UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

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 ~~September 30, 2016~~March 31, 2017

¨ 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,~~350 E. Michigan Ave., Suite ~~401, Sausalito, California 94965~~#500, Kalamazoo, MI 49007

(Address of principal executive offices, Zip Code)

~~(415) 331-0303~~(269) 202-5020

(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, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company” and ~~“smaller reporting~~“emerging growth 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 ☑
Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange act. ☐

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 ~~November 10, 2016,~~May 12, 2017, the registrant had ~~393,934,068~~397,934,068 shares of common stock issued and outstanding.

MEDIZONE INTERNATIONAL, INC.

FORM 10-Q

TABLE OF CONTENTS

~~September 30, 2016~~March 31, 2017

		Page No.
Part I — Financial Information

Item 1.	Financial Statements

	Condensed Consolidated Balance Sheets as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016 (Unaudited)	3

	Condensed Consolidated Statements of Comprehensive Loss for the Three ~~and Nine~~ Months Ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~ (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~ (Unaudited)	5

	Notes to the Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	1615

Item 4.	Controls and Procedures	1615

Part II — Other Information

Item 1.	Legal Proceedings	1716

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1716

Item 3.	Defaults Upon Senior Securities	1716

Item 4.	Mine Safety Disclosures	1716

Item 5.	Other Information	1716

Item 6.	Exhibits	1816

Signatures		1917

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Condensed Consolidated Balance Sheets (Unaudited)

ASSETS								ASSETS
		September 30,			December 31,
		2016			2015 ⁽¹⁾				March 31, 2017			December 31, 2016
ASSETS

Current Assets:
Current assets:
Cash		$	37,188		$	745,078			$	22,574		$	398,290
Inventory			106,332			277,823				240,806			109,573
Prepaid expenses			62,926			31,986				91,738			81,666
Total Current Assets			206,446			1,054,887
Property and equipment, net			104			415
Other Assets:
Total current assets										355,118			589,529
Other assets:
Trademark and patents, net			152,372			176,086				142,971			151,444
Lease deposit			4,272			4,272				6,938			4,272
Total Other Assets			156,644			180,358
Total Assets		$	363,194		$	1,235,660
Total other assets										149,909			155,716
Total assets									$	505,027		$	745,245

LIABILITIES AND STOCKHOLDERS’ DEFICIT	LIABILITIES AND STOCKHOLDERS’ DEFICIT							LIABILITIES AND STOCKHOLDERS’ DEFICIT

Current Liabilities:
Current liabilities:
Accounts payable		$	545,681		$	491,044			$	539,484		$	459,654
Accounts payable – related parties			-			233,109
Accrued expenses			587,222			554,834				605,614			592,621
Accrued expenses – related parties			604,365			1,928,659				557,297			538,887
Other payables			224,852			224,852				224,852			224,852
Notes payable			307,617			297,396				307,838			297,332
Notes payable – related parties			1,617,881			-				1,594,690			1,617,881
Total Current Liabilities			3,887,618			3,729,894
Warrant liability										882,581			985,163
Total current liabilities										4,712,356			4,716,390
Notes payable, net of current portion			75,000			75,000				75,000			75,000
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; 373,934,068 and 369,434,068 shares outstanding, respectively			373,934			369,434
Total liabilities										4,787,356			4,791,390
Commitments and contingencies (Note 7)

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; 395,934,068 and 393,934,068 shares issued and outstanding, respectively										395,934			393,934
Additional paid-in capital			32,700,146			32,496,646				34,426,358			33,680,146
Accumulated other comprehensive loss			(42,475	)		(36,968	)			(50,220	)		(48,043	)
Accumulated deficit			(36,631,029	)		(35,398,346	)			(39,054,401	)		(38,072,182	)
Total Stockholders’ Deficit			(3,599,424	)		(2,569,234	)
Total Liabilities and Stockholders’ Deficit		$	363,194		$	1,235,660
Total stockholders’ deficit										(4,282,329	)		(4,046,145	)
Total liabilities and stockholders’ deficit									$	505,027		$	745,245

~~__________~~

(1)	The condensed consolidated balance sheet as of December 31, ~~2015~~2016 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.

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Condensed Consolidated Statements of Comprehensive Loss (Unaudited)

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

	For the Three Months Ended March 31,
	2017			2016
Revenues	$	-		$	-
Operating expenses:
Cost of revenues		-			-
General and administrative		977,262			279,064
Research and development		84,536			185,961
Depreciation and amortization		14,403			13,826
Total operating expenses		1,076,201			478,851
Loss from operations		(1,076,201	)		(478,851	)
Other income (expense):
Gain on measurement of warrant liability		102,582			-
Interest expense		(8,615	)		(8,591	)
Interest income		15			53
Total other income (expense)		93,982			(8,538	)
Net loss		(982,219	)		(487,389	)
Other comprehensive loss:
Gain (loss) on foreign currency translation		(2,177	)		895
Total comprehensive loss	$	(984,396	)	$	(486,494	)
Basic and diluted net loss per common share	$	(0.00	)	$	(0.00	)
Weighted average number of common shares outstanding		394,356,290			369,906,595

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

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Condensed Consolidated Statements of Cash Flows (Unaudited)

For the Nine Months Ended
September 30,
2016 2015
Cash Flows from Operating Activities:
Net loss $ (1,232,683 ) $ (1,592,144 )
Adjustments to reconcile net loss to net cash
used in operating activities:

Depreciation and amortization 41,966 39,760
Stock-based compensation expense 48,000 722,090
Changes in operating assets and liabilities:
     Prepaid expenses 35,815 7,838
     Inventory 171,491 66,611
     Accounts payable and accounts payable – related parties 49,637 (677 )
     Accrued expenses and accrued expenses – related parties 97,866 25,086
     Net Cash Used in Operating Activities (787,908 ) (731,436 )

Cash Flows from Investing Activities:
Cost of registering patents (17,941 ) (17,955 )
Net Cash Used in Investing Activities (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 (56,534 ) (40,516 )
Net Cash Provided by Financing Activities 103,466 710,484
Effect of Foreign Currency Exchange Rates (5,507 ) 18,611

Net decrease in cash (707,890 ) (20,296 )
Cash as of beginning of the period 745,078 140,496
Cash as of end of the period $ 37,188 $ 120,200

	For the Three Months Ended March 31,
	2017			2016
Cash flows from operating activities:
Net loss	$	(982,219	)	$	(487,389	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		14,403			13,826
Stock-based compensation		688,212			48,000
Change in warrant liability		(102,582	)		-
Changes in operating assets and liabilities:
Inventory		(131,233	)		(16,883	)
Prepaid expenses		13,512			20,364
Accounts payable		79,830			(21,326	)
Accrued expenses and accrued expenses – related parties		31,403			15,273
Net cash used in operating activities		(388,674	)		(428,135	)

Cash flows from investing activities:
Cost of registering patents		(5,930	)		(6,269	)
Net cash used in investing activities		(5,930	)		(6,269	)

Cash flows from financing activities:
Principal payments on notes payable and notes payable – related parties		(38,935	)		(22,889	)
Issuance of common stock for cash		60,000			-
Net cash provided by (used in) financing activities		21,065			(22,889	)
Effects of foreign currency exchanges rates on cash		(2,177	)		895
Net decrease in cash		(375,716	)		(456,398	)
Cash as of beginning of the period		398,290			745,078
Cash as of end of the period	$	22,574		$	288,680

Supplemental cash flow information:
Cash paid for interest	$	606		$	3,318
Supplemental disclosure of non-cash financing activities:
Financing of insurance premiums	$	26,250		$	31,500

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.

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY 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~~(“Medizone), the Canadian Foundation of Global Health (“CFGH) based in Ottawa, Canada, considered to be a variable interest entity (“VIE”) as described below, and Medizone Canada, Inc. a wholly owned subsidiary, (collectively, 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~~Annual Report on Form 10-K for the year ended December 31, ~~2015.~~2016. 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 for a fair presentation of results for the interim periods presented. The results of operations for the three ~~and nine~~ months ended ~~September 30, 2016~~March 31, 2017 are not necessarily indicative of the results to be expected for the full year ending December 31, ~~2016.~~2017.

NOTE 2 CANADIAN FOUNDATION FOR GLOBAL HEALTH

In late 2008, ~~the Company~~Medizone assisted in the formation of ~~the Canadian Foundation for Global Health (“CFGH”),~~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~~Medizone to use a tiered pricing structure for services and products in emerging economies and extend the reach of the ~~Company’s~~Medizone’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 VIE’s expected residual returns as a result of holding variable interests, which are the ownership, contractual, or other financial interests in the 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~~Medizone determined that CFGH met the requirements of a VIE effective upon the first advance to CFGH on February 12, 2009. After eliminations, the operations and equity of the non-controlling interest is not material to the consolidated financial statements. Accordingly, the financial statements of CFGH have been consolidated with ~~those of the Company~~Medizone 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 Nine Months Ended								For the Three Months Ended
	September 30,								March 31,
	2016				2015				2017			2016

Numerator: Net loss		$	(1,232,683	)		$	(1,592,144	)	$	(982,219	)	$	(487,389	)
Denominator: Weighted average number of common shares outstanding			370,333,703				352,368,867			394,356,290			369,906,595
Basic and diluted net loss per common share		$	(0.00	)		$	(0.00	)	$	(0.00	)	$	(0.00	)

Common stock equivalents, consisting of options to purchase ~~20,865,000~~21,565,000 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.

~~Table of Contents~~

~~MEDIZONE INTERNATIONAL, INC. AND AFFILIATE~~

~~Notes to the Condensed Consolidated Financial Statements (Unaudited)~~ ~~Continued~~

NOTE 4 GOING CONCERN

The Company’s condensed consolidated financial statements are prepared using US GAAP ~~applicable to~~which assumes an entity is a going concern ~~which~~and contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has incurred significant recurring losses from its inception through ~~September 30, 2016,~~March 31, 2017, which have resulted in an accumulated deficit of ~~$36,631,029 as~~

Table of ~~September 30, 2016.~~Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to the Condensed Consolidated Financial Statements (Unaudited)

NOTE 4 GOING CONCERN (continued)

$39,054,401 of March 31, 2017. 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~~minimal cash, has a working capital deficit of ~~$3,681,172~~$4,357,238, and a total stockholders’ deficit of $4,282,329 as of ~~September 30, 2016.~~March 31, 2017. The Company has relied almost exclusively on debt and equity financing to sustain its operations. Accordingly, there is a substantial doubt about the Company’s ability to continue as a going concern.

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~~continue to develop its products, manufacture 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 most likely be forced to substantially reduce or cease its operations.

The Company believes that it will need approximately $1,500,000 during the next 12 months for continued product manufacturing, research, development and marketing activities, as well as for limited general corporate purposes.

During the ~~nine~~three months ended ~~September 30, 2016,~~March 31, 2017, the Company raised cash proceeds of ~~$160,000~~$60,000 through the sale of ~~4,000,000~~1,000,000 shares of common stock to its Chairman and Interim CEO at a price of ~~$0.04 per share.~~

~~In October 2016, the Company issued an aggregate of 20,000,000 common shares at $0.05~~$0.06 per share ~~pursuant to the exercise~~as part of ~~warrants, and received cash proceeds of $1,000,000.~~a private offering.

The ability of the Company to continue as a going concern is dependent on ~~its ability to~~ successfully ~~accomplish~~accomplishing the plan described in the preceding paragraphs ~~including~~and eventually attaining profitable operations. ~~These~~The 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 INVENTORY

In December 2016, the Company terminated a Distribution and License Agreement with a distributor due to 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 have been upgraded to the current technology to support the ongoing expansion of the Company’s commercial strategy

NOTE 6 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 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 remeasured at fair value at each reporting period, with the changes in fair value recognized as gain (loss) on remeasurement of warranty 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.

In October 2016, the Company issued warrants to purchase from the Company up to $1,000,000 in common stock with the number of shares determined based on a 40% discount to the 20-day average stock price prior to the date of exercise. The warrants are exercisable between January 31, 2017 and January 30, 2018, at which point the outstanding warrants expire. Since the exercise price of the warrant is yet to be determined, the Company recorded a common stock warrant liability of $937,951 on the warrant’s issuance date and remeasured it at fair value on December 31, 2016 at $985,163. The warrant liability is remeasured at fair value at each quarter end until the warrant liability expires.

The estimate was calculated using the following inputs:

Input		March 31, 2017
Risk-free interest rate			103	%
Expected life	10 months
Expected volatility			102.89	%
Dividend yield			0.00	%
Stock price		$	0.10

Table of Contents

MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to the Condensed Consolidated Financial Statements (Unaudited) Continued

NOTE 6 WARRANT LIABILITY (continued)

As of March 31, 2017, the Company recorded a decrease in the warrant liability of $102,582 which resulted from the fluctuation in the Company’s stock price at the end of the year. The warrant liability was $882,581 as of March 31, 2017.

NOTE 57 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 recorded the original default judgment in the amount of $143,000, plus fees totaling $21,308, as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015~~2016, in accounts payable. The Company intends to contest the judgment if and when it is able to do so in the future.

~~Employment~~Related Party 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~~converted $228,109 of accounts payable – related parties, and $1,389,772 of accrued expenses ~~with~~– related parties ~~through the issuance of~~into three promissory notes payable ~~(“Promissory Notes”) with three executives for unpaid~~– related parties aggregating to $1,617,881. The amounts converted represent accrued expenses and accrued wages ~~(see Note 9 –~~ ~~Notes Payable – Related Parties~~).

~~Table~~prior to 2009 owed to certain officers and executives of ~~Contents~~

the Company.

~~MEDIZONE INTERNATIONAL, INC. AND AFFILIATE~~On February 28, 2017, the Company entered into separation and release agreements (Separation Agreements) with its former Chairman and CEO, Edwin Marshall, and its former Director of Operations, Dr. Jill Marshall. The Separation Agreements include principal payment schedules for the promissory notes issued to these individuals and modify the terms of common stock option awards granted to them under the Company’s 2014 Equity Incentive Plan by increasing the exercise period of the grants from three months to three years following termination. The Company is currently in default with the terms of the agreements.

~~Notes~~

On March 1, 2017, the Company entered into an employment agreement with its new chairman and interim CEO, David Esposito, which states the terms of his employment and compensation. Mr. Esposito’s compensation consists 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 ~~Condensed Consolidated Financial Statements (Unaudited)~~ ~~Continued~~Board of Directors of the Company (“Board”), 3) equity awards, and 4) standard employee benefits, including vacation. Mr. Esposito’s employment agreement has an initial term of three years, but can be terminated by either party for any reason with 60 days’ notice.

Other Payables

As of ~~September 30, 2016~~March 31, 2017, and December 31, ~~2015,~~2016, the Company had $224,852 of past due payables for which the Company has not received statements or demands for payment for over 19 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 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 ~~month-to-month~~June 30, 2016 through June 29, 2018 with a monthly lease payment of ~~$1,537~~$3,550 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 monthly lease payments of CD$1,537 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 $2,400 through December 31, 2016.

~~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 nine months ended 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 from the date of grant. The Company recognized $16,017 of expense in connection with these options during the nine months ended 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 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 nine months ended 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 nine months ended September 30, 2015, when certain milestones were achieved. The options are exercisable for five years from the date of grant. The Company recognized expense of $8,342 in connection with these options during the nine months ended 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 from the date of grant. The Company will measure and begin recognizing expense when the achievement of the required milestones becomes probable.

On October 7, 2014, the Company granted to a 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 $105,133 of expense in connection with these options during the nine months ended 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 options are fully vested and are exercisable for five years from the date of grant. The Company recognized expense of $13,461 during the nine months ended September 30, 2015.

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to the Condensed Consolidated Financial Statements (Unaudited) Continued

The Company has a lease arrangement for office space in Kalamazoo, Michigan. Monthly payments are approximately $1,000 and the lease expires in February of 2018. The Company had a month-to-month lease for office space located in California, with monthly payments of approximately $2,556. In ~~August 2015,~~February 2017, the Company ~~granted options for~~gave 60-days’ notice that the ~~purchase~~lease would be terminated as of ~~a total~~April 30, 2017. The Company does not have any leases in California as of ~~7,150,000~~April 30, 2017.

NOTE 8 EQUITY TRANSACTIONS

Recapitzalization

On December 15, 2016, the Company’s stockholders approved the Board’s recommendation to increase the number of shares of common stock ~~for services rendered, as follows: 6,000,000~~authorized from 395,000,000 to 500,000,000 shares ~~total~~in order to ~~five directors of~~provide the Company ~~650,000 shares total to four consultants, and 500,000~~with sufficient authorized shares to accomplish its objectives. The Company filed an ~~employee~~amendment to modify its Articles of Incorporation with the ~~Company. All options vested upon grant, have an exercise price~~State of ~~$0.088 per share, and are exercisable for up to five years from~~Nevada on January 4, 2017, which was approved by the ~~date of grant. The aggregate fair value of these options at the date of grant was $541,687, which~~State on January 24, 2017.

Common Stock Issuances

During January 2016, the Company ~~recognized as expense during the nine months ended September 30, 2015.~~

~~In August 2015, the Company granted options to a consultant for the purchase of a total of 250,000~~issued 500,000 restricted 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 aggregate fair value of these options at the date of grant was $18,990, which the Company recognized as expense during the nine months ended September 30, 2015.~~

~~On May 19, 2016, the Company granted options to an employee for the purchase of 150,000 shares of common stock at an exercise price of $0.05 per share.~~a consultant. The fair value of ~~these options~~the shares on the date of grant was ~~$6,461.~~$48,000, or $0.96 per share. The ~~options were forfeited upon~~Company recorded compensation expense of $48,000 in connection with the ~~termination~~issuance of the ~~employee~~shares.

During March 2017, the Company sold 1,000,000 restricted shares of common stock at a price of $0.06 per share to an investor, who is also a board member and executive officer, for net proceeds of $60,000 as part of a private offering. The market price of the Company’s common stock on the date of the transaction was $0.10 per share.

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 ~~October 2016.~~exchange for services performed for the Company.

The Company’s 2016 Equity Incentive Award Plan (the “2016 Plan”) was approved on December 15, 2016 by the stockholders. The 2016 Plan replaces the Company’s 2008 Equity Incentive Plan (the “2008 Plan”), 2009 Incentive Stock Plan (the “2009 Plan”), 2012 Equity Incentive Award Plan (the “2012 Plan”), and the 2014 Equity Incentive Plan ( the “2014 Plan” and, together with the 2008, 2009, and 2012 Plans, 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 Company will no longer make 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 under the 2016 Plan. As of March 31, 2017, 5,900,000 options have been granted, 1,000,000 shares have been awarded with an additional 1,000,000 shares to be awarded upon achievement of certain performance milestones under the 2016 Plan. 2,100,000 options are available for future grant.

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 $722,090 related to stock options was recorded for~~

For the ~~nine~~three months ended ~~September 30, 2016~~March 31, 2017 and ~~2015, respectively. Excluding options whose performance condition is not yet deemed probable, as of September 30,~~ 2016, the Company recorded stock-based compensation of $688,212 and $0, respectively, of which $434,688, relates to options granted to employees, directors and consultants for the quarter ending March 31, 2017. Upon the appointment of its new Chairman and CEO, the Company incurred a one-time charge of $89,064 relating to the modification of vesting relating to 750,000 options issued in 2014 and a one-time charge of $150,000 pertaining to a stock award of 1,000,000 shares of common stock. The Company also recorded a one-time charge of $14,460 of stock-based compensation expense for the modification relating to the extension of exercisability from three weeks to three years upon retirement related to Mr. Marshall’s and Dr. Marshalls stock options. Mr. Esposito is also eligible to receive an additional 1,000,000 shares of common stock upon certain performance milestones being met. No expense has yet been recorded in conjunction with this award as the milestones have not been met as of March 31, 2017.

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to the Condensed Consolidated Financial Statements (Unaudited) Continued

NOTE 8 EQUITY TRANSACTIONS (continued)

Common Stock Options and Awards (continued)

As of March 31, 2017, the Company had 425,000 unvested outstanding options with related unrecognized expense of ~~$104,647.~~$44,629. 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 as of~~at the date of ~~the~~ grant, ~~or date of re-measurement,~~ based on the following ~~weighted-average~~weighted average assumptions:

Risk-free interest rate				~~1.50%~~1.43% to ~~1.69~~1.99	%
Expected life	5 years
Expected volatility		~~130.31%~~98.38% to ~~136.34~~101.86		%
Dividend yield			0.00	%

A summary of the status of the Company’s outstanding options as of ~~September 30, 2016~~March 31, 2017 and changes during the ~~nine~~three months then ended, is presented below:

Shares
Weighted Average
Exercise Price

Outstanding, beginning of the period 20,965,000 $ 0.145
Granted 150,000 -
Expired/Canceled (250,000 ) 0.103
Exercised - -
Outstanding, end of the period 20,865,000 0.142
Exercisable 19,640,000 0.145

~~NOTE 7 STOCK TRANSACTIONS AND SIGNIFICANT CONTRACTS~~

	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		5,900,000			0.102
Expired and canceled		(5,050,000	)		0.230
Exercised		-			-
As of March 31, 2017		21,565,000			0.111		4.42	$	91,695
Exercisable		21,140,000			0.111		4.43		91,695

The intrinsic value for stock options is defined as the difference between the current market value and the exercise price.

Warrants

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~~October 2016, the Company issued ~~500,000~~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 are exercisable between January 31, 2017 and January 30, 2018, at which point the outstanding warrants expire (see Note 6).

NOTE 9 RELATED PARTY TRANSACTIONS

During March 2017, the Company sold 1,000,000 restricted shares of common stock to its Chairman and CEO at a ~~consultant.~~$0.06 per share, for net proceeds of $60,000 as part of a private placement financing. The ~~fair value~~private offering price was discounted 40% to the market price of the ~~shares on~~common stock as of 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~~terms of the ~~shares.~~

~~During April, May, and June 2015,~~offering were approved by 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.~~

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Company’s Board (see Note 4).

~~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 September 30, 2016 and December 31, 2015, the Company owed $0 and $233,109, respectively, to certain consultants for services. These consultants are stockholders of the Company and are related parties.

~~NOTE 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 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 10 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, 2017, and

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MEDIZONE INTERNATIONAL, INC., SUBSIDIARY AND AFFILIATE

Notes to the Condensed Consolidated Financial Statements (Unaudited) Continued

NOTE 10 RECENT ACCOUNTING PRONOUNCEMENTS (continued)

interim periods therein. Earlier adoption is permitted only as of annual reporting periods beginning after December 15, 2016. The Company is assessing the impact, if any, of implementing this guidance on its consolidated financial position, results of operations and liquidity.

~~In August 2014, the FASB issued ASU No. 2014-15,~~ ~~Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.~~ 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 assessing the impact, if any, of implementing this guidance on the Company’s financial 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 and interim reporting periods beginning after December 15, 2016 and ~~interim periods within annual periods ending after December 15, 2016.~~was adopted by the Company in the quarter ended March 31, 2017. The ~~Company is assessing the impact, if any,~~effect of ~~implementing~~ this guidance onwas immaterial to the Company’s consolidated results of operations, financial ~~statement presentation.~~position and cash flows.

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; 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 may have on its future 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 on the statement of cash flows, and forfeitures. ASU No. 2016-09 is effective for years ending after December 31, 2016, and was adopted by the Company ~~is assessing~~in the ~~impact~~quarter ended March 31, 2017. The effect of ~~ASU No. 2016-09 may have on its future financial position,~~this guidance was immaterial to the Company’s consolidated results of operations, financial position and ~~liquidity.~~

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cash flows.

~~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 was adopted by the Company in the quarter ended March 31, 2017. The effect of this guidance was immaterial to the Company’s consolidated results of operations, financial position and cash flows.

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 impairment charge. This 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 ofthis ASU ~~No. 2016-17 may~~will have on ~~its~~the Company’s consolidated results of operations, financial ~~statements.~~position and cash flows.

NOTE 11 SUBSEQUENT EVENTS

In ~~October 2016,~~April 2017, 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).

~~In connection with an amendment to the Distribution Agreement, the Company granted warrants for the purchase of up to $1,000,000 of~~2,000,000 restricted shares of common stock in a private placement to two accredited investors, including the Company’s Chairman and Interim CEO, for net proceeds of $120,000 as part of a private placement financing. The price of the ~~Company, exercisable for one year, commencing January 31, 2017 and expiring January 30, 2018~~, ~~with~~common stock in the ~~number~~private placement was set at a 40% discount to the market price of ~~shares to be determined based on a 20-day average~~the Company’s common stock ~~price~~immediately prior to the date the terms of ~~exercise~~the offering were approved by the Board.

FDA to establish the most efficient route to gain regulatory approval of AsepticSure as a medical device under the FDCA. In the interim, the Company will not market AsepticSure in the U.S. under its EPA clearance until it has obtained 510(k) clearance or an approval from the FDA.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Introduction

Medizone International, Inc., a Nevada corporation (collectively with ~~its affiliate,~~our variable interest entity Canadian Foundation for Global Health or CFGH, and our subsidiary Medizone Canada, Inc., “Medizone,” the “Company,” “we,” “us,” or “our”) is 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®. The 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 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.

Recent Developments

On February 28, 2017, our Chairman and CEO, Edwin Marshall, retired from all of ~~September 30, 2016,~~his positions with the Company. Jill Marshall, our Director or Operations, also retired on February 28, 2017. On March 1, 2017, the Board of Directors appointed David Esposito as our Chairman and Interim CEO.

In March 2017, the Company sold 1,000,000 shares of common stock in a private placement (the “Private Offering”) for gross proceeds of $60,000 to its Chairman and Interim CEO. The purchase price of the restricted shares was $0.06 per share. The terms of the Private Offering included a purchase price at a discount of 40% to the market price of the common stock on the date the offering terms were approved by the Board of Directors. The participation of insiders of the Company in the Private Offering was approved by the disinterested members of the Board of Directors.

On April 3, 2017, the Board of Directors appointed Dwayne Montgomery as a director and Chair of the Audit Committee.

On April 6, 2017, the U.S. Food and Drug Administration (“FDA”) notified the Company that it believes that AsepticSure®, the Company’s disinfectant system, should be classified as a medical device under Section 201(h) of the Food, Drug, and Cosmetic Act of 1938, as amended (“FDCA”). The FDA representatives recommended that the Company consider whether it is appropriate for the Company to submit a premarket notification to the FDA or to seek pre-market approval of AsepticSure and invited Company representatives to schedule follow up meetings in the near future to discuss the best approach for introduction of the AsepticSure technology into the U.S. market. The Company does not agree with the FDA’s position; however, the Company is working with legal and regulatory advisors on a response to the FDA to establish the most efficient route to gain regulatory approval of AsepticSure as a medical device under the FDCA. In the interim, the Company will not market AsepticSure in the U.S. under the EPA clearance until it has obtained 510(k) clearance or an appropriate approval from the FDA. This decision does not affect Company activities in markets outside the United States.

Between April and May 2017, we sold 2,000,000 shares of common stock at $0.06 per share to two accredited investors, including our Chairman and shipped three Generation III AsepticSure® systems under our agreement with our South American distributor GYD S.A. The units sold to the distributor were Generation II AsepticSure® systems that were converted to Generation III systems, and the price was not reflective of standard pricing. In October 2016, we entered into an amended and restated Distribution Agreement with GYD S.A., adding Argentina to its exclusive territories.

In October 2016, we received additional patent protection for the AsepticSure ® system from the European Union Patent and Trademark Office (EU) for our patent application, “Healthcare Facility Disinfecting Process and System With Oxygen/Ozone Mixture”. With this EU patent, we secured patent protectionCEO, in the ~~United Kingdom, Germany, and France.~~Private Offering for gross proceeds of $120,000.

Results of Operations

Three Months Ended ~~September 30,~~March 31, 2017 and 2016 ~~and 2015~~

During the quarter ended ~~September 30, 2016,~~March 31, 2017, we continued our primary focus of ~~expanding of~~identifying strategic and financial partners while we expand our ~~distribution channels, obtaining approval from~~commercial operations in key markets around the ~~U.S. Environmental Protection Agency (“EPA”), and developing a computer control feature for the AsepticSure® system.~~world.

For the quarters ended September 30, 2016 and 2015, revenues were $237,000 and $167,000, respectively. For the quarters 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 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 ~~September 30, 2016,~~March 31, 2017, we had a net loss of ~~$424,521,~~$982,219, compared with a net loss of ~~$798,136~~$487,389 for the quarter ended ~~September 30, 2015.~~March 31, 2016. Our primary expenses are payroll and consulting fees, research and development costs, stock-based compensation expense, office expenses, and interest expense. The ~~decrease~~increase in net loss for the quarter ended ~~September 30, 2016,~~March 31, 2017 compared to the corresponding quarter of ~~2015~~2016 was primarily due to ~~reduced general and administrative expenses from less~~ stock-based compensation expense related to stock option grants and stock awards to our employees, directors and consultants, offset ~~slightly~~ by ~~increased~~a decrease in research and development ~~expenses.~~expenses as we advance towards commercialization of our AsepticSure product.

For the quarters ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ we incurred ~~$363,209~~$977,262 and ~~$800,185,~~$279,064, respectively, in general and administrative expenses. The majority of these expenses were payroll, consulting fees and professional fees. The ~~decrease~~increase for the quarter ended ~~September 30, 2016~~March 31, 2017, compared to the corresponding quarter of ~~2015~~2016 was primarily due to ~~less~~ stock-based compensation expense of $688,212 related to stock option grants and stock awards to our employees, directors and consultants.

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For the quarters ended ~~September 30,~~March 31, 2017 and 2016, ~~and 2015,~~ we incurred ~~$75,332~~$84,536 and ~~$56,263,~~$185,961, respectively, in research and development expenses. Research and development expenses include consulting fees, interface development costs, prototypes, and research stage ozone generator and instrument development. The ~~increase~~decrease for the quarter ended ~~September 30, 2016~~March 31, 2017 compared to the corresponding quarter of ~~2015~~2016 was primarily due to ~~increased consulting costs which were partially offset by lower stock-based compensation expense related to option grants to~~the completion of a ~~consultant~~significant portion of our research and development work in 2016 in preparation for supporting an ~~employee~~expansion of our commercial strategy in ~~2015.~~2017.

Principal amounts owed on notes payable totaled ~~$307,617~~$307,838 and ~~$297,396~~$297,332 as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015,~~2016, respectively. Principal amounts owed on notes payable, net of current portion totaled $75,000 as of ~~September 30, 2016~~March 31, 2017 and December 31, ~~2015.~~2016. Interest expense on these obligations for the quarters ended ~~September 30,~~March 31, 2017 and 2016, was $8,615 and ~~2015, was $8,504 and $6,820,~~$8,591, respectively. The annual interest rates on ~~this debt range~~notes payable from 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 ~~September 30, 2016,~~March 31, 2017, our working capital deficiency was ~~$3,681,172,~~$4,357,238, compared to a working capital deficiency of ~~$2,675,007~~$4,126,861 as of December 31, ~~2015.~~2016. As of ~~September 30, 2016,~~March 31, 2017, we had approximately ~~$37,000~~$22,574 of available cash. In ~~October 2016,~~March 2017, the Company issued an aggregate of ~~20,000,000~~1,000,000 common shares at ~~$0.05~~$0.06 per share ~~pursuant to the exercise of warrants, and received cash~~for proceeds of ~~$1,000,000.~~$60,000.

We have incurred significant losses from inception through ~~September 30, 2016,~~March 31, 2017, which have resulted in an accumulated deficit of ~~$36,631,029.~~$39,054,401. The stockholders’ deficit as of ~~September 30, 2016~~March 31, 2017 was ~~$3,599,424,~~$4,282,329, compared to ~~$2,596,234~~$4,046,145 as of December 31, ~~2015.~~2016. This change is due to proceeds from the sale of restricted shares of common stock being less than the net loss for the ~~nine~~three months ended ~~September 30, 2016.~~March 31, 2017.

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 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) limited general corporate purposes.

~~During the nine months ended September 30, 2015, we generated cash of $160,000 through the sale of 4,000,000 shares of common stock to three accredited investors at a price of $0.04 per share.~~

We anticipate that we will be able to raise additional funds, as needed, from certain of the accredited investors who have purchased shares during previous years, although we have no agreements at this time with any of these investors to purchase our securities, and there 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 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” 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’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.~~2016.

We believe that many of the risks 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.

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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.

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 valued on a specific identification basis. We purchase our inventory as a finished product from unrelated manufacturing companies. We write off 100% of the cost of inventory that we specifically identify and consider obsolete or excessive to fulfill future sales estimates. No inventory was considered obsolete or excessive as of ~~September 30, 2016.~~March 31, 2017.

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 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 and interim reporting ~~periods~~period beginning after December 15, 2016, and ~~interim periods within annual periods ending after December 15, 2016.~~we adopted this standard in the quarter ended March 31, 2017. The ~~Company is assessing the impact, if any,~~effect of ~~implementing~~ this guidance onwas immaterial to the Company’s consolidated results of operations, financial ~~statement presentation.~~position and cash flows.

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; capital (or finance) leases and sheets. ASU No. 2016-02 is operating leases. Previously, US GAAP has required only capital leases to be recognized on lessee balance on lease 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~~We are assessing the impact that ASU No. 2016-02 may have on ~~its~~the Company’s future financial position, results of operations and liquidity.

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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 was adopted in the ~~Company is assessing~~quarter ended March 31, 2017. The impact of this guidance was immaterial to the ~~impact ASU No. 2016-09 may have on its future financial position,~~Company’s results of operations, financial position and ~~liquidity.~~ cash flows.

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 was adopted by the Company ~~is assessing~~in the ~~impact ASU No. 2016-17 may have on its consolidated~~quarter ended March 31, 2017. The effect of this guidance was immaterial to the Company’s results of operations, financial ~~statements.~~position and cash flows.

In January 2017, the FASB issued ASU No 2017-04, 15Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment”

~~Table~~. ASU No. 2017-04 eliminates the requirement to calculate the implied fair value of ~~Contents~~

goodwill to measure a goodwill charge. This 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. We are currently assessing the potential impact this ASU will have on the Company’s consolidated results of operations, financial position and cash flows.

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~~

There have been no material changes to information from 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~~presented for the ~~time periods that are specified in~~year ended December 31, 2016.

Our management, with the ~~SEC’s rules and forms and that such information is accumulated and communicated to management, including~~participation of 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.

~~As of the end of the period covered by this report, our Principal Executive Officer and Principal Financial Officer~~has evaluated the effectiveness ~~of the design and operation~~ of our disclosure controls and procedures (as defined in ~~Rule 13a- 15(e)~~Rules 13a-15(e) and 15d-15(e) under the Exchange Act). Based ~~on this~~upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of March 31, 2017, our disclosure controls and procedures were ~~effective as of September 30, 2016.~~effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting ~~that occurred~~(as such term is defined in Rules 13a-15 (f) and 15d- 15 (f) under the Exchange Act) during the ~~most recent fiscal~~ quarter ended March 31, 2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

There were no material developments during the quarter ended ~~September 30, 2016~~March 31, 2017 relative to the legal matters previously disclosed by the Company.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In ~~October 2016,~~March 2017, the Company awarded its newly appointed Chairman and Interim CEO 1,000,000 restricted shares of common stock as part of an employment agreement. The shares had a fair market value of $150,000 on the date of issuance.

Additionally, in March 2017, the Company issued an aggregate of ~~20,000,000~~1,000,000 common shares at ~~$0.05~~$0.06, per share ~~pursuant to the exercise~~as part of ~~warrants,~~a private placement for ~~aggregate cash consideration~~gross proceeds of ~~$1,000,000.~~$60,000 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 will also be forced to limit or slow the 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.~~

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None.

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.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

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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~~David A. Esposito

~~Edwin G. Marshall,~~David A. Esposito, Chairman and Interim Chief Executive

Officer (Principal Executive Officer)

/s/ Stephanie L. Sorensen

Stephanie L. Sorensen, Chief Financial Officer

(Principal Financial and Accounting Officer)

~~November 10, 2016~~

May 12, 2017

	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

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

	Shares			Weighted Average Exercise Price
Outstanding, beginning of the period		20,965,000		$	0.145
Granted		150,000			-
Expired/Canceled		(250,000	)		0.103
Exercised		-			-
Outstanding, end of the period		20,865,000			0.142
Exercisable		19,640,000			0.145