PART I

Throughout this Annual Report on Form 10-K, unless expressly indicated or the context requires otherwise, we use the terms “Medizone,” the “Company,” “we,” “us,” and “our” to refer to Medizone International, Inc., a Nevada corporation, and, where appropriate, ~~its affiliate.~~our affiliate, the Canadian Foundation of Global Health, which is a non-profit variable-interest entity, and our wholly-owned subsidiary, Medizone Canada, Inc., a corporation formed under the Canada Business Corporation Act. In addition, unless indicated otherwise, references to “dollars” and “$” are to United States dollars.

~~We own or have rights~~ Throughout this Annual Report on Form 10-K, we use the acronyms “FDA” and “EPA” to refer to the ~~trademarks “Medizone”~~United States Food and ~~“AsepticSure®.”~~Drug Administration and the stylized logos “Medizone,” “O3” and “AsepticSure”. Solely for convenience, some of the copyrights, trademarks, service marks and trade names referred to in this report are listed without the ©, ®, and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trademarks, service marks, trade names and domain names. The trademarks, service marks and trade names of other companies appearing in this report are, to our knowledge, the property of their respective owners.United States Environmental Protection Agency, respectively.

Item 1. Business

Introduction

Medizone International, Inc. was incorporated in January 1986. Our focus is in the field of hospital disinfection. During the year ended December 31, 2012, we generated our first significant revenues from the sale of our AsepticSure hospital disinfection system. 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.

We are a ~~co-founder~~global provider of ~~Canadian Foundation for Global Health (“CFGH”), which was formed to establish an independent not-for-profit foundation for research that could ultimately attract~~disinfection solutions. We invented the ~~finest scientific, medical and academic professionals possible to work on projects deemed to be of social benefit, and~~AsepticSure^® system to provide a superior means ~~for us to use~~of disinfecting non-porous surfaces in numerous settings, including hospitals, other healthcare facilities and non-hospital/healthcare facilities. The AsepticSure^® system utilizes hydrogen peroxide vapor and ozone in a ~~tiered pricing structure for services~~patented process that achieves a six-log reduction across a broad array of bacterial and ~~products in emerging economies and extend the reach of our technology to as many in need as possible.~~viral pathogens.

CFGH is considered to be a variable interest entity (“VIE”). U.S. generally accepted accounting principles (“US GAAP”) require us to consolidate the results of CFGH. Accordingly, the financial position and operations of CFGH have been consolidated with our financial results in our consolidated financial statements included within this Annual Report.

Recent Developments

Note and Warrant Financing

On ~~February 22, 2017, Edwin G. Marshall, our Chief Executive Officer~~January 31, 2018, we entered into identical securities purchase agreements (the “Securities Purchase Agreements”) with two specialized investment firms, L2 Capital, LLC (“L2”) and ~~Chairman informed~~SBI Investments LLC, 2014-1 (“SBI” and, with L2, collectively, the ~~Company’s Board~~“Investors”), pursuant to which we issued identical unsecured convertible promissory notes (collectively, the “Notes”) in the aggregate principal amount of ~~Directors that he had decided to resign~~$305,000. The Notes accrue interest at a rate of 8% per annum. Principal and accrued interest are payable at maturity six months from the ~~Board~~date of ~~Directors and retire~~issue. The Notes were issued with an original issue discount of $35,000. We also paid $20,000 from ~~all positions~~the proceeds of the Notes to the Investors to reimburse them for their legal fees in connection with the ~~Company, effective February 28, 2017. Mr. Marshall also advised~~preparation of the ~~Board~~Notes and the related loan and investment transaction documentation. Accordingly, the net proceeds we received from these Notes was $250,000. The Notes are convertible at any time at the option of the Investors into shares of common stock at a conversion price of $0.05 per share, subject to adjustment upon the occurrence of certain events of default with respect to the Notes; provided, however, that ~~his decision was not based on~~in no event shall an Investor be entitled to convert any ~~disagreement~~portion of a Note in excess of that portion of the Note that, after giving effect to the conversion, such Investor (together with such Investor’s affiliates, and any persons acting as a group together with such Investor or any of such Investor’s affiliates) would beneficially own in excess of 4.99% (or 9.99% if elected by the Investor) of the number of shares of the common stock outstanding immediately after giving effect to the conversion. An Investor, upon 61 days prior notice to us, may increase the beneficial ownership limitation provisions applicable to its conversion of the Note from 4.99% to 9.99% of the number of shares of the common stock outstanding immediately after giving effect to the conversion. We may prepay the amount outstanding under either Note at any time by making a payment to the holder of an amount in cash equal to 130% multiplied by the total outstanding amount owed under the Note at such time of repayment. The Investor may convert the Note in whole or in part at any time within 10 days after it has been called for redemption.

In connection with the ~~Company on any matter relating~~Securities Purchase Agreements, we also issued to ~~our operations, policies or practices. In addition, Dr. Jill Marshall, our Director~~each Investor a warrant (collectively, the “Warrants”) to purchase 2,833,168 shares of ~~Operations, resigned effective February 28, 2017. Mr. Marshall and Dr. Marshall will support~~common stock. The Warrants are immediately exercisable for five years at an exercise price per share of $0.04169 (which is a ~~transition~~price equal to ~~new Company management over a period of 30 to 60 days as needed and as requested~~110% multiplied by the ~~Board~~closing bid price of ~~Directors.~~our common stock on the issuance date, which was $0.0379 per share). The Warrants include a cashless net exercise provision whereby the holder can elect to receive shares equal to the value of the Warrants minus the fair market value of shares being surrendered to pay for the exercise. The Warrants also contain customary anti-dilution provisions.

Equity Line Financing Arrangement

Also on January 31, 2018, we entered into that certain Equity Purchase Agreement with the Investors, which was subsequently amended on March 16, 2018 (as amended, the “Purchase Agreement”), pursuant to which the Investors committed to purchase in the aggregate, up to $10,000,000 of value of our common stock (the “Equity Line”). In consideration of their commitment under the Purchase Agreement, on January 31, 2018, we issued to each Investor 4,087,193 shares of common stock (the “Commitment Shares”) as a commitment fee. Pursuant to the Purchase Agreement, provided certain conditions are met, we have the right, but not the obligation, to direct the Investors to purchase shares of our common stock (the “Put Shares”) (i) in a minimum amount of not less than $20,000 and (ii) in a maximum amount of $1,000,000, provided that the number of Put Shares shall not exceed 300% of the average daily trading volume in the 10 trading days immediately preceding a Put Notice (as defined below). This arrangement is sometimes referred to as an “Equity Line.”

Table of Contents

At any time, and from time to time during the term of the Purchase Agreement (the “Commitment Period”), we may deliver a notice to the Investors requiring them to purchase shares (each such notice, a “Put Notice”). We will also deliver the Put Shares to the Investors via Deposit and Withdrawal at Custodian or “DWAC” within one trading day of the Put Notice. The purchase price for the Put Shares is 85% of the lowest traded price (as reported by Bloomberg Finance L.P.) during the five trading days immediately following the date the Investors receive the Put Shares associated with the applicable Put Notice (the “Valuation Period”); provided, however, that if the market price of our common stock during the Valuation Period is less than $0.01 per share, then the purchase price for the Put Shares will be 80% of the market price of our common stock during the Valuation Period. The closing of a Put Notice shall occur within one trading day following the end of the respective Valuation Period, at which time (i) the Investors shall deliver the investment amount to us by wire transfer of immediately available funds and (ii) the Investors shall return surplus Put Shares if the value of the Put Shares delivered to the Investors causes us to exceed the maximum commitment amount under the Purchase Agreement. Under the terms of the Purchase Agreement, we may not deliver another Put Notice to the Investors within seven trading days of a prior Put Notice.

Our right to issue and sell Put Shares to the Investors is subject to the satisfaction of certain conditions, including, but not limited to, (i) an effective registration statement for resale of the Put Shares and the Commitment Shares, (ii) the accuracy of our representations and warranties, (iii) our performance of our obligations under the Purchase Agreement in all material respects, (iv) no suspension of trading or delisting of our common stock, (v) limitation of each Investor’s beneficial ownership to no more than 9.99% of our outstanding common stock, (vi) our maintaining our DWAC-eligible status, and (vii) our maintaining a sufficient number of authorized shares of common stock in reserve.

The ~~Board of Directors appointed David A. Esposito as Chairman and Interim Chief Executive Officer effective March 1, 2017. Mr. Esposito has been a director~~obligation of the ~~Company since 2014. He currently serves as President~~Investors to purchase common stock from us will expire (the “Commitment Period”) on the earlier of (i) the date on which the Investors shall have purchased $10,000,000 value of shares of common stock from us pursuant to the Equity Line, (ii) January 31, 2021, or (iii) upon our provision of written notice to the Investors that we elect to terminate the Purchase Agreement. Neither of the Investors, nor any affiliate of either of the Investors acting on its behalf or pursuant to any understanding with it, will execute any short sales during the period from the date hereof to the end of the Commitment Period.

In connection with the Purchase Agreement, we also entered into a Registration Rights Agreement requiring us to prepare and ~~CEO~~file a registration statement registering the resale of ~~Armune BioScience, Inc.~~the Commitment Shares and the shares of common stock to be issued to the Investors under the Purchase Agreement (collectively the “Registrable Shares”), an early stage medical diagnostics company focused on developing and commercializing unique technology for diagnostic and prognostic tests for prostate, lung, and breast cancers. As Interim CEO of Medizone, Mr. Esposito will lead the search for individuals with experience commercializing healthcare products to ~~focus the Company’s~~use commercially reasonable efforts to ~~raise capital for operations~~cause such registration statement to become effective, and to ~~build out~~keep such registration statement effective until the ~~Company’s sales efforts~~later of (i) the date as of which the Investors may sell all the Registrable Shares owned by them without restriction under Rule 144 promulgated under the Securities Act, or (ii) the date they have sold all the Registrable Shares and no “Available Amount” remains under the Purchase Agreement. In accordance with the Registration Rights Agreement, on February 12, 2018, we filed a registration statement on Form S-1 with the Securities and Exchange Commission (“SEC”) to register the resale by the Investors of up to 14,059,041 shares that may be issued and sold to the Investors under the Equity Line and 8,174,386 Commitment Shares, or approximately 5.6% of our shares of common stock, assuming all such shares were issued and outstanding.

The foregoing description of the terms of the Securities Purchase Agreements, the Notes, the Warrants, the Purchase Agreement and the Registration Rights Agreement is not complete and is subject to and qualified in its entirety to the agreements and instruments themselves. We have previously filed Current Reports on Form 8-K and included copies of these agreements as exhibits to those reports, copies of which can be viewed on our corporate website.

The Disinfection Problem

Hospital-acquired infections (“HAIs”), also referred to as nosocomial infections, are a significant global problem. In the United States, ~~market.~~such infections are a leading cause of death, accounting for approximately 100,000 deaths annually. According to the United States Centers for Disease Control and Prevention (the “CDC”), the nosocomial infection rate for U.S. hospital admissions is approximately five to ten percent. In the European Union (“EU”), HAIs cause 37,000 deaths annually but contribute to an additional 110,000 deaths and impose direct costs on the healthcare system of approximately $10.5 billion annually. There are an estimated 4.1 million cases of nosocomial infections in the EU each year. In the developed world, nosocomial infections are estimated to affect patients at a rate of 3.5% to 12% of hospital admissions. Approximately 20% to 30% of these infections are considered preventable through intensive hygiene and control programs, while the other 70% to 80% are preventable through more involved measures, including hospital architecture, hospital air sanitation and use of disposable equipment and supplies.

In the hospital setting, a few bacterial and viral pathogens account for almost all the nosocomial infections. The species include the following: Acinetobacter baumannii, Clostridium difficile (“C. difficile”), Staphylococcus aureus and methicillin-resistant Staphylococcus aureus (“MRSA”), Escherichia coli (“E. coli”), Salmonella, Shigella, Campylobacter, Pseudomonas aeruginosa, Stenatrophomonas maltophilia, Tuberculosis, vancomycin-resistant Enterococcus (“VRE”), Legionnaires’ Disease, Noroviruses, and Rotaviruses. A recent CDC report identified 18 superbugs as “urgent, serious, and concerning threats” to the population, including carbapenem-resistant Enterobacteriaceae, drug-resistant Neisseria gonorrhea and multi-drug resistant Acinetobacter. Infections caused by the same bacterial and viral pathogens that result in HAIs are also prevalent in settings outside hospitals.

Table of Contents

The AsepticSure^® Solution

~~Our Business~~The AsepticSure^® system is a portable, affordable disinfection system that can be easily operated by trained maintenance staff. Each AsepticSure^® system consists of a primary unit that generates hydrogen peroxide mist and ozone (the “disinfectant generator”), two ozone scrubbers and a dehumidifier. The disinfectant unit is placed in the center of the room to be cleaned. Vents and doors are then sealed with an easily and cleanly removable adhesive tape product. The disinfectant unit is activated from outside of the room through a remote wireless interface. The room is filled with a unique and patented ozone-based gas formula to specific humidity and charge strength. Following the charge period and subsequent treatment period, the disinfectant unit is remotely turned off and the ozone scrubbers restore the atmosphere inside the room to applicable safety standards. The turnaround time for re-use of rooms up to 4,000 cubic feet in size is 80 to 90 minutes. This includes the decontamination of all room contents.

The disinfection action of the AsepticSure^® system is achieved through a patented process involving the ~~name~~interaction of ~~our patented,~~low-dose hydrogen peroxide (H₂O₂) and ozone (O₃) at a specific relative humidity for a fixed period of time. Ozone is a gas composed of three oxygen atoms (O₃) in an unstable and highly reactive form. Ozone naturally tends to seek its normal state, exhibiting a short half-life as it reverts to oxygen (O₂) fairly rapidly. There are many uses of ozone as a disinfecting agent. Although ozone does react with organic matter, it leaves no residue in water or on a treated product. Ozone also does not form any toxic byproducts. The interaction of hydrogen peroxide and ozone creates a compound known as Trioxidane (H₂O₃). Trioxidane is so efficient in killing bacteria at low concentrations that all equipment may remain in the room during the disinfection process as material compatibility testing across a broad range of metals, plastics, textiles and electronic circuit boards has shown no damage following 20 separate disinfection runs.

In October 2017, the AsepticSure^® system was “CE” Mark certified in the EU and its member states. In June 2017, we received full electrical safety approval for all models of the AsepticSure^® system. The approval means that the AsepticSure^® system has achieved full compliance with the applicable international safety standards that provide a baseline requirement that must be met in order to pursue marketing in all jurisdictions, including Canada, the United States, ~~Environmental Protection Agency~~South America, the EU, Asia, and the Middle East. Although we will be required to apply for a separate approval in each country, compliance with the international safety standards will greatly facilitate this process. In August 2016, Cogmedix Inc., our contract manufacturer (“~~EPA”~~Cogmedix”) ~~registered (Reg. No. 90607-3) ozone disinfectant formula~~, obtained company and establishment numbers from the EPA to serve as a manufacturer for the AsepticSure^® system. Cogmedix already held FDA medical device manufacturing status. EPA registration allows Cogmedix to ship AsepticSure^® systems to hospitals and other users in the United States. The EPA has also granted a registration number for the specific hydrogen peroxide catalyst used in the AsepticSure^® system. The AsepticSure Oxidative Catalyst is EPA approved for ~~disinfection of non-porous surfaces~~use in hospitals, clinics, ~~hotels,~~food industry, sporting venues, and hotels to disinfect hard, non-porous surfaces at a 1.4% concentration.

We tested the AsepticSure^® system against many of the bacterial and viral pathogens that most frequently cause HAIs. The table below sets forth the names of such species and, information about the results of our testing of the efficacy of the AsepticSure^® system as a means of controlling them.

The efficacy data in the food industry, long-term care facilities, and other critical infrastructures. In the AsepticSure system, oxygen atoms are misted into the environment with a hydrogen peroxide vapor, creating Trioxidane, and successfully achieving high rates of bactericidal kill inside an enclosed space without any residual damagetable below refer to ~~the room contents.~~

Prior to 2008, our research and development activity had been dedicated to (i) seeking regulatory approval of a precise mixture of ozone and oxygen, and the process of inactivating lipid-enveloped viruses for the intended purpose of decontaminating blood and blood products and assisting in the treatment of certain diseases; (ii) developing or acquiring the related technology and equipment for the medical application of our products, including a drug production and delivery system; and, (iii) applying our novel technology to the problem of nosocomial infections world-wide.

Early in 2008, we began to consider other applications of our core technologies and new technologies with lower development costs with the objective of moving us to revenue production in the shortest period of time. This new direction included re-positioning the Company to pursue an initiative in the field of hospital disinfection. After achieving laboratory results using ozone on ~~Bacillus subtilis~~, an internationally recognized surrogate for anthrax, that produced 7 log reductions (sterilization), we expanded our research and business plan to include bio-terrorism countermeasures as well as hospital disinfection and critical infrastructure de-contamination.“log reduction”. “Log” stands for logarithm, which is the exponent of 10. Log reduction stands for a 10-fold (one decimal) or 90% reduction in numbers of live bacteria. For example, a “5-log reduction” means lowering the number of microorganisms by 100,000-fold, that is, if a surface has 100,000 pathogenic microbes on it, a 5-log reduction would reduce the number of microorganisms to one. A 6-log reduction means the number of pathogenic microorganisms is 1,000,000 times smaller and a 7-log reduction means the number is 10,000,000 times smaller.

~~Standards for disinfection and sterilization refer to log reduction. “Disinfection”~~ Disinfection is considered to involve a bio-burden reduction of 99.99% (4-logs) and up to 99.999% (5-log reduction) or destruction of 999,990 out of 1,000,000 organisms, leaving behind very few, but still some, viable organisms. Sterilization is the statistical destruction of all microorganisms and their spores. It is defined as ~~6 log~~6-log or a 99.9999% reduction. Statistically, this definition is accepted as zero viable organisms surviving.

Ozone is a gas composed of three oxygen atoms (O3) in an unstable and highly reactive form. Ozone naturally tends to seek its normal state, exhibiting a short half-life as it reverts back to oxygen (O2) fairly rapidly. There are many uses of ozone as a disinfecting agent. Although ozone does react with organic matter, it leaves no residue in water or on a treated product. Ozone also does not form any toxic byproducts. When used in water, no change in color or flavor results from ozone treatment, unlike chlorine treatment. Ozone can be generated onsite from ambient air or from oxygen. Each method has its advantages and unique challenges. It has been demonstrated that ozone can be economically produced and is effectively used as an agent in food processing and equipment sanitizing, and in water treatment facilities globally. Ozone technology is replacing conventional sanitation techniques such as chlorine, steam, or hot water.

We developed AsepticSure, a highly portable, low-cost, ozone-based technology specifically for the purpose of decontaminating and sterilizing hospital surgical suites, emergency rooms, intensive care units and other enclosed spaces such as gym locker rooms, laboratories and veterinary clinics. Since this technology is not considered a medical treatment or a diagnostic device, its development pathway is not subject to a stringent and expensive regulatory review process. We anticipate that the development pathway will be based on independent peer-reviewed science and engineering excellence. Our team is also developing a variant of AsepticSure for governmental use with bio-terrorism countermeasures.

AsepticSure is a safe, highly efficacious, ozone based room disinfection system for healthcare decontamination of infective pathogens. Its powerful antimicrobial action is achieved through a patented process involving the interaction of low-dose hydrogen peroxide (H2O2) and ozone (O3) at a specific relative humidity for a fixed period of time. The compound created (H2O3) is known as Trioxidane. Trioxidane is so efficient in killing bacteria at low doses that all medical and electrical equipment may remain in the room during the disinfection process.

Our ~~Queens University~~ research team has demonstrated that even a ~~3 log~~3-log (99.9%) bactericidal kill is not enough to stop bactericidal regeneration. Yet a 3-log kill exceeds the results of most current cleaning ~~practices.~~practices and technologies. In our laboratories, we have demonstrated that the remaining ~~.1%~~0.1% of bacteria following a 3-log kill ~~begins~~begin to regenerate in a few hours and in five days will return to full strength. That is the reason most current cleaning methods and systems have failed to break the reinfection cycle in health care facilities.

Effect of the AsepticSure^Ò System on Specified Bacteria

Organism		Log₁₀ Reduction
MRSA		6.43
VRE		6.08
E. coli		6.02
C. difficile		5.75
B. Subtilis		6.37

Source: Zoutman, Shannon & Mandel, Effectiveness of a novel ozone-based system for the rapid high-level disinfection of health care spaces and surfaces, Am J Infect Control 2001 at 5 (table 3).

Note: All decontamination testing with the AsepticSure^Ò system was conducted using bacteria or bacterial spores suspended in approved biofilms to simulate real world situations involving spills of human waste, which are often difficult for normal cleaning agents to penetrate.

Table of Contents

The efficacy of the AsepticSure ~~difference~~^® system was first demonstrated outside the laboratory at Belleville General Hospital in Ontario, Canada during the summer of 2013 when a ward that had been contaminated with ana MRSA outbreak was quarantined. ~~Following a single AsepticSure cleaning, the ward was free of MRSA. More significantly, for more than six months thereafter, the ward reported no additional cases of MRSA infection.~~ Historically, the hospital reported that the ward had averaged one to two new MRSA cases per month. ~~Achieving a 6-log bactericidal kill with AsepticSure broke the reinfection cycle at this hospital.~~

~~Table of Contents~~

~~The AsepticSure Solution~~

The AsepticSure hospital disinfection system is a portable, affordable, easily operated system that can be used by trained maintenance staff. The unit is placed in the center of the room to be cleaned. Vents and doors are then sealed with an easily and cleanly removable 3M-tape product. The system is turned on from outside of the room through a remote wireless computer interface. The room is filled with a unique and patented gas formula that is ozone-based to specific humidity and charge strength.

Following the charge period, the disinfection process is remotely turned off and a separate technology is employed that restores the atmosphere inside the room to EPA standards. The end result leaves the treated room sterile of pathogens with a sweet, fresh oxygen-charged atmosphere very similar to what you experience after a thunderstorm.

The turnaround time for re-use of rooms up to 4,000 cubic feet in size is 80 to 90 minutes. This includes the decontamination of carpets, drapes and medical equipment, all to the 6 log standard – the Gold Standard benchmark by which all disinfection technologies are measured.

In early November of 2014, our engineering team began development of a new ozone generator, utilizing a revolutionary UV bulb that was proving to generate ozone more efficiently. Following experimental proof of concept work using different generator sizes and designs, we arrived at what proved to be our next generation ozone generator. The new design produced twice the ozone output per generator, while requiring less electrical power. The new generator was also designed as a ‘plug and play’ replacement for our current generators, allowing current systems to be upgraded.

In 2015, we had completed our testing of a fully functioning prototype system of AsepticSure using this new technology in both laboratory and hospital environments. The prototype was able to consistently output more than twice as much ozone as the previous system, which equates to being able to treat twice the space with a single ~~system, where two systems might have been required before. Or in~~AsepticSure^® cleaning, the ~~same size space, room turn time is significantly decreased. Like our previous systems, this system~~hospital determined that the ward was ~~modular in design~~free of MRSA and ~~up to four systems may be operated at one time.~~

Beginning in 2016, we transitioned all new systems to the Generation III. While the new generators are the most significant upgrade to Generation III, many other improvements and refinements are included. There is a new touch screenremained so for the control panel and updated software operating system; the remote, wireless computer control system has been replaced with a modern tablet, which allows more flexibility in operation; a hard wire port has been added for those rare circumstances when you might prefer to not operate through wireless communication for fear of possibly upsetting critical wireless devices operating in the same area, such as on a critical coronary care unit; there are now dual humidity sensors that cross check each other, adding to reliability.

~~Developing the Market~~

~~We have demonstrated the efficacy of our technology over the past three years.~~11 months. In May 2014, at the Infection Prevention and Control Association of Canada (“IPAC”) Annual Scientific Meeting in Halifax, Nova Scotia, Canada, ~~Dr. Zoutman further~~we reported that each of the rooms disinfected with the AsepticSure^® system at Belleville in June 2013 described above had gone a full year without another case of MRSA.

In January 2015, a senior official at Quinte Health Care, ~~(QHC),~~ a four hospital Canadian ~~corporation,~~health care system (“QHC”), informed Medizone that following the use of the AsepticSure^® system to treat the MRSA outbreak at Belleville and a ~~C-difficile~~C. difficile outbreak at QHC’s Trenton Memorial Hospital, the hospitals reported no further cases of illness related to MRSA or ~~C-difficile,~~C. difficile, citing the use of the AsepticSure^® system as a significant factor. ~~Dr. Zoutman~~We reported at the IPAC meeting in Victoria, B.C. in June 2015, that there had been no further cases of ~~C-difficile~~C. difficile at Trenton Memorial Hospital as of the meeting date. We believe that this extraordinary demonstration of disinfection efficacy by the AsepticSure^® system underscores the importance of obtaining 100% kill of infective pathogens in health care settings if the re-infection cycle is to be broken.

~~During~~The Market for Disinfection Products and Services

We believe that the ~~EPA approval~~AsepticSure^® system has application in a wide variety of settings, including medical facilities (hospitals, clinics, physician’s offices, outpatient surgical centers, long-term care facilities), bio-safety labs, athletic facilities (gyms and locker rooms) and sports equipment, mortuaries, bio-defense and response to pandemics, building remediation, tissue labs, and clean rooms. Each of these potential markets is discussed in greater detail below.

Medical Facilities. We believe that medical facilities, including hospitals, clinics, physician’s offices, outpatient surgical centers, and long-term care facilities, represent the primary market for the AsepticSure^® system. The need to replace equipment periodically – the rate of replacement for typical steam, heat or chemical sterilizers is between 8 and 11 years – makes this an attractive market in our view.

Bio-safety Labs, Tissue and Cleanrooms. Bio-safety labs, tissue and blood labs and cleanrooms seek to reduce the risk of the transmission of infectious agents or materials from culture to culture and from culture to personnel. We believe that the use of the AsepticSure^® system as a routine disinfection process in all biosafety levels and microbiological practices may reduce the ~~United States, we pursued opportunities~~risk of such transmission, while also reducing potential negative effects that can result from other decontamination products, such as high-concentration vaporized hydrogen peroxide, formaldehyde, glutaraldehyde and titanium dioxide, including blistering of paints, corrosion of metals, lengthy exposure times and potential carcinogenic exposure. There are many requirements and restrictions on the type of decontamination agents such labs may use to prevent these risks and remediate adverse incidents. We also believe that the AsepticSure^® system can aid in ~~Saudi Arabia, Canada,~~all biosafety levels and ~~South America. Our licensee~~microbiological practices, on all safety equipment, transfer hoods, isolation chambers, animal cages and ~~distributor~~other equipment, as well as help prevent the risks associated with handling infectious microorganisms.

Athletic Facilities and Sports Equipment. Transmission of infectious diseases in ~~South America~~athletic facilities and by sports equipment is GYD S.A. (GYD). In 2016, we granted GYD exclusive distribution rights for AsepticSure in Chile, Brazil, Colombia and Peru. GYD will lead the regulatory approval process throughout South America and exclusive distribution rights will be expanded to other countries in South America on a country-by-country basis as GYD achieves regulatory approvals and establishes channels of distribution.

Following receipt of EPA registration of AsepticSure in November 2016, we commenced implementing a plan for commercialization of our system in the United States. During the first six months of 2017, we will implement a Product Evaluation Program (PEP). This will include placing devices, free consumables and service/support for a three to six month trial and demonstration and then transitioning to purchase. Resultsan increasingly recognized serious problem that is underappreciated by operators of the ~~evaluations will~~facilities and athletes. An October 2015 article published on Forbes.com [Stone, MRSA: How You Can Avoid NFL Player Daniel Fells’ Plight At The Gym (October 13, 2015) https://www.forbes.com/sites/judystone/2015/10/13/how-you-can-avoid-daniel-fells-mrsa-plight/#304555361974] highlights the risk of contracting infectious diseases faced by athletes at all levels of sport. The article explored the plight of Daniel Fells, then a 32-year-old New York Giants tight end, who contracted a serious MRSA infection after receiving a cortisone shot for an ankle injury. Fells had five surgeries to address the infection, which was feared to be ~~published and used to develop and expand~~career-ending. The article also states that a ~~key opinion leader network. During the latter half~~number of prominent NFL players have had MRSA infections, including members of the ~~year,~~Cleveland Browns, Washington Redskins and Los Angeles Rams. The Tampa Bay Buccaneers had an outbreak among three players and faced a lawsuit from former kicker Lawrence Tynes, who claimed that unsanitary conditions at the team’s facilities caused him to become infected with MRSA, which required multiple surgeries and six weeks of intravenous antibiotics to cure. Tynes contended that the infection ended his career, costing him over $20 million in anticipated future earnings. It also notes that a college player at Lycoming College died from an MRSA infection in 2003 and that several prominent NBA players have also had difficult infections.

To evaluate the risk of infectious disease transmission by athletic equipment, our research staff assessed the risk of microbiological contamination in routinely used sports equipment, in this case ice hockey equipment, by taking samples from the surface of the equipment. The samples, which were plated and incubated in our research laboratory, showed significant bacterial growth on all sports equipment items, with no one organism being predominant. The equipment was then placed in a treatment room with one AsepticSure^® machine where it was treated for 60 minutes at a relative humidity of 90%, with an 80-ppm concentration of ozone and a concentration of hydrogen peroxide at 1.4%. Post-treatment assessment showed no bacterial growth on all locations sampled after 24 hours. Based on the success of this test, we ~~will undertake sales contract implementation, which will include on-site training~~intend to market routine cleaning of athletic facilities and ~~in-service, as-needed technical support and on-site service~~sports equipment using the AsepticSure^® system as ~~we identify effective sales channels and distribution to accelerate growth.~~a means of reducing the transmission of infectious disease among athletes.

Table of Contents

~~Regulatory Affairs~~Mortuaries. There are more than 20,000 mortuaries, employing over 100,000 people, in the United States. The mortuary industry in the United States generates approximately $16 billion of revenues annually. The preparation rooms operated by mortuaries present major opportunities for disease transmission and contamination. We believe that mortuaries represent a major disinfecting/decontamination need and, as a result, are an attractive market for application of the AsepticSure^®technology. In 2017, we assessed the risk of disease transmission in a mortuary in Ontario, Canada. At the beginning of the assessment, samples were collected from various locations in the mortuary’s preparation room. We plated and incubated the samples in our research laboratory. The pre-treatment assessment showed significant bacterial growth in multiple locations, with no single organism being predominant. We treated the preparation room with two AsepticSure^® machines for 60 minutes. The relative humidity in the preparation room was set at 90%, the ozone concentration was set at 80 ppm and the concentration of hydrogen peroxide was 1.4%. Following treatment, we collected samples from the same areas that we sampled before treatment. The post-treatment assessment showed no growth in all locations assessed after 24 hours, while one bacterial colony was present at one of the sample locations after 48 hours. Based on our assessment, we concluded that a high level of microbial load was present in the preparation room before it was treated with the AsepticSure^® system and that the single treatment virtually eliminated this microbial load. As a result, we intend to market routine cleaning of preparation rooms using the AsepticSure^® system to mortuary operators as a means of reducing the risk of transmission of infectious diseases to mortuary workers.

Bio-defense and Response to Pandemics. The AsepticSure^® system has received patents in the United States and the EU for its effectiveness as a means of eliminating B. subtilis, a well-accepted surrogate for Anthrax. In 19 separate tests involving 38 samples, the system demonstrated 100% reduction in B. subtilis spores. Furthermore, the National Research Council – Canada (NRC Human Health Therapeutics Portfolio) demonstrated the efficacy of the AsepticSure^® system against Adenovirus (PTG3602) and a Coronavirus known as transmissible gastroenteritis virus (“TGEV”) (ATCC # VR-763), which is a surrogate for other coronaviruses such as Middle East Respiratory Syndrome-Coronavirus (“MERS-CoV”) and Sudden Acute Respiratory Syndrome Coronavirus (“SARS-CoV”). In two tests with the Adenovirus, involving 24 samples, the AsepticSure^® system demonstrated the ability to eliminate 100% of the organism. In five tests against TGEV, involving 45 samples, the AsepticSure^® system eliminated 100% of the organism. We ~~have received approval by~~believe that these tests provide scientific evidence supporting our belief that the ~~regulating bodies~~AsepticSure^® system is an effective means of ~~Canada,~~eliminating the Ebola virus because filoviridae such as the Ebola virus are more susceptible to disinfection compared to coronavirus and adenovirus. Therefore, we intend to market the AsepticSure^® system as a means of combating pandemic infections and bioterrorism.

Building Remediation. We believe that the remediation of buildings that are contaminated with mold, smoke, the residual effects from water damage, including bacterial contamination, and methamphetamine is a potentially a large market for the AsepticSure^® system. As there are over 20,000 certified professional building remediators in the United States, we intend to target this market. Validation that we conducted in New Zealand ~~Chile~~has demonstrated the effectiveness of the AsepticSure^® system as a means of decontaminating buildings that have been used in the illegal production of methamphetamines. The New Zealand study involved the use of one AsepticSure^® machine to treat two separate 200-milligram samples of homogenized methamphetamine hydrochloride and a blank sample in a sealed two-by-three meter room. After treatment, the ~~EPA for AsepticSure to commence commercialization~~samples and blanks were rinsed and dissolved in approximately two milliliters of ~~our AsepticSure product~~ethanol and ~~are pursuing approval,~~analyzed by gas chromatography mass spectrometry along with a positive control. No additional compounds were detected in the methamphetamine hydrochloride samples after treatment with the ~~assistance~~AsepticSure^® system. An independent testing laboratory in New Zealand, the Institute of Environmental Science and Research Limited, determined that no residual chemicals remained following the treatment of methamphetamine hydrochloride with the AsepticSure^® system. In addition, research conducted at our ~~distributors, by~~BSL2 facility in Canada has also demonstrated high levels of efficacy (100% kill at 5 and 6 logs) for a broad variety of molds, including the ~~appropriate authorities~~ubiquitous black mold (Aspergillus fumigates) found throughout the United States and of particular concern in ~~other countries. The manufacturing~~Texas, Florida and ~~marketing of our AsepticSure system is subject to the standards of Good Manufacturing Practices. We have not had any difficulty or unreasonable expense in meeting these standards.~~Puerto Rico, following recent hurricanes.

The regulatory environment, especially in the U.S. market, continues to be dynamic in the areas of infection control as there is a significant financial and patient health burden which regulators continue to consider the option of exercising greater oversight to manage risks given the inability of current interventions to make meaningful progress on reducing infection rates.

In November of 2016, we received EPA registration of AsepticSure for use as a disinfectant for animal pathogenic bacteria on hard nonporous surfaces, food processing plant premises, food processing equipment, hospital premises, hotels, motels, and sports venues (stadiums). Our commercial strategy is to market AsepticSure as a general-purpose disinfectant, as currently approved by the EPA.Distributors

We are ~~also seeking certification from~~attempting to establish a network of distributors to market the ~~U.S. Food and Drug Administration (“FDA”) that~~ AsepticSure ~~should not be deemed to be a medical device by~~^® system outside the ~~FDA. We do not anticipate these additional steps will adversely impact our business plan for 2017. As of the filing of this report,~~United States. To date, we have ~~not received official notification of the status of AsepticSure from the FDA. We remain actively engaged in the evolving regulatory process of both the EPA~~entered into distributorship agreements with respect to Canada (Contamination Control Company), South America (GYD S.A. dba “BioAsepsis”; territories: Argentina, Chile, Brazil, Colombia and Peru), New Zealand/Australia (Aseptic Systems Ltd.) and the ~~FDA~~Nordic Region (Aglon a/s; territories: Norway, Sweden, Finland, Denmark and doIceland). These distributors have not ~~anticipate any adverse regulatory impact~~yet contributed meaningfully to our ~~current business planning assumptions~~operating results. We are in discussions with other potential distributors for ~~2017.~~other jurisdictions.

Based on the manner in which AsepticSure is used and the claims made for the product, we believe it should fall under the sole purview of the EPA. The product is intended to be used as a disinfectant on hard non-porous surfaces. The label registered and accepted by the EPA makes no claims for use to sterilize medical equipment and the ozone will not be generated in isolation to disinfect hard, non-porous surfaces. The device into which the liquid product is introduced serves as a delivery system and likewise, would not be considered a medical device. We believe AsepticSure should be regarded in a similar manner to other misting products in the disinfectant class.

According to the Federal Insecticide, Fungicide and Rodenticide Act (FIFRA), which is the legal authority for the EPA, a pesticide is partially defined as any substance or mixture of substances intended for preventing destroying, repelling or mitigating any pest. The term pesticide does not include liquid chemical sterilant products (including any sterilant or subordinate disinfectant claims on such products) for use on a critical or semi-critical device. A pest is defined by FIFRA as any insect, rodent, nematode, fungus, weed or any other form of terrestrial or aquatic plant or animal life or virus, bacteria or other microorganisms (except those organisms on or in living man or animals). In other words, the EPA would have jurisdiction over pests on inanimate surfaces as long as the surfaces are not considered semi-critical or critical medical devices. Our intent is to use AsepticSure as a general-purpose disinfectant, as currently approved by the EPA.

Intellectual Property

~~Trademarks~~

~~We have developed~~Our success depends in part upon our ability to obtain and we use trademarks in our business, particularly relating to our corporate and product names. We own one trademark that is registered with the U.S. Patent and Trademark Office (“PTO”) and we have filed an application on another. Federal registration of a trademark enables the registered owner of the mark to bar the unauthorized use of the registered mark in connection with a similar product in the same channels of trade by any third-party anywhere in the United States, regardless of whether the registered owner has ever used the trademark in the area where the unauthorized use occurs. We have registered the mark AsepticSure® as a trademarkmaintain proprietary protection for the system with the PTO. The mark is used to describe a portable decontamination and disinfection system for hospitals, government buildings, schools and other functionally critical environments that might currently require, or need to be prepared for countermeasures capability from contamination by infectious biological agents such as ~~C. difficile, E. coli, Pseudomonas aeruginosa~~, MRSA and VRE. We intend to register additional trademarks in countries where our products are or may be used or sold in the future. Protection of registered trademarks in some jurisdictions may not be as extensive as the protection in the United States.

We also claim ownership and protection of certain product names, unregistered trademarks, and service marks under common law. Common law trademark rights do not provide the same level of protection that is afforded by the registration of a trademark. In addition, common law trademark rights are limited to the geographic area in which the trademark is actually used. We believe these trademarks, whether registered or claimed under common law, constitute valuable assets, adding to recognition of our Company and the effective marketing of our products and ~~technology. Trademark registration once obtained is essentially perpetual, subject~~technologies. We protect our technology and products by, among other means, obtaining United States and foreign patents. There can be no assurance, however, that any patent will provide adequate protection for the technology, system, product, service or process it covers. In addition, the process of obtaining and protecting patents can be long and expensive. We also rely upon trade secrets, technical know-how, and continuing technological innovation to ~~the payment of a renewal fee. We therefore believe that these proprietary rights have been~~develop and ~~will continue to be important in enabling us to compete.~~maintain our competitive position.

Table of Contents

~~Trade Secrets~~

We own certain intellectual property, including trade secrets that we seek to protect, in part, through confidentiality agreements with employees and other parties. Even where these agreements exist, there can be no assurance that these agreements will not be breached, that we would have adequate remedies for any breach, or that our trade secrets will not otherwise become known to or independently developed by competitors. Our proprietary product formulations are generally considered trade secrets, but are not otherwise protected under intellectual property laws.

~~Patents~~

We own the following patents:

~~Canada~~United States:

	·	~~Patent No. 2735739 – Healthcare Facility Disinfection Process and System with Oxygen/Ozone (Nov. 2011)~~
	·	~~Patent No. 2846256 – Sports Equipment and Facility Disinfection~~

~~United States~~:

Patent No. 5,052,382 – Apparatus for the Controlled Generation and Administration of Ozone

Patent No. 6,073,627 – External Application of Ozone/Oxygen for Pathogenic Conditions, a process patent for the treatment of external afflictions. This patent also describes equipment evolutions and treatment envelope design for external medical applications.

Provisional Patent Application serial no. 10/002943, for Method and Apparatus for Ozone Decontamination of Biological Liquids. This application deals with protocols for biological liquid decontamination as well as the devices for conducting decontamination.

Patent No. 8,551,399 – Healthcare Facility Disinfecting System (Oct 2013).

Patent No. 8,636,951 – Bio-terrorism Counteraction Using Ozone and Hydrogen Peroxide (Jan 2014).

Patent No. 8,992,829 – Sports Equipment and Facility Disinfection.

Patent No. 13/821,483 – Food Handling Disinfection Treatment covering the use of ~~AsepticSure®~~AsepticSure^® in food processing plants and related facilities for the sterilization of food-borne pathogens such as Listeria, Salmonella, and other human harmful, food-poisoning-causing bacteria.

~~Europe:~~

Europe:

Patent No. 252583B - Bio-Terrorism Counter Measures Using Ozone and Hydrogen Peroxide (June 2016). Healthcare Facility Disinfection System (Aug 2016)

~~China:~~

Canada:

·	Patent No. 2735739 – Healthcare Facility Disinfection Process and System with Oxygen/Ozone (Nov. 2011)

·	Patent No. 2846256 – Sports Equipment and Facility Disinfection

China:

·	Patent No. ZL 201080030657.2 - Healthcare Facility Disinfection System (Nov 2015)

Singapore:

Patent No.176977 – Healthcare Facility Disinfecting Process and System With Oxygen/Ozone Mixture (Feb 2013)

Mexico:

Patent (allowed, but awaiting issuance) Healthcare Facility Disinfecting Process and System With Oxygen/Ozone Mixture (Nov 2016)

Applications are also pending in the 38 member countries that are parties to the ~~European Union (“EU”)~~EU Patent Treaty, as well as South Korea, India, Singapore, Brazil and Mexico.

Regulation

Our business is subject to various degrees of governmental regulation in the countries in which we and our distributors operate. In the United States, the FDA, the EPA and other governmental authorities regulate the development, manufacture, sale, and distribution of the AsepticSure^® system. Government regulations include detailed inspection of, and controls over, research and development, clinical investigations, product approvals and manufacturing, marketing and promotion, sampling, distribution, record-keeping, storage, and disposal practices.

Compliance with applicable regulations is a significant expense for us. Past, current or future regulations, their interpretation, or their application could have a material adverse impact on our operations. Also, additional governmental regulation may be passed that could prevent, delay, revoke, or result in the rejection of regulatory clearance of our products. We cannot predict the effect on our operations resulting from current or future governmental regulation or the interpretation or application of these regulations. For more information about the risks we face regarding regulatory requirements, see “Risk Factors”.

Table of Contents

~~Competition~~We were required to register the AsepticSure^®system with the EPA because it is considered to be a pesticide applicator within the meaning of the Federal Insecticide, Fungicide and Rodenticide Act (“FIFRA”). FIFRA defines as a pesticide any substance or mixture of substances intended for preventing, destroying, repelling or mitigating any pest. A pest is defined by FIFRA to include any virus, bacteria or other microorganisms (except those organisms on or in living man or animals). However, the term pesticide does not include liquid chemical sterilant products (including any sterilant or subordinate disinfectant claims on such products) for use on a critical or semi-critical medical device. In other words, the EPA would have jurisdiction over viruses, bacteria or other microorganisms on inanimate surfaces as long as the surfaces are not considered semi-critical or critical medical devices. The FDA asserts jurisdiction over products intended for use on critical or semi-critical medical devices.

In November 2016, we received EPA registration of the AsepticSure^® system for use as a disinfectant for animal pathogenic bacteria on hard nonporous surfaces in food processing plant premises, food processing equipment, hospital premises, hotels, motels, and sports venues (stadiums). This registration permits us to market and sell the AsepticSure^®system as a general-purpose disinfectant.

The ~~market~~FDA regulates medical devices in the United States. The scope of the FDA’s authority extends to the labeling of and the promotion materials used in connection with medical devices. The FDA has taken the position that the AsepticSure^®system is a medical device that is subject to pre-market approval utilizing the de novo 510(k) process because there is no predicate device that is substantially equivalent to the AsepticSure^® system considering its unique method of action. During discussions with the FDA in January 2018, we obtained a clear understanding of the additional testing that we will need to conduct and the additional data that we will need to submit to the FDA to support our de novo application. We are now in the process of conducting the testing and gathering the data with a view toward making a submission to the FDA prior to the end of the third quarter of fiscal 2018.

We have received approval by the regulating bodies of Canada, New Zealand, and Chile for ~~hospital disinfection~~the AsepticSure^®system to commence commercialization of the system and are pursuing approval, with the assistance of our distributors, by the appropriate authorities in other countries. The manufacturing and marketing of the AsepticSure^®system is ~~very~~subject to the standards of Good Manufacturing Practices. We have not had any difficulty or unreasonable expense in meeting these standards.

Competition

The infection-control industry is extremely competitive. There are numerous technologies that are competing in a similar market segment as AsepticSure. Ultra-violet light, hydrogen peroxide vapors, ozone based technologies in addition to improvements in traditional cleaning methods continue to make this market competitive and a driver of innovation. CompaniesOur competitors include companies that market ~~hydrogen peroxide based~~hydrogen-peroxide-based products, ~~include~~such as TOMI Environmental Solutions, Inc., Steris Corporation, Bioquell, Inc., Sanosil Ltd and ~~Sanosil Ltd. Other~~The Clorox Company, various companies ~~foundations, research laboratories or institutions may also be conducting similar investigations into the use~~that market ultra-violet light disinfection systems and companies that market chemical-based disinfection systems. Many of ~~ozone for this application of which we are not aware. These~~our competitors ~~may~~ have longer operating histories, greater name recognition, larger installed customer bases and substantially greater financial and marketing resources than ~~Medizone.~~we have. We believe that the principal factors affecting competition in our markets include name recognition and the ability to receive referrals based on client confidence in the disinfection system or service. Apart from government regulatory activities, there are no significant barriers of entry that could keep potential competitors from offering disinfection systems that compete with the AsepticSure^®system. Our ability to compete successfully in ~~our~~the industry will depend, ~~among other things,~~in large part, upon our ability to market and sell our ~~disinfectant system~~indoor decontamination and ~~related~~infectious disease control products and services. There can be no assurance that we will be able to compete successfully in the remediation industry, or that future competition will not have a material adverse effect on our business, operating results ~~or operations,~~ and financial condition.

Employees

As of December 31, ~~2016,~~2017, we had ~~two~~seven full-time employees and two part-time employees. Our employees are involved in research and development and administrative activities. Our relationship with our employees is good.

Additional Available Information

In March 2017, we relocated our executive offices and principal facilities to 350 E. Michigan Avenue, Suite ~~#500,~~500, Kalamazoo, Michigan, 49007. Our telephone number is (269) 202-5020. We maintain a website at http://medizoneint.com. The information on our website should not be considered part of this report on Form 10-K.

We make available, free of charge at our corporate ~~web site,~~website, copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements, and all amendments to these reports, as soon as reasonably practicable after such material is electronically filed with or furnished to the ~~United States Securities and Exchange Commission (“SEC”)~~SEC pursuant to Section 13(a) or 15(d) of the ~~Securities~~ Exchange ~~Act of 1934, as amended (the “Exchange Act”).~~Act. The public may read and copy materials we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, on official business days during the hours of 10 a.m. to 3 p.m. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers, including the Company, at http://www.sec.gov. We do not intend to, and do not incorporate by reference the information on our website by this reference.

Table of Contents

Item 1A. Risk Factors

~~Forward-Looking Statements and Certain Risks~~

Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including those discussed in “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and ~~related notes. The risks and uncertainties described below are not~~ the ~~only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business.~~accompanying notes for the period covered by this report. If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In ~~that event,~~such a case, the trading price of our common stock could decline, and you could lose ~~part~~all or ~~all~~part of your investment. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations and financial condition.

Risks Related to Our ~~Business~~Financial Condition

We have a history of losses and have a substantial accumulated deficit, which raise substantial doubt about our ability to continue as a going ~~concern~~concern. .The report of our auditors on our consolidated financial statements for the years ended December 31, 2017 and 2016, as well as for prior years, contains an explanatory paragraph raising substantial doubt about our ability to continue as a going concern. Our significant losses since inception and accumulated deficit of ~~$38,072,182~~$40,085,981 as of December 31, ~~2016,~~2017, raise substantial doubt about our ability to continue as a going concern. The ~~accompanying audited 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.

We expect losses to continue for the foreseeable future.~~We have only recently begun to generate revenues from operations.~~ No assurance can be given that our business activities will ever generate substantial revenues. Even with funding to continue our research and development activities, we expect to continue to incur substantial losses for the foreseeable future.

~~Table of Contents~~

We currently have limited financing to meet our operating ~~expenses.~~expenses. We will require additional financing in the future to cover our operating costs. If we are unable to obtain additional financing or to generate significant revenues from sales of ~~our disinfection systems,~~the AsepticSure^®system, we may be required to file for bankruptcy or liquidate. We have financed our operations since inception primarily by the sale of our common stock in small private placements to accredited investors and drawdowns under a ~~private~~prior equity line of credit. There is no assurance we will successfully accomplish our objectives or that necessary additional financing will be obtained in a timely manner or on terms that are acceptable to us. On January 31, 2018, we entered into certain financing arrangements that we believe will provide financing sufficient to fund our operations for the immediate future. However, there is no assurance we will be successful in accessing all of the capital contractually allocated under that arrangement due to limitations on our authorized capital, the market price of our common stock, volume limitations and other conditions imposed upon us and conditions and circumstances, many of which are outside our control. See “Risk Factors – Risks Related to our Financing Arrangements” below for a discussion of the risks associated with such financing arrangements.

Our net operating losses and our lack of revenues will require that we finance our operations through the sale of our securities for the foreseeable future.We will require substantial additional capital to meet our obligations and to commercialize our technology. The lack of assets and borrowing capacity makes it most likely that funding, if obtained, will be through sales of our common stock or other securities. The sale of equity securities or of securities that are convertible tointo our common stock will result in possible significant dilution to our stockholders and may adversely affect the trading ~~prices~~price of our common stock. No assurances can be given that we will be able to obtain sufficient additional capital to continue our ~~intended~~ research ~~program,~~and development programs and our efforts to commercialize the AsepticSure^®system, or that any additional financing will be sufficient to satisfy our ongoing administrative and operating expenses for any significant period of time.

~~General economic conditions may~~Our substantial debt could adversely affect our ~~revenue~~financial health and ~~harm~~prevent us from fulfilling our ~~business.~~obligations. ~~Unfavorable changes~~We have substantial debt and, as a result, significant debt service obligations in ~~economic conditions, including declining consumer confidence, inflation, recession or other changes, may lead customers~~addition to ~~delay or reduce purchases~~the new financing transactions recently entered into that are described elsewhere in this Annual Report. We have failed to make payments on several of our ~~products~~existing debt obligations to former officers and ~~services, adversely affecting our results~~other creditors. Our substantial debt could:

·	make it more difficult for us to satisfy our obligations with respect to our obligations under the Notes with the Investors;

·	increase our vulnerability to general adverse economic and industry conditions, including interest rate fluctuations;

·	require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing the availability of our cash flow to fund working capital, capital expenditures, and other general corporate purposes;

·	limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants in our debt agreements, and

·	place us at a competitive disadvantage compared to our competitors that have less debt.

Table of ~~operations and financial condition. Challenging economic conditions also~~Contents

Some of these debt instruments have high interest rates. In addition, in the event of default, the interest rates may ~~impair~~increase under these obligations. If we are unable to make debt payments or comply with the ~~ability~~other provisions of our ~~customers or distributors to pay for products or services they have purchased. As a result, reserves for doubtful accounts and write-offs of accounts receivable could become necessary. Our cash flows~~debt instruments, our creditors may be ~~adversely affected by delayed payments or underpayments by~~permitted under certain circumstances to accelerate the maturity of the indebtedness owed to them and exercise other remedies provided for in those instruments and under applicable law.

Risks Related to our ~~customers.~~Business

We currently have a limited sales, marketing and distribution organization. If we are unable to develop our sales, marketing and distribution capability on our own or through collaborations with marketing partners, we will not be successful in commercializing our products.We intend to establish our sales and marketing organization with technical expertise and supporting distribution capabilities to commercialize our products and product candidates, which will be expensive and time-consuming. Any failure or delay in the development of our internal sales, marketing and distribution capabilities would adversely impact the commercialization of our products. We may also distribute our products through independent contractor and distribution agreements with companies possessing established sales and marketing operations in the medical device industry, but there can be no assurance that we will be able to build a successful sales and marketing infrastructure or enter into independent contractor and distribution agreements on terms acceptable to us or at all. To the extent that we enter into co-promotion or other licensing arrangements, our product revenue is likely to be lower than if we directly marketed or sold our products. In addition, any revenue we receive would depend in whole or in part upon the efforts of such third parties, which may not be successful and are generally not within our control. If we are unable to enter into such arrangements on acceptable terms or at all, we may not be able to successfully commercialize ~~our disinfection~~the AsepticSure^® system. If we are not successful in commercializing our existing and future products, either on our own or through collaborations with one or more third parties, our future product revenue will suffer and we may incur significant additional losses.

Our reliance on patented technology may limit the scope of our protection and may increase the cost of doing business if we are required to enforce our rights under existing and future patents. Our success will depend, in large part, on our ability to obtain and enforce patents, maintain our trade secrets and operate without infringing on the proprietary rights of others, both in the United States and in other countries. The patent positions of companies can be uncertain to some extent and involve complex legal and factual questions, and, therefore, the scope and enforceability of claims allowed in patents are not ~~systematically~~ predictable with absolute accuracy. Our rights depend in part upon the breadth and scope of protection provided by our patents and the validity of those patents. Any failure to maintain the issued patents also could adversely affect our business. We intend to file additional patent applications (both U.S. and foreign), when appropriate, relating to our technologies, improvements to the technologies and for specific products. There can be no assurance that any issued patents or pending patent applications will not be challenged, invalidated or circumvented. There can also be no assurance that the rights granted under patents will provide us with adequate proprietary protection or competitive advantages.

Our commercial success will also depend in part, on our ability to avoid infringing patents issued to others or breaching any technology licenses upon which our products and services are based. It is uncertain whether any third-party patents will require us to alter our products or processes, obtain licenses or cease certain activities. In addition, if patents have been issued to others, which contain competitive or conflicting claims and such claims are ultimately determined to be valid, we may be required to obtain licenses to those patents or to develop or obtain alternative technology. If any licenses are required, there can be no assurance we will be able to obtain necessary licenses on commercially favorable terms, if at all. The breach of an existing license or the failure to obtain a license to any technology that we may require in order to commercialize our products may have a material adverse impact on our business, results of operations and financial condition. Litigation in those events or to enforce patents licensed or issued to us or to determine the scope or validity of third-party proprietary rights would be costly and time consuming. If competitors prepare and file patent applications in the United States that claim technology also claimed by us, we may have to participate in interference proceedings declared by the ~~PTO~~United States Patent and Trademark Office to determine priority of invention, which could result in substantial costs, even if the eventual outcome is favorable to us. An adverse outcome could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or require that we stop using such technology.

~~Table of Contents~~

We also rely on secrecy to protect portions of our technology for which patent protection has not yet been pursued or which is not believed to be appropriate or obtainable in addition to any information of a confidential and proprietary nature relating to us, including but not limited to our know-how, trade secrets, methods of operation, names and information relating to existing or potential vendors or suppliers and customer names and addresses.

Table of Contents

We intend to protect our patents, unpatentable and unpatented proprietary technology and processes, in addition to other confidential and proprietary information in part, by confidentiality agreements with employees, collaborative partners, consultants and certain contractors. There can be no assurance that these agreements will not be breached, that we will have adequate remedies for any breach, or that our trade secrets and other confidential and proprietary information will not otherwise become known or be independently discovered or reverse-engineered by competitors.

Our testing and business activities may involve the use of hazardous ~~substances~~substances.. Our research and development activities, and the application of our technology, may involve the controlled use of materials or substances that may, if used or employed improperly, prove hazardous to the respiratory system. Although we have designed our system to employ such potentially hazardous or toxic materials and substances in a manner that minimizes their adverse effects, there is a potential risk to those working with and around the substances if they fail to follow the measures we have adopted for their proper use. The injury or illness resulting from the use of our system may subject us to legal claims and possible liability.

We face significant competition, including competition from larger and better funded enterprises. We ~~expect to~~ face competition ~~in some of our markets~~ from well-funded and significantly larger companies, some of which enjoy significant name recognition or market share in the sterilization and decontamination industries. We may not be successful in our efforts to compete with these companies. There can be no assurance that our technology will have advantages over those of competitors which will be ~~significant enough~~sufficient to cause ~~users~~customers to use it. The products in which our technology may be incorporated will compete with products currently marketed, and competition from such products is expected to increase. Many of the companies currently producing products or using disinfectant or sterilization techniques have significantly greater financial resources and expertise in research and development, marketing, manufacturing, pre-clinical and clinical testing, obtaining regulatory approvals and marketing. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large third parties. Academic institutions, governmental agencies and public and private research organizations also conduct research, seek patent protection and establish collaborative arrangements for product and clinical development and marketing. Many of these competitors have products or techniques approved or in development and operate large, well-funded research and development programs. Moreover, these companies and institutions may be in the process of developing technology that could be developed more quickly or ultimately ~~proved~~proven safer or more effective than our technology.

Our business may subject us to the potential for product liability claims.Although we intend to insure for this liability, the claims might in some cases exceed the amount of coverage available to us. The testing, marketing, sale and use of medical or clinical products and other products using our technology involve unavoidable risks. The use of any of our potential products in clinical or other tests or as a result of the sale of our products, or the use of our technology in products, may expose us to potential liability resulting from the use of such products. That liability may result from claims made directly by consumers or by regulatory agencies, companies or others selling such products. We currently have product liability insurance coverage. We anticipate maintaining appropriate insurance coverage as products continue to be manufactured. We cannot assure that the insurance can be acquired at a reasonable cost or in sufficient amounts to protect us against all potential liability. The obligation to pay any product liability claim in excess of insurance coverage or the recall of any products incorporating our technology could have a material adverse effect on our business, financial condition and future prospects.

If we are to succeed in implementing our business plan, we will need to engage and retain trained and qualified staff. While thus far we have been able to engage and maintain qualified staff, particularly for research and the development of our system, there is no assurance that we will succeed in retaining the personnel needed to meet our needs as operations expand. Even if additional financing is obtained, there can be no assurance that we will be able to attract and retain such individuals on acceptable terms, when needed, and to the degree required. We anticipate that any clinical development or other approval tests in which we participate will be augmented by agreements with universities and/or medical institutions or other personnel. It is likely that our academic collaborators will not become our employees. As a result, we will have limited control over their activities and can expect that only limited amounts of their time will be dedicated to our business activities. Our academic collaborators also may have relationships with other commercial entities, some of which could compete with us.

Certain senior management employees have entered into potentially costly severance arrangements with us if terminated after a change in control. We have entered into agreements with executive officers that provide for significant severance payments in the event such employee’s employment with us is terminated within 12 months of a change in control (as defined in the severance agreement) either by the employee for good reason (as defined in the severance agreement) or by us for any reason other than cause (as defined in the severance agreement), death or disability. A change in control under these agreements includes any transaction or series of related transactions as a result of which less than fifty percent (50%) of the combined voting power of the then-outstanding securities immediately after such transaction are held in the aggregate by the holders of our voting stock immediately prior to such transaction; any person has become the beneficial owner of securities representing 30% or more of our voting stock; or within any 12-month period, the directors at the beginning of the period cease to constitute at least a majority thereof. These agreements would make it costly for us to terminate certain of our senior management employees and such costs may also discourage potential acquisition proposals, which may negatively affect our stock price.

1011

Table of Contents

We do not own manufacturing capability. We currently must rely on third parties to manufacture the ~~devices required for our hospital disinfection~~AsepticSure^® system. This arrangement decreases our control over the manufacturing process and may result in problems relating to costs, quality control and warranty issues. Although we might build or acquire our own manufacturing facility in the future, at this time we have no manufacturing capability or capacity to produce any products utilizing our disinfection technology, including any products to be used in any required clinical or other tests. We initially intend to develop relationships with other companies to manufacture those components and/or products, as we have already done, and we will act as specification developer and final assembly manufacturer for selected products only. The products currently being developed and sold by us have never been manufactured on a commercial scale and there can be no assurance that such products can be manufactured at a cost or in quantities necessary to make them commercially viable. Any delay in availability of products may result in a delay in the submission of products for any required regulatory approval or market introduction, subsequent sales of such products, which could have a material adverse effect on our business, financial condition, or results of operations. Our manufacturing processes may be labor intensive and, if so, significant increases in production volume would likely require changes in both product and process design in order to facilitate increased automation of our then-current production processes. There can be no assurance that any such changes in products or processes or efforts to automate all or any portion of our manufacturing processes would be successful, or that manufacturing or quality problems will not arise as we initiate production of any products we might develop.

We ~~operate~~are subject to extensive regulatory requirements and must receive and maintain regulatory clearance or approval for the AsepticSure^® system. Failure to receive or to maintain, or delays in ~~a heavily regulated industry.~~ receiving, clearance or approvals may adversely affect our results of operations and financial condition. Our operations are subject to extensive regulation in the United States and in other countries where we do business. In the United States, the ~~federal government~~FDA, the EPA and other governmental authorities regulate the development, manufacture, sale, and distribution of the AsepticSure^® system. Government regulations include detailed inspection of, and controls over, research and development, clinical investigations, product approvals and manufacturing, marketing and promotion, sampling, distribution, record-keeping, storage, and disposal practices. In Europe, the AsepticSure^® system is ~~responsible~~regulated primarily by country and community regulations of those countries within the European Economic Area where we do business and the system must conform to the requirements of those authorities. Failure to receive or to maintain, or delays in receiving, clearance or approvals may adversely affect our results of operations and financial condition.

Compliance with applicable regulations is a significant expense for ~~helping all Americans receive the best and safest care. The Federal government can change policy quickly~~us. Past, current or future regulations, their interpretation, or their application could have a material adverse impact on our operations. Also, additional governmental regulation may be passed that could prevent, delay, revoke, or result in the ~~interest~~rejection of ~~patient care.~~regulatory clearance of our products. We ~~need~~cannot predict the effect on our operations resulting from current or future governmental regulation or the interpretation or application of these regulations.

Regulatory agencies may refuse to grant approval or clearance, or review and disagree with our interpretation of approvals or clearances, or with our decision that regulatory approval is not required or has been maintained. Regulatory submissions may require the provision of additional data and may be ~~prepared for all potential~~time consuming and costly, and their outcome is uncertain. Regulatory agencies may also change policies, adopt additional regulations, or revise existing regulations, each of which could prevent or delay approval or clearance of devices, or could impact our ability to market a previously cleared, approved or unregulated device. Our failure to comply with the regulatory ~~scenarios~~requirements of the FDA, the EPA or other applicable regulatory requirements in the ~~major markets~~United States or elsewhere might subject us to administratively or judicially imposed sanctions. These sanctions could include, among others, warning letters, fines, civil penalties, criminal penalties, injunctions, debarment, product seizure or detention, product recalls and total or partial suspension of production, sale and/or promotion. The failure to receive or to maintain, or delays in the ~~world.~~receipt of, relevant United States or international qualifications could have a material adverse effect on our business, results of operation or financial condition.

Our business and operations would suffer in the event of cybersecurity or other system failures. Despite the implementation of security measures, our internal computer systems and those of any third parties with which we partner are vulnerable to damage from computer viruses, unauthorized access, natural disasters, terrorism, war and telecommunication and electrical failures. While we have not experienced any cybersecurity or system failure, accident or breach to date, if an event were to occur, it could result in a material disruption of our operations, substantial costs to rectify or correct the failure, if possible, and potentially violation of privacy laws applicable to our operations. If any disruption or security breach resulted in a loss of or damage to our data or applications or inappropriate disclosure of confidential or protected information, we could incur liability, further development of our proprietary systems and technology could be delayed, and our business operations could be disrupted, subject to restriction or forced to terminate, any of which could severely harm our business and prospects.

General economic conditions may affect our revenue and harm our business. Unfavorable changes in economic conditions, including declining consumer confidence, inflation, recession or other changes, may lead customers to delay or reduce purchases of our products and services, adversely affecting our results of operations and financial condition. Challenging economic conditions also may impair the ability of our customers or distributors to pay for products or services they have purchased. As a result, reserves for doubtful accounts and write-offs of accounts receivable could become necessary. Our cash flows may be adversely affected by delayed payments or underpayments by our customers.

Table of Contents

Market Risks

There is only a volatile, limited market for our common stock. Recent history relating to the market prices of public companies indicates that, from time to time, there may be periods of extreme volatility in the market price of securities because of factors unrelated to the operating performance of, or announcements concerning, the issuers of the affected stock, and this is especially true for stock ~~traded~~quoted on ~~the Over-the-Counter Bulletin Board (“OTCQB”).~~The OTC Marketplace or “OTCQB.” During the year ended December 31, ~~2016,~~2017, our common stock traded on the OTCQB at prices ranging from a high closing price of $0.15 to a low of ~~$0.04~~$0.03 per share. ~~See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”~~ General market price declines, market volatility, especially for low priced securities, or factors related to the general economy or to our business in the future could adversely affect the price of the common stock. With the low price of our common stock, any ~~securities placement~~issuance of shares of common stock by us would be dilutive to existing stockholders, thereby limiting the nature of future equity placements.

If we are unable to maintain effective internal ~~control~~controls over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the trading price of our common stock may be negatively affected.We are subject to Section 404 of the Sarbanes-Oxley Act ~~(SOX)~~(“SOX”), which requires us to maintain internal controls over financial reporting and to report any material weaknesses in such internal controls. We have consumed and will continue to consume management resources and to incur expenses for SOX compliance on an ongoing basis. If we identify material weaknesses in our internal ~~control~~controls over financial reporting, or if we are unable to comply with the requirements of Section 404 in a timely manner or to assert that our internal ~~control~~controls over financial reporting isare effective, investors may lose confidence in the accuracy and completeness of our financial reports and the trading price of our common stock could be negatively affected, and we could become subject to investigations by the ~~stock exchange on which our securities are listed, the~~ SEC or other regulatory authorities, which could require additional financial and management resources.

The requirements of being a public company may strain our resources and divert management’s attention. We also are subject to the reporting requirements of the Exchange Act, the Dodd-Frank Wall Street Reform and Consumer Protection Act, and other applicable securities rules and regulations. Compliance with these rules and regulations has increased and likely will continue to increase our legal and financial compliance costs, make some activities more difficult, time-consuming, or costly, and increase demand on our systems and resources. As a result, management’s attention may be diverted from other business concerns, which could harm our business and operating results. In addition, complying with public disclosure rules makes our business more visible, which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be ~~harmed,~~materially adversely affected, and even if the claims do not result in litigation or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results.

We have never paid dividends, and there can be no assurance that we will pay dividends in the future. Although our Board of Directors has determined that if we were to become profitable in the future, a dividend may be declared from earnings legally available for such a distribution, there is no assurance that we will become profitable or that we will have distributable income that might be distributed to stockholders as a dividend or otherwise in the foreseeable future. As a result, until such time, if ever, that dividends are declared with respect to our common stock, an investor would only realize income from an investment in our shares if there is an increase in the market price of our common stock, which is uncertain and unpredictable.

~~Table of Contents~~

Our Board of Directors may authorize the issuance of preferred stock and designate rights and preferences that will dilute the ownership and voting interests of existing stockholders without their approval. Our ~~Articles~~articles of ~~Incorporation~~incorporation authorize us to issue preferred stock. ~~The~~Our Board of Directors is authorized to designate, and to determine the rights and preferences of any series or class of preferred stock. The Board of Directors may, without stockholder approval, issue shares of preferred stock with dividend, liquidation, conversion, voting or other rights which are senior to the common stock or which could adversely affect the voting power or other rights of the existing holders of outstanding shares of preferred stock or common stock. Additionally, the issuance of preferred stock may have the effect of decreasing the market price of the common stock and reduce the likelihood that common stockholders will receive dividend payments and payments upon liquidation. The issuance of additional shares of preferred stock may also adversely affect an acquisition or change in control of the Company.

Our continued sale of equity securities will dilute existing stockholders and may adversely affect the market price for our common ~~stock.~~ stock.Given our current business and operating needs, we will require additional financing, which will require the issuance of additional shares of our equity or debt securities convertible into equity securities. We expect to continue our efforts to acquire financing in the future to fund additional growth, product manufacturing and development expenses, and administrative expenses, among other expenses, which will result in future and possibly significant dilution to existing stockholders.

Table of Contents

Certain provisions of our articles of incorporation could discourage potential acquisition proposals or change in control. Our Board of Directors, without further stockholder approval, may issue preferred stock that would contain provisions that could have the effect of delaying or preventing a change in control or which may prevent or frustrate any attempt by stockholders to replace or remove current management. The issuance of shares of preferred stock could also adversely affect the voting power of the holders of common stock, including the loss of voting control to others.

The trading market for our common stock is limited and investors may have difficulty selling their shares. Our common stock is quoted on the OTCQB. The OTCQB is a relatively unorganized, inter-dealer, over-the-counter market that provides significantly less liquidity than other markets. Purchasers of our common stock therefore may have difficulty selling their shares should they desire to do so.

Our common stock is subject to the “Penny Stock” rules of the SEC. ~~Our~~The trading market for our common stock is ~~currently traded on~~limited, which makes transactions in our stock cumbersome and may reduce the ~~OTC Markets and is considered a “penny~~value of an investment in our stock.~~” The OTC Markets are generally regarded as a less efficient trading market than the NASDAQ Capital Market.~~ The SEC has adopted ~~rules~~Rule 15g-9 which defines “penny stock,” for the purposes relevant to us, as any equity security that ~~regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with~~has a market price of less than $5.00 ~~(other~~per share or with an exercise price of less than ~~securities registered on~~$5.00 per share, subject to certain ~~national securities exchanges or quoted on~~exceptions. For any transaction involving a penny stock, unless exempt, the ~~NASDAQ system, provided that current price and volume information with respect~~rules require:

·	that a broker or dealer approve a person’s account for transactions in penny stocks; and

·	the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased.

In order to approve a person’s account for transactions in ~~such securities is provided by~~penny stocks, the ~~exchange~~broker or ~~system).~~ dealer must:

·	obtain financial information and investment experience objectives of the person; and

·	make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

The ~~penny stock rules require a broker-dealer,~~broker or dealer must also deliver, prior to aany transaction in a penny stock, ~~not otherwise exempt from those rules, to deliver~~ a ~~standardized risk~~ disclosure ~~document prepared~~schedule prescribed by the SEC ~~which specifies information about penny stocks and the nature and significance of risks of~~relating to the penny stock ~~market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson~~market, which, in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock. highlight form:

·	sets forth the basis on which the broker or dealer made the suitability determination; and

·	states that the broker or dealer received a signed, written agreement from the investor prior to the transaction.

Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our common stock and cause a decline in the market value of our stock.

Disclosure must also be made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available to an investor in cases of fraud in penny stock transactions. Finally, monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks.

FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell shares of our common stock. In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative, ~~low priced~~low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative, ~~low priced~~low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and ~~which will~~may have an adverse effect on the market for our shares.

Risks Related to our Financing Arrangements

We may be unable to repay our convertible promissory Notes when they mature. On January 31, 2018, we issued the Notes in the aggregate principal amount of $305,000. The Notes accrue interest (payable at maturity with the principal) at a rate of 8% per annum, six months from the issue date. There is no assurance that we will be able to repay the Notes when they mature. If we fail to pay the principal of and interest on the Notes when due, the interest rate increases to a default rate of 24% per annum until paid, plus a 40% penalty is added to the outstanding balance of the Note and other penalties as set forth in the Note. In such event, or in other event of default as defined in the Notes, we will likely be required to seek protection under applicable bankruptcy laws.

Table of Contents

Resales of shares purchased by the Investors under the Purchase Agreement may cause the market price of our common stock to decline. Pursuant to the Purchase Agreement, we have the right, but not the obligation, to direct the Investors to purchase shares of common stock having a value in the aggregate of up to $10,000,000 at a price that is steeply discounted to the lowest traded price of our common stock during the five trading days immediately following the date we deliver the Put Shares to the Investors under a Put Notice. The Investors will have the financial incentive to sell the shares of common stock issuable under the Purchase Agreement in advance of or upon receiving such shares and to realize the profit equal to the difference between the discounted price and the current market price of the shares. This may cause the market price of our common stock to decline. Following their purchase of the Put Shares, the Investors may offer and resell the shares of common stock received in connection with puts under the Equity Line at a price and time determined by them. The timing of sales and the price at which the shares are sold by the Investors could have an adverse effect upon the public market for our common stock. Although the Investors are statutory underwriters, there is no independent or third-party underwriter involved in the offering of the shares held by or to be received by the Investors under the Equity Line, and there can be no guarantee that the disposition of those shares will be completed in a manner that is not disruptive to the market for our common stock. We may be unable to continue to make draws or put shares to the Investors under the Equity Line if the trading volume in our stock is not sufficient to allow the Investors to sell the shares put to them.

Puts under the Purchase Agreement may cause dilution to existing stockholders. Existing stockholders likely will experience increased dilution with decreases in market value of common stock in relation to our issuances of shares under the Equity Line, which could have a material adverse impact on the value of their shares. The formula for determining the number of shares of common stock to be issued under the Equity Line is based, in part, on the market price of the common stock and is equal to the lowest closing bid price of our common stock over the five trading days after the Put Notice is tendered by us to the Investors. As a result, the lower the market price of our common stock at and around the time we put shares under the Equity Line, the more shares of our common stock the Investors receive. Any increase in the number of shares of our common stock issued upon puts of shares as a result of decreases in the prevailing market price would compound the risks of dilution. The Investors may resell some, if not all, of the shares that we issue to them under the Purchase Agreement and such sales could cause the market price of our common stock to decline significantly. To the extent of any such decline, any subsequent puts would require us to issue and sell a greater number of Put Shares to raise the maximum amount contractually committed under the Equity Line. Under these circumstances, our existing stockholders will experience greater dilution. The effect of this dilution may, in turn, cause the price of our common stock to decrease further, both because of the downward pressure on the stock price that would be caused by a large number of sales of our shares into the public market by the Investors, and because our existing stockholders may disagree with a decision to sell shares under the Equity Line at a time when our stock price is low, and may in response decide to sell additional shares, further decreasing our stock price

There is an increased potential for short sales of our common stock due to the sale of shares pursuant to the Purchase Agreement, which could materially affect the market price of our common stock. Downward pressure on the market price of our common stock that likely will result from resales of the common stock issued pursuant to the Purchase Agreement could encourage short sales of common stock by market participants other than the Investors. Generally, short selling means selling a security not owned by the seller. The seller is committed to eventually purchase the security previously sold. Short sales are used to capitalize on an expected decline in the security’s price – typically, investors who sell short believe that the price of the stock will fall, and anticipate selling at a price higher than the price at which they will buy the stock. Significant amounts of such short selling could place further downward pressure on the market price of our common stock.

There can be no guarantee that the proceeds available to us under the Purchase Agreement will be sufficient for us to achieve profitable operations or to pay our current liabilities, which could have a material adverse impact on our ability to continue operations. There is no assurance that the funds available to us under the Purchase Agreement will be sufficient to allow us to continue our marketing and sales efforts to the point we achieve profitable operations.

Although we are restricted from selling shares under the Purchase Agreement to the Investors if the purchase of such shares would result in the purchaser owning more than 9.99% of our issued and outstanding shares of common stock following such issuance, such restriction does not prevent the Investors from selling a large number of shares, resulting in substantial dilution to the value of shares held by existing stockholders. We are prohibited from selling shares to the Investors pursuant to the Purchase Agreement if the sale of shares would result in that Investor holding more than 9.99% of the then-outstanding shares of common stock. This restriction, however, does not prevent the Investor from selling shares of common stock previously received pursuant to the Purchase Agreement, and then receiving additional shares of common stock in connection with a subsequent Put Notice. In this way, an Investor could acquire and sell more than 9.99% of the outstanding common stock in a relatively short time frame while never holding more than 9.99% at one time.

Table of Contents

Because the purchase price paid by the Investors for the shares issued under the Purchase Agreement is based on a discount to the market price of our common stock, if the market price declines, we may be unable to continue to sell shares of our common stock pursuant to the Purchase Agreement without registering additional shares, which would impose additional costs in connection with the Purchase Agreement. If the market price of our common stock declines, the number of shares of common stock issuable in connection with the Purchase Agreement will increase. Accordingly, the shares registered for resale under the registration statement filed by us may be insufficient to permit us to issue additional shares in connection with the Purchase Agreement. In such an event, we would be required to, and would, file additional registration statements to cover the resale of additional shares issuable pursuant to the Purchase Agreement. The filing of the additional registration statement would impose additional costs on us in connection with the Purchase Agreement.

There is no guarantee that we will satisfy the conditions to the Purchase Agreement. Although the Purchase Agreement provides that we can require the Investors to purchase, at our discretion, up to $10,000,000 worth of shares of common stock in the aggregate, our ability to put shares to them and to obtain funds when requested is limited by the terms and conditions of the Purchase Agreement, including restrictions on when we may exercise our put rights, restrictions on the amount we may put at any one time, which is determined in part by the trading volume of our common stock, and a limitation on our ability to put shares to the extent that it would cause the purchaser of the shares to beneficially own more than 9.99% of the outstanding shares of our common stock.

We may not have access to the full amount available under the Purchase Agreement if we are unable to register the shares under the Securities Act. Our ability to sell shares under the Purchase Agreement requires that a registration statement be declared effective and continue to be effective registering the resale of shares issuable under the Purchase Agreement. The registration statement filed by us under the Registration Rights Agreement registers the resale of 22,233,427 shares of our common stock issuable under the Equity Line. Our ability to sell any additional shares under the Purchase Agreement will be contingent on our ability to prepare and to file one or more additional registration statements registering the resale of such additional shares. These registration statements (and any post-effective amendments thereto) may be subject to review and comment by the staff of the SEC, and will require the consent of our independent registered public accounting firm. Therefore, the timing of effectiveness of these registration statements (and any post-effective amendments thereto) cannot be assured. Even if we are successful in causing one or more registration statements registering the resale of some or all of the shares issuable under the Purchase Agreement to be declared effective by the SEC in a timely manner, we may not be able to sell the shares unless certain other conditions are met. For example, we might have to increase the number of our authorized shares in order to issue the shares under the Equity Line. Increasing the number of our authorized shares will require board and stockholder approval. Accordingly, because our ability to access any amounts under the Purchase Agreement is subject to a number of conditions, there is no guarantee that we will be able to access all $10,000,000 of the proceeds available contractually under that agreement.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our principal executive offices are located in leased premises at 350 E. Michigan Ave, Suite 500, Kalamazoo, ~~Michigan. Also,~~Michigan 49007. Effective July 1, 2009, we entered into a lease aagreement and established our own certified laboratory located at Innovation Park, Queen’s University, in Kingston, Ontario, ~~Canada, which has provided a primary research and development platform as~~Canada. Our laboratory space was doubled in size during January 2010 in order to conduct full-size room testing (mock-trials). We estimate that our current facilities are sufficient to meet our needs until we ~~proceed toward commercialization of our products.~~begin to have revenues from operations. The lease term is June 2016 through June 2018 with a lease payment of $3,550 Canadian Dollars plus the applicable goods and services tax. ~~We estimate that our current facilities are sufficient to meet our needs for at least the next 12 months.~~

Item 3. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings that may arise in the ordinary course of business. ~~Litigation~~However, litigation is subject to inherent uncertainties and an adverse result in these or other matters may arise from time to time that may have an adverse effect on our business, financial ~~condition,~~conditions, or operating results. We are not aware of any legal proceedings or claims that will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results.

~~Table of Contents~~

~~Several years ago, a former consultant brought an action against the Company styled~~ ~~Rakas vs. Medizone International, Inc.~~, in the Supreme Court of New York, Westchester County (Index No. 08798/00) claiming we had failed to pay consulting fees under a consulting agreement. We deny that we owe any fees to the consultant. In September 2001, the parties agreed to settle the matter for $25,000. Our lack of funds prevented us from consummating 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 ordered that we 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 a liability (included in accounts payable) for the original default judgment of $143,000, plus fees totaling $21,308, as of December 31, 2016, and 2015. The Company intends to contest the judgment when it is able to do so in the future.

Item 4. Mine Safety Disclosures

Not applicable.

1316

Table of Contents

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

Our common stock is ~~traded~~quoted on the OTCQB ~~market~~ under the symbol MZEI.

The following table sets forth the range of the high and low bid quotations of ~~the~~our common stock for the quarterly periods of the past two years, ~~in the OTCQB market,~~ as reported by the OTCQB (see www.otcmarkets.com). The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.

Fiscal Year 2015	High		Low
Fiscal Year 2016					High		Low
First Quarter Ended March 31	$	0.11	$	0.07	$	0.10	$	0.04
Second Quarter Ended June 30	$	0.17	$	0.14	$	0.07	$	0.04
Third Quarter Ended September 30	$	0.15	$	0.05	$	0.10	$	0.05
Fourth Quarter Ended December 31	$	0.12	$	0.05	$	0.15	$	0.07

Fiscal Year 2016
Fiscal Year 2017					High		Low
First Quarter Ended March 31	$	0.10	$	0.04	$	0.15	$	0.08
Second Quarter Ended June 30	$	0.07	$	0.04	$	0.11	$	0.06
Third Quarter Ended September 30	$	0.10	$	0.05	$	0.10	$	0.06
Fourth Quarter Ended December 31	$	0.15	$	0.07	$	0.06	$	0.03

Holders

As of December 31, ~~2016, we had~~2017, there were approximately ~~2,300~~2,247 holders of record of our common stock and ~~393,934,068~~408,317,402 shares of our common stock outstanding.

Dividend Policy

We have generated minimal revenues and we have never declared dividends or paid cash dividends on our common stock. In the future, if we become profitable, our Board of Directors has stated its intention to declare a dividend from our surplus earnings.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock is American Stock Transfer & Trust Company, 6201 15th Avenue, Brooklyn, New York 11219.

Issuer Purchases of Equity Securities

We did not purchase any of our own securities during the year ended December 31, ~~2016.~~2017.

Securities Authorized for Issuance Under Equity Compensation Plans

The table below provides certain information as of December 31, ~~2016,~~2017, with respect to compensation plans (including individual compensation arrangements) under which our equity securities ~~of the Company~~ are authorized for issuance. The table includes shares subject to awards granted or available for grant under consulting agreements as well as the following plans: 2008 Equity Compensation Plan, 2009 Incentive Stock Plan, 2012 Equity Incentive Award Plan and the 2014 Equity Incentive ~~Plan. The table does not include warrants~~Plan (collectively, the “Prior Plans”). On December 15, 2016, our stockholders approved the 2016 Equity Incentive Award Plan (the “2016 Plan”), pursuant to ~~purchase up to $1,000,000~~which 10,000,000 shares of common stock ~~with~~were reserved for awards issuable to management, employees, directors and consultants. Upon the ~~exercise price to~~approval of the 2016 Plan, the Prior Plans were terminated; no additional equity awards or grants will be ~~determined at~~made under any of the ~~time of exercise based on a twenty-day trading average, that were issued in connection with a distribution agreement, described below under the heading “Recent Sales of Unregistered Securities”.~~Prior Plans.

1417

Table of Contents

Equity Compensation Plan Information

Plan category	Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights			Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))			Number of securities to be issued upon exercise of outstanding options, warrants and rights		Weighted-average exercise price of outstanding options, warrants and rights		Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
	(a)		(b)			(c)			(a)		(b)		(c)
Equity compensation plans approved by security holders		0			0		0			6,400,000	$	0.097		-
Equity compensation plans not approved by security holders		20,715,000		$	0.14		10,000,000	(1)		11,687,500	$	0.105		-
Total		20,715,000		$	0.14		10,000,000			18,087,500	$	0.102		-

Not required.

Item 8. Financial Statements and Supplementary Data

Our consolidated financial statements and the related notes are set forth beginning on page 34F-1 of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information that is required to be disclosed in our Exchange Act reports 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 management, including our Principal Executive Officer and Principal Financial Officer, as appropriate, to allow timely decisions regarding any required disclosure. In designing and evaluating these disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.

As of the end of the period covered by this report, our Principal Executive Officer and Principal Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule ~~13a- 15(e)~~13a-15(e) under the Exchange Act). Based on this evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurance as of December 31, ~~2016.~~

~~Table~~2017, regarding the reliability of ~~Contents~~

financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States.

Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, (as defined in Rule ~~13a- 15(f)~~13a-15(f) under the Exchange Act). The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of ~~the Company’s~~our financial statements for external purposes in accordance with US GAAP. Internal control over financial reporting includes those policies and procedures that:

Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company;


	·	Provide reasonable assurance that transactions are recorded, as necessary, to permit preparation of financial statements in accordance with US GAAP and that receipts and expenditures of the Company are being made only in accordance with authorizations of our management and ~~directors of the Company;~~directors; and


	·	Provide reasonable assurance regarding the prevention or timely detection of any unauthorized acquisition, use or disposition of ~~the Company’s~~our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

During the period ended September 30, 2017, we identified and disclosed a material weakness resulting from an omission in the recording of a common stock award of 250,000 shares to a third-party consultant, which did not have a material impact on our consolidated financial statements. However; to remediate the cause of the material weakness, we enhanced our internal control procedures to add additional structure surrounding the granting and recording of equity issuances. As of December 31, 2017, we considered the material weakness to be remediated.

Table of Contents

Our management, including our Principal Executive Officer and our Principal Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, ~~2016.~~2017. In making this assessment, management used the criteria that have been set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (1992). Based on its assessment, using those criteria, management concluded that, as of December 31, ~~2016,~~2017, the Company’s internal control over financial reporting was effective.

This report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Our internal control over financial reporting was not subject to attestation by the Company’s independent registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only management’s report in this Annual Report on Form 10-K.

Changes in Internal Control over Financial Reporting

~~There~~Except as noted above, there were no changes in our internal controls over financial reporting that occurred during the quarter ended December 31, ~~2016,~~2017, that have materially affected or that are reasonably likely to materially affect the Company’s internal control over financial reporting.

Item 9B. Other Information

None.

1922

Table of Contents

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

The following table ~~contains~~sets forth biographical information ~~concerning~~regarding our ~~directors and~~ executive officers and directors as of ~~December 31, 2016:~~March 13, 2018:

Name	Age	Position
~~Edwin G. Marshall~~David A. Esposito	7449	Chairman of the Board
David A. Dodd	68	Director, Chief Executive Officer
Michael E. Shannon	6970	Director, President ~~and Director of Medical Affairs, President of CFGH~~
~~Daniel D. Hoyt~~	77	~~Director~~
~~David A. Esposito~~	48	~~Director~~
Vincent C. Caponi	6667	Director
Stephen F. Meyer	59	Director
Stephanie L. Sorensen	4748	Chief Financial Officer
Philip A. Theodore	64	Executive Vice President, Operations and Administration, General Counsel and Corporate Secretary
Jude P. Dinges	59	Executive Vice President, Chief Commercial Officer

Following is a brief summary of the background and experience of each of our directors and executive officers:

~~Edwin G. Marshall~~David A. Esposito became a director in February 2014 and currently serves as the Chairman of our Board. From March 1, 2017 through September 18, 2017, he served as our Interim Chief Executive Officer. Mr. Esposito is the President and CEO of Armune BioScience, Inc., an early stage medical diagnostics company focused on developing and commercializing unique technology for diagnostic and prognostic tests for prostate, lung, and breast cancers. Mr. Esposito also is a director of Allergenis, Inc., an early stage allergy diagnostics company. From 2011 to 2013, Mr. Esposito was Vice President, Commercial Operations, at Thermo Fisher Scientific. Before joining Thermo Fisher Scientific, he was President and General Manager of Phadia US Inc., a specialty diagnostics company, from 2009 until its acquisition by Thermo Fisher Scientific in 2011. He was employed in various positions by Merck & Co., Inc. from 1996 to 2009, including stints as Executive Director of the Respiratory Marketing Team (2006-2007), New Commercial Model (2007-2008), and US Commercial Strategy (2008-2009). He was a combat infantry officer (Lt., US Army Infantry, 101st Airborne Division) from 1990-1993 and served in Operation Desert Storm in 1991, where he was awarded the Bronze Star Medal for combat action in Iraq. He received a BS degree in civil engineering at the United States Military Academy (West Point), and an MBA from Syracuse University. He also completed an executive education program, Competitive Marketing Strategy Program, at The Wharton School (University of Pennsylvania). Mr. Esposito chairs our Audit Committee and is a member of the Compensation Committee. Mr. Esposito’s qualifications to serve on the Board of Directors include his extensive industry experience.

David A. Dodd became a director and our Chief Executive Officer in September 2017. Since March 2010, Mr. Dodd has been a member and ultimately chairman (from January 2011) of the Board of Directors of GeoVax Labs, Inc., a publicly-traded (OTC: GOVX) vaccine development company. He remains in the role of Chairman of GeoVax. From April 2013 to July 2017, he also served as President and Chief Executive Officer, and as a member of the Board of Directors, of Aeterna Zentaris Inc., a publicly-traded (Nasdaq: AEZS) drug development company. He was Chairman of the Board ~~in June 1997.~~of Directors of Aeterna Zentaris Inc. from May 2014 to May 2016. Mr. Dodd continues to serve as a member of the Board of Directors of Aeterna Zentaris Inc. He ~~was appointed~~is also the Chief Executive Officer of RiversEdge BioVentures, an investment and advisory firm focused on the life sciences and pharmaceuticals industries, which he founded in ~~April 1998.~~2009. From December 2007 to June 2009, Mr. ~~Marshall attended the College of Marin, with a double major in business~~Dodd was President, Chief Executive Officer and fire science. From 1964 to 1978, Mr. Marshall worked in the fire service in a city with a major chemical industrial complex, leaving with the rank of Captain. He then pursued various business interests including ownership of a real estate brokerage firm and part-ownership of a number of other small businesses in other fields. He has been a private investor in real estate, precious metals, and stocks since 1973. On February 28, 2017, Mr. Marshall resigned from his roles and responsibilities as Chairman of ~~the Board~~BioReliance Corporation, a privately-owned organization that provided biological safety testing, viral clearance testing, genetic and mammalian technology testing and laboratory animal diagnostic services testing. From October 2006 to April 2009, he served as non-executive chairman of Stem Cell Sciences Plc., a publicly-traded research products company. Before that, Mr. Dodd served as President, Chief Executive Officer and Director of Serologicals Corporation (Nasdaq: SERO) before it was sold to Millipore Corporation in July 2006 for $1.5 billion. For five years prior to his employment by Serologicals Corporation, Mr. Dodd served as President and Chief Executive ~~Officer.~~Officer of Solvay Pharmaceuticals, Inc. and Chairman of its subsidiary Unimed Pharmaceuticals, Inc. He has more than 35 years of executive experience in the healthcare industry. Our Board believes that Mr. Dodd’s extensive industry experience qualifies him to serve as a director as well as an executive officer of the Company.

Table of Contents

Dr. Michael E. Shannon M.A., M.Sc., M.D., became a director on August 18, 2008 and President of the Company in 2011. He also serves as Director of Medical Affairs since 2002 and in October 2008 was appointed President of ~~CFGH.~~the Canadian Foundation for Global Health, a not-for-profit association founded by the Company. Dr. Shannon received his medical degree from Queen’s University in Canada, which included advanced training in surgery and sports medicine. He also holds post-graduate degrees in neurochemistry and physiology. He has been actively engaged in applied medical research within these areas for over 28 years. He served in the Canadian Forces for 31 years, retiring at the rank of Commodore (Brigadier General equivalent) as Deputy Surgeon General for Canada. During the first Gulf War, Dr. Shannon served as the senior medical liaison officer for all of the Canadian forces. In 1996, he assumed responsibilities within Health Canada for re-organizing the Canadian blood system. Working with both the provincial and federal governments, he oversaw the development of a new corporate entity dedicated exclusively to the management of blood services in Canada. He was then appointed Director General for the Laboratory Centre for Disease Control, a position he held for three years. In December 2000, Dr. Shannon left the Canadian federal government to pursue a new career in industry. In that capacity, he simultaneously directed a phase III clinical trial in Canada, the United States and Great Britain for an artificial blood substitute product. Following completion of that work, he was asked to accept a special assignment with the Canadian Federal Government Auditor General’s office ~~his assignment being~~ to conduct a cost benefit analysis of all government sponsored pharmacare programs and make recommendations directly to the Parliament of Canada. His assignment and presentation to Parliament was completed in November 2004. Dr. Shannon then served on a special assignment to the Canadian Public Health Agency (Centers for Disease Control equivalent in the United States) as Senior Medical Advisor. His responsibility was to direct the rebuilding of the Emergency Medical Response Capacity for Canada. In this regard and under his direction, the largest emergency medical response exercise in the history of the country, involving the overnight construction of a mobile hospital, hundreds of doctors and thousands of patients, was successfully held in Toronto in December 2007. Dr. Shannon has been actively engaged in medical bio-oxidative ~~(O3)~~(O₃) based research since 1987 and was directly responsible for the first human clinical trial to have ever been approved in North America which examined the efficacy of O3O₃ delivered via minor autohemotherapy in the treatment of AIDS. He was also responsible for several primate studies utilizing O3 O₃involving scientists from various departments within the Canadian Federal Government, as well as senior investigators from the Company and Cornell University.

~~Daniel D. Hoyt~~ became a director in January 2002. Mr. Hoyt is a graduate of the University of Indiana, where he received a Bachelor of Science degree in Business Administration. Over the past 38 years, he has become a recognized leader in the life insurance industry, working Dr. Shannon’s qualifications to serve as a career agent for American United Life Insurance Company. Mr. Hoyt’s clients have ranged from large public companies to small private businesses. In recent years, he has spent most of his time in public speaking and relationship building in the insurance industry. His previous work experience includes seven years with Merrill Lynch as well as serving as the Chief Executive for the Chamber of Commerce in three Indiana communities. From June 1996 until June 2010, Mr. Hoyt was the Chairmanmember of the Board of ~~Biological Systems, Inc., a privately held corporation involved with bio-cleansing remediation systems for animal fats~~Directors include his extensive medical research and ~~oil-based materials. He also serves on the Development Board of the Indiana University Simon Cancer Center (since January 2000)~~related experience and ~~is the immediate past Vice-Chair of the Board of the St. Vincent Foundation in Indianapolis, Indiana. Mr. Hoyt serves on our Audit and Compensation Committees.~~

~~Table of Contents~~

other accomplishments noted above.

~~David A. Esposito~~ became a director in February 2014. Mr. Esposito is the President and CEO of Armune BioScience, Inc., an early stage medical diagnostics company focused on developing and commercializing unique technology for diagnostic and prognostic tests for prostate, lung, and breast cancers. From 2011 to 2013, Mr. Esposito was Vice President, Commercial Operations, at Thermo Fisher Scientific. Before joining Thermo Fisher Scientific, he was President and General Manager of Phadia US Inc., a specialty diagnostics company from 2009 until its acquisition by Thermo Fisher Scientific in 2011. He was employed in various positions by Merck & Co., Inc. from 1993 to 2009, including stints as Executive Director of the Respiratory Marketing Team (2006-2007), New Commercial Model (2007-2008), and US Commercial Strategy (2008-2009). He was a combat infantry officer (Lt., US Army Infantry, 101st Airborne Division) from 1990-1993 and served in Operation Desert Storm in 1991, where he was awarded the Bronze Star Medal for combat action in Iraq. He received a BS degree in civil engineering at the United States Military Academy (West Point), and an MBA from Syracuse University. He also completed an executive education program, Competitive Marketing Strategy Program, at The Wharton School (University of Pennsylvania). On March 1, 2017, Mr. Esposito was appointed Chairman of the Board and Interim CEO, replacing Mr. Marshall.

Vincent C. Caponi became a director in October 2014. Mr. Caponi currently is retired from Ascension Health and serves as an independent consultant for the system. He served as President and CEO of St. Vincent Medical Center in Bridgeport, ~~CT.~~CT from July 2016 to July 2017. Until July 2013, Mr. Caponi served as the Chief Executive Officer of St. Vincent Health. He grew the St. Vincent Health ministry to a 22-hospital system serving central and southern Indiana. St. Vincent Health is one of Indiana’s largest employers. Ascension Health of St. Louis, Missouri – the sponsor of St. Vincent Health – is the nation’s largest Catholic non-profit health system with 130 hospitals located in 28 states. Mr. Caponi is the former Executive Board Chair for St. Vincent Health (2013-2015) and Executive Board Chair for Ascension Texas (2014-2016). Mr. Caponi also served as the special representative for Ascension Health in the Cayman Islands at Health City Cayman Island ~~Hospital,~~hospital, a joint venture between Ascension Health and Narayana Health, ~~India (2013-2016).~~India. In the first quarter of ~~the~~ 2016, Mr. Caponi served as the Interim CEO for Ascension Wisconsin and now is a special advisor for that ministry. Mr. Caponi is the Chairman of our Compensation Committee and serves on ~~the~~our Audit Committee. Our Board believes that Mr. Caponi’s extensive executive experience in the healthcare industry qualifies him to serve on our Board.

Stephen F. Meyer became a director in May 2017. From December 2010 until the company’s merger with Hill-Rom, Inc. in October 2015, Mr. Meyer was the President and Chief Executive Officer of Welch Allyn, Inc., a privately-held developer, manufacturer and marketer of frontline care devices and diagnostic solutions, headquartered in Skaneateles Falls, New York. He joined Welch Allyn in 1981 as a sales representative in Detroit, Michigan. Mr. Meyer held a series of executive and senior leadership roles in a variety of areas from international sales and marketing to product development, operations, and general management. As President and CEO, Mr. Meyer navigated Welch Allyn during a time of substantial industry change, developing and executing a new strategy, restructuring the business, engaging more deeply with customers, and becoming more acquisitive. Mr. Meyer is an executive advisor to Beecken Petty O’Keefe & Company, a private equity management firm that focuses on the healthcare industry, is a member of the board of directors of Paragon Medical, Inc. and SRC Ventures, Inc., and is an advisor to Medical Distribution Solutions, Inc., a leading publicity and content company in the health care business and is an advisor to the founder of Vitls, an early-stage company focused on remote patient monitoring. He also is a founder and the managing director of River Marsh Capital, LLC, a firm investing primarily in healthcare developments which enhance and improve health, and providing corporate advisory services to companies, private equity, and venture firms. He is a past board member of TIDI Medical Products LLC, a past board member and chair of MedTech (Central New York’s Medical Technology Association), a past board member and president of the Health Industry Manufacturers Marketing Council, a past board member of AdvaMed and Medical Device Manufacturers Association, and past board member of AAFP’s Foundation. Mr. Meyer received a Bachelor of Science in Biology from Alma College and earned a Master’s of Business Administration from the William E. Simon Graduate School of Business at the University of Rochester, New York. In addition to the achievements noted above, our Board believes that Mr. Meyer’s experience in marketing and product development in the healthcare industry qualify him to serve as a member of our Board of Directors.

Table of Contents

Stephanie L. Sorensenjoined us as our Chief Financial Officer in October 2016. Ms. Sorensen also currently serves part-time as the Corporate Controller for Q Therapeutics, Inc. and Elute, Inc. both in Salt Lake City, Utah. Q Therapeutics, Inc. is a clinical-stage biopharmaceutical company that is developing human cell-based therapies that can be sold as “off-the-shelf” pharmaceuticals intended to treat neurodegenerative diseases of the brain and spinal cord. Elute, Inc. is a start-up privately held company developing and commercializing a new class of polymer-controlled drug delivery devices designed to prevent and treat orthopedic and other surgical bone infections. From October 2009 to August 2012, Ms. Sorensen was the Assistant Controller of World Heart Corporation, a publicly traded medical device company that had developed a ventricular heart valve for late stage heart failure patients as a bridge-to-transplant solution. WorldHeart was acquired by HeartWare International, Inc. in 2012. From November 2007 to October 2009, Ms. Sorensen was the Assistant Controller of Amedica Corporation, a medical device company that developed and sold ceramic spinal implants. Prior to Amedica, Ms. Sorensen held various operational and financial positions for both private and public companies in the pharmaceutical, telecommunications and software development industries.

Philip A. Theodore joined us as our Executive Vice President, Chief Administrative Officer, Chief Operations Operation Officer, General Counsel and Corporate Secretary effective as of November 1, 2017. Mr. Theodore is a graduate of the University of Cincinnati College of Law, and holds a B.A. (Political Science) from the University of Tennessee at Chattanooga. Before joining Medizone, he served as Senior Vice President, Chief Administrative Officer, General Counsel and Corporate Secretary with Aeterna Zentaris, Inc. from October 2014 through July 2017. Prior to joining Aeterna Zentaris, he served as Vice President, General Counsel and Corporate Secretary of Zep Inc. from July 2010 through September 2014; as Senior Vice President and General Counsel of John H. Harland Company, from September 2006 to September 2007; and as Vice President, General Counsel and Corporate Secretary of Serologicals Corporation from 2004 through August 2006. Mr. Theodore was a partner in the corporate practice of King & Spalding, LLP, an Atlanta-based law firm, from 1986 through 2003.

Jude P. Dinges joined us as our Executive Vice President, Chief Commercial Officer effective as of January 30, 2018. Mr. Dinges began his career nearly 30 years ago as a professional sales representative at Bristol Laboratories and later at Merck & Co., where he was promoted to positions with increased responsibilities in training, sales, management, marketing and market development. While at Merck, Mr. Dinges won multiple awards, including the President’s Achievement Award in 2001, awarded to one of 32 Business Directors each year. He received the Change Agent Award for his market development prelaunch business planning and contributions to sales force execution, while launching the blockbuster brands Cozaar^®, Fosamax^®, Singulair^®, Maxalt^®, Vioxx^®, and Vytorin^®. He was recognized with a Career Achievement Award for his consistent top performance as a Senior/Executive Business Director. Mr. Dinges joined Novartis Pharmaceuticals in 2006 and led his region to top performance in the launch of Tekturna^® while balancing a broad antihypertensive portfolio across several Novartis divisions. His region also led the nation in market share for Exelon^® and Exelon Patch^®. In 2008, Mr. Dinges became the Respiratory & Infectious Disease Specialty Medicines Director. In 2009, Mr. Dinges joined Amgen Inc. as Executive Director of Region Sales, Bone Health Business Unit. Mr. Dinges led his region team to a highly successful launch of monoclonal antibody, Prolia^®, across the southeastern United States and Puerto Rico. Most recently Mr. Dinges served as Senior Vice President, Chief Commercial Officer of Aeterna Zentaris, Inc.

Meetings of the Board of Directors

The Board of Directors is elected by and is accountable to the stockholders. The Board ~~of Directors~~ establishes policy and provides strategic direction, oversight, and control of the Company. The Board ~~of Directors~~ met ~~three~~12 times during the year ended December 31, ~~2016.~~2017. All directors participated in ~~all~~at least 80 percent of the meetings held by the Board, with the exception of ~~Directors. The Board~~Mr. Caponi, who participated in 58 percent of ~~Directors has an audit and a compensation committee, but has not yet established a nominating or other committees.~~the meetings.

Code of Ethics

We have adopted a formal, written code of conduct (“Code of Ethics”) within the specific guidelines promulgated by the SEC. This document can be found on our website at http://~~medizoneint.com~~www.medizoneint.com. The Code of Ethics applies to our executive officers, as well as all employees and consultants. We have communicated the high level of ethical conduct expected from all of our employees, including our officers and ~~our~~ consultants. We will disclose any changes or amendments to or waivers from the Code of Ethics applicable to the named executive officers by posting such changes or waivers to our website.

~~The Board~~Involvement in Certain Legal Proceedings

No director, person nominated to become a director, executive officer, promoter or control person of ~~Directors~~our company has, during the last ten years: (i) been convicted in or is currently subject to a pending criminal proceeding (excluding traffic violations and ~~Committees~~

~~The Board~~other minor offenses); (ii) been a party to a civil proceeding of ~~Directors has determined that~~a judicial or administrative body of competent jurisdiction and as a result of ~~December 31, 2016, Mr. Hoyt, Mr. Esposito and Mr. Caponi were independent directors as defined~~such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to any federal or state securities or banking or commodities laws including, without limitation, in any way limiting involvement in any business activity, or finding any violation with respect to such law, nor (iii) any bankruptcy petition been filed by or against the ~~rules~~business of which such person was an executive officer or a general partner, whether at the time of the NASDAQ Stock Market, as discussed below. In conjunction with Mr. Esposito’s appointment as our Chairman and Interim Chief Executive Officer on March 1, 2107, Mr. Esposito is no longer considered an independent director and is no longer eligible to serve onbankruptcy or for the committees of the Board. Our common stock is currently traded on the OTCQB. This market does not impose definitions or standards relating to director independence or the composition of committees with independent directors. We have not appointed a “lead independent director.”two years prior thereto.

2125

Table of Contents

Director Independence

Our common stock is currently quoted on the OTCQB, which does not impose standards relating to director independence or the makeup of committees with independent directors, or provide definitions of independence. In accordance with the rules of the SEC, we determine the independence of our directors by reference to the rules of the Nasdaq Stock Market (“Nasdaq”). In accordance with such rules, we have three independent directors, Mr. Esposito, Mr. Caponi and Mr. Meyer. There were no transactions, relationships or arrangements not disclosed under the caption “Transactions with Related Persons” in Part III, Item 13 of this report that were considered by the Board of Directors under the applicable independence definitions in determining that Messrs. Esposito, Caponi, and Meyer, are independent.

Board Committees

Audit Committee. The Audit Committee of the Board of Directors (the “Audit Committee”) is a standing committee of the Board, which has been established as required by Section 3(a) of the Exchange Act. As of the date of this report, the members of the Audit Committee are Mr. ~~Hoyt~~Esposito (Chairman), Mr. Meyer and Mr. Caponi. ~~Until March 1, 2017, Mr. Esposito was also a member and was the Chairman of the Audit Committee.~~ The Board has determined that Mr. Meyer and Mr. Caponi isare each considered to be an “audit committee financial expert,” as defined by the applicable regulations promulgated by the SEC under the Exchange Act. The Board also believes that each member of the Audit Committee meets stock exchange requirements regarding financial literacy.

The authority and responsibilities of the Audit ~~Committee’s responsibilities~~Committee are set forth in a charter adopted by the Board of Directors and include: (i) appointing ~~the~~our independent registered public accounting firm, ~~of the Company,~~ (ii) reviewing, approving and monitoring the scope and cost of any proposed audit and non-audit services that are provided by, as well as the qualifications and independence of, the independent registered public accounting firm, (iii) reviewing and monitoring with the independent registered public accounting firm, and any internal audit staff, the results of audits, any recommendations from the independent registered public accounting firm and the status of management’s actions for implementing such recommendations, as well as the quality and adequacy of our internal financial controls and any internal audit staff, ~~and~~ (iv) reviewing and monitoring our annual and quarterly financial statements and the status of material pending litigation and regulatory ~~proceedings.~~proceedings; and (v) periodically discussing with the independent registered public accounting firm auditor all significant relationships that may affect the auditor’s independence, reviewing the Company’s financial results with management and the independent auditors prior to the release of quarterly and annual financial information, and preparing and issuing to the Board of Directors annually a summary report suitable for submission to the stockholders. The Audit Committee met once as a committee in ~~2016.~~2017.

Audit Committee Report

The Audit Committee oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal control over financial reporting and disclosure controls and procedures. In fulfilling its oversight responsibilities, the Audit Committee reviewed the audited consolidated financial statements included in this Annual Report on Form 10-K for the year ended December 31, 2017 with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the consolidated financial statements.

The Audit Committee is responsible for reviewing, approving and managing the engagement of the Company’s independent registered public accounting firm, including the scope, extent and procedures of the annual audit and compensation to be paid therefor, and all other matters the Audit Committee deems appropriate, including the Company’s independent registered public accounting firm’s accountability to the Board of Directors and the Audit Committee. The Audit Committee Chairman reviewed with the Company’s independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of audited financial statements with US GAAP, its judgment as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the Audit Committee by the standards of the Public Company Accounting Oversight Board (“PCAOB”), including PCAOB Auditing Standard No. 16, Communications With Audit Committees, the rules of the Securities and Exchange Commission (SEC) and other applicable regulations, and discussed and reviewed the results of the Company’s independent registered public accounting firm’s examination of the financial statements. In addition, the Audit Committee Chairman discussed with the Company’s independent registered public accounting firm the independent registered public accounting firm’s independence from management and the Company, including the matters in the written disclosures and the letter regarding its independence by Rule 3526 of the PCAOB regarding the independent registered public accounting firm’s communications with the Audit Committee concerning independence. The Audit Committee also considered whether the provision of non-audit services was compatible with maintaining the independent registered public accounting firm’s independence.

Table of Contents

The Audit Committee Chairman discussed with the Company’s independent registered public accounting firm the overall scope and plans for its audits, and received from them written disclosures and a letter regarding their independence required. The Audit Committee Chairman meets with the Company’s independent registered public accounting firm, with and without management present, to discuss the results of its examinations, its evaluations of the Company’s internal control over financial reporting and the overall quality of the Company’s financial reporting.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors (and the Board of Directors has approved) that the audited financial statements be included in this Annual Report on Form 10-K for the year ended December 31, 2017 for filing with the SEC. The Audit Committee has also retained Tanner LLC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2018.

Audit Committee:

David A. Esposito

Vincent C. Caponi

Stephen F. Meyer

Compensation Committee. The Compensation Committee of the Board of Directors (the “Compensation Committee”) includes Mr. Caponi as ~~members~~the Chairman, with Mr. ~~Hoyt~~Meyer and Mr. ~~Esposito. Until March 1, 2017,~~Esposito as additional members. Mr. Caponi ~~was also a member~~ and ~~Chairman of the Compensation Committee. During 2016 (and as of the date of this report), all members of the Compensation Committee~~Mr. Meyer are ~~outside directors~~considered “outside directors” as defined by ~~Rule~~Section 162(m) of the Internal Revenue ~~Code and~~Code; all members are non-employee directors as defined by the applicable regulations promulgated by the SEC under the Exchange Act. The Compensation Committee’s responsibilities include: (i) reviewing and recommending to the full Board of Directors the salaries, bonuses, and other forms of compensation and benefit plans for management and (ii) administering our equity compensation plans. The duties of the Compensation Committee as the administrator of those plans include, but are not limited to, determining those persons who are eligible to receive awards, establishing terms of ~~all~~ awards, authorizing ~~officers of the Company to execute~~ grants of awards, and interpreting the provisions of the equity compensation plans and grants that are made under those plans. The Compensation Committee met once in ~~2016.~~2017.

Nominating and Governance Committee. As of the date of this report, we do not have a standing Nominating and Corporate Governance Committee. We intend to establish a Nominating and Corporate Governance Committee of the Board of Directors in the future to assist in the selection of director nominees, approve director nominations to be presented for stockholder approval at an annual meeting of stockholders, fill any vacancies on our Board of Directors, consider any nominations of director candidates validly made by stockholders, and review and consider developments in corporate governance practices.

Risk Oversight and Management

Our Board of Directors is actively involved in the oversight and management of the material risks that could affect ~~the Company.~~us. Historically, our Board of Directors has carried out its risk oversight and management responsibilities by monitoring risk directly as a full board. The Board’s direct role in our risk management process includes receiving regular reports from our executive officers and other members of senior management on areas of our material risk, ~~to the Company,~~ including operational, strategic, financial, legal and regulatory risks.

With the formation of an Audit Committee and a Compensation Committee in January 2015, the Board delegated the oversight and management of certain risks to the Audit Committee and Compensation Committee. The Audit Committee is responsible for the oversight of ~~Company~~ risks relating to accounting matters, financial reporting and ~~related-party~~related party transactions. To satisfy these oversight responsibilities, the Audit Committee meets regularly with and receives reports from ~~the Company’s~~our Chief Financial Officer and the ~~Company’s~~our independent registered public accounting firm.

The Compensation Committee is responsible for the oversight of risk relating to ~~the Company’s~~our compensation and benefits programs. To satisfy these oversight responsibilities, the Compensation Committee meets regularly with and receives reports from ~~the Company’s~~our Chief Executive Officer and Chief Financial Officer to understand the financial, human resources and ~~shareholder~~stockholder implications of compensation and benefits decisions.

Board Committee Charters

A written charter has been adopted for each of the Audit Committee and the Compensation Committee. Copies of the Audit Committee Charter and the Compensation Committee Charter are available, free of charge, on the Company’s website at http://medizoneint.com under the “Corporate Governance” tab. The information contained on the website is not incorporated by reference in, or considered part of, this report.

2227

Table of Contents

~~REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS~~

The audit committee oversees the Company’s financial reporting process on behalf of the Board of Directors. Management has the primary responsibility for the financial statements and the reporting process, including the systems of internal control over financial reporting and disclosure controls and procedures. In fulfilling its oversight responsibilities, the audit committee reviewed the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 with management, including a discussion of the quality, not just the acceptability, of the accounting principles, the reasonableness of significant judgments, and the clarity of disclosures in the financial statements.

The audit committee is responsible for reviewing, approving and managing the engagement of the Company’s independent registered public accounting firm, including the scope, extent and procedures of the annual audit and compensation to be paid therefore, and all other matters the audit committee deems appropriate, including the Company’s independent registered public accounting firm’s accountability to the Board of Directors and the audit committee. The audit committee reviewed with the Company’s independent registered public accounting firm, which is responsible for expressing an opinion on the conformity of audited financial statements with U.S. general accepted accounting principles, its judgment as to the quality, not just the acceptability, of the Company’s accounting principles and such other matters as are required to be discussed with the audit committee by the standards of the Public Company Accounting Oversight Board (“PCAOB”), including PCAOB Auditing Standard No. 16, ~~Communications With Audit Committees~~, the rules of the Securities and Exchange Commission (SEC) and other applicable regulations, and discussed and reviewed the results of the Company’s independent registered public accounting firm’s examination of the financial statements. In addition, the audit committee discussed with the Company’s independent registered public accounting firm the independent registered public accounting firm’s independence from management and the Company, including the matters in the written disclosures and the letter regarding its independence by Rule 3526 of the PCAOB regarding the independent registered public accounting firm’s communications with the audit committee concerning independence. The audit committee also considered whether the provision of non-audit services was compatible with maintaining the independent registered public accounting firm’s independence.

The audit committee discussed with the Company’s independent registered public accounting firm the overall scope and plans for its audits, and received from them written disclosures and a letter regarding their independence. The audit committee meets with the Company’s independent registered public accounting firm, with and without management present, to discuss the results of its examinations, its evaluations of the Company’s internal control over financial reporting and the overall quality of the Company’s financial reporting. The audit committee held two meetings during the fiscal year ended December 31, 2016.

In reliance on the reviews and discussions referred to above, the audit committee recommended to the Board of Directors (and the Board of Directors has approved) that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016 for filing with the SEC. The audit committee has also retained Tanner LLC as the Company’s independent registered public accounting firm for the fiscal year ending December 31, 2017.

~~Audit Committee:~~

~~David A. Esposito~~

~~Vincent C. Caponi~~

~~Daniel D. Hoyt~~

~~Table of Contents~~

Item 11. Executive Compensation

The following ~~table sets forth all~~Summary Compensation Table shows the total compensation paid in the last two completed fiscal years to each person who served as aour Chief Executive Officer (our principal executive ~~officer or principal financial~~officer) during 2017 and ~~accounting officer (collectively,~~to our two other most highly compensated executive officers other than the ~~“Named~~Chief Executive Officer who were serving as executive officers as of December 31, 2017 (“Named Executive Officers”) ~~during 2015 and 2016, including any other executive officer who received more than $100,000 in annual compensation from the Company.~~.

Summary Compensation Table

Name and principal position Year Salary Option Awards Total
(a) (b) (c) (e) (f)

Edwin G. Marshall (1) 2016 $ 195,000 $ — $ 195,000
Chairman and Chief Executive Officer 2015 $ 195,000 $ 113,640 $ 308,640

Michael E. Shannon (2) 2016 $ 175,922 $ — $ 175,922
President and Director of Medical Affairs 2015 $ 190,187 $ 113,640 $ 303,827

Name and principal position	Year	Salary ($)	Stock awards ($)	Option awards ($)	Other ($)	Total ($)
(a)	(b)	(c)	(d)	(e)	(f)	(g)
Edwin G. Marshall⁽¹⁾ Former Chairman and Chief Executive Officer	2017	32,500	-	74,147	-	106,647
	2016	195,000	-	-	-	195,000

David A. Esposito⁽²⁾ Chairman and Former Interim Chief Executive Officer	2017	123,750	150,000	74,147	6,800	354,697
	2016	-	-	-	-	-

David A. Dodd⁽³⁾ Chief Executive Officer	2017	72,197	60,000	-	-	132,197
David A. Dodd⁽³⁾ Chief Executive Officer	2016	-	-	-		-

Michael E. Shannon⁽⁴⁾ President	2017	184,704	-	74,147	-	258,851
Michael E. Shannon⁽⁴⁾ President	2016	175,922	-	-	-	175,922

Stephanie L. Sorensen⁽⁵⁾ Chief Financial Officer	2017	60,000	-	18,537	-	78,537
Stephanie L. Sorensen⁽⁵⁾ Chief Financial Officer	2016	15,000	-	-	-	15,000

_____________

	~~(1)~~	No stock awards were made during these periods and therefore Column (d) is omitted from this table. Amount in column (e) represents the fair value on the date of grant of stock options granted as compensation for service on our Board of Directors. Cash payments of salary made to Dr. Jill Marshall (Mr. Marshall’s wife), former Director of Operations of the Company, were $82,800 in 2016 and $82,000 in 2015, respectively, and are not included in the table. Table also excludes accrued and unpaid wages owed to Mr. Marshall as of December 31, 2016, for periods prior to 2009, totaling $1,065,189 and accrued and unpaid wages and consulting fees totaling $441,583, owed to Dr. Jill Marshall for periods prior to 2009.

	~~(2)~~	Dr. Shannon is President of Medizone and of CFGH, and serves as the Director of Medical Affairs and President of the Company. His salary (column (c)) is paid by CFGH in Canadian Dollars (CD). Base salary is CD$240,000 per year. The above amounts have been converted to U.S. dollars using the average exchange rate between the Canadian and the U.S. dollar for each year. The average exchange rates for 2016 and 2015 were 0.7330075 and 0.7924465, respectively. Column (e) represents the fair value on the date of grant of compensation paid to Dr. Shannon in the form of stock options granted as compensation for Dr. Shannon’s service as a member of our Board of Directors (see “Director Compensation”). Not included in the table are accrued and unpaid consulting fees owed to Dr. Shannon for periods prior to 2011, which totaled $111,109 as of December 31, 2016.

In July 2016, we entered into employment agreements with our Chief Executive Officer and our Director of Operations. In October 2016, we entered into an employment agreement with our Chief Financial Officer. The terms of all agreements list salary, benefits and provisions for a change of control.

(1) On February 28, 2017, Mr. Marshall ~~resigned~~retired from his position as Chairman of the Board and Chief Executive ~~Officer and Dr. Marshall resigned as Director of Operations. In connection with these resignations,~~Officer. Upon termination, Mr. ~~Marshall and Dr.~~ Marshall entered into a Separation and Release ~~Agreements~~Agreement (the “Ed Marshall Severance Agreement”), which ~~terminated their respective employment agreements. The Separation and Release Agreements address the~~sets forth a payment schedule related to certain promissory notes previously issued to Mr. Marshall with respect to unpaid cash compensation owing to him for prior periods and ~~Dr. Marshall and the changes in~~certain modifications to equity awards granted to him previously under our 2014 Equity Incentive ~~Plan, modifying~~Plan. Among other things, the changes modify the exercise period of the grants from three weeks to three years following ~~termination.~~the termination of his employment. We are currently in arrears in our obligations under the Ed Marshall Severance Agreement, as well as under a similar agreement entered into with his wife, Dr. Jill Marshall, whose employment also terminated in February 2017.

~~Additionally, in conjunction with~~(2) Mr. ~~Esposito’s appointment to~~Esposito is Chairman of ~~the~~our Board ~~and Interim~~of Directors. He became interim Chief Executive Officer on March 1, 2017, upon the retirement of Mr. Marshall. In connection with Mr. Esposito’s appointment as Interim Chief Executive Officer, we entered into an employment agreement ~~with Mr. Esposito which states~~that provided for the ~~terms~~payment of ~~his employment and compensation. Mr. Esposito’s~~an annual base salary isof $225,000 and ~~he is eligible to receive~~eligibility for a target bonus ofequal to 50% of his base salary based on performance goals ~~determined~~established by our Board. The amount of salary shown in the ~~Board.~~table is the amount of salary that was accrued but not paid to Mr. Esposito during the portion of 2017 that he served as Interim Chief Executive Officer. Mr. Esposito agreed to serve without payment until our cash position improves. Mr. Esposito also received a stock award of 1,000,000 shares of our common stock upon his appointment and iswas eligible to receive an additional 1,000,000 shares of common stock upon ~~AsepticSure’s~~the commercialization of the AsepticSure^® system in the United States. Mr. Esposito stepped down as CEO when Mr. Dodd was appointed in September 2017, at which time this award expired. In February 2017, while he was serving as a director of our Board and prior to his appointment as the Interim CEO, he received a fully vested stock option grant to purchase 1,000,000 shares of common stock pursuant to our 2016 Equity Incentive Plan. Mr. Esposito voluntarily surrendered this option on February 14, 2018. Between March 1, and August 31, 2017, Mr. Esposito purchased 6,333,334 shares at $0.06 per share for cash in our private placement to accredited investors on terms of the offering provided to unaffiliated investors. The market price of our common stock during the offering fluctuated between $0.06 and $0.10. The total discount to market of $6,800 is shown as other compensation in the table in column (f). Mr. Esposito’s participation in the offering was approved by disinterested members of the Board of Directors.

Table of Contents

(3) Mr. Dodd became Chief Executive Officer on September 18, 2017. At the time of his employment, we entered into a written employment agreement with Mr. Dodd that provides an initial base salary of $250,000 per year and an annual performance bonus with an initial target of 65% of annual base salary, payable upon achievement of targets established by the Board of Directors, including targets related to operating capital levels; commercialization of the AsepticSure^® system in the United States; and building and scaling commercial operations, including recruiting of experienced personnel to lead commercialization in the USU.S. market. ~~Additionally,~~We also entered into a change of control agreement with Mr. Dodd, pursuant to which he will receive severance compensation in the event his employment is terminated without cause or for good reason (as defined in the agreement) following a change of control. The amount of salary shown in the table is the amount of salary that was accrued but not paid to Mr. Dodd during the portion of 2017 that he served as our Chief Executive Officer. Mr. Dodd has agreed to serve without receiving cash compensation until our financial condition will permit us to make cash salary payments to him. Pursuant to his employment agreement with us, Mr. Dodd was granted 1,000,000 restricted shares of common stock that vest on March 18, 2018, and 1,000,000 restricted shares of common stock to will vest immediately upon the commercialization of the AsepticSure^® system in the United States; provided, however, that all such shares of restricted stock will vest immediately in the event of a change of control. On January 3, 2018, Mr. Dodd voluntarily surrendered all rights to the 1,000,000 shares scheduled to vest on March 18, 2018.

(4) Dr. Shannon receives a base salary paid in Canadian Dollars of $240,000 per year. The above amounts have been converted to U.S. dollars using the average exchange rate between the Canadian and the U.S. dollar for each year indicated. The average exchange rates were .769601 and .7330075 for 2017 and 2016, respectively. Column (e) represents compensation paid to Dr. Shannon in the form of stock options granted as compensation for Dr. Shannon’s service as a member of our Board of Directors (see “Director Compensation”), valued using the Black-Scholes option pricing model.

(5) Ms. Sorensen became Chief Financial Officer on October 1, 2016. We entered into an employment agreement with Ms. Sorensen that provides for an initial base salary of $60,000 per year. We also entered into a change of control agreement with Ms. Sorensen, pursuant to ~~Mr. Esposito on~~which she will receive severance compensation in the event her employment is terminated without cause or for good reason (as defined in the agreement) following a change of control. On February ~~26, 2014 shall vest as follows: 750,000 shares upon execution of this Agreement; and~~2, 2017, Ms. Sorensen was granted an option to purchase 250,000 shares ~~upon completion~~ of ~~original commercial milestones as established~~common stock. Ms. Sorensen voluntarily surrendered this option on January 3, 2018.

Change of Control Agreements

We have entered into agreements (the “Change of Control Agreements”) with Messrs. Dodd, Dinges, Shannon, Theodore and Ms. Sorensen. The Change of Control Agreements provide that if the employment of any of these executives is terminated by the executive for “Good Reason” (as defined in the ~~original~~agreement) or by us without “Cause” (as defined in the executive’s employment agreement), other than on the account of the executive’s death or disability, in each case within 12 months following a “Change of Control” (as defined in the agreement), the executive will be entitled to receive severance payments (the “Severance Pay”).

For purposes of the agreements, the following definitions apply:

·	“Change of Control” means the occurrence of any of the following:

(i)

one person (or more than one person acting as a group) acquires ownership of our stock that, together with the stock held by such person or group, constitutes more than 50% of the total fair market value or total voting power of our stock; provided that, a Change of Control shall not occur if any person (or more than one person acting as a group) owns more than 50% of the total fair market value or total voting power of our stock and acquires additional stock;

(ii)	one person (or more than one person acting as a group) acquires (or has acquired during the twelve-month period ending on the date of the most recent acquisition) ownership of our stock possessing 30% or more of the total voting power of our stock;

(iii)

a majority of the members of our Board of Directors are replaced during any twelve-month period by directors whose appointment or election is not endorsed by a majority of our Board of Directors before the date of such appointment or election; or

(iv)	the complete liquidation of us or the sale or other disposition by us of all or substantially all of our assets.

Table of Contents

·“Good Reason” means any of the following events if effected by us without the executive’s consent within 12 months of the Change of Control:

(i)	a change in the executive’s position that materially diminishes his or her duties, responsibilities, or authority;

(ii)	a material diminution of the executive’s base salary;

(iii)

any requirement that the executive relocate or any assignment of duties that would be materially adverse to the maintenance of the principal residence the executive had immediately prior to the Change of Control;

(iv)	our material breach of the executive’s employment or Change of Control Agreement; or

(v)	our failure to secure the written assumption of our material obligations under executive’s employment or Change of Control Agreement from any successor to us.

If the Change of Control is one of the events specified in paragraphs (i), (ii) or (iii) of the definition of Change of Control above that values us at more than $100 million, the Severance Pay payable to the executive will equal three times the executive’s annual base salary and target bonus in effect on the date of the Change of Control.

If the Change of Control is one of the events specified in paragraphs (i), (ii) or (iii) of the definition of Change of Control that values us at less than $100 million, but more than $75 million, the Severance Pay will equal two times the executive’s annual base salary and target bonus in effect on the date of the Change of Control.

If the Change of Control is one of the events specified in paragraphs (i), (ii) or (iii) of the definition of Change of Control that values us at less than $75 million, but more than $50 million, the Severance Pay will equal one times the executive’s annual base salary and target bonus in effect on the date of the Change of Control.

If the Change of Control is the event specified in paragraph (iv) of the definition of Change of Control, the Severance Pay will equal one times the executive’s annual base salary and target bonus in effect on the date of the Change of Control.

In addition to the Severance Pay, we are obligated to provide group medical continuation coverage under our group medical plan for the executive, his or her spouse and his or her eligible dependents for 18 months following the date of his or her termination of employment following the Change of Control; provided that the executive is eligible for COBRA and has elected continuation coverage under the applicable rules. In lieu of providing such coverage, we may pay to the executive an amount equal to the cost of such group medical continuation coverage, which amount shall be calculated using the applicable COBRA premium rates in effect for the month in which the termination of employment following a Change of Control occurs.

The Severance Pay and the cost of group medical continuation coverage (if we elect to pay the cost of such coverage to the executive) will be paid to the executive in a lump sum within 90 days. The vesting and exercisability of each option ~~grant agreement.~~and any other equity award granted to the executive by us (or of any property received by the executive in exchange for such options in a Change of Control) will be automatically accelerated in full upon the termination of his or her employment following a Change of Control.

Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires our officers, directors, and persons who beneficially own more than 10% of our common stock to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of all Section 16(a) forms that they file. Based solely upon a review of the copies of such forms furnished to ~~the Company~~us or written representations that no Forms 5 were required, we believe that all reports required to be filed by these individuals and persons under Section 16(a) were filed during the year ended December 31, ~~2016,~~2017, and that such filings were timely except ~~for Ms. Sorensen’s Form 3, which has since been filed.~~as follows:

·	Mr. Philip A. Theodore, an executive officer, was late filing his initial report of beneficial ownership of shares on Form 3 and he was late filing a Form 4 to report his acquisition of 1,000,000 shares of stock on November 30, 2017, which was filed on December 5, 2017.

2430

Table of Contents

Mr. Stephen Meyer, a director, was late filing his initial report of beneficial ownership of shares on Form 3, which was filed on May 29, 2017; was late filing a Form 4 to report the grant of 500,000 options to purchase common stock on May 19, 2017, which was filed on May 30, 2017; and was late filing a Form 4 to report the acquisition of 500,000 shares of common stock on June 6, 2017, which was ultimately filed on June 13, 2017.

·	Mr. Daniel Hoyt, a former director, filed a Form 4 on June 20, 2017. This report was late and/or reported transactions involving dispositions of our common stock that occurred while Mr. Hoyt was a director for which no Form 4 had previously been filed, including gifts and sales, as follows:

Date of Transaction	Nature of Transaction	Number of Shares
04/23/2014	Sale	74,432
11/17/2016	Gift	500,000
02/23/2017	Gift	500,000
05/16/2017	Sale	46,500
05/18/2017	Sale	53,500
05/26/2017	Sale	48,800
06/01/2017	Sale	24,000
06/02/2017	Sale	30,860
06/05/2017	Sale	96,340
06/14/2017	Sale	78,100
06/15/2017	Sale	121,900
06/15/2017	Sale	400,000
06/16/2017	Sale	236,500

Table of Contents

Outstanding Equity Awards ~~as of Fiscal Year-End 2016~~

The following table summarizes the outstanding equity awards held by our Named Executive Officers as of December 31, ~~2016:~~2017:

	Option Awards									Stock Awards
Name	Number of Securities underlying unexercised options (#) exercisable		Number of Securities underlying unexercised options (#) unexercisable		Equity incentive plan awards: Number of securities underlying unexercised unearned options (#)		Option exercise price ($)		Option expiration date	Number of shares or units of stock that have not vested (#)		Market value of shares or units of stock that have not vested ($)		Equity incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)		Equity incentive plan awards: Market or payout value of unearned shares, units or other rights that have not vested ($)
Edwin G. Marshall Former Chairman and Chief Executive Officer		250,000 1,500,000 1,000,000		-- -- --		-- -- --		0.163 0.0877 0.10	4/30/2019 2/28/2020 2/28/2020		-- -- --		-- -- --		-- -- --		-- -- --
David A. Esposito Chairman and Interim Chief Executive Officer⁽¹⁾		1,000,000 750,000 1,000,000		-- -- --		-- -- --		0.1095 0.0877 0.10	2/26/2019 8/18/2020 2/2/2027		-- -- --		-- -- --		-- -- --		-- -- --
David A. Dodd Chief Executive Officer⁽²⁾		--		--		--		--	--		--		--		1,000,000		40,000
Michael E. Shannon President ⁽³⁾		650,000 1,500,000 1,000,000		-- -- --		-- -- --		0.13 0.0877 0.10	8/15/2019 8/18/2020 2/2/2027		-- -- --		-- -- --		-- -- --		-- -- --
Stephanie Sorensen Chief Financial Officer		--		--		--		--	--		--		--		--		--

Option Awards
Name Number of securities underlying unexercised options (#) exercisable Number of securities underlying unexercised options (#) unexercisable Equity incentive plan awards: number of securities underlying unexercised unearned options (#) Option exercise price ($)
Option
expiration
date
(a) (b) (c) (d) (e) (f)

Edwin G. Marshall
Principal Executive Officer 1,000,000 — — $ 0.23 2/21/17
250,000 — — $ 0.163 4/30/19
1,500,000 — — $ 0.087 8/18/20

Michael E. Shannon
President 1,000,000 — — $ 0.23 2/21/17
250,000 — — $ 0.163 4/30/19
1,000,000 — — $ 0.13 8/15/19
1,500,000 — — $ 0.087 8/18/20
(1)          Mr. Esposito voluntarily surrendered all of his outstanding options on February 14, 2018.

(2) Does not include the restricted stock award for 1,000,000 shares that will vest upon certain performance conditions

(3) Mr. Shannon voluntarily surrendered his option for 650,000 shares on March 1, 2018.

Table of Contents

Director Compensation

~~Our directors did not receive any form~~The following table summarizes compensation paid to the non-employee members of ~~compensation~~our Board of Directors during the year ended December 31, ~~2016.~~2017.

Director Compensation Table

Name	Fees earned or paid in cash ($)		Stock awards ($)		Option awards ($)		Non-equity incentive plan compensation ($)		Nonqualified deferred compensation earnings ($)		All other compensation ($)		Total ($)
(a)	(b)		(c)		(d)		(e)		(f)		(g)		(h)
Vincent C. Caponi (1)		--		--		74,147		--		--		--		74,147
Stephen F. Meyer (2)		--		--		11,205		--		--		--		11,250
Dwayne Montgomery (3)		--		--		18,644		--		--		--		18,644
Daniel Hoyt (4)		--		--		74,147		--		--		--		74,147

___________

(1) As of December 31, 2017, Mr. Caponi had options to purchase 2,750,000 shares of common stock. Mr. Caponi voluntarily surrendered all of his outstanding options on February 16, 2018.

(2) As of December 31, 2017, Mr. Meyer had options to purchase 500,000 shares of common stock.

(3) Mr. Montgomery resigned from our Board of Directors effective August 31, 2017. His vested options were forfeited on November 29, 2017.

(4) Mr. Hoyt retired from our Board of Directors on June 21, 2017. As a result, his vested options will expire upon the earlier of three years from his retirement date or the termination date stated in the grant documents. As of December 31, 2017, Mr. Hoyt had options to purchase 2,500,000 shares of common stock. On February 19, 2018, Mr. Hoyt voluntarily surrendered options to purchase 500,000 shares of common stock.

Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following ~~tables contain~~table sets forth certain information as of March ~~22, 2017~~20, 2018 (the “Table Date”) ~~with respect to beneficial ownership~~regarding the number of shares of ~~our~~ common stock ~~for (1) all persons known to be holders of more than 5%~~beneficially owned by (i) each of our voting securities based solely on the Company’s review of SEC filings, (2) each director, (3) each Named Executive Officer in the Summary Compensation Table of this report holding office on the Table Date,named executive officers and ~~(4)~~directors; and (ii) all ~~executive~~ officers and directors as a group. AsWe are not aware of any person who beneficially owns five percent or more of our common stock as of the Table ~~Date, 394,934,068 shares of the Company’s common stock were issued and outstanding.~~Date.

~~Except as~~Unless otherwise ~~noted, the persons named~~indicated, each owner in the table ~~have~~has sole voting and ~~dispositive~~investment power over the shares of common stock indicated. Beneficial ownership is determined in accordance with the Rule 13d-3 promulgated under the Exchange Act and includes voting or investment power with respect to ~~all~~ shares beneficially ~~owned, subject to community property laws where applicable.~~

owned.

Title of class	Name and Address of beneficial owner (1)	Amount and nature of beneficial ownership		Percentage of class			Name and Address of beneficial owner ⁽¹⁾	Amount and nature of beneficial ownership		Percentage of class ⁽²⁾


Common Stock	Edwin G. Marshall, Former Chairman and Chief Executive Officer (2)		16,226,951		4.1	%	Vincent C. Caponi, Director		-		-
Common Stock	David A. Esposito, (Chairman and Interim Chief Executive Officer (3)		6,940,000		1.7	%	David A. Dodd, Director and Chief Executive Officer⁽³⁾		2,000,000		*
Common Stock	Michael E. Shannon, Director and President (4)		6,239,000		1.6	%	David A. Esposito, Chairman of the Board⁽⁴⁾		9,773,334		2.39
Common Stock	Daniel D. Hoyt, Director (5)		10,149,888		2.6	%	Stephen F. Meyer, Director⁽⁵⁾		750,000		*
Common Stock	Vincent C. Caponi, Director (6)		2,750,000		*		Michael E. Shannon, Director and President⁽⁶⁾		3,388,048		*
Common Stock	Stephanie L. Sorensen, Chief Financial Officer (7)		250,000		*		Stephanie L. Sorensen, Chief Financial Officer		-		-
Common Stock	All Officers and Directors as a Group (6 persons) (8)		42,555,839		10.3	%	All Officers and Directors as a Group (8 persons)		16,911,382		4.05	%

~~(a)~~ The following documents are filed as part of this report or incorporated herein by reference:

~~(1)~~ 1.	The following Audited Financial Statements are filed as part of this ~~report.~~

~~Report of Independent Registered Public Accounting Firm~~

	~~Consolidated Balance Sheets as of December 31, 2016 and 2015~~

	~~Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2016 and 2015~~

	~~Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2016 and 2015~~

	~~Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015~~

	~~Notes to Consolidated Financial Statements~~report:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2017 and 2016

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2017 and 2016

Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2017 and 2016

Consolidated Statements of Cash Flows for the Years Ended December 31, 2017 and 2016

Notes to Consolidated Financial Statements

~~(b)~~2. The following exhibits are filed as part of this report or incorporated herein by ~~reference~~.

reference.

Exhibit No.		Description

2		Agreement and Plan of Reorganization, March 12, 1986 (1)

3(i)(a)		Articles of Incorporation (1)

3(i)(b)		Articles of Amendment to Articles of Incorporation (2)

3(i)(c)		Articles of Amendment to Articles of Incorporation (3)

3(i)(d)		Certificate of Amendment to Articles of Incorporation (4)

3(ii)		Bylaws (1)

10.1		Employment Agreement between Medizone International, Inc. and David A. Esposito dated ~~effective~~effect March 1, 2017 (5)

10.2		Waiver of Claims, General Release and Non-Solicitation Agreement dated February 28, 2017, between Medizone International, Inc. and Edwin G. Marshall (5)

10.3		Waiver of Claims, General Release and Non-Solicitation Agreement dated February 28, 2017, between Medizone International, Inc. and Jill Marshall (5)

10.4		~~Amended and Restated Distribution Agreement dated effective October 21, 2016 (6)~~

~~10.5~~		Executive Employment Agreement with Stephanie L. Sorensen dated October 1, 2016 (6)
10.5		Change of Control Addendum, dated as of November 1, 2017, to Executive Employment Agreement with Stephanie L. Sorensen dated October 1, 2016 (7)
10.6		~~Form of New Warrants (7)~~

~~10.7~~		2016 Equity Incentive Award Plan (8)
10.7	Employment Agreement between Medizone International, Inc. and David A. Dodd, dated September 15, 2017 (9)
10.8	Change of Control Addendum to Employment Agreement between Medizone International and David A. Dodd dated September 19, 2017 (9)
10.9	Employment Agreement between Medizone International, Inc. and Philip A. Theodore, dated as of November 1, 2017 (7)
10.10	Change of Control Addendum to Employment Agreement between Medizone International, Inc. and Philip A. Theodore dated November 1, 2017 (7)
10.11	Amended and Restated Distribution Agreement dated as of October 21, 2016 (10)
10.12*	Change of Control Addendum to Employment Agreement between Medizone International Inc. and Michael E. Shannon dated November 10, 2017
10.13	Form of New Warrants (10)
10.14	Securities Purchase Agreement, dated January 31, 2018, by and between Medizone International, Inc. and L2 Capital LLC (11)
10.15	Securities Purchase Agreement, dated January 31, 2018, by and between Medizone International, Inc. and SBI Investments LLC, 2014-1(12)
10.16	Convertible Promissory Note, dated January 31, 2018, made by Medizone International, Inc. in favor of L2 Capital, LLC (13)
10.17	Convertible Promissory Note, dated January 31, 2018, made by Medizone International, Inc. in favor of SBI Investments LLC, 2014-1 (14)
10.18	Common Stock Purchase Warrant, dated January 31, 2018, by and between Medizone International, Inc. and L2 Capital, LLC (15)

2936

Table of Contents

31.1*10.19	Common Stock Purchase Warrant, dated January 31, 2018, by and between Medizone International, Inc. and SBI Investments LLC, 2014-1 (16)
10.20	Equity Purchase Agreement, dated January 31, 2018, by and between Medizone International, Inc. and L2 Capital, LLC and SBI Investments LLC, 2014-1 (17)
10.21	Registration Rights Agreement, dated January 31, 2018, by and between Medizone International, Inc. and L2 Capital, LLC and SBI Investments LLC, 2014-1(18)
10.22	Trading Agreement, dated January 31, 2018, as amended and restated on February 11, 2018, by and between L2 Capital, LLC and SBI Investments LLC, 2014-1

10.23*	Amendment to Equity Purchase Agreement, dated March 16, 2018, by and among Medizone International, Inc. and L2 Capital, LLC and SBI Investments LLC, 2014-1
21*	Subsidiaries of Registrant
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2*		Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1*		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2*		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101.INS*		XBRL Instance Document

101.SCH*		XBRL Taxonomy Extension Schema

101.CAL*		XBRL Taxonomy Extension Calculation Linkbase

101.DEF*		XBRL Taxonomy Extension Definition Linkbase

101.LAB*		XBRL Taxonomy Extension Label Linkbase

101.PRE*		XBRL Taxonomy Extension Presentation Linkbase

	~~(1)~~	~~Incorporated by reference to Registration Statement on Form S-18 (no. 2-93277-D), May 14, 1985.~~
	~~(2)~~	~~Incorporated by reference to Annual Report on Form 10-KSB for period ended December 31, 1986.~~
	~~(3)~~	~~Incorporated by reference to Quarterly Report on Form 10-Q for period ended September 30, 2009.~~
	~~(4)~~	~~Incorporated by reference to Current Report on Form 8-K filed February 27, 2017.~~
	~~(5)~~	~~Incorporated by reference to Current Report on Form 8-K filed February 28, 2017.~~
	~~(6)~~	~~Incorporated by reference to Current Report on Form 8-K filed October 7, 2016.~~
	~~(7)~~	~~Incorporated by reference to Current Report on Form 8-K filed October 27, 2016.~~
	~~(8)~~	~~Incorporated by reference to the Company's Definitive Proxy filed on Form 14A on August 4, 2016.~~

* Filed herewith.

(1) Incorporated by reference to Registration Statement on Form S-18 (no. 2-93277-D), May 14, 1985.

(2) Incorporated by reference to Annual Report on Form 10-KSB for period ended December 31, 1986.

(3) Incorporated by reference to Quarterly Report on Form 10-Q for period ended September 30, 2009.

(4) Incorporated by reference to Current Report on Form 8-K filed on February 27, 2017.

(5) Incorporated by reference to Current Report on Form 8-K filed February 28, 2017.

(6) Incorporated by reference to Current Report on Form 8-K filed October 7, 2016.

(7) Incorporated by reference to Current Report on Form 8-K filed on November 3, 2017.

(8) Incorporated by reference to the Company’s Definitive Proxy Statement filed on Form 14A on August 4, 2016.

(9) Incorporated by reference to Current Report on Form 8-K filed on September 19, 2017.

(10) Incorporated by reference to Current Report on Form 8-K filed on October 27, 2016.

(11) Incorporated by reference to Exhibit 10.1 to Current Report on Form 8-K filed on February 5, 2018.

(12) Incorporated by reference to Exhibit 10.2 to Current Report on Form 8-K filed on February 5, 2018.

(13) Incorporated by reference to Exhibit 10.3 to Current Report on Form 8-K filed on February 5, 2018.

(14) Incorporated by reference to Exhibit 10.4 to Current Report on Form 8-K filed on February 5, 2018.

(15) Incorporated by reference to Exhibit 10.5 to Current Report on Form 8-K filed on February 5, 2018.

(16) Incorporated by reference to Exhibit 10.6 to Current Report on Form 8-K filed on February 5, 2018.

(17) Incorporated by reference to Exhibit 10.7 to Current Report on Form 8-K filed on February 5, 2018.

(18) Incorporated by reference to Exhibit 10.8 to Current Report on Form 8-K filed on February 5, 2018.

3037

Table of Contents

SIGNATURES

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.

	MEDIZONE INTERNATIONAL, INC.

Dated: March ~~22, 2017~~20, 2018	By:	/s/ David A. ~~Esposito~~Dodd
		David A. ~~Esposito,~~Dodd, Chief Executive Officer

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	Title	Date

/s/ David A. Esposito	~~Interim~~ Chairman of the Board of Directors	March 20, 2018
David A. Esposito

/s/ David A. Dodd	Chief Executive Officer ~~(Principal Executive Officer)~~ and Director	March ~~22, 2017~~20, 2018
David A. ~~Esposito~~Dodd

/s/ Michael E. Shannon	President and Director	March ~~22, 2017~~20, 2018
Michael E. Shannon

/s/ ~~Daniel D. Hoyt~~Stephen F. Meyer	Director	March ~~22, 2017~~20, 2018
~~Daniel D. Hoyt~~Stephen F. Meyer

/s/ Vincent C. Caponi	Director	March ~~22, 2017~~20, 2018
Vincent C. Caponi

/s/ Stephanie L. Sorensen	Chief Financial Officer (Principal Accounting and Financial Officer)	March ~~22, 2017~~20, 2018
Stephanie L. Sorensen

3138

Table of Contents

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page

Report of Independent Registered Public Accounting Firm	33F-1

Consolidated Balance Sheets as of December 31, ~~2016~~2017 and ~~2015~~2016	34F-2

Consolidated Statements of Comprehensive Loss for the Years Ended December 31, ~~2016~~2017 and ~~2015~~2016	35F-3

Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, ~~2016~~2017 and ~~2015~~2016	36F-4

Consolidated Statements of Cash Flows for the Years Ended December 31, ~~2016~~2017 and ~~2015~~2016	37F-5

Notes to the Consolidated Financial Statements	38F-6

3239

Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Medizone International, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Medizone International, Inc., subsidiary and affiliate, (collectively, the Company) as of December 31, ~~2016~~2017 and ~~2015,~~2016, and the related consolidated statements of comprehensive loss, ~~stockholders'~~stockholders’ deficit, and cash flows for ~~each of~~ the years inthen ended, and notes to the ~~two-year period ended December 31, 2016. These~~ consolidated financial statements ~~are~~(collectively referred to as the ~~responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated~~“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)~~statements”). 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,~~aspects, the ~~consolidated~~ financial position of the Company as of December 31, 2017 and 2016, and ~~2015, and~~ the ~~consolidated~~ results of ~~its~~their operations and ~~its~~their cash flows for each of the years ~~in the two-year period~~then ended, ~~December 31, 2016~~ 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 13 to the consolidated financial statements, the Company has incurred recurring losses which have resulted in a significant accumulated deficit and deficit in ~~stockholders'~~stockholders’ equity. Additionally, the Company has minimal cash and negative working capital as of December 31, ~~2016.~~2017. These matters, among others, raise substantial doubt about the ~~Company's~~Company’s ability to continue as a going concern. ~~Management's~~Management’s plans in regard to these matters are described in Note ~~13.~~12. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

~~Tanner LLC~~Basis for Opinion

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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting 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.

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

We have served as the Company’s auditor since December 3, 2012.

/s/ Tanner LLC

Salt Lake City, Utah

March ~~22, 2017~~20, 2018

33F-1

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Consolidated Balance Sheets

ASSETS
	December 31,
	2017			2016
Current assets:
Cash	$	29,623		$	398,290
Inventory		290,057			109,573
Prepaid expenses		23,303			81,666
Total current assets		342,983			589,529
Other assets:
Trademark and patents, net		117,616			151,444
Lease deposit		2,823			4,272
Total other assets		120,439			155,716
Total assets	$	463,422		$	745,245

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Accounts payable	$	637,557		$	459,654
Accounts payable – related parties		40,415			-
Accrued expenses		630,899			592,621
Accrued expenses – related parties		780,044			538,887
Other payables		224,852			224,852
Notes payable		362,223			297,332
Notes payable – related parties		1,643,578			1,617,881
Warrant liability		690,508			985,163
Total current liabilities		5,010,076			4,716,390
Notes payable, net of current portion		-			75,000
Total liabilities		5,010,076			4,791,390
Commitments and contingencies (Notes 5,6,10 and 12)

Stockholders’ deficit:
Preferred stock, $0.00001 par value: 50,000,000 authorized; no shares outstanding		-			-
Common stock, $0.001 par value: 500,000,000 authorized; 408,317,402 and 393,934,068 shares issued and outstanding, respectively		408,317			393,934
Additional paid-in capital		35,185,874			33,680,146
Accumulated other comprehensive loss		(54,864	)		(48,043	)
Accumulated deficit		(40,085,981	)		(38,072,182	)
Total stockholders’ deficit		(4,546,654	)		(4,046,145	)
Total liabilities and stockholders’ deficit	$	463,422		$	745,245

ASSETS

December 31,
2016 2015
Current assets:
Cash $ 398,290 $ 745,078
Inventory 109,573 277,823
Prepaid expenses 81,666 31,986
Total current assets 589,529 1,054,887
Property and equipment, net - 415
Other assets:
Trademark and patents, net 151,444 176,086
Lease deposit 4,272 4,272
Total other assets 155,716 180,358
Total assets $ 745,245 $ 1,235,660

LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current liabilities:
Accounts payable $ 459,654 $ 491,044
Accounts payable – related parties - 233,109
Accrued expenses 592,621 554,834
Accrued expenses – related parties 538,887 1,928,659
Other payables 224,852 224,852
Notes payable 297,332 297,396
Notes payable – related parties 1,617,881 -
Warrant liability 985,163 -
Total current liabilities 4,716,390 3,729,894
Notes payable, net of current portion 75,000 75,000
Total liabilities 4,791,390 3,804,894
Commitments and contingencies (Notes 5, 10 and 13)

Stockholders’ deficit:
Preferred stock, $0.00001 par value:
50,000,000 authorized; no shares outstanding
- -
Common stock, $0.001 par value:
395,000,000 authorized; 393,934,068 and 369,434,068 shares issued and outstanding, respectively
393,934 369,434
Additional paid-in capital 33,680,146 32,496,646
Accumulated other comprehensive loss (48,043 ) (36,968 )
Accumulated deficit (38,072,182 ) (35,398,346 )
Total stockholders’ deficit (4,046,145 ) (2,569,234 )
Total liabilities and stockholders’ deficit $ 745,245 $ 1,235,660

The accompanying notes are an integral part of these consolidated financial statements.

34F-2

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Consolidated Statements of Comprehensive Loss

	For the Years Ended December 31,						For the Years Ended December 31,
	2016			2015			2017			2016
Revenues	$	237,000		$	197,000		$	-		$	237,000
Operating expenses:
Cost of revenues		203,460			114,811			-			203,460
General and administrative		2,068,391			1,737,175			1,909,046			2,068,391
Research and development		501,734			299,649			257,312			501,734
Depreciation and amortization		56,311			53,442			52,442			56,311
Total operating expenses		2,829,896			2,205,077			2,218,800			2,829,896
Loss from operations		(2,592,896	)		(2,008,077	)		(2,218,800	)		(2,592,896	)
Loss on warrant liability		(47,212	)		-
Gain (loss) on warrant liability								294,655			(47,212	)
Interest expense		(33,850	)		(27,872	)		(89,685	)		(33,850	)
Interest income		122			27			31			122
Net loss		(2,673,836	)		(2,035,922	)		(2,013,799	)		(2,673,836	)
Other comprehensive loss:
Gain (loss) on foreign currency translation		(11,075	)		21,130
Loss on foreign currency translation								(6,821	)		(11,075	)
Total comprehensive loss	$	(2,684,911	)	$	(2,014,792	)	$	(2,020,620	)	$	(2,684,911	)
Basic and diluted net loss per common share	$	(0.01	)	$	(0.01	)	$	(0.01	)	$	(0.01	)
Weighted average number of common shares outstanding		375,118,494			355,464,753			400,207,813			375,118,494

The accompanying notes are an integral part of these consolidated financial statements.

35F-3

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Consolidated Statements of Stockholders’ Deficit

							Accumulated
	Common Stock				Additional Paid-in		Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Deficit

Balance, December 31, 2015		369,434,068	$	369,434	$	32,496,646	$	(36,968	)	$	(35,398,346	)	$	(2,569,234	)

Common stock issued for services at $0.096 per share		500,000		500		47,500		-			-			48,000

Common stock for cash ranging from $0.04 to $0.05 per share		24,000,000		24,000		1,136,000		-			-			1,160,000

Loss on foreign currency translation		-		-		-		(11,075	)		-			(11,075	)

Net loss		-		-		-		-			(2,673,836	)		(2,673,836	)

Balance, December 31, 2016		393,934,068		393,934		33,680,146		(48,043	)		(38,072,182	)		(4,046,145	)

Common stock issued for services at $0.07 per share		250,000		250		17,250		-			-			17,500

Common stock issued for cash ranging from $0.05 to $0.06 per share		11,833,334		11,833		663,167		-			-			675,000

Restricted stock awards		2,300,000		2,300		225,700		-			-			228,000

Warrant to purchase common stock issued for services		-		-		33,960		-			-			33,960

Stock based compensation		-		-		565,651		-			-			565,651

Loss on foreign currency translation		-		-		-		(6,821	)		-			(6,821	)

Net loss		-		-		-		-			(2,013,799	)		(2,013,799	)

Balance, December 31, 2017		408,317,402	$	408,317	$	35,185,874	$	(54,864	)		(40,085,981	)	$	(4,546,654	)

Accumulated
Common Stock Additional Paid-in Other Comprehensive Accumulated Total Stockholders’
Shares Amount Capital Loss Deficit Deficit

Balance, December 31, 2014 346,034,068 $ 346,034 $ 30,052,656 $ (58,098 ) $ (33,362,424 ) $ (3,021,832 )

Common stock issued for cash ranging from $0.05 to $0.10 per share 23,400,000 23,400 1,652,600 - - 1,676,000

Stock-based compensation - - 791,390 - - 791,390

Gain on foreign currency translation - - - 21,130 - 21,130

Net loss - - - - (2,035,922 ) (2,035,922 )

Balance, December 31, 2015 369,434,068 369,434 32,496,646 (36,968 ) (35,398,346 ) (2,569,234 )

Common stock issued for services at $0.096 per share 500,000 500 47,500 - - 48,000

Common stock issued for cash ranging from $0.04 to $0.05 per share 24,000,000 24,000 1,136,000 - - 1,160,000

Loss on foreign currency translation - - - (11,075 ) - (11,075 )

Net loss - - - - (2,673,836 ) (2,673,836 )

Balance, December 31, 2016 393,934,068 $ 393,934 $ 33,680,146 $ (48,043 ) $ (38,072,182 ) $ (4,046,145 )

The accompanying notes are an integral part of these consolidated financial statements.

36F-4

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Consolidated Statements of Cash Flows

	For the Years Ended December 31,
	2017			2016
Cash flows from operating activities:
Net loss	$	(2,013,799	)	$	(2,673,836	)
Adjustments to reconcile net loss to net cash used in operating activities:
Stock-based compensation		565,651			-
Stock issued for compensation		228,000			-
Depreciation and amortization		52,442			56,311
Fair value of warrants issued for services		33,960			937,951
Stock issued for services		17,500			48,000
Change in warrant liability		(294,655	)		47,212
Changes in operating assets and liabilities:
Inventory		(180,484	)		168,250
Prepaid expenses		96,503			17,075
Lease deposits		1,449			-
Accounts payable and accounts payable – related parties		218,318			(36,389	)
Accrued expenses and accrued expenses – related parties		279,435			37,787
Net cash used in operating activities		(995,680	)		(1,397,639	)

Cash flows from investing activities:
Expenditures for trademark and patents		(18,613	)		(31,255	)
Net cash used in investing activities		(18,613	)		(31,255	)

Cash flows from financing activities:
Principal payments on notes payable		(22,553	)		(66,819	)
Issuance of common stock for cash		675,000			1,160,000
Net cash provided by financing activities		652,447			1,093,181
Effects of foreign currency exchanges rates on cash		(6,821	)		(11,075	)
Net decrease in cash		(368,667	)		(346,788	)
Cash as of beginning of the year		398,290			745,078
Cash as of end of the year	$	29,623		$	398,290

Supplemental disclosure of cash flow information:
Cash paid for interest	$	5,728		$	12,956
Supplemental disclosure of non-cash financing activities:
Financing of insurance premiums	$	38,141		$	66,755
Settlement of accounts payable and accrued expenses with notes payable – related party	$	-		$	1,617,881

For the Years Ended
December 31,

2016 2015
Cash flows from operating activities:
Net loss $ (2,673,836 ) $ (2,035,922 )
  Adjustments to reconcile net loss to net cash
   used in operating activities:

Depreciation and amortization 56,311 53,442
Stock-based compensation 48,000 791,390
Fair value of warrants issued for services 937,951 -
Change in warrant liability 47,212 -
Changes in operating assets and liabilities:
Inventory 168,250 (12,589 )
Prepaid expenses 17,075 95,127
Customer deposits - (30,000 )
Accounts payable and accounts payable – related parties (36,389 ) 20,898
Accrued expenses and accrued expenses – related parties 37,787 38,400
Net cash used in operating activities (1,397,639 ) (1,079,254 )

Cash flows from investing activities:
  Expenditures for trademark and patents (31,255 ) (21,041 )
    Net cash used in investing activities (31,255 ) (21,041 )

Cash flows from financing activities:
Principal payments on notes payable (66,819 ) (67,253 )
Issuance of notes payable - 75,000
Issuance of common stock for cash 1,160,000 1,676,000
Net cash provided by financing activities 1,093,181 1,683,747
Effects of foreign currency exchanges rates on cash (11,075 ) 21,130
Net (decrease) increase in cash (346,788 ) 604,582
Cash as of beginning of the year 745,078 140,496
Cash as of end of the year $ 398,290 $ 745,078

Supplemental cash flow information:
   Cash paid for interest $ 12,956 $ 1,126
Supplemental disclosure of non-cash financing activities:
  Financing of insurance premiums $ 66,755 $ 66,408
   Settlement of accounts payable and accrued expenses with notes payable – related party $ 1,617,881 $ -

The accompanying notes are an integral part of these consolidated financial statements.

37F-5

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Organization

The consolidated financial statements presented are those of Medizone International, Inc. ~~(Medizone)~~(“Medizone”), Medizone Canada, Inc., a wholly owned subsidiary, and the Canadian Foundation for Global Health ~~(CFGH)~~(“CFGH”) (“Affiliate”), a not-for-profit foundation based in Ottawa, Canada, considered to be a variable interest entity ~~(VIE)~~(“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.“Company.”

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.

~~U.S.~~US generally accepted accounting principles ~~(US GAAP)~~(“US GAAP”) 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, ~~2016~~2017 and ~~2015.~~2016. The noncontrolling interest portion of net assets and net loss not attributable, directly or indirectly, to Medizone International, Inc. is considered immaterial.

b. Business Activities

The ~~Company’s objective~~Company is ~~to pursue an initiative in the field~~a global provider of ~~hospital disinfection.~~disinfection systems. The Company ~~has developed an ozone-based technology, specifically for~~invented the ~~purpose~~AsepticSure^® system to provide a superior means of ~~decontaminating~~disinfecting non-porous surfaces in a variety of settings including hospitals, other healthcare facilities, and ~~disinfecting hospital surgical suites, emergency rooms,~~non- hospital/healthcare facilities. The AsepticSure^® system utilizes hydrogen peroxide vapor and ~~intensive care units.~~ozone in a patented process.

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 years as follows:

	For the Years Ended December 31,
	2017			2016

Numerator (net loss)	$	(2,013,799	)	$	(2,673,836	)

Denominator (weighted average number of common shares outstanding – basic and diluted)		400,207,813			375,118,494

Basic and diluted net loss per common share	$	(0.01	)	$	(0.01	)

For the Years Ended
December 31,

2016 2015

Numerator (net loss) $ (2,673,836 ) $ (2,035,922 )

Denominator (weighted average number of common shares outstanding) 375,118,494 355,464,753

Basic and diluted net loss per common share $ (0.01 ) $ (0.01 )

~~Common~~As of December 31, 2017, common stock equivalents, consisting of ~~20,715,000~~18,087,500 options, warrants to purchase 1,750,000 shares of common stock, and warrants to purchase up to $1,000,000 of common stock with the number of shares determined based on a 20-day average stock price prior to the date of exercise, have not been included in the calculation, as their effect is antidilutive for the ~~years presented.~~year ended December 31, 2017. As of December 31, 2016, common stock equivalents, consisting of 20,715,000 options and warrants to purchase up to $1,000,000 of common stock with the number of shares to be determined based on similar terms as in 2017, have not been included in the calculation, as the effect is antidilutive for the year ended December 31, 2016.

F-6

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

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 periods of three years for computers and software, and five years for office equipment and furniture.

~~Table of Contents~~

~~MEDIZONE INTERNATIONAL, INC. AND AFFILIATE~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2016 and 2015~~

~~NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~

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 expense 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 ~~(NOL)~~(“NOL”) and tax credit carry forwards, and ongoing prudent and feasible tax planning strategies.

As of December 31, ~~2016,~~2017, the Company had NOL carryforwards of approximately ~~$12,451,000~~$14,087,000 that may be offset against future taxable income, if any, and expire through 2035. If substantial changes in the Company’s ownership should occur, there would also be an annual limitation of the amount of the NOL carryforwards available for use. 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. The Company has elected to present revenues net of any tax collected.

Deferred income tax assets as of December 31, ~~2016~~2017 and ~~2015~~2016 comprised the following:

	2017			2016

Net operating loss carryforwards	$	3,514,700		$	4,959,900
Related party accruals		980,100			1,564,700
Valuation allowance		(4,494,800	)		(6,524,600	)
	$	-		$	-

2016 2015

Net operating loss carryforwards $ 4,959,900 $ 4,408,800
Related-party accruals 1,564,700 1,165,900
Valuation allowance (6,524,600 ) (5,574,700 )
$ - $ -

The income tax benefit differs from the amount determined by applying the U.S. federal income tax rate to pretax loss for the years ended December 31, ~~2016~~2017 and ~~2015~~2016 due to the following:

	2017			2016

Income tax benefit based on U.S. statutory rate of 34%	$	(684,700	)	$	(909,100	)
Effect of change in deferred tax rates (39.834% to 24.95%)		2,681,404			-
Other		33,096			(40,800	)
Change in valuation allowance		(2,029,800	)		949,900
	$	-		$	-

2016 2015

Income tax benefit based on U.S. statutory rate of 34% $ (909,100 ) $ (692,200 )
Stock issued for expenses - 269,100
Other (40,800 ) 94,000
Change in valuation allowance 949,900 329,100
$ - $ -

The Company had no uncertain income tax positions as of December 31, ~~2016,~~2017, and ~~2015.~~

2016. The Company files income tax returns in the U.S. federal, California and ~~California~~Michigan jurisdictions. With few exceptions, the Company is no longer subject to ~~U.S.~~US federal, state and local tax examinations for years before ~~2013.~~2014.

F-7

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

e. Provision for Income Taxes (continued)

On December 22, 2017, the Tax Cuts and Jobs Act (the Tax Act) was enacted. The Tax Act makes broad and complex changes to the US tax code that will affect our fiscal year ending December 31 2018, including, but not limited to (1) reducing the US federal corporate tax rate from 35 percent to 21 percent; (2) generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries; (3) requiring a current inclusion in US federal taxable income of certain earnings of controlled foreign corporations; (4) creating a new limitation on deductible interest expense; (5) revising the rules that limit the deductibility of compensation to certain highly compensated executives, and (6) changing rules related to uses and limitations of net operating loss carryforwards created in tax years beginning after December 31, 2017.

The SEC staff issued SAB 118, which provides guidance on accounting for the tax effects of the Tax Act. SAB 118 provides a measurement period that should not extend beyond one year from the Tax Act enactment date for companies to complete the accounting under ASC 740. In accordance with SAB 118, a company must reflect the income tax effects of those aspects of the Act for which the accounting under ASC 740 is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Act is incomplete but it is able to determine a reasonable estimate, it must record a provisional estimate in the financial statements. If a company cannot determine a provisional estimate to be included in the financial statements, it should continue to apply ASC 740 on the basis of the provisions of the tax laws that were in effect immediately before the enactment of the Tax Act.

The Company is continuing to gather information and to analyze aspects of the Tax Act, which could potentially affect the estimated impact on the deferred tax balances.

As a result of changes made by the Tax Act, Section 162(m) will limit the deduction of compensation, including performance-based compensation, in excess of $1 million paid to anyone who, for tax years beginning after January 1, 2018, serves as the Chief Executive Officer or Chief Financial Officer, or who is among the three most highly compensated executive officers for any fiscal year. The only exception to this rule is for compensation that is paid pursuant to a binding written contract in effect on November 2, 2017 that would have otherwise been deductible under the prior Section 162(m) rules. Accordingly, any compensation paid in the future pursuant to new compensation arrangements entered into after November 2, 2017, even if performance-based, will count towards the $1 million fiscal year deduction limit if paid to a covered executive. The Company estimates that there will not be a material impact during the current quarter or fiscal year, as the law is effective for tax years beginning after January 1, 2018. The Company has evaluated its binding contracts entered into prior to November 2, 2017 and believes there will be no material impact on the Company’s balance sheet. The Company is still analyzing certain aspects of the Act and refining calculations, which could potentially affect the impact of the Company’s deferred tax asset and this provision.

f. Principles of Consolidation

The consolidated financial statements include the accounts of Medizone and the accounts of Medizone Canada, Inc., a wholly-owned subsidiary incorporated in Canada, and CFGH, a VIE. All material intercompany accounts and transactions have been eliminated.

~~Table of Contents~~

~~MEDIZONE INTERNATIONAL, INC. AND AFFILIATE~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2016 and 2015~~

~~NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~

g. Estimates

The preparation of consolidated financial statements in conformity with US 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. The Company did not incur any advertising expense for the years ended December 31, ~~2016~~2017 and ~~2015.~~2016.

F-8

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

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, consultants and others by 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. Common Stock Warrant Liability

The Company accounts for ~~the~~certain common stock warrants as liabilities. The fair value of the common stock warrant liability is determined at each reporting period-end, with the changes in fair value recognized as gain (loss) on change in fair value of ~~warranty~~warrant liability. The fair value of the warrants to purchase common stock is estimated using the Black-Scholes valuation model. The significant assumptions used in estimating the fair value of warrant liabilities include the exercise price, volatility of the stock underlying the warrant, risk-free interest rate, estimated fair value of the stock underlying the warrant and the estimated life of the warrant.

k. 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.

l. 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.

m. Inventory

The Company’s inventory consists of its ~~AsepticSure® product~~AsepticSure^® system and is valued on a specific identification basis. The Company generally 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, ~~2016,~~2017, and ~~2015.~~2016.

n. Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, accounts payable, accrued expenses, notes payable and warrant liability. The carrying amounts of cash, accounts payable, and accrued expenses 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. The fair value of the warrant liability represents its estimated fair value using the Black-Scholes option pricing model.

40F-9

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

n. Fair Value of Financial Instruments (continued)

The Company measures certain financial liabilities (warrant liability) at fair value on a recurring basis. The Company follows a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority to measurements involving significant unobservable inputs (Level 3). The three levels of the fair value hierarchy are as follows:

Level 1 measurements are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.


	·	Level 2 measurements are inputs other than quoted prices included in Level 1 that are observable either directly or indirectly.


	·	Level 3 measurements are unobservable inputs.

o. 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. ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, and interim periods therein. Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods therein. The ~~Company is assessing the impact, if any,~~implementation of ~~implementing~~ this guidance is not expected to have a material impact on the Company’s 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~~. ASU No. 2014-15 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. ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016. The implementation of this guidance had no impact on the presentation of the Company’s financial statements.

In November 2015, the FASB issued ASU 2015-17, Income Taxes (Topic 740), simplifying the presentation of deferred income taxes on the balance sheet by requiring companies to classify all deferred taxes as either a non-current asset or a non-current liability. ASU No. 2015-17 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within annual periods ending after December 15, 2016. The ~~Company is assessing the impact, if any,~~implementation of ~~implementing~~ this guidance had no impact on the Company’s consolidated financial statement presentation.

In February 2016, the FASB released ASU No. 2016-02, Leases (Topic 842), to bring transparency to lessee balance sheets. ASU No. 2016-02 will require organizations that lease assets (lessees) to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU No. 2016-02 will apply to both types of ~~leases;~~leases; capital (or finance) leases and operating leases. Previously, US GAAP has required only capital leases to be recognized on lessee balance sheets. ASU No. 2016-02 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early application is permitted. The Company is assessing the impact of ASU No. 2016-02 will have on its future consolidated financial position, results of operations and liquidity.

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU No. 2016-09 is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification in the statement of cash flows, and forfeitures. ASU No. 2016-09 is effective for fiscal years, and interim periods within those years beginning after December 15, 2016. The ~~Company is assessing~~implementation of this guidance did not have a material impact on the ~~impact of ASU No. 2016-09 on its future~~Company’s consolidated financial ~~position, results of operations and liquidity.~~statement presentation.

~~Table of Contents~~

~~MEDIZONE INTERNATIONAL, INC. AND AFFILIATE~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2016 and 2015~~

~~NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)~~

~~o. Recent Accounting Pronouncements (continued)~~

In October 2016, the FASB issued ASU No. 2016-17, Interests held Through Related Parties That are Under Common Control. ASU No. 2016-17 clarifies the consolidation process for the primary beneficiary of a ~~Variable Interest Entity (VIE)~~VIE should that related party have indirect interests under common control with the reporting entity. ASU No. 2016-17 is effective for years ending after December 31, ~~2016,~~2016. The implementation of this guidance did not have a material impact on the Company’s consolidated financial statement presentation.

F-10

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

o. Recent Accounting Pronouncements (continued)

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU No. 2017-04 eliminates the requirement to calculate the implied fair value of goodwill to measure a goodwill charge. The guidance is effective for annual and interim periods of public entities beginning after December 15, 2019, with early adoption permitted for interim periods after January 1, 2017. The Company is currently assessing the potential impact ~~that~~ ASU No. ~~2016-17 may~~2017-04 will have on its consolidated results of operations, financial ~~statements.~~ position and cash flows.

In May 2017, the FASB issued ASU No. 2017-09, Compensation – Stock Compensation (Topic 718). ASU No. 2017-09 provides clarity and reduces the diversity of practice and complexity in determining when additional expense should be recorded resulting from a modification to stock-based grants and awards. ASU No. 2017-09 is effective for annual periods beginning after December 15, 2017. Early adoption is permitted for interim periods. The Company is currently assessing the potential impact ASU No. 2017-09 will have on its consolidation results of operations, financial position and cash flows.

p. 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, ~~2016,~~2017, the Company ~~had approximately $229,000 of~~did not have cash balances that exceeded ~~U.S.~~US 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~~– INVENTORY

~~Property~~In December 2016, the Company terminated a Distribution and ~~equipment consist~~License Agreement with a distributor due to a lack of market development by the distributor. In connection with the termination, the Company negotiated the return of five disinfection units on or before January 17, 2017 paying the distributor $25,000 per unit. The units were upgraded with the Company’s current technology to support the ongoing expansion of the ~~following as of December 31, 2016 and 2015:~~Company’s commercial strategy.

2016 2015
Computers and software $ 2,938 $ 2,938
Furniture 2,075 2,075
5,013 5,013
Accumulated depreciation (5,013 ) (4,598 )
Property and equipment, net $ — $ 415

~~Depreciation expense for each of the years ended December 31, 2016 and 2015 was $415.~~

NOTE 3 - TRADEMARK AND PATENTS

Trademark and patents consist of the following as of December 31, ~~2016~~2017 and ~~2015:~~2016:

	2017			2016
Patent costs	$	433,865		$	415,251
Trademark		770			770
		434,635			416,021
Accumulated amortization		(317,019	)		(264,577	)
Trademark and patents, net	$	117,616		$	151,444

2016 2015
Patent costs $ 415,251 $ 383,997
Trademark 770 770
416,021 384,767
Accumulated amortization (264,577 ) (208,681 )
Trademark and patents, net $ 151,444 $ 176,086

Amortization expense for the years ended December 31, 2017 and 2016, was $52,442 and ~~2015 was~~ $55,896, ~~and $53,027,~~ respectively. The future amortization as of December 31, ~~2016,~~2017, is as follows: ~~2017-$51,331;~~ 2018-$~~38,750;~~41,409; 2019-$~~25,086;~~27,745; 2020-$~~17,543;~~20,203; 2021-$~~10,297~~12,956; 2022-$8,412 and thereafter-$~~8,437.~~6,891.

NOTE 4 - ACCOUNTS PAYABLE – RELATED PARTIES

As of December 31, ~~2016~~2017, and ~~2015,~~2016, the Company owed $40,415 and $0 to directors and ~~$233,109 to consultants, who were also stockholders,~~officers for ~~services.~~various administrative and travel related expenses. In July 2016, the Company converted $228,109 of accounts payable – related parties into notes payable – related parties (see Note 8).

F-11

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

NOTE 5 - ACCRUED EXPENSES

Accrued expenses consist of the following as of December 31, ~~2016~~2017 and ~~2015:~~

2016 2015
Accrued interest $ 549,909 $ 529,015
Other accruals 42,712 25,819
Total $ 592,621 $ 554,834
2016:

~~Table of Contents~~

	2017		2016
Accrued interest	$	577,978	$	549,909
Other accruals		52,921		42,712
Total	$	630,899	$	592,621

~~MEDIZONE INTERNATIONAL, INC. AND AFFILIATE~~

~~Notes~~Accrued interest pertains to ~~Consolidated Financial Statements~~

~~December 31, 2016~~notes payable (see Note 7). Other accruals consist of legal and ~~2015~~advisory fees, estimated taxes and product warranties.

NOTE 6 - ACCRUED EXPENSES – RELATED PARTIES

Accrued expenses – related parties consist of the following as of December 31, ~~2016~~2017 and ~~2015:~~2016:

	2017		2016
Accrued payroll and consulting – related parties	$	648,167	$	422,334
Accrued payroll taxes – related parties		131,877		116,553
Total	$	780,044	$	538,887

2016 2015
Accrued payroll and consulting – related parties $ 422,334 $ 1,812,106
Accrued payroll taxes – related parties 116,553 116,553
Total $ 538,887 $ 1,928,659

In July 2016, the Company converted $1,389,772 of accrued ~~payroll and consulting -~~expenses – related parties into notes payable – related parties. These parties are officers and executives of the Company (see Note 8).

Accrued payroll and consulting fees increased during 2017, as the Company’s Interim CEO, current CEO, and Executive Vice President, Administration and Operations have deferred their salaries until such time as a significant financing has occurred.

NOTE 7 - NOTES PAYABLE

Notes payable consist of the following as of December 31, ~~2016~~2017 and ~~2015:~~2016:

	2017			2016
Unsecured notes payable to former directors and a family member of a former director, due at various dates in 1995, 1996 and 1997, 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, 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			50,000
Unsecured notes payable to 10 stockholders, due on demand, interest at 10%. The Company is obligated to accept the principal 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, 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			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, 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 5.1% to 7.3%, maturing in April, July and October 2018.		6,732			16,841
Total notes payable		362,223			372,332
Less notes payable current portion		(362,223	)		(297,332	)
Total notes payable long term, net of current portion	$	-		$	75,000

2016 2015
Unsecured notes payable to former directors and a family member of a former director, due at various dates in 1995, 1996 and 1997, 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, 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 50,000
Unsecured notes payable to 10 stockholders, due on demand, interest at 10%. The Company is obligated to accept the principal 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, 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 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, 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 4.88% to 6.68%, mature in April, July and November 2017. 16,841 16,905
Total notes payable 372,332 372,396
Less notes payable current portion (297,332 ) (297,396 )
Total notes payable long term, net of current portion $ 75,000 $ 75,000

F-12

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

NOTE 8 - NOTES PAYABLE – RELATED PARTIES

In July 2016, the Company converted $228,109 of accounts payable – related parties, and $1,389,772 of accrued expenses – related parties into three promissory notes aggregating $1,617,881. The amounts converted represent accrued expenses and accrued wages prior to 2009 owed to certain officers and executives of the Company. The three notes have similar terms and specify payment terms, trigger events and a default rate of 2%5% per annum.

~~Table~~ During 2017, the Company made total payments towards the principal of ~~Contents~~

$23,202 The Company is currently in default with the terms of the promissory notes and is accruing interest at 5% per annum on the outstanding balance, with any payments made to be applied towards interest first. As of December 31, 2017, the Company owes $48,899 in accrued interest related to these notes (see Note 10).

~~MEDIZONE INTERNATIONAL, INC. AND AFFILIATE~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2016 and 2015~~

NOTE 9 - WARRANT LIABILITY

The Company accounts for its common stock warrants under ASC 480, Distinguishing Liabilities from Equity. Any financial instrument, other than an outstanding share, that, at inception, embodies an obligation to ~~repurchase~~purchase the issuer’s equity shares, or is indexed to such an obligation, which requires or may require the issuer to settle the obligation by transferring assets, is classified as a liability. This liability is to be fair valued at each reporting period, with the changes in fair value recognized as gain (loss) on change in fair value of ~~warranty~~warrant liability. The fair value of the warrants to purchase common stock is estimated using the Black-Scholes valuation model. The significant assumptions used in estimating the fair value of warrant liabilities include the exercise price, volatility of the stock underlying the warrant, risk-free interest rate, estimated fair value of the stock underlying the ~~warrant~~warrants and the estimated life of the ~~warrant~~warrants.

In October 2016, the Company issued warrants to purchase up to $1,000,000 in common stock with the number of shares to be determined based on a 20-day average stock price prior to the date of exercise, ~~with the exercise prices~~ discounted 40%. The warrants ~~are~~were exercisable between January 31, 2017 and January 30, ~~2018, at which point the outstanding warrants expire.~~2018. Since the price of the ~~warrant is~~warrants was yet to be determined, the Company recorded a common stock warrant liability of $937,951 on the ~~warrant’s~~warrants’ issuance date and, revalued itthe warrants on December 31, 2017 and 2016. The estimate was calculated using the following inputs:

Input	December 31, 2017			December 31, 2016
Risk-free interest rate		1.28	%		.85	%
Expected life in years	1 month			1 year
Dividend yield		—			—
Volatility		136.3	%		120.0	%
Stock price	$	0.04		$	0.11

Input October 21, 2016 December 31, 2016
Risk-free interest rate .66 % 85 %
Expected life in years 1 year 1 year
Dividend yield — —
Volatility 108.2 % 120.0 %
Stock price $ 0.08 $ 0.11

~~As of~~For the year ended December 31, ~~2016,~~2017, the Company recorded ~~an increase~~a decrease of ~~$47,212~~$294,655 in the warrant liability, ~~which resulted from an increase in the Company’s stock price at the end of the year,~~ for a total liability of ~~$985,163.~~$690,508. The warrants expired on January 30, 2018.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Litigation

The Company ismay be 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 in accounts payable, the original default judgment in the amount of $143,000, plus fees totaling $21,308, as of December 31, ~~2016~~2017 and ~~2015.~~2016. The Company intends to contest the ~~judgment~~claim if and when it is able to do so in the future.

F-13

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)

Related Party Agreements

In July 2016, the Company issued notes to its former CEO Edwin Marshall, former Director of Operations, Jill Marshall, and Michael Shannon, President of CFGH that were in settlement of $228,109 of accounts payable – related parties, and $1,389,772 of accrued expenses – related parties into three promissory notes payable – related parties aggregating to $1,617,881. The principal amounts of the promissory notes issued were $1,065,189; $444,583 and $111,109, respectively. The promissory notes were issued in settlement of our liability to these three individuals for accrued and unpaid compensation owed for periods prior to December 31, 2009. Payment of the amounts owning under the terms of the notes is due upon the earlier to occur of (a) a change in control of the Company (as defined in the notes), (b) the executive’s death or (c) the executive’s disability as (defined in the notes or in the respective executive’s written employment agreement). In addition, in the case of the notes payable to our former executives, payment of the notes would be triggered by the Company’s failure to pay the executive’s base salary in accordance with the terms and conditions of the executive’s employment agreement because of disability.

In February 2017, Mr. Marshall and Dr. Marshall resigned from their positions with us and their employment was terminated. At that time, we entered into the Ed Marshall Severance Agreement and a similar severance agreement with Dr. Marshall (collectively, the “Marshall Severance Agreements”). Under the terms of the Marshall Severance Agreements, we agreed to the modification of the promissory notes we previously issued to the Marshalls (collectively, the “Marshall Notes”) to require monthly principal payments to Mr. Marshall of $14,000 and to Dr. Marshall of $6,900 and to waive interest except in the event of a default. We made the first payments under the Marshall Notes, but have been in default under the Marshall Notes since April 2017, and as of December 31, 2017, we owed principal of owe principal payments for approximately nine months totaling $122,500 to Mr. Marshall and to Dr. Marshall totaling $58,600. In addition, under the terms of the Marshall Notes, as a result of our default, the Marshall Notes now accrue default until payment of the default amounts at the rate of 5% of the total amount of the notes.

On March 1, 2017, the Company entered into an employment agreement with David Esposito to fill the position of Chairman and Interim CEO. The agreement stated the terms of his employment and compensation. Mr. Esposito’s compensation consisted of: (1) an annual base salary of $225,000; (2) a potential target bonus of up to 50% of base salary based on performance goals determined by the Board of Directors of the Company; (3) equity awards, and (4) standard employee benefits, including vacation. Mr. Esposito stepped down from his position as Interim CEO upon the appointment of David Dodd as the Company’s CEO effective September 18, 2017. As of September 30, 2017, the Company has accrued wages to Mr. Esposito of $123,750. Mr. Esposito remains as the Company’s Chairman of the Board of Directors.

On September 15, 2017, the Company entered into an employment agreement with David Dodd as the Company’s CEO and a member of the Board of Directors of the Company. The agreement states the terms of his employment and compensation which consists of: (1) an annual base salary of $250,000; (2) an initial target bonus of up to 65% of annual base salary based on targets established by the Board of Directors; (3) a signing bonus of 1,000,000 shares of restricted stock; (4) an additional 1,000,000 shares of restricted stock that will vest upon successful commercialization of the AsepticSure^® system in the US market; and (5) benefits as offered to other executive employees. Mr. Dodd voluntarily surrendered the 1,000,000 restricted shares he received as a signing bonus on January 2, 2018. The Company also agreed to a change of control agreement that will pay severance compensation to Mr. Dodd in the event his employment is terminated by the Company without cause or by Mr. Dodd for good reason, as defined in the agreement.

On November 1, 2017, the Company entered into an employment agreement with Philip Theodore as the Company’s Executive Vice President, Operations and Administration. The agreement states the terms of his employment and compensation which consists of (1) an annual base salary of $175,000; (2) an initial target bonus of up to 45% of his annual base salary based on targets established by the Board of Directors; (3) a signing bonus of 300,000 shares of restricted stock upon his appointment; (4) an additional 300,000 shares of restricted stock that will vest upon successful commercialization of the AsepticSure^® system in the US market; and (5) benefits as offered to other executive employees. Mr. Theodore voluntarily surrendered the 300,000 restricted shares he received as a signing bonus upon his appointment on January 3, 2018. The Company also agreed to a change of control agreement that will pay severance compensation to Mr. Theodore in the event that his employment is terminated by the Company without cause or by Mr. Theodore for good reason, as defined in the agreement.

F-14

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

NOTE 10 - COMMITMENTS AND CONTINGENCIES (Continued)

Related Party Agreements (Continued)

In November 2017, the Company entered into change of control agreements with Michael Shannon, President of CFGH and Stephanie Sorensen, the Company’s Chief Financial Officer, with similar terms with the change of control agreements entered into with Mr. Dodd and Mr. Theodore.

Supply and License Agreement

On October 26, 2017, the Company entered into a supply and license agreement with Innovasource, LLC, (“Innovasource”) a leading manufacturer of cleaning, deodorizing and disinfecting products. Innovasource has agreed to supply the Company with its custom-formulated disinfectant product and has granted the Company an exclusive, non-transferable limited license to use its intellectual property in the marketing and sale of the AsepticSure^® system in the US. The supply agreement has a five-year term that automatically renews for two-year terms unless either party provides notice of non-renewal prior to the expiration of the current term.

Distribution and License Agreements

In December 2016, the Company terminated a Distribution and License Agreement with a distributor due to lack of market development by the distributor. On October 25, 2017, the Company entered into an exclusive distribution agreement with Aglon a/s for the countries of Norway, Sweden, Finland, Denmark, and Iceland.

Other Payables

As of December 31, ~~2016~~2017, and ~~2015,~~2016, 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. The statute of limitations relating to these payables has passed. 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.

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 June 30, 2016 through June 29, 2018 with a monthly lease payment of $3,550 Canadian dollars (“CD”) plus the applicable goods and services tax (“GST”).

~~Table of Contents~~

~~MEDIZONE INTERNATIONAL, INC. AND AFFILIATE~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2016~~ The future minimum lease payments due under this agreement are $21,300 CD plus the applicable goods and ~~2015~~

~~NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)~~

services tax. The Company has a month-to-month cancelable lease for office space located in ~~California,~~Michigan, with monthly payments of approximately ~~$2,556. In February 2017, the Company gave 60-days’ notice that the lease would be terminated as of April 30, 2017.~~$1,000.

In December 2016, the Company terminated a Distribution and License Agreement with a distributor due to lack of market development related to the Company’s product by the distributor. In connection with the termination agreement, the Company negotiated the return of five disinfection units on or before January 17, 2017 for $25,000 per unit.

NOTE 11 - 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 – 2015~~Recapitalization

~~During February 2015,~~On December 15, 2016, the ~~Company sold 300,000 restricted~~Company’s stockholders approved the Board of Directors’ recommendation to increase the number of authorized shares of common stock from 395,000,000 to ~~an accredited investor for cash proceeds totaling $21,000, or $0.07 per share.~~

~~During February and March 2015,~~500,000,000 shares in order to provide the Company ~~sold~~with sufficient authorized shares to accomplish its objectives. The Company filed an ~~aggregate~~amendment to modify its Articles of ~~3,000,000 restricted shares~~Incorporation with the State of ~~common stock to seven accredited investors for cash proceeds totaling $150,000, or $0.05 per share.~~

~~During April, May and June 2015,~~Nevada on January 4, 2017, which was approved by the ~~Company sold an aggregate~~Secretary 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.~~

~~Common Stock for Cash or Services Provided – 2016~~

~~During the~~State on January ~~2016, the Company issued 500,000 restricted shares of common stock for consulting services. The value of the shares on the date of grant was $48,000, or $0.096 per share.~~

~~During September 2016, the Company sold an aggregate of 4,000,000 restricted shares of common stock to three accredited investors for cash proceeds totaling $160,000, or $0.04 per share.~~

~~During October 2016, the Company issued 20,000,000 restricted shares of common stock pursuant to the exercise of warrants for cash proceeds totaling $1,000,000, or $0.05 per share.~~

~~Recapitalization~~

24, 2017.

The Company’s amended Articles of Incorporation 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.

~~On December 15,~~Common Stock Issuances

During January 2016, the ~~Company’s stockholders approved the Board’s recommendation to increase the number of~~Company issued 500,000 restricted shares of common stock ~~authorized from 395,000,000~~to a consultant. The fair value of the shares ~~to 500,000,000 shares in order to provide~~on the ~~Company with sufficient authorized shares to accomplish its objectives.~~date of grant was $48,000, or $0.096 per share. The Company ~~filed an amendment to modify its Articles~~recorded compensation expense of ~~Incorporation~~$48,000 in connection with the ~~State~~issuance of ~~Nevada on January 4, 2017, which was approved by~~ the ~~State on January 24, 2017.~~shares.

45F-15

Table of Contents

MEDIZONE INTERNATIONAL, INC. ~~AND AFFILIATE~~

~~Notes to Consolidated Financial Statements~~

~~December 31, 2016 and 2015~~

~~NOTE 12 - 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 during the year ended December 31, 2015 in connection with the options that vested on 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 during the year ended December 31, 2015.

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 during the year ended December 31, 2015.

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 during the year ended December 31, 2015.

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, 2016, the Company had no remaining options available for grant under the 2014 Plan and previously adopted plans.

~~Table of Contents~~

~~MEDIZONE INTERNATIONAL, INC.~~, SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

NOTE 1211 - ~~COMMON STOCK OPTIONS~~EQUITY TRANSACTIONS (Continued)

Common Stock Issuances (continued)

During May 2017, the Company issued 250,000 restricted shares of common stock to a consultant. The fair value of the shares on the date of the grant was $17,500, or $0.07 per share. The Company recorded compensation expense of $17,500 in connection with the issuance of the shares.

During the year ended December 31, 2017, the Company granted three of its executives and officers a total of 2,300,000 restricted shares of common stock upon their appointment to their positions. The aggregate value of the shares on their dates of grant was $228,000, with values ranging from $0.06 to $0.15 per share. The Company recorded compensation expense of $228,000 in connection with the issuance of the shares.

During the year ended December 31, 2017, the Company issued and sold 11,833,334 restricted shares of common stock for net proceeds of $675,000 and an average price of $0.06 per share as part of a private offering to accredited investors, which included the Company’s Chairman and Interim CEO, its current CEO, Executive Vice President, Administration and Operations, Executive Vice President, Chief Commercial Officer and an independent director.

Common Stock Options and Awards

The Company recognizes stock-based compensation expense for grants of stock option awards, stock awards, restricted stock units and restricted stock under the Company’s Incentive Plan to employees and nonemployee members of the Company’s Board of Directors. In addition, the Company grants stock options to nonemployee consultants from time to time in consideration for services performed for the Company.

The Company’s 2016 Equity Incentive Award Plan (the “2016 Plan”) was ~~adopted~~approved on December 15, 2016 by the ~~stockholders.~~ ~~The 2016 Plan replaces~~stockholders to replace the Company’s 2008 Equity ~~Compensation~~Incentive Plan, ~~(“2008 Plan”),~~ 2009 Incentive Stock Plan, ~~(“2009 Plan”),~~ 2012 Equity Incentive Award Plan, ~~(“2012 Plan”),~~ and the 2014 Equity Incentive Plan ~~(“2014 Plan” and, together with the 2008, 2009 and 2012 Plans,~~(collectively, the “Prior Plans”). Options and awards previously granted under the Prior Plans that have not yet expired by their terms will remain outstanding until their expiration dates. ~~The~~Following adoption of the 2016 Plan, the Company ~~will~~ no longer ~~make~~made any grants or awards under the Prior Plans. The 2016 Plan ~~replaces all previous plans and~~ reserves a total of 10,000,000 shares of common stock for ~~awards granted~~awards. Awards under the 2016 ~~Plan. As~~Plan expire 10 years from the date of grant. Under the 2016 Plan, as of December 31, ~~2016, no~~2017, the Company had granted options, net of forfeitures, for the purchase of a total of 6,400,000 shares, had ~~been issued.~~awarded 2,300,000 fully vested restricted shares, and an additional 1,300,000 shares to vest upon achievement of certain performance milestones. No shares are available for future grants or awards under the 2016 Plan.

The Company estimates the fair value of each stock option 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 used in the Black-Scholes option-pricing model is zero. ~~Expense~~Under the provisions of ~~$0 and $791,390 was recorded for~~ASU 2016-09, the ~~years~~Company has elected to recognize forfeitures as they occur to determine the amount of compensation cost to be recognized in each period. For the year ended December 31, 2017 and 2016, the Company recorded stock-based compensation of $565,651 $ and ~~2015, respectively. Excluding~~$0, respectively, of which $89,064 related to the modification of vesting relating to 750,000 options ~~whose performance condition is not yet deemed probable as~~issued in 2014 to Mr. Esposito. As of December 31, ~~2016,~~2017, the Company had ~~various~~outstanding unvested ~~outstanding~~ options for a total of 325,000 shares with related unrecognized expense of ~~$104,647.~~approximately $19,760 and weighted average remaining life of 7.59 years. The Company will recognize this expense over the service period or when the achievement of the required milestones ~~become~~becomes probable.

~~The~~During 2017, the Company estimated the fair value of the stock options ~~for 2015~~ at the date of ~~the~~each grant based on the following weighted average assumptions:

Risk-free interest rate 1.52 % to 1.60 %
Expected life 5 years
Expected volatility 131.33 % to 136.34 %
Dividend yield 0.00 %

~~The Company estimated the fair value of the stock options for 2016 at the date of the grant, based on the following weighted average assumptions:~~

Risk-free interest rate			~~1.85~~1.36% to 1.99	%
Expected life	5 years
Expected volatility			~~130.34~~98.38% to 101.86	%
Dividend yield		0.00	%

AF-16

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

NOTE 11 - EQUITY TRANSACTIONS (Continued)

Common Stock Options and Awards (continued)

The following is a summary of the status of the Company’s outstanding options as of December 31, ~~2016~~2017 and changes during the year then ~~ended is presented below:~~ended:

	Number of Shares			Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (Years)		Aggregate Intrinsic Value

As of December 31, 2016		20,715,000		$	0.143		2.08	$	261,220
Granted		6,900,000			0.097
Forfeited		(7,550,000	)		0.202
Surrendered		(1,977,500	)		0.128
As of December 31, 2017		18,087,500			0.102		3.72		-
Exercisable		17,762,500			0.103		3.79		-

Shares Weighted Average Exercise Price
Outstanding, January 1, 2016 20,965,000 $ 0.18
Granted 150,000 0.00
Expired/Canceled (400,000 ) 0.10
Outstanding, December 31, 2016 20,715,000 0.14
Exercisable 19,640,000 0.14

No shares are expected to vest within the next 60 days. In December 2017, former and current directors, officers, employees and consultants voluntarily surrendered 1,977,500 shares in an effort to reduce the number of shares reserved resulting in an increase in shares available to be used for additional financing efforts. As of December 31, ~~2016,~~2017, the aggregate intrinsic value of the outstanding vested options was ~~$1,597,426.~~$0. No shares were exercised in ~~2016.~~2017.

A summary of unvested stock option activity for the year ended December 31, 2017 is presented below:

	Number of Shares			Weighted Average Grant Date Fair Value

Non-vested balance as of December 31, 2016		1,075,000		$	0.11
Awarded		1,000,000			0.08
Vested		(250,000	)		0.06
Forfeited		(500,000	)		0.10
Surrendered		(1,000,000	)		0.1095
Non-vested balance as of December 31, 2017		325,000			0.08

Warrants

During October 2016, the Company issued warrants to purchase up to $1,000,000 in common stock with the number of shares determined based on a 20-day average stock price prior to the date of exercise with the exercise prices discounted 40%. The warrants were exercisable between January 31, 2017 and January 30, 2018. The warrants expired on January 30, 2018.

During May 2017, the Company issued a warrant to purchase up to 750,000 shares of common stock at an exercise price of $0.10 per share to a third-party consultant. The warrant will vest when certain milestones are achieved and will expire three years from the date of issuance.

During October 2017, the Company issued a warrant to purchase up to 1,000,000 shares of common stock at an exercise price of $0.10 per share to a supplier. The warrant immediately vested and will expire five years from the date of issuance. The Company recorded expense of $33,960 resulting from the issuance of this warrant.

47F-17

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, ~~2016~~2017 and ~~2015~~2016

NOTE 1312 - 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, ~~2016,~~2017, which have resulted in an accumulated deficit of ~~$38,072,182~~$40,085,981 as of December 31, ~~2016.~~2017. The Company has minimal cash, has a working capital deficit of ~~$4,126,861,~~$4,667,093, and a total stockholders’ deficit of ~~$4,046,145~~$4,546,654 as of December 31, ~~2016.~~2017. 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 create a commercial organization to continue to develop its products, obtain FDA approval, 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 $1,500,000 during the next 12 months for continued ~~production manufacturing~~commercial operations, research ~~development,~~ and ~~marketing activities,~~development, as well as for general corporate purposes.

During ~~2016,~~2017, the Company raised a total of ~~$160,000~~$675,000 through the sale of ~~4,000,000~~11,833,334 shares of common stock at aan average price of ~~$0.04~~$0.06 per share. ~~Additionally,~~

On January 31, 2018, the Company ~~received~~raised net proceeds of ~~$1,000,000 resulting~~$250,000 from the ~~exercise~~sale of ~~warrants~~identical unsecured convertible promissory notes and secured an equity credit line for ~~20,000,000~~up to $10,000,000 shares of common ~~at $0.05 per share. The Company used~~stock pursuant to certain terms of the ~~proceeds from these securities issuances to keep current in its reporting obligations under the Exchange Act~~agreement being met and ~~to pay certain other corporate obligations.~~sufficient shares outstanding available for sale (see Note 13).

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 1413 - SUBSEQUENT EVENTS

The Company evaluated subsequent events through the filing date of the Annual Report on Form 10-K and determined to disclose the following events.

On ~~February 2, 2017, the Board of Directors granted a total of 5,700,000 common stock options to officers, directors and other employees.~~

~~On February 28, 2017,~~January 30, 2018, the Company entered into ~~separation and release agreements (Separation Agreements)~~an employment agreement with ~~our former Chairman and CEO, Edwin Marshall, and our former Director of Operation, Dr. Jill Marshall.~~Jude Dinges as the Company’s Executive Vice President – Chief Commercial Officer. The ~~Separation Agreements include principal payment schedules for promissory notes issued to these individuals and modify~~agreement states the terms of his employment and compensation which consists of (1) an annual base salary of $175,000; (2) an initial target bonus of up to 45% of his annual base salary based on targets established by the Board of Directors; (3) a signing bonus of 300,000 restricted shares of common stock ~~option awards granted to them under the 2014 Equity Incentive Plan by increasing the exercise period~~vesting upon successful commercialization of the ~~grants from three weeks~~AsepticSure^®system in the US market; and (4) benefits as offered to ~~three years following termination.~~other executive employees. The Company also agreed to a change of control provision that will pay severance compensation to Mr. Dinges in the event that he is terminated by the Company without cause or by Mr. Dinges for good reason, as defined in the agreement.

On January 31, 2018, the Company raised net proceeds of $250,000 from the sale of identical unsecured convertible promissory notes in the aggregate principal amount of $305,000 to two specialized investment firms. The notes accrue interest (payable at maturity of the notes) at a rate of 8% per annum and mature six months from the issue date. The notes were issued with original issue discount of $35,000, and $20,000 was subtracted from the proceeds to reimburse the investors for their legal fees and other transaction expenses in connection with the preparation of the notes and the related transaction documentation. Accordingly, the net proceeds the Company received for each note was $125,000. If we fail to pay the principal of and interest on the Notes when due, the interest rate increases to a default rate of 24% per annum until paid, plus a 40% penalty is added to the outstanding balance of the Note and other penalties as set forth in the Note. The notes are convertible at any time at the option of the investors into shares of common stock at a conversion price of $0.05 per share, subject to adjustment upon the occurrence of certain events of default with respect to the notes.

F-18

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2017 and 2016

NOTE 13 - SUBSEQUENT EVENTS (Continued)

Also, on January 31, 2018, the Company entered into an equity purchase agreement (the “Equity Purchase Agreement”) with the Investors, which was subsequently amended on March ~~1, 2017,~~16, 2018 (as amended, the “Purchase Agreement”), pursuant to which the investors committed to purchase in the aggregate up to $10,000,000 of value of common stock. In consideration of their commitment under the Purchase Agreement, on January 31, 2018, the Company issued to ~~its new chairman~~each Investor 4,087,193 shares of common stock (the “Commitment Shares”) as a commitment fee. The Company’s right to issue and ~~interim CEO~~sell shares of common stock under the Equity Purchase Agreement to the investors is subject to the satisfaction of certain conditions, including, but not limited to, an effective registration statement for resale of such shares by the investors. On February 12, 2018, the Company filed a Registration Statement with the Securities and Exchange Commission on Form S-1 to register 22,233,427 shares of common stock ~~award~~that may be issued under the Equity Purchase Agreement for resale by the investors. The Securities and Exchange Commission is reviewing the Registration Statement.

Between January 1 and March 13, 2018, the Company’s former and current directors, executives, employees and consultants voluntarily surrendered restricted stock awards for a total of ~~1,000,000~~1,300,000 shares of common stock and ~~is eligible~~stock option grants for the purchase of a total of 7,280,000 shares to ~~receive an additional 1,000,000~~increase the number of shares ~~of common stock upon AsepticSure’s commercialization in~~available for financing transactions under the US market. Additionally, stock options granted to the Company’s new CEO Chairman and Interim CEO on February 26, 2014 shall vest as follows: 750,000 shares upon execution of this Agreement; and 250,000 shares upon completion of original commercial milestones as established in the original option grant agreement.Equity Purchase Agreement.

48F-19

☑	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the fiscal year ended December 31, ~~2016~~
	2017
	or

☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

	For the transition period from __________ to ____________

Nevada		87-0412648
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

350 East Michigan Avenue, Suite 500, Kalamazoo, MI		~~49007~~
(Address of principal executive offices)		49007 (Zip Code)

Large accelerated filer ☐		Accelerated filer ☐
Non-accelerated filer ☐		Smaller reporting company ☑
		Emerging growth company ☑☐

		Page
Part I

Special Note Regarding Forward-Looking Statements		1
Item 1	Business	32
Item 1A	Risk Factors	89
Item 1B	Unresolved Staff Comments	1216
Item 2	Properties	1216
Item 3	Legal Proceedings	1216
Item 4	Mine Safety Disclosures	1316

Part II

Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	1417
Item 6	Selected Financial Data	1518
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1518
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	1821
Item 8	Financial Statements and Supplementary Data	1821
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	1821
Item 9A	Controls and Procedures	1821
Item 9B	Other Information	1922

Part III

Item 10	Directors, Executive Officers and Corporate Governance	2023
Item 11	Executive Compensation	2428
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	2533
Item 13	Certain Relationships and Related Transactions, and Director Independence	2634
Item 14	Principal Accounting Fees and Services	2734

Part IV

Item 15	Exhibits, Financial Statement Schedules	2936

Signatures		3138

Index to Consolidated Financial Statements		39
Report of Independent Registered Public Accounting Firm		F-1

Name and principal position	Year	Salary			Option Awards			Total
(a)	(b)	(c)			(e)			(f)

Edwin G. Marshall (1)	2016		$	195,000		$	—		$	195,000
Chairman and Chief Executive Officer	2015		$	195,000		$	113,640		$	308,640

Michael E. Shannon (2)	2016		$	175,922		$	—		$	175,922
President and Director of Medical Affairs	2015		$	190,187		$	113,640		$	303,827

	Years Ended December 31,				Years Ended December 31,
	2016		2015		2017		2016
Audit Fees	$	41,342	$	30,947	$	33,000	$	41,342
Audit Related Fees		—		—		--		--
Tax Fees		2,600		2,300		2,600		2,600
All Other Fees		—		—		--		--
Total Fees	$	43,942	$	33,247	$	35,600	$	43,942

	2016			2015
Computers and software	$	2,938		$	2,938
Furniture		2,075			2,075
		5,013			5,013
Accumulated depreciation		(5,013	)		(4,598	)
Property and equipment, net	$	—		$	415

Input	October 21, 2016				December 31, 2016
Risk-free interest rate			.66	%			85	%
Expected life in years	1 year				1 year
Dividend yield			—				—
Volatility			108.2	%			120.0	%
Stock price		$	0.08			$	0.11

Risk-free interest rate	1.52	%	to		1.60	%
Expected life				5 years
Expected volatility	131.33	%	to		136.34	%
Dividend yield					0.00	%

	Shares			Weighted Average Exercise Price
Outstanding, January 1, 2016		20,965,000		$	0.18
Granted		150,000			0.00
Expired/Canceled		(400,000	)		0.10
Outstanding, December 31, 2016		20,715,000			0.14
Exercisable		19,640,000			0.14