UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 

FORM 10-Q 
FORM 10-Q

(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31,September 30, 2016

or

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

For the transition period from __________ to ____________

Commission File Number: 2-93277-D

MEDIZONE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)

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

4000 Bridgeway, Suite 401, Sausalito, California 94965
(Address of principal executive offices, Zip Code)

(415) 331-0303
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☑   No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☑   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐
Accelerated filer ☐
Non-accelerated filer ☐ (Do not check if a smaller reporting company)
Smaller reporting company ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐   No ☑

As of May 13,November 10, 2016, the registrant had 369,934,068393,934,068 shares of common stock issued and outstanding.

MEDIZONE INTERNATIONAL, INC.
FORM 10-Q

TABLE OF CONTENTS
March 31,September 30, 2016

  Page No.
Part I — Financial Information 
   
Item 1.
Financial Statements (Unaudited)
1
   
 
Condensed Consolidated Balance Sheets: March 31,Sheets as of September 30, 2016 and December 31, 2015 (Unaudited)
13
   
 
Condensed Consolidated Statements of Comprehensive Loss for the Three and Nine Months Ended March 31,September 30, 2016 and 2015 (Unaudited)
24
   
 
Condensed Consolidated Statements of Cash Flows for the ThreeNine Months Ended March 31,September  30, 2016 and 2015 (Unaudited)
35
   
 
Notes to the Condensed Consolidated Financial Statements (Unaudited)
56
   
Item 2.
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
1012
   
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
1316
   
Item 4.
Controls and Procedures
1316
   
Part II — Other Information 
   
Item 1.
Legal Proceedings
1417
   
Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
1417
   
Item 3.
Defaults Upon Senior Securities
1417
   
Item 4.
Mine Safety Disclosures
1417
   
Item 5.
Other Information
1417
   
Item 6.
Exhibits
1418
   
Signatures
1519


 
PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements
MEDIZONE INTERNATIONAL, INC. AND AFFILIATE
Condensed Consolidated Balance Sheets (Unaudited)

 March 31,  December 31,  September 30,  December 31, 
 2016  
2015 (1)
  2016  
2015 (1)
 
ASSETS            
            
Current Assets:            
Cash $288,680  $745,078  $37,188  $745,078 
Inventory  294,706   277,823   106,332   277,823 
Prepaid expenses  43,122   31,986   62,926   31,986 
Total Current Assets  626,508   1,054,887   206,446   1,054,887 
Property and equipment, net  311   415   104   415 
Other Assets:                
Trademark and patents, net  168,633   176,086   152,372   176,086 
Lease deposit  4,272   4,272   4,272   4,272 
Total Other Assets  172,905   180,358   156,644   180,358 
Total Assets $799,724  $1,235,660  $363,194  $1,235,660 
                
LIABILITIES AND STOCKHOLDERS’ DEFICITLIABILITIES AND STOCKHOLDERS’ DEFICIT LIABILITIES AND STOCKHOLDERS’ DEFICIT 
                
Current Liabilities:                
Accounts payable $474,718  $491,044  $545,681  $491,044 
Accounts payable – related parties  228,109   233,109   -   233,109 
Accrued expenses  570,107   554,834   587,222   554,834 
Accrued expenses – related parties  1,928,659   1,928,659   604,365   1,928,659 
Other payables  224,852   224,852   224,852   224,852 
Notes payable  306,007   297,396   307,617   297,396 
Total current liabilities  3,732,452   3,729,894 
Notes payable – related parties  1,617,881   - 
Total Current Liabilities  3,887,618   3,729,894 
Notes payable, net of current portion  75,000   75,000   75,000   75,000 
Total liabilities  3,807,452   3,804,894 
Total Liabilities  3,962,618   3,804,894 
Stockholders’ Deficit:                
Preferred stock, $0.00001 par value: 50,000,000 shares authorized;
no shares issued or outstanding
  -   -   -   - 
Common stock, $0.001 par value; 395,000,000 shares authorized;
369,934,068 and 369,434,068 shares outstanding, respectively
  369,934   369,434 
Common stock, $0.001 par value: 395,000,000 shares authorized;
373,934,068 and 369,434,068 shares outstanding, respectively
  373,934   369,434 
Additional paid-in capital  32,544,146   32,496,646   32,700,146   32,496,646 
Accumulated other comprehensive loss  (36,073)  (36,968)  (42,475)  (36,968)
Accumulated deficit  (35,885,735)  (35,398,346)  (36,631,029)  (35,398,346)
Total Stockholders’ Deficit  (3,007,728)  (2,569,234)  (3,599,424)  (2,569,234)
Total Liabilities and Stockholders’ Deficit $799,724  $1,235,660  $363,194  $1,235,660 
__________ 
(1)  The condensed consolidated balance sheet as of December 31, 2015 has been prepared using information from the audited consolidated balance sheet as of that date.
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
13

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE
Condensed Consolidated Statements of Comprehensive Loss (Unaudited)
 
  For the Three Months Ended March 31, 
  2016  2015 
       
Revenues $-  $- 
Operating Expenses:        
Cost of revenues  -   - 
General and administrative  279,064   312,832 
Research and development  185,961   77,233 
Depreciation and amortization  13,826   13,030 
Total Operating Expenses  478,851   403,095 
Loss from Operations  (478,851)  (403,095)
Interest expense  (8,591)  (6,396)
Interest income  53   - 
Net Loss  (487,389)  (409,491)
Other comprehensive gain on foreign
  currency translation
  895   18,231 
Total Comprehensive Loss $(486,494) $(391,260)
Basic and Diluted Net Loss per Common Share $(0.00) $(0.00)
         
Weighted Average Number of Common Shares Outstanding  369,906,595   347,259,624 
  
For the Three Months Ended
September 30,
  
For the Nine Months Ended
September 30,
 
  2016  2015  2016  2015 
             
Revenues $237,000  $167,000  $237,000  $167,000 
Operating Expenses:                
Cost of revenues  200,326   88,411   200,326   88,411 
General and administrative  363,209   800,185   858,455   1,401,199 
Research and development  75,332   56,263   343,368   210,336 
Depreciation and amortization  14,152   13,457   41,966   39,760 
Total Operating Expenses  653,019   958,316   1,444,115   1,739,706 
Loss from Operations  (416,019)  (791,316)  (1,207,115)  (1,572,706)
Interest expense  (8,504)  (6,820)  (25,634)  (19,438)
Interest income  2   -   66   - 
Net Loss  (424,521)  (798,136)  (1,232,683)  (1,592,144)
Other comprehensive (loss) gain on foreign currency translation  (4,021)  (1,051)  (5,507)  18,611 
Total Comprehensive Loss $(428,542) $(799,187) $(1,238,190) $(1,573,533)
Basic and Diluted Net Loss per Common Share $(0.00) $(0.00) $(0.00) $(0.00)
                 
Weighted Average Number of Common Shares Outstanding  371,151,459   358,036,242   370,333,703   352,368,867 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.
24

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE
Condensed Consolidated Statements of Cash Flows (Unaudited)
 
 For the Three Months Ended  For the Nine Months Ended 
 March 31,  September 30, 
 2016  2015  2016  2015 
Cash Flows from Operating Activities:            
Net loss $(487,389) $(409,491) $(1,232,683) $(1,592,144)
Adjustments to reconcile net loss to net cash
used in operating activities:
                
Depreciation and amortization  13,826   13,030   41,966   39,760 
Stock-based compensation expense  48,000   81,229   48,000   722,090 
Changes in operating assets and liabilities:                
Prepaid expenses  20,364   22,954   35,815   7,838 
Inventory  (16,883)  -   171,491   66,611 
Accounts payable and accounts payable – related parties  (21,326)  (30,112)  49,637   (677)
Accrued expenses and accrued expenses – related parties  15,273   57,500   97,866   25,086 
Net Cash Used in Operating Activities  (428,135)  (264,890)  (787,908)  (731,436)
                
Cash Flows from Investing Activities:                
Cost of registering patents  (6,269)  (8,543)  (17,941)  (17,955)
Net Cash Used in Investing Activities  (6,269)  (8,543)  (17,941)  (17,955)
                
Cash Flows from Financing Activities:                
Issuance of common stock for cash  160,000   676,000 
Issuance of notes payable  -   75,000 
Principal payments on notes payable  (22,889)  (23,291)  (56,534)  (40,516)
Issuance of common stock for cash  -   171,000 
Net Cash (Used in) Provided by Financing Activities  (22,889)  147,709 
Net Cash Provided by Financing Activities  103,466   710,484 
Effect of Foreign Currency Exchange Rates  895   18,231   (5,507)  18,611 
                
Net decrease in cash  (456,398)  (107,493)  (707,890)  (20,296)
Cash as of beginning of the period  745,078   140,496   745,078   140,496 
Cash as of end of the period $288,680  $33,003  $37,188  $120,200 
 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:      
Cash paid for interest $8,246  $1,006 
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:        
Settlement of accounts payable and accrued expenses with notes payable – related parties  1,617,881   - 
Financing of insurance policies  66,755   49,964 
The accompanying notes are an integral part of these condensed consolidated financial statements.

35
MEDIZONE INTERNATIONAL, INC. AND AFFILIATE
Condensed Consolidated Statements of Cash Flows (Unaudited) (Continued)
 For the Three Months Ended 
 March 31, 
 2016 2015 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:    
Cash paid for interest $3,318  $482 
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:        
Financing of insurance policies $31,500  $31,000 
The accompanying notes are an integral part of these condensed consolidated financial statements.
4

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE
Notes to the Condensed Consolidated Financial Statements (Unaudited)

NOTE 1     BASIS OF PRESENTATION

The financial information of Medizone International, Inc., a Nevada corporation (the “Company”), included herein is unaudited and has been prepared consistent with U.S. generally accepted accounting principles (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, these condensed consolidated financial statements do not include all information and notes required by US GAAP for complete financial statements. These notes should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2015. In the opinion of management, these financial statements contain all adjustments (consisting solely of normal recurring adjustments) which are necessary in the opinion of management necessary for a fair presentation of results for the interim periods presented. The results of operations for the three and nine months ended March 31,September 30, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.

NOTE 2    CANADIAN FOUNDATION FOR GLOBAL HEALTH

In late 2008, the Company assisted in the formation of the Canadian Foundation for Global Health (“CFGH”), a not-for-profit foundation based in Ottawa, Canada. 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 the Company’s technology to as many in need as possible.

Accounting standards require a variable interest entity (“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 entity’sVIE’s expected residual returns as a result of holding variable interests, which are the ownership, contractual, or other financial interests in the entity.VIE. In addition, a legal entity may be 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 its financial statements with those of the VIE. The Company determined that CFGH met the requirements of a VIE effective upon the first advance to CFGH on February 12, 2009. Accordingly, the financial statements of CFGH have been consolidated with those of the Company for all periods presented.

NOTE 3     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 periods as follows:
 For the Three Months Ended 
 September 30, 
 2016 2015 
     
Numerator: Net loss $(424,521) $(798,136)
Denominator: Weighted average number of common shares outstanding  371,151,459   358,036,242 
Basic and diluted net loss per common share $(0.00) $(0.00)

 For the Three Months Ended 
 March 31, 
 2016 2015 
     
Numerator: Net loss $(487,389) $(409,491)
Denominator: Weighted average number of common shares outstanding  369,906,595   347,259,624 
Basic and diluted net loss per common share $(0.00) $(0.00)
 For the Nine Months Ended 
 September 30, 
 2016 2015 
     
Numerator: Net loss $(1,232,683) $(1,592,144)
Denominator: Weighted average number of common shares outstanding  370,333,703   352,368,867 
Basic and diluted net loss per common share $(0.00) $(0.00)
Common stock equivalents, consisting of options to purchase 20,715,00020,865,000 shares 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 periods presented.
6

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE
Notes to the Condensed Consolidated Financial Statements (Unaudited) Continued
NOTE 4     GOING CONCERN

The Company’s consolidated financial statements are prepared in accordance withusing US GAAP which assumes an entity isapplicable to a going concern andwhich contemplates the realization of assets and liquidation of liabilities in the normal course of business.  The Company has incurred significant losses from its inception through March 31,September 30, 2016, which have resulted in an accumulated deficit of $35,885,735$36,631,029 as of March 31,September 30, 2016.  The Company believes that it will require funding of approximately $1,500,000 over the next 12 months, based on current operations, for: (1) continued production manufacturing and related activities; (2) research, development, and marketing activities; and (3) general corporate purposes.  The Company does not have funds sufficient to cover its operating costs for the next 12 months, has negative equity, and has a working capital deficit of $3,105,943$3,681,172 as of March 31,September 30, 2016. The Company has relied almost exclusively on debt and equity financing to sustain its operations.  Accordingly, there is substantial doubt about the Company’s ability to continue as a going concern.

5
MEDIZONE INTERNATIONAL, INC. AND AFFILIATE
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 4    GOING CONCERN (continued)

Continuation of the Company as a going concern is dependent upon future revenues, obtaining additional capital and ultimately, upon the Company’s attaining profitable operations.  The Company will require substantial additional funds to complete the development of its products and product manufacturing, and to fund expected 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 be forced to substantially reduce or cease its operations.

TheDuring the nine months ended September 30, 2016, the Company believes that it will need approximately $1,500,000 over the next 12 months for continued production manufacturing and related activities, research, development, and marketing activities, as well as for general corporate purposes.  Noraised cash was generatedproceeds of $160,000 through the sale of 4,000,000 shares of common stock forat a price of $0.04 per share.
In October 2016, the quarter ended March 31, 2016.  

Company issued an aggregate of 20,000,000 common shares at $0.05 per share pursuant to the exercise of warrants, and received cash proceeds of $1,000,000.
The ability of the Company to continue as a going concern is dependent on its ability to successfully accomplish the plan described in the preceding paragraphs, and eventually attainincluding attaining profitable operations.  TheThese condensed 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 5     COMMITMENTS AND CONTINGENCIES
The Company is subject to certain claims and lawsuits arising in the normal course of business. In the opinion of management, uninsured losses, if any, resulting from the ultimate resolution of these matters will not have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.

Litigation
Rakas vs. Medizone International, Inc. - A former consultant brought this action against the Company claiming the Company had failed to pay consulting fees under a consulting agreement.  In September 2001, the parties agreed to settle the matter for $25,000.  The Company, however, did not have the funds to pay the settlement and the plaintiff moved the court to enter a default judgment in the amount of $143,000 in January 2002.  On May 8, 2002, the court vacated the default judgment and requested that the Company post a bond of $25,000 to cover the settlement previously entered into by the parties.  The Company has been unable to post the required bond amount as of the date of this report.  Therefore, the Company has recorded as part of accounts payable, the original default judgment in the amount of $143,000, plus fees totaling $21,308, as of March 31,September 30, 2016 and December 31, 2015.2015 in accounts payable.  The Company intends to contest the judgment if and when it is able to do so in the future.
Employment Agreements
In July 2016, the Company entered into employment agreements (“Employment Agreements”) with two executives. The employment agreements set out the executives’ base annual salary, vacation benefits, and option to elect health insurance coverage.
Promissory Notes
In conjunction with the Company entering into these Employment Agreements, the Company settled in aggregate $1,617,881 in accounts payable and accrued expenses with related parties through the issuance of promissory notes payable (“Promissory Notes”) with three executives for unpaid expenses and wages (see Note 9 – Notes Payable – Related Parties).
7

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE
Notes to the Condensed Consolidated Financial Statements (Unaudited) Continued
Other Payables
As of March 31,September 30, 2016 and December 31, 2015, the Company hashad $224,852 of past due payables for which the Company has not received invoicesstatements or demands for payment for over 1019 years.  Although management of the Company does not believe that the amounts will be required to be paid, the amounts are recorded as other payables until such time as the Company is certain that no liability exists and until the applicable statute of limitations has expired.

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 on a month-to-month basis with a monthly lease payment of $1,375$1,537 Canadian dollars (“CD”) plus the applicable goods and services tax (“GST”).  Leases for a second laboratory space for full scale room testing and a storage unit are on a month-to-month basis with a monthly lease paymentpayments of CD$1,3751,537 and CD$475, respectively, plus the applicable GST.  
The Company has a non-cancelable lease for office space located in California, with monthly payments of approximately $500$2,400 through December 31, 2016.

6
MEDIZONE INTERNATIONAL, INC. AND AFFILIATE
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 6     COMMON STOCK OPTIONS

In August 2013, the Company granted options for the purchase of 250,000 shares of common stock to a consultant, of which 50,000 were immediately vested.  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 expense of $17,659 during the threenine months ended March 31,September 30, 2015, as milestones were achieved for the remaining 200,000 options.

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 on 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.years from the date of grant. The Company recognized $16,017 of expense in connection with these options during the threenine months ended March 31,September 30, 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.years from the date of grant. The grant date fair value of these options was $24,023. The Company recognized expense of $800 in connection with these options during the threenine months ended March 31,September 30, 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 shares vested during the threenine months ended March 31,September 30, 2015, when certain milestones were achieved.  The options are exercisable for five years.years from the date of grant. The Company recognized expense of $8,342 in connection with these options during the threenine months ended March 31,September 30, 2015.

On August 15, 2014, the Company granted options to a consultant for the purchase of 75,000 shares of common stock at an exercise price of $0.13 per share.  The shares will vest when certain required milestones are achieved.  The options are exercisable for five years.years from the date of grant.  The Company will measure and begin recognizing an expense when the achievement of the required milestones becomes probable.

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 were fully vested on October 7, 2015.  The options are exercisable for five years.  The grant date fair value of the options was $140,178.  The Company recognized $35,044$105,133 of expense in connection with these options during the threenine months ended March 31,September 30, 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 shares will vest when certain required milestonesoptions are achieved.  The optionsfully vested and are exercisable for five years. Ofyears from the 140,000 options, 35,000 options vesteddate of grant.  The Company recognized expense of $13,461 during the threenine months ended March 31, 2015 and $3,367 was recognized as expense. The Company will measure and recognize additional expense onSeptember 30, 2015.
8

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE
Notes to the remaining options when the achievement of required milestones becomes probable.

Condensed Consolidated Financial Statements (Unaudited) Continued
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.years from the date of grant.  The totalaggregate fair value of these options at the date of grant was $541,687, which the Company recognized as an expense during the yearnine months ended December 31,September 30, 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 totalaggregate fair value of these options at the date of grant was $18,991,$18,990, which the Company recognized as an expense during the yearnine months ended December 31,September 30, 2015.
7

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE
Notes to Condensed Consolidated Financial Statements (Unaudited)

NOTE 6     COMMON STOCK OPTIONS (continued)

150,000 shares of common stock at an exercise price of $0.05 per share.  The fair value of these options on the date of grant was $6,461. The options were forfeited upon the termination of the employee in October 2016.
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 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 of $0 and $81,229$722,090 related to stock options was recorded for the threenine months ended March 31,September 30, 2016 and 2015, respectively.  Excluding options whose performance condition is not yet deemed probable, as of March 31,September 30, 2016, the Company had unvested outstanding options with related unrecognized expense of $104,647.  The Company will recognize this expense over the service period or when the achievement of the required milestones becomes probable.

The Company estimated the fair value of the stock options described in the above paragraphs atas of the date of the grant or date of re-measurement, based on the following weighted averageweighted-average assumptions:
Risk-free interest rate 1.52%1.50% to 1.601.69%
Expected life5 years 
Expected volatility 131.33%130.31% to 136.34%
Dividend yield  0.00%

A summary of the status of the Company’s outstanding options as of March 31,September 30, 2016 and changes during the threenine months then ended, is presented below:

 Shares  Weighted Average Exercise Price  Shares  
Weighted Average
Exercise Price
 
Outstanding, beginning of the period  20,965,000  $0.145   20,965,000  $0.145 
Granted  -   -   150,000   - 
Expired/Canceled  (250,000)  0.002   (250,000)  0.103 
Exercised  -   -   -   - 
Outstanding, end of the period  20,715,000   0.143   20,865,000   0.142 
Exercisable  19,640,000   0.145   19,640,000   0.145 
NOTE 7     STOCK TRANSACTIONS AND SIGNIFICANT CONTRACTS

In September 2016, the Company sold 4,000,000 shares of common stock to three accredited investors for gross proceeds of $160,000.
During January 2016, the Company issued 500,000 restricted shares of common stock to a consultant. The fair value of the shares on the date of grant was $48,000, or $0.096 per share.  The Company recorded compensation expense of $48,000 in connection with the issuance of the shares.
During April, May, and June 2015, the Company sold an aggregate of 7,500,000 restricted shares of common stock to eight accredited investors for cash proceeds totaling $375,000, or $0.05 per share.
9

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE
Notes to the Condensed Consolidated Financial Statements (Unaudited) Continued
During February and March 2015, the Company sold an aggregate of 3,000,000 restricted shares of common stock to seven accredited investors for cash proceeds totaling $150,000, or $0.05 per share.

During February 2015, the Company sold 300,000 restricted shares of common stock to an accredited investor for cash proceeds totaling $21,000, or $0.07 per share.

NOTE 8     ACCOUNTS PAYABLE – RELATED PARTIES
As of March 31,September 30, 2016 and December 31, 2015, the Company owed $228,109$0 and $233,109, respectively, to certain consultants for services.  These consultants are stockholders of the Company and are related parties.
8

MEDIZONE INTERNATIONAL, INC. AND AFFILIATENOTE 9   NOTES PAYABLE – RELATED PARTIES
In July 2016, the Company settled an aggregate $1,617,881 of accounts payable and accrued expenses for unpaid expenses and wages by issuing Promissory Notes to Condensed Consolidated Financial Statements (Unaudited)those related parties, all of which are executives of the Company. The notes become payable upon a trigger event (“Trigger Event”) which is defined as a change in control, death, disability or failure to pay the employee’s base salary as described in their Employment Agreements. Upon a Trigger Event, interest will be calculated at 2% per annum until the balance is paid in full. In the event of default by the Company, the interest rate increases to 5%.

NOTE 910     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.  The standard is effective for annual reporting periods beginning after December 15, 2016,2017, and interim periods therein.  EarlyEarlier adoption is not permitted.permitted only as of annual reporting periods beginning after December 15, 2016.  The Company is currently assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going ConcernConcern..  This standard  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 disclosures in the financial statements.  ASU No. 2014-15 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 currently assessing the impact, if any, of implementing this guidance on the Company’s financial statement presentation.
In April 2015, the FASB issued ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs.”  To simplify presentation of debt issuance costs, the amendments in ASU No. 2015-03 require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by the amendments in ASU No. 2015-03.  ASU 2015-03 was effective for the Company in the quarter ended March 31, 2016 and there was no impact on its financial reporting.

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 everything as either a non-current asset or 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 currently assessing the impact, if any, of implementing this guidance on the Company’s 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 currently assessing the impact of ASU No. 2016-02 may have on its consolidatedfuture financial statements.

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 on the statement of cash flows, and forfeitures. ASU No. 2016-09 is effective for years ending after December 31, 2016, and the Company is currently assessing the impact of ASU No. 2016-09 may have on its future financial position, results of operations and liquidity.
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MEDIZONE INTERNATIONAL, INC. AND AFFILIATE
Notes to the Condensed Consolidated Financial Statements (Unaudited) 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) 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, and the Company is assessing the impact of ASU No. 2016-17 may have on its consolidated financial statements.
NOTE 1011     SUBSEQUENT EVENTS

In October 2016, the Company issued an aggregate of 20,000,000 common shares at $0.05 per share pursuant to the exercise of previously issued and outstanding warrants, and received cash proceeds of $1,000,000. The shares were issued without registration under the Securities Act of 1933, as amended (the Securities Act), in reliance upon exemptions from registration for securities sold in transactions under Section 4(a)(2) of the Securities Act. The warrants were originally issued to these stockholders in connection with the negotiation and execution of a Distribution and License Agreement dated November 2015, which provided exclusive distribution rights to the Company’s proprietary hospital disinfection technology in certain territories in South America (the Distribution Agreement).
TheIn connection with an amendment to the Distribution Agreement, the Company has evaluated subsequent events throughgranted warrants for the filingpurchase of up to $1,000,000 of shares of common stock of the Company, exercisable for one year, commencing January 31, 2017 and expiring January 30, 2018, with the number of shares to be determined based on a 20-day average stock price prior to the date of this Quarterly Report on Form 10-Q and noted none that require accounting or disclosure inexercise with the accompanying financial statements.average stock price discounted by 40%. 

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Item 2.  Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Introduction
Medizone International, Inc. (a, a Nevada corporation) andcorporation (collectively with its affiliate, (collectively, “Medizone,” the “Company,” “we,” “us,” or “our”) areis engaged in conducting research into the use of ozone in the disinfection of surgical and other medical treatment facilities and in other applications.  During 2012, we began to sell our patented ozone disinfection system, AsepticSure®.  Our current workThe Company is currently focused in the field of hospital disinfection, rather than human therapies.  We cannot predict when or if we will generate sufficient cash flows from operating activities to fund existingcontinuing 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.

Recent Developments
In JanuaryAs of September 30, 2016, we finalized an agreement with a consultant to obtain the know-how necessary to source the ultra violet (UV) ozone-generating bulbssold and the manufacturing expertise used in the construction of new generators that are a key component to the efficiency of ourshipped three Generation III AsepticSure® system.  As consideration, we issued 500,000 common shares at $0.096 per share to this consultant and obtained accesssystems under our agreement with our South American distributor GYD S.A.  The units sold to the engineerdistributor were Generation II AsepticSure® systems that were converted to Generation III systems, and the price was not reflective of the generator design and supplier of the bulbs.standard pricing.  In FebruaryOctober 2016, we terminated the portion of the agreement with respect to future payments to the consultant. During the first quarter of 2016, Medizone entered into an agreementamended and restated Distribution Agreement with GYD S.A., adding Argentina to its exclusive territories.
In October 2016, we received additional patent protection for the bulb supplierAsepticSure ® system from the European Union Patent and Trademark Office (EU) for manufacturing of the new generator design.  The technology of the design is unique to our AsepticSure® Generation III systempatent application, “Healthcare Facility Disinfecting Process and Medizone is the only customer forSystem With Oxygen/Ozone Mixture”. With this product.  We believe that this agreement positions Medizone to have significantly increased production capabilities to address increases in demand during the second half of 2016, should it arise.
While our intention is to expand distribution in North America first, following final regulatory approvalEU patent, we secured patent protection in the U.S., we are also in the early stages of preparation to work with potential corporate distribution partners in EuropeUnited Kingdom, Germany, and Asia.  In Chile, Peru, Columbia and Brazil, our distribution partner GYD S.A. is actively seeking regulatory approvals on a country by country basis in order to begin distribution activities in South America.  In the U.S., we have experienced increasing levels of interest from hospital administrators and infectious disease experts in both the private and government hospital sectors.  We expect to sell devices directly to hospitals as a result of this interest, which will help us penetrate the U.S. market more quickly than if we are required to establish other distribution channels.  As of the filing date of this quarterly report, the Company is more optimistic as to pending commercial success than at any other time in its recent history.

France.
Results of Operations
Three Months Ended March 31,September 30, 2016 and 2015
During the quarter ended March 31,September 30, 2016, we continued our primary focus on: (1)of expanding of our distribution channels; (2) seekingchannels, obtaining approval from the U.S. Environmental Protection Agency (“EPA”);, and (3) improving hardware and software features of the wirelessdeveloping a computer control interface that operatesfeature for the AsepticSure® system.

For the quarters ended March 31,September 30, 2016 and 2015, we had no revenues or associatedwere $237,000 and $167,000, respectively.  For the quarters ended September 30, 2016 and 2015, cost of revenues.

revenues was $200,326 and $88,411, respectively. The increase in revenue and cost of revenues for the quarter ended September 30, 2016 compared to the same period in 2015 is due to the sale of three AsepticSure® Systems in 2016.
For the quarter ended March 31,September 30, 2016, we incurredhad a net loss of $487,389,$424,521, compared with a net loss of $409,491$798,136 for the quarter ended March 31,September 30, 2015.  Our primary expenses are payroll and consulting fees, research and development costs, office expenses, and interest expense.  The increasedecrease in net loss for the quarter ended March 31,September 30, 2016, compared to the comparablecorresponding quarter of the prior year2015 was primarily due primarily to greaterreduced general and administrative expenses from less stock-based compensation expense related to option grants, offset slightly by increased research and development expenses.
For the quarters ended March 31,September 30, 2016 and 2015, we incurred $279,064$363,209 and $312,832,$800,185, respectively, in general and administrative expenses. General and administrativeThe majority of these expenses consist primarily ofwere payroll, expense, consulting fees and professional fees. The decrease in expense for the quarter ended March 31,September 30, 2016 compared to the same periodcorresponding quarter of the prior year2015 was due to higherless stock-based compensation expense resulting from options grantedrelated to option grants to directors and consultants during the quarter ended March 31, 2015.
consultants.
For the quarters ended March 31,September 30, 2016 and 2015, we incurred $185,961$75,332 and $77,233,$56,263, respectively, in research and development expenses.  Research and development expenses consist primarily ofinclude consulting fees, interface development costs, prototypes, and research stage ozone generator and instrument development expenses.development.  The increase in expense for the quarter ended March 31,September 30, 2016 overcompared to the comparablecorresponding quarter of the prior year2015 was due to an increase in development software, supplies, andincreased consulting expenses including $48,000 ofcosts which were partially offset by lower stock-based compensation expense related to the 500,000 restricted commons shares issuedoption grants to a consultant and an employee in January 2016.
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2015.
Principal balancesamounts owed on notes payable totaled $381,007$307,617 and $372,396$297,396 as of March 31,September 30, 2016 and December 31, 2015, respectively. Principal amounts owed on notes payable, net of current portion totaled $75,000 as of September 30, 2016 and December 31, 2015. Interest expense on these obligations for the quarters ended March 31,September 30, 2016 and 2015, was $8,591$8,504 and $6,396,$6,820, respectively. The annual interest rates on this debt range from 4.63%4.88% to 12.00%.
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Nine Months Ended September 30, 2016 and 2015
For the nine months ended September 30, 2016 and 2015, revenues were $237,000 and $167,000, respectively.  For the nine months ended September 30, 2016 and 2015, cost of revenues was $200,326 and $88,411, respectively. The increase in revenue and cost of revenues for the nine months ended September 30, 2016 compared to the corresponding period in 2015 is due to the sale of three AsepticSure® Systems in 2016.
For the nine months ended September 30, 2016, we had a net loss of $1,232,683, compared with a net loss of $1,592,144 for the nine months ended September 30, 2015. Our primary expenses are payroll, consulting fees, research and development costs, and office expenses, together with interest expense and stock-based compensation expense recorded as a result of option grants to directors, employees and consultants.  The decrease in net loss for the nine months ended September 30, 2016, compared to the corresponding period in 2015, was due to a decrease in stock-based compensation expense for option grants to directors, employees and consultants, offset, in part, by an increase in research and development expenses.
For the nine months ended September 30, 2016 and 2015, we incurred $858,455 and $1,401,199, respectively, in general and administrative expenses. The primary reason for the decrease for the nine months ended September 30, 2016, compared to the corresponding period in 2015, was decreased stock-based compensation expense.  The number of option grants and vesting for directors, employees and consultants resulting in compensation expense in 2016 was lower than in 2015.  Our primary expenses are payroll, consulting fees, and professional fees. The remaining general and administrative expenses include rent, office expenses and travel expenses.
For the nine months ended September 30, 2016 and 2015, we incurred $343,368 and $210,336, respectively, in research and development expenses as a result of prototype development expenses, consulting, and other research activities. The primary reason for the increase for the nine months ended September 30, 2016, compared to the corresponding period in 2015, was increased expenses for development software, supplies, and consulting, including stock-based compensation expense related to restricted common shares issued in January 2016.
Interest expense on the notes payable for the nine months ended September 30, 2016 and 2015, was $25,634 and $19,438, respectively. Principal amounts owed on notes payable, net of current portion totaled $75,000 as of September 30, 2016 and December 31, 2015. The annual interest rates on this debt range from 4.88% to 12.00%.
Liquidity and Capital Resources
As of March 31,September 30, 2016, our working capital deficitdeficiency was $3,105,943,$3,681,172, compared to a working capital deficitdeficiency of $2,675,007 as of December 31, 2015. As of September 30, 2016, we had approximately $37,000 of available cash. In October 2016, the Company issued an aggregate of 20,000,000 common shares at $0.05 per share pursuant to the exercise of warrants, and received cash proceeds of $1,000,000.
We have incurred significant losses from inception through March 31,September 30, 2016, which have resulted in an accumulated deficit of $35,885,735.$36,631,029.  The stockholders’ deficit as of March 31,September 30, 2016 was $3,007,728,$3,599,424, compared to $2,569,234$2,596,234 as of December 31, 2015.  

This change is due to proceeds from the sale of restricted shares of common stock being less than the net loss for the nine months ended September 30, 2016.
We will continue to require additional financing to fund operations and to continue to test and market our hospital and medical disinfection system.  We believe we will needrequire funding of approximately $1,500,000 over the next 12 months, forbased on current operations, for: (1) continued production manufacturing and related activities,activities; (2) research, development, and marketing activities, as well as foractivities; and (3) general corporate purposes.  
During the quarternine months ended March 31,September 30, 2015, we generated cash of $171,000$160,000 through the sale of 3,300,0004,000,000 shares of common stock to eightthree accredited investors at prices ranging from $0.05a price of $0.04 per share to $0.07 per share.  No cash was generated through the sale of shares of common stock for the quarter ended March 31, 2016.  We anticipate that we will be able to raise additional funds, as needed, from certain of the accredited investors who have purchased shares during previous years, although we have no agreements at this time with any of these investors to purchase our securities, and there can be no assurance that these investors will purchase additional shares.
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Going Concern

Our unaudited condensed interim consolidated financial statements included in this report on Form 10-Q have been prepared with the assumption that we will continue as a going concern. There is substantial doubt that we will be able to continue as a going concern.  Through the date of this report on Form 10-Q, we have relied almost exclusively upon financing from the sale of our equity securities to sustain operations. Additional financing will be required if we are to continue as a going concern. If additional financing is not obtained in the near term, we will be required to curtail or discontinue operations, or seek protection under the U.S. bankruptcy laws. Even if additional financing becomes available, there can be no assurance that it will be on terms favorable to us. In any event, this additional financing will likely result in immediate and possibly substantial dilution to existing stockholders.
Forward-Looking Statements and Risks
The statements contained in this report on Form 10-Q that are not historical are "forward-looking statements"“forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These statements discuss our expectations, hopes, beliefs, anticipations, commitments, intentions and strategies regarding the future. They may be identified by the use of the words or phrases that include “believes,” “expects,” “anticipates,” “should,” “plans,” “estimates,” and “potential,” among others. Forward-looking statements include, but are not limited to, statements contained in Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations regarding our financial performance, revenue and expense levels in the future and the sufficiency of existing liquidity to fund future operations and capital spending needs. Actual results could differ materially from the anticipated results or other expectations expressed in such forward-looking statements for the reasons detailed in our Annual Report on Form 10-K for the year ended December 31, 2015.
We believe that many of the risks previously discussed in our previously issued SEC filings are part of doing business in the industry in which we operate and will likely be present in all periods reported. The fact that certain risks are endemic to the industry does not lessen their significance. The forward-looking statements contained in this report are made as of the date of this report and we assume no obligation to update them or to update the reasons why actual results could differ from those projected in such forward-looking statements. Among others, risks and uncertainties that may affect our business, financial condition, performance, development, and results of operations include:

·Rigorous government scrutiny and regulation of our products and planned products;
·Potential effects of adverse publicity regarding ozone and related technologies or industries;
·Failure to sustain or manage growth including the failure to continue to develop new products; and
·The potential inability to obtain needed financing or to obtain funding on terms favorable to us.
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Critical Accounting Policies and Estimates
This Management’s Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles (“US GAAP”). The preparation of such statements requires our management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, we evaluate these estimates, including those related to intangible assets, expenses, and income taxes. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying values of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions. 

We recognize revenue when a contractual arrangement exists, product is shipped, payment from the customer is reasonably assured, and the price is fixed or determinable.  We record customer deposits that have not yet been earned as unearned revenue. Revenue is recognized only when title and risk of loss passes to the customer.
Our inventory consists of our AsepticSure® product and is recorded using thevalued on a specific identification cost basis.  We purchase our inventory as a finished product from unrelated manufacturing companies. We write off 100% of the cost of inventory that we specifically identify and consider obsolete or excessive to fulfill future sales estimates. Management has determined that noNo inventory was obsolete or excessive as of March 31,September 30, 2016.

We record compensation expense in connection with the granting of stock options and their vesting periods based on their fair values. We estimate the fair values of stock option awards issued to employees, consultants and other non-employees at the grant date 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.
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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.  The standard is effective for annual reporting periods beginning after December 15, 2016,2017, and interim periods therein.  EarlyEarlier adoption is not permitted.  We are currentlypermitted only as of annual reporting periods beginning after December 15, 2016.  The Company is assessing the impact, if any, of implementing this guidance on ourits 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 ConcernConcern..  This standard  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 note disclosures.  The standarddisclosures in the financial statements.  ASU No. 2014-15 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within annual periods ending after December 15, 2016.  We are currentlyThe Company is assessing the impact, if any, of implementing this guidance will have on the Company.
In April 2015, the FASB issued ASU No. 2015-03, “Interest – Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs.”  To simplify presentation of debt issuance costs, the amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU.  The ASU is effective for the Company’s financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  This includes the quarter ended March 31, 2016.  We have determined that the adoption of this ASU had no material impact on the Company’s financial reporting.statement presentation.

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 everything as either a non-current asset or 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.  We are currentlyThe Company is assessing the impact, if any, of implementing this guidance on the Company’s financial statement presentation.
12
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. We are currentlyThe Company is assessing the impact ofthat ASU No. 2016-02 may have on its consolidatedfuture financial statements.

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.Accounting. ASU No. 2016-09 is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification on the statement of cash flows and forfeitures. ASU No. 2016-09 is effective for years ending after December 31, 2016.  We are currently2016, and the Company is assessing the impact of ASU No. 2016-09 may have on its future financial position, results of operations and liquidity. 
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) should that related party have indirect interests under common control with a reporting entity. ASU No. 2016-17 is effective for years ending after December 31, 2016, and the Company is assessing the impact ASU No. 2016-17 may have on its consolidated financial statements.

15

Item 3.  Quantitative and Qualitative Disclosures About Market Risk
None.

Item 4.  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 that are 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 recognizedrecognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.

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 our disclosure controls and procedures were effective as of March 31,September 30, 2016.

Changes in Internal Control over Financial Reporting

There were no changes in our internal controlscontrol over financial reporting that occurred during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal controlscontrol over financial reporting.
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PART II – OTHER INFORMATION

Item 1.  Legal Proceedings
There were no material developments during the three monthsquarter ended March 31,September 30, 2016 relative to the legal matters previously disclosed by the Company.
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
In October 2016, the Company issued an aggregate of 20,000,000 common shares at $0.05 per share pursuant to the exercise of warrants, for aggregate cash consideration of $1,000,000. The shares were issued without registration under the Securities Act of 1933, as amended (the Securities Act), in reliance upon exemptions from registration for securities sold in transactions under Section 4(a)(2) of the Securities Act and regulations promulgated thereunder.

In addition, in connection with the amendment and restatement of a distribution agreement for certain territories in South America on October 21, 2016, we granted warrants (the “New Warrants”) to the distributor exercisable for one year, commencing January 31, 2017 and expiring January 30, 2018, for the purchase of shares of common stock for an aggregated purchase price of $1,000,000.  The per-share purchase price and number of shares issuable upon exercise of the New Warrants will be determined based upon the market price of the Company’s common stock for the 20 trading days immediately preceding the date of exercise of the New Warrants with the average stock price discounted by 40%.
Our Articles of Incorporation authorize us to issue up to 395,000,000 shares of common stock.  As of November 4, 2016, there are approximately 394,000,000 common shares issued and outstanding, and approximately 41,000,000 shares subject to future issuance upon the exercise of outstanding options and warrants, including the shares issuable upon the exercise of the New Warrants when they become exercisable.  Our ability to raise additional financing will be limited unless we increase the number of shares of  authorized common stock.  Without additional authorized common shares, we will be unable to satisfy our commitments to issue common stock upon exercise of outstanding options and warrants.  We did not sell any securities duringwill also be forced to limit or slow the quarter ended March 31, 2016.pace of our development activities, including efforts to identify and pursue potential strategic transactions and other opportunities.
At our Annual Meeting of Shareholders on December 15, 2016, we are seeking shareholder approval to increase the number of shares of common stock we are authorized to issue from 395,000,000 shares to 500,000,000 shares, in order to provide the Company with sufficient authorized shares to accomplish our objectives. The increase in the number of authorized shares requires an amendment to our articles of incorporation approved by a majority of our stockholders. There is no assurance we will obtain the approval required to adopt this amendment to increase the number of authorized common shares.
Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  Mine Safety Disclosures

Not applicable.
Item 5.  Other Information
None.
Effective April 30, 2016, our Chief Financial Officer, Thomas Auger, resigned to pursue other interests.  Effective April 30, 2016, we entered into an employment agreement with our new Chief Financial Officer, Boyd G. Evans.  We filed a Current Report on Form 8-K on May 6, 2016 to report this change.  The Current Report includes biographical and business background information regarding Mr. Evans.
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Item 6.  Exhibits
Exhibit 31.1   
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
Exhibit 31.2     
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
  
Exhibit 32.1 
Certification of Principal Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
Exhibit 32.2 
Certification of Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
  
101.INSXBRL Instance Document
101.SCHXBRL Taxonomy Extension Schema
101.CALXBRL Taxonomy Extension Calculation Linkbase
101.DEFXBRL Taxonomy Extension Definition Linkbase
101.LABXBRL Taxonomy Extension Label Linkbase
101.PREXBRL Taxonomy Extension Presentation Linkbase
 
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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MEDIZONE INTERNATIONAL, INC.
(Registrant)


/s/ Edwin G. Marshall                                      
Edwin G. Marshall, Chairman and Chief Executive
Officer (Principal Executive Officer)


/s/ Boyd G. EvansStephanie L. Sorensen                       
Boyd G. Evans,Stephanie L. Sorensen, Chief Financial Officer
(Principal Financial and Accounting Officer)


May 13,November 10, 2016
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