIZONE INTERNATIONAL, INC. AND
AFFILIATE
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE 8 - ACCOUNTS PAYABLE – RELATED PARTIES
As of December 31, 2015 and 2014, the Company owed $233,109 to certain consultants for services. These consultants are stockholders of the Company and are related parties.
NOTE 9 - NOTES PAYABLE
Notes payable consist of the following as of December 31, 2015 and 2014:
|
|
2015
|
|
|
2014
|
|
Unsecured notes payable to former directors and a family member of a former director, due at various dates in 1995, 1996 and 1997 (principal and accrued interest as of December 31, 2015), interest at 8%. The Company has the right to repay the loans with restricted stock at $0.10 per share if alternative financings do not occur. These notes payable are in default.
|
|
$
|
182,676
|
|
|
$
|
182,676
|
|
Unsecured notes payable to a third party in the amount of $50,000, due on September 8, 2018 (principal as of December 31, 2015), interest at 12%. Accrued interest due semi-annually, January 5 and July 5 of each year. The note holder has the right to convert 20% of the then outstanding principal into common shares at $0.10 per share.
|
|
|
50,000
|
|
|
|
-
|
|
Unsecured notes payable to 10 stockholders, due on demand, interest at 10% (principal and accrued interest as of December 31, 2015). The Company is obligated to accept the principal rate at face value plus accrued interest as partial payment for shares the lenders may purchase from the Company upon exercise of the lenders’ option to acquire shares from the Company.
|
|
|
60,815
|
|
|
|
60,815
|
|
Unsecured notes payable to a third party in the amount of $25,000, due on September 17, 2018 (principal as of December 31, 2015), interest at 12%. Accrued interest due semi-annually, January 5 and July 5 of each year. The note holder has the right to convert 20% of the then outstanding principal into common shares at $0.10 per share.
|
|
|
25,000
|
|
|
|
-
|
|
Unsecured notes payable to directors totaling $28,000 and a note payable to a third party in the amount of $9,000, due on April 22, 1995 (principal and accrued interest as of December 31, 2015), interest at 8%. Each lender has the right to convert any portion of the principal and interest into common stock at a price per share equal to the price per share under a prior private placement transaction. These notes payable are in default.
|
|
|
37,000
|
|
|
|
37,000
|
|
Unsecured notes payable to a financing company, payable in nine monthly installments, interest ranging from 4.63% to 6.43%m, mature in April, July and November 2016.
|
|
|
16,905
|
|
|
|
17,750
|
|
Total notes payable
|
|
|
372,396
|
|
|
|
298,241
|
|
Less notes payable current portion
|
|
|
(297,396
|
)
|
|
|
(298,241
|
)
|
Total notes payable long term
|
|
$
|
75,000
|
|
|
$
|
-
|
|
MEDIZONE INTERNATIONAL, INC. AND
AFFILIATE
Notes to Consolidated Financial Statements
December 31, 2015 and 2014
NOTE 10 - GOING CONCERN
The Company’s consolidated financial statements are prepared in accordance with US GAAP which assumes an entity is a going concern and contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has incurred significant recurring losses from its inception through December 31, 2015, which have resulted in an accumulated deficit of $35,398,346 as of December 31, 2015. The Company has minimal cash, has a working capital deficit of $2,675,007, and a total stockholders’ deficit of $2,569,234 as of December 31, 2015. The Company has relied almost exclusively on debt and equity financing to sustain its operations. Accordingly, there is substantial doubt about its ability to continue as a going concern.
Continuation of the Company as a going concern is dependent upon obtaining additional capital and ultimately, upon the Company attaining profitable operations. The Company will require substantial additional funds to continue to develop its products, product manufacturing, and to fund additional losses, until revenues are sufficient to cover the Company’s operating expenses. If the Company is unsuccessful in obtaining the necessary additional funding, it will most likely be forced to substantially reduce or cease operations.
The Company believes that it will need approximately $1,000,000 during the next 12 months for continued production manufacturing research, development, and marketing activities, as well as for general corporate purposes.
During 2015, the Company raised a total of $1,676,000 through the sale of 23,400,000 shares of common stock at prices ranging from $0.05 to $0.10 per share, which funds have been used to keep the Company current in its public reporting obligations and to pay certain other corporate obligations including the costs of development for its hospital disinfection system.
The Company believes it can raise additional funds from certain investors who have purchased shares from 2009 through 2015, although there is no assurance that these investors will purchase additional shares.
The ability of the Company to continue as a going concern is dependent on successfully accomplishing the plan described in the preceding paragraphs and eventually attaining profitable operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.
NOTE 11 – CUSTOMER DEPOSITS
As of December 31, 2014, the Company received purchase orders and related customer deposits totaling $30,000 to purchase the AsepticSure® hospital disinfection systems and related equipment. During the year ended December 31, 2015, these deposits were applied toward the purchase of these units and were recognized as revenue.
NOTE 12 – SUBSEQUENT EVENTS
The Company evaluated subsequent events through the filing date of this Annual Report on Form 10-K and determined to disclose the following event.
During January 2016, the Company finalized an agreement with a consultant to obtain the know-how necessary to source the UV ozone-generating bulbs and the manufacturing expertise used in the construction of generators used in the AsepticSure® hospital disinfection systems. In exchange, the Company issued 500,000 common shares at $0.08 per share to this consultant. In February 2016, the Company terminated the agreement as to future payments to the consultant.