10-Q 1 f9301010qfinal3.htm MEDIZONE 10SEP 10Q Converted by EDGARwiz

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q


(Mark One)

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


For the quarterly period ended September 30, 2010

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.)


144 Buena Vista P.O. Box 742 Stinson Beach, CA 94970

(Address of principal executive offices, Zip Code)


(415) 868-0300

(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 [X] 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 [X]


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [ ]    No [X]


At October 31, 2010, there were 257,803,838 shares of the issuer’s common stock issued and outstanding.



MEDIZONE INTERNATIONAL, INC.

FORM 10-Q


INDEX

September 30, 2010



 

Page No.

Part I — Financial Information

 

 

 

Item 1.  Financial Statements

 

 

 

Consolidated Balance Sheets: September 30, 2010 (Unaudited) and December 31, 2009

3

 

 

Consolidated Statements of Operations (Unaudited): For the Three Months and Nine Months Ended September 30, 2010 and 2009

5

 

 

Consolidated Statements of Other Comprehensive Loss (Unaudited): For the Three Months and Nine Months Ended September 30, 2010 and 2009

6

 

 

Consolidated Statements of Cash Flow (Unaudited) For the Nine Months Ended September 30, 2010 and 2009

7

 

 

Notes to the Consolidated Financial Statements

9

 

 

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

18

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

24

 

 

Item 4.  Controls and Procedures

24

 

 

Part II — Other Information

 

 

 

Item 1.  Legal Proceedings

24

 

 

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

24

Item 3.  Defaults Upon Senior Securities

26

 

 

Item 4.  (Removed and Reserved)

26

 

 

Item 5.  Other Information

26

Item 6.  Exhibits

26

 

 

Signatures

26



2


PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements


MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Balance Sheets

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

September 30,

 

December 31,

 

 

 

 

 

2010

 

2009

 

 

 

 

 

(Unaudited)

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

$

634,852 

$

 359,891   

 

Prepaid expenses

 

 

 12,050 

 

 6,786   

 

Deferred consulting fees

 

 

 70,303 

 

21,211   

 

 

Total Current Assets

 

 

    717,205 

 

387,888   

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT (Net)

 

 

1,768 

 

3,041   

 

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

 

Trademark and patents, net

 

 

110,691

 

19,440   

 

Deferred stock offering costs

 

 

52,500

 

  -       

 

Lease deposit

 

 

1,122

 

1,122   

 

 

Total Other Assets

 

 

164,313

 

20,562   

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

 883,286 

$

411,491   

 

 

 

 

 

 

 

 




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



3



MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Balance Sheets (Continued)

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

December 31,

 

 

 

 

 

2010

 

2009

 

 

 

 

 

(Unaudited)

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Accounts payable

 

$

  637,857 

$

  699,026 

 

Due to related parties

 

 

  7,000 

 

  7,000 

 

Accrued expenses

 

 

  2,491,804 

 

  2,470,904 

 

Notes payable

 

 

  285,302 

 

 283,211 

 

 

Total Current Liabilities

 

 

3,421,963 

 

   3,460,141 

 

 

 

 

 

 

 

 

CONTINGENT LIABILITIES

 

 

   224,852 

 

   224,852 

 

 

 

 

 

 

 

 

 

 

Total Liabilities

 

 

 3,646,815 

 

3,684,993 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY (DEFICIT)

 

 

 

 

 

 

Preferred stock, 50,000,000 shares authorized of $0.00001

 

 

 

 

 par value, no shares issued or outstanding

 

 

  - 

 

  - 

 

Common stock, 395,000,000 shares authorized of $0.001

 

 

 

 

 

 

 par value, 257,664,949 and 241,701,432 shares issued

 

 

 

 

 

 

 and outstanding, respectively

 

 

   257,665 

 

 241,701 

 

Additional paid-in capital

 

 

  21,413,395 

 

  18,533,363 

 

Other comprehensive loss

 

 

  (9,847)

 

  (3,611)

 

Deficit accumulated during the development stage

 

 (24,424,742)

 

  (22,044,955)

 

 

Total Stockholders' Equity (Deficit)

 

 

 (2,763,529)

 

  (3,273,502)

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS'

 

 

 

 

 

 

 EQUITY (DEFICIT)

 

$

  883,286 

$

    411,491 

 

 

 

 

 

 

 

 





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



4




            MEDIZONE INTERNATIONAL, INC., AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)

 

 

 

 

 

 

 

 

 

 

From Inception

 

 

 For the

 

 For the

 

on January 31, 1986

 

 

 Three Months Ended

 

 Nine Months Ended

 

Through

 

 

 September 30,

 

 September 30,

 

Sept. 30,

 

 

2010

 

2009

 

2010

 

2009

 

2010

REVENUES

$

             - 

$

     - 

$

    - 

$

  - 

$

   133,349 

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

 

    Cost of sales

 

 

 

 

 

103,790 

    Research and development

 

485,011 

 

165,237 

 

776,034 

 

305,883 

 

4,015,823 

    General and administrative

 

1,187,936 

 

301,149 

 

1,580,634 

 

617,377 

 

18,191,301 

    Expense on extension of warrants

 

 

 

 

105,393 

 

2,092,315 

    Bad debt expense

 

 

 

 

 

48,947 

    Depreciation and amortization

 

2,884 

 

618 

 

5,252 

 

1,432 

 

55,943 

        Total Expenses

 

1,675,831 

 

467,004 

 

2,361,920 

 

1,030,085 

 

24,508,119 

        Loss from Operations

 

(1,675,831)

 

(467,004)

 

(2,361,920)

 

(1,030,085)

 

(24,374,770)

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSES)

 

 

 

 

 

 

 

 

 

 

    Noncontrolling interest in loss

 

 

 

 

 

26,091 

    Other income

 

 

 

 

 

19,780 

    Gain on sale of subsidiary

 

 

 

 

 

208,417 

    Debt forgiveness

 

 

 

 

61,514 

 

61,514 

    Loss on termination of

 

 

 

 

 

 

 

 

 

 

       license agreement

 

 

 

 

 

(125,000)

    Interest expense

 

(5,995)

 

(5,990)

 

(17,867)

 

(17,818)

 

(1,135,512)

        Total Other Income (Expenses)

 

(5,995)

 

(5,990)

 

(17,867)

 

43,696 

 

(944,710)

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE EXTRAORDINARY ITEMS

(1,681,826)

 

(472,994)

 

(2,379,787)

 

(986,389)

 

(25,319,480)

 

 

 

 

 

 

 

 

 

 

 

EXTRAORDINARY ITEMS

 

 

 

 

 

 

 

 

 

 

    Lawsuit settlement

 

 

 

 

 

415,000 

    Debt forgiveness

 

 

 

 

 

479,738 

        Total Extraordinary Items

 

 

 

 

 

894,738 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

$

   (1,681,826)

$

   (472,994)

$

 (2,379,787)

$

 (986,389)

$

(24,424,742)

 

 

 

 

 

 

 

 

 

 

 

BASIC LOSS PER SHARE

$

     (0.01)

$

     (0.00)

$

      (0.01)

$

     (0.00)

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE NUMBER

 

 

 

 

 

 

 

 

 

 

 OF COMMON SHARES OUTSTANDING

 

250,143,347 

 

231,947,675 

 

246,780,162 

 

215,911,398 

 

 

 

 

 

 

 

 

 

 

 

 

 



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





5



                MEDIZONE INTERNATIONAL, INC., AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Other Comprehensive Loss

(Unaudited)

 

 

 

 

 

 

 

 

 

 

From Inception

 

 

 For the

 

 For the

 

on January 31, 1986

 

 

 Three Months Ended

 

 Nine Months Ended

 

Through

 

 

 September 30,

 

 September 30,

 

Sept. 30,

 

 

2010

 

2009

 

2010

 

2009

 

2010

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

$

   (1,681,826)

$

   (472,994)

$

 (2,379,787)

$

 (986,389)

$

(24,424,742)

 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE LOSS

 

 

 

 

 

 

 

 

 

 

    Loss on foreign currency

 

 

 

 

 

 

 

 

 

 

         translation

 

63 

 

371 

 

(6,236)

 

 

(9,847)

 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE LOSS

$

   (1,681,763)

$

   (472,623)

$

 (2,386,023)

$

 (986,384)

$

(24,434,589)

 

 

 

 

 

 

 

 

 

 

 





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



6



MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 

 

 

From Inception

 

 

 

 

 

 

 

 

 

on January 31,

 

 

 

 

 

 For the Nine Months Ended

 

1986 Through

 

 

 

 

 

 September 30,

 

September 30,

 

 

 

 

 

2010

 

2009

 

2010

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net loss

 

$

  (2,379,787)

$

 (986,389)

$

  (24,424,742)

Adjustments to reconcile net loss to net cash

 

 

 

 

 

 

 

 used in operating activities:

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

       5,197 

 

      1,432 

 

    55,888 

 

Stock issued for services

 

 

   1,268,213 

 

   35,462 

 

    4,659,111 

 

Stock issued for early termination of a marketing

   rights agreement and a joint venture agreement

 

 

   - 

 

   - 

 

    125,000 

 

Amortization of deferred consulting fees

 

 

   21,211 

 

      89,335 

 

137,388 

 

Expense for extension of warrants below

 

 

 

 

 

 

 

 

 market value

 

 

   - 

 

     105,393 

 

   2,092,315 

 

Value of stock options granted

 

 

   249,115 

 

     146,097 

 

   395,212 

 

Bad debt expense

 

 

   - 

 

    - 

 

  48,947 

 

Minority interest in loss

 

 

   - 

 

     - 

 

  (26,091)

 

Loss on disposal of assets

 

 

   - 

 

     - 

 

   693,752 

 

Gain on settlement of debt and lawsuit settlements

 

 

   - 

 

  (61,514)

 

   (603,510)

Changes in assets and liabilities:

 

 

 

 

 

 

 

 

(Increase) decrease in prepaid expenses

 

 

 

 

 

 

 

 

 and deposits

 

 

   882 

 

  (6,149)

 

  (49,949)

 

Increase (decrease) in accounts payable

 

 

  (61,169)

 

  (1,788)

 

1,258,734 

 

Increase (decrease) in accrued expenses

 

 

   20,900 

 

52,127 

 

   3,139,827 

 

 

Net Cash Used by Operating Activities

 

 

  (875,438)

 

  (625,994)

 

  (12,498,118)

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

Trademark and patent costs

 

 

  (27,710)

 

  (5,329)

 

 (41,943)

 

Purchase of fixed assets

 

 

     - 

 

  (1,027)

 

    (44,182)

 

 

Net Cash Used by Investing Activities

 

 

  (27,710)

 

   (6,356)

 

   (86,125)

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Proceeds from lawsuit settlement

 

 

      - 

 

     - 

 

   415,000 

 

Principal payments on notes payable

 

 

  (4,055)

 

  (1,309)

 

  (200,133)

 

Cash received from notes payable

 

 

     - 

 

      - 

 

  1,129,518 

 

Advances from shareholders

 

 

     - 

 

      - 

 

    44,658 

 

Payment on shareholder advances

 

 

     - 

 

      - 

 

   (24,191)

 

Capital contributions

 

 

      - 

 

      - 

 

    439,870 

 

Stock issuance costs

 

 

  (10,000)

 

      - 

 

    (115,312)

 

Increase in noncontrolling interest

 

 

      - 

 

       - 

 

    14,470 

 

Issuance of common stock for cash

 

 

     1,198,400 

 

      768,000 

 

   11,525,062 

 

 

Net Cash Provided by Financing Activities

 

 

     1,184,345 

 

   766,691 

 

   13,228,942 

EFFECT ON CURRENCY EXCHANGE RATE CHANGES ON CASH AND CASH EQUIVALENTS

 

 

  (6,236)

 

      5 

 

  (9,847)

NET INCREASE IN CASH

 

 

      274,961 

 

     134,346 

 

  634,852 

CASH AT BEGINNING OF PERIOD

 

 

      359,891 

 

      12,272 

 

         - 

CASH AT END OF PERIOD

 

$

   634,852 

$

  146,618 

$

   634,852 


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



7






MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Cash Flows (Continued)

(Unaudited)

 

 

 

 

 

 

 

 

 

From Inception

 

 

 

 

 

 

 

 

 

on January 31,

 

 

 

 

 

 For the Nine Months Ended

 

1986 Through

 

 

 

 

 

 September 30,

 

Sept. 30,

 

 

 

 

 

2010

 

2009

 

2010

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH PAID FOR:

 

 

 

 

 

 

 

 

 

Interest

 

$

   125 

$

      - 

$

  29,988 

 

 

Income taxes

 

$

     - 

$

  - 

$

       - 

 

 

 

 

 

 

 

 

 

 

NON-CASH FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock issued for services

 

$

   1,268,213 

$

   35,462 

$

 4,659,111 

 

 

Stock issued for prepaid consulting fees

 

$

   70,303 

$

   65,388 

$

 308,191 

 

 

Stock issued for stock offering costs

 

$

   100,000 

$

  - 

$

100,000 

 

 

Stock issued for conversion of debt

 

$

    - 

$

   1,500 

$

 4,373,912 

 

 

Stock issued for license agreement

 

$

    - 

$

   - 

$

 693,752 

 

 

Stock issued for patent costs

 

$

   67,465 

$

    - 

$

82,215 

 

 

Stock issued for early termination of marketing

   rights agreement and joint venture agreement

 

$

    - 

$

    - 

$

 125,000 




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




8


MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements (Unaudited)

September 30, 2010 and December 31, 2009


NOTE 1 -

BASIS OF PRESENTATION


The financial information included herein is unaudited and has been prepared consistent with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, these financial statements do not include all information and footnotes required by generally accepted accounting principles for complete financial statements.  These statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2009.  In the opinion of management, these financial statements contain all adjustments (consisting solely of normal recurring adjustments) which are, in the opinion of management, necessary for a fair statement of results for the interim period presented.


The results of operations for the three months and nine months ended September 30, 2010 are not necessarily indicative of the results to be expected for the full year.


Recently Adopted Accounting Pronouncements


In October 2009, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2009-13 for Revenue Recognition – Multiple Deliverable Revenue Arrangements (Subtopic 605-25) “Subtopic”. This accounting standard update establishes the accounting and reporting guidance for arrangements under which the vendor will perform multiple revenue generating activities. Vendors often provide multiple products or services to their customers. Those deliverables often are provided at different points in time or over different time periods. Specifically, this Subtopic addresses how to separate deliverables and how to measure and allocate arrangement consideration to one or more units of accounting.  The amendments in this guidance will affect the accounting and reporting for all vendors that enter into multiple-deliverable arrangements with their customers when those arrangements are within the scope of this Subtopic.


This new accounting standard is effective for fiscal years beginning on or after June 15, 2010. Earlier adoption is permitted. If a vendor elects early adoption and the period of adoption is not the beginning of the entity’s fiscal year, the entity will apply the amendments under this Subtopic retrospectively from the beginning of the entity’s fiscal year.  The presentation and disclosure requirements shall be applied retrospectively for all periods presented. As the Company has not yet generated any revenues, this standard is not yet applicable, but will be adopted once revenues are generated.


NOTE 2 -

CANADIAN FOUNDATION FOR GLOBAL HEALTH


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.


The CFGH is specifically not authorized to contract for research or other services on behalf of the Company without prior approval.  All intellectual property, including but not limited to, scientific results, patents and trademarks that are derived from work done on the Company’s behalf or at its request, by CFGH or parties contracted by CFGH with the Company’s prior approval, are the sole and exclusive property of the Company.



9


MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements (Unaudited)

September 30, 2010 and December 31, 2009


NOTE 2 -

CANADIAN FOUNDATION FOR GLOBAL HEALTH (Continued)


The Company follows the accounting standard regarding variable interest entities (“VIE’s), whereby a VIE is required 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’s expected residual returns as a result of holding variable interests, which are the ownership, contractual, or other financial interests in the entity.  In addition, a legal entity is considered to be a VIE, if it does not have sufficient equity at risk to finance its own activities without relying on financial support from other parties.  If the legal entity is a VIE, then the reporting entity determined to be the primary beneficiary of the VIE must consolidate it.  


The Company has determined that CFGH meets the requirements of a VIE, effective upon the first advance to CFGH on February 12, 2009.  Accordingly, the financial condition and operations of CFGH are being consolidated with the Company as of and for the three and nine months ended September 30, 2010 and 2009.


NOTE 3 -

LOSS PER SHARE


The computations of basic loss per share of common stock are based on the weighted average number of common shares outstanding during the period of the consolidated financial statements as follows:


 

For the Three Months Ended September 30,

 

2010

 

2009

Numerator

 

 

 

 - Loss before extraordinary items

$            (1,681,826)

 

$        (472,994)

 - Extraordinary items

 

 

 

 

 

Denominator (weighted average number of shares outstanding)


250,143,347 

 


231,947,675 

 

 

 

 

Basic income (loss) per share

 

 

 

 - Before extraordinary items

$                  (0.01)

 

$              (0.00)

 - Extraordinary items

                     0.00 

 

                 0.00 

 

 

 

 

Basic Income (Loss) Per Share

$                  (0.01)

 

$              (0.00)

 

 

 

 


 

For the Nine Months Ended September 30,

 

2010

 

2009

Numerator

 

 

 

 - Loss before extraordinary items

$            (2,379,787)

 

$        (986,389)

 - Extraordinary items

 

 

 

 

 

Denominator (weighted average number of shares outstanding)


246,780,162 

 


215,911,398 

 

 

 

 

Basic income (loss) per share

 

 

 

 - Before extraordinary items

$                  (0.01)

 

$              (0.00)

 - Extraordinary items

                     0.00 

 

                 0.00 

 

 

 

 

Basic Income (Loss) Per Share

$                  (0.01)

 

$              (0.00)

 

 

 

 

Common stock equivalents, consisting of warrants and options, have not been included in the calculation as their effect is antidilutive for the periods presented.



10


MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements (Unaudited)

September 30, 2010 and December 31, 2009

NOTE 4 -

GOING CONCERN


The Company’s consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern which 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 September 30, 2010, which have resulted in an accumulated deficit of $24,424,742 at September 30, 2010.  The Company currently does not have an established source of funds sufficient to cover its operating costs beyond the next five or six months, has a working capital deficit of approximately $2,705,000, and has relied exclusively on debt and equity financing.  Accordingly, there is substantial doubt about its ability to continue as a going concern.  Continuation of the Company as a going concern is dependent upon obtaining additional capital and ultimately, upon the Company’s attaining profitable operations.  The Company will require a substantial amount of additional funds to complete the development of its products, hospital beta testing, commercialization, and to fund additional losses, until revenues are sufficient to cover the Company’s operating expenses.  


Over the past several years, the Company has raised approximately $2,730,000 through the sale of nearly 58,000,000 restricted shares of common stock at prices ranging from $0.01 to $0.25 per share, which funds have been used to pay certain corporate obligations, including the initial costs of development for its hospital sterilization initiative.  The Company will need to raise additional capital during early 2011 in order to sustain operations and to fund additional research.  The Company believes that it will be able to raise these additional needed funds from some of the same investors who have purchased shares over the past several years, although there is no guarantee that these investors will purchase additional shares.  However, these investors have verbally committed to continue to fund the Company’s projects, as needed.  If the Company is unsuccessful in finalizing this or other additional funding, it will most likely be forced to substantially reduce or cease operations.


During 2009, the Company began pursuing the development of a novel ozone-based technology (AsepticSure technology) which will offer a safe, inexpensive means of disinfecting medical facilities of all bacteria, fungi and viruses known to cause hospital derived infections.  Since this technology is not considered a medical treatment or a diagnostic, its developmental pathway will not be subject to regulatory review or the requirement of a lengthy clinical trial process.  The Company completed a third series of laboratory trials of this hospital sterilization technology at Innovation Park, Queen’s University, Ontario, Canada, during January 2010 which has enabled the Company to establish the precise protocols necessary in order to obtain maximum bactericidal action in combination with minimum turn-around times in keeping with normal hospital flow patterns.  Most recently, the Company research has shown that the technology can now achieve a level of bacterial decontamination heretofore unseen in open space settings using conventional means.  Additional test results have demonstrated that the AsepticSure technology is successful on Porcelain and Formica, as well as stainless surfaces, which surfaces represent the majority of all hospital surfaces.  An in-hospital beta test at Hospital Hotel Dieu, associated with Queens University in Kingston, Ontario, Canada, completed in October 2010 demonstrated that carpet samples commonly associated with use in hospitals and contaminated with C. difficile and MRSA also were sterilized using the AsepticSure technology.  Additional in-hospital beta testing is anticipated later this year and continuing into 2011.


Recent research has shown that the AsepticSure technology is successful on Listeria monocytogenes and Salmonella thphium with thirty-minute exposure to the patented gas mixture, thus reducing food-borne illnesses.  The Company believes that these recent developments will significantly expand the utility for the AsepticSure technology, and also greatly reduce the time required for the thorough sterilization of a hospital room, and the return of the hospital room back into service.  


In addition, the Company’s full-scale development prototype has been completed and demonstrated in bacteria-free runs that it can reach both the charge time and saturation requirements of its design criteria.  Additional full-scale prototypes have subsequently been developed utilizing a slightly different technology than the original technology.    The Company’s goal is to demonstrate an actual and significant reduction in the rate of re-infection for hospital acquired infections by institutions utilizing the Company’s system.



11


MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements (Unaudited)

September 30, 2010 and December 31, 2009


NOTE 4 -

GOING CONCERN (Continued)


The management of the Company intends to seek additional funding which will be utilized to fund additional research and continue operations.  The Company recognizes that if it is unable to raise additional capital, it may find it necessary to substantially reduce or cease operations.


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 attain profitable operations.  The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of these uncertainties.  

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 financial position, results of operations, or cash flows.


Effective July 1, 2009, the Company entered into a lease agreement and established its own certified laboratory located at Innovation Park, Queen’s University in Kingston, Ontario, Canada, which will provide a primary research and development platform for the Company as it proceeds towards commercialization of its products.  The lease term has been extended through June 30, 2011 and includes a monthly lease payment of $1,300 Canadian Dollars plus the applicable Goods and Services Tax (GST).  A second laboratory space for full scale room testing was rented during December 2009 that includes a monthly lease payment of $1,200 Canadian Dollars, plus the applicable GST, through June 30, 2011.    


NOTE 6 -

OUTSTANDING WARRANTS AND OPTIONS


Warrants


On various dates over the past several years, the Board of Directors of the Company agreed to extend the expiration date on certain outstanding warrants to purchase common stock.  The Company estimates the fair value of each stock award or expiration extension at the grant date or extension date 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 warrants.  Because the Company does not pay dividends, the dividend rate variable in the Black-Scholes model is zero.  Under the provisions of this accounting standard, additional expense of $-0- and $105,393 was recorded for the nine months ended September 30, 2010 and 2009, respectively, under the Black-Scholes option pricing model for these warrant extensions.  


The Company estimated the fair value of the stock warrants at the date of the maturity extension, based on the following weighted average assumptions:


Risk-free interest rate

0.11% - 0.27%

Expected life

1 to 4 months

Expected volatility

139.91% - 245.55%

Dividend yield

0.00%


All outstanding warrants were either exercised or expired unexercised prior to the end of the year ended December 31, 2009, thus there are no warrants outstanding as of September 30, 2010.



12


MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements (Unaudited)

September 30, 2010 and December 31, 2009


NOTE 6 -

OUTSTANDING WARRANTS AND OPTIONS (Continued)


Options


On August 26, 2009, the Company granted a total of 1,000,000 options to a Company director with an exercise price of $0.10 per share, exercisable for up to five years.  On the same date, the Company granted an additional 1,500,000 options to an outside consultant for services rendered, with an exercise price of $0.10 per share, exercisable for up to five years, but including vesting provisions as follows: i) 500,000 of the options vested immediately on the date of grant, ii) 500,000 options will vest on the date certified by the Company as the date the Company’s hospital sterilization program completes its beta-testing, and iii) the remaining 500,000 options will vest on the date certified by the Company as the date that the Company’s process has been commercialized and a minimum of fifty units or devices have been sold to third parties by the Company.  As of September 30, 2010, 1,000,000 of the 1,500,000 options granted to this consultant had not yet vested.  Additional expense of $97,398 will be recorded in the future as the additional vesting requirements are met on the 1,000,000 unvested options.  


On March 29, 2010, the Company granted 250,000 options to an individual for research and development consulting services to be rendered for the period of April 1, 2010 through September 30, 2010.  The options have an exercise price of $0.19 per share, and are exercisable for up to five years.  The value of these options granted, totaling $46,094, was recognized as an expense on a monthly basis beginning on April 1, 2010, at $7,682 per month, and ending on September 30, 2010.  


On July 21, 2010, the Company granted a total of 3,500,000 options to certain board members and employees of the Company as additional compensation for work performed.  These options are exercisable at $0.20 per share, are exercisable for five years, but do not vest until the Company has achieved commercial sales.  As of September 30, 2010, none of these options had vested.  The value of these options granted, totaling $710,577, will be recorded in the future once the Company has achieved commercial sales.


Also on July 21, 2010, the Company granted 1,000,000 options to a director of the Company in lieu of an actual stock grant for his services as a board member (see Note 7 for additional discussion on common shares issued to other board members for board service).  These options are exercisable at $0.20 per share, are exercisable for five years, and became fully vested on the date of the grant.  The value of these options granted, totaling $203,022, has been recorded as board compensation for the nine months ended September 30, 2010.


On August 16, 2010, the Company granted 250,000 options to an outside consultant for patent work performed on behalf of the Company.  These options are exercisable at $0.27 per share, are exercisable for five years, and had no vesting provisions.  The value of these options granted, totaling $67,465, has been capitalized to patent costs as of September 30, 2010, which costs will be amortized over the expected life of the patent.


On September 1, 2010, the Company granted an additional 250,000 options to an outside consultant in connection with extending his consulting agreement with the Company through September 1, 2011.  These options are exercisable at $0.275 per share, are exercisable for five years, but do not vest until the Company has achieved commercialization and sales of the AsepticSure product.  As of September 30, 2010, none of these options had vested.  The value of these options granted, totaling $65,067, will be recorded in the future once the Company has achieved the required commercial sales.



13


MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements (Unaudited)

September 30, 2010 and December 31, 2009


NOTE 6 -

OUTSTANDING WARRANTS AND OPTIONS (Continued)


Options (Continued)


As previously discussed, the Company estimates the fair value of each stock award by using the Black-Scholes option pricing model, which model requires the use of exercise behavior data and the use of a number of assumptions including volatility of the Company’s stock price, the weighted average risk-free interest rate, and the weighted average expected life of the options.  Because the Company does not pay dividends, the dividend rate variable in the Black-Scholes model is zero.  Under the provisions of this accounting standard, additional expense of $249,116 and $146,097 was recorded for the nine months ended September 30, 2010 and 2009, respectively, under the Black-Scholes option pricing model.  An additional amount of $67,465 has been capitalized as patent costs as of September 30, 2010, as previously mentioned, which costs will be amortized over the expected useful life of the patents.  An additional expense of $873,042 will be expensed in the future as the additional vesting requirements are met.  


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


Risk-free interest rate

2.46%

Expected life

5 years

Expected volatility

185.59 - 196.94%

Dividend yield

0.00%


A summary of the status of the Company’s outstanding options as of September 30, 2010 and changes during the nine months then ended is presented below:


 


              Shares     

Weighted Average Exercise Price

Outstanding, beginning of period

2,500,000 

$0.10

Granted

5,250,000 

$0.21

Expired/Canceled

-

n/a

Exercised

   -

n/a

Outstanding, end of period

7,750,000 

$0.17

Exercisable

3,000,000 

$0.16


NOTE 7 -

STOCK TRANSACTIONS AND SIGNIFICANT CONTRACTS

During the nine months ended September 30, 2010, the Company issued 9,389,443 shares of common stock for cash proceeds of $1,198,400 (net of stock issuance costs of $10,000), at prices ranging from $0.12 to $0.25 per share.

During April 2009, the Company’s Board of Directors approved the issuance of 700,000 (350,000 restricted and 350,000 free-trading) shares of common stock to a consultant. The stock was valued at $25,200, or $0.036 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  The consulting agreement was based on a one-year term, the shares vested in equal increments, and the consulting expense was recognized over the same period.  $16,800 of the $25,200 was recognized during the year ended December 31, 2009.  The remaining $8,400 was recognized during the nine months ended September 30, 2010.



14


MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements (Unaudited)

September 30, 2010 and December 31, 2009


NOTE 7 -

STOCK TRANSACTIONS AND SIGNIFICANT CONTRACTS (Continued)

During May 2009, the Company’s Board of Directors approved the issuance of 500,000 restricted shares of common stock to a consultant valued at $19,500, or $0.039 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  The consulting agreement was based on a one-year term, the shares vested in equal increments, and the consulting expense was recognized over the same period.  $11,911 of the $19,500 was recognized during the year ended December 31, 2009.  The remaining $7,589 was recognized during the nine months ended September 30, 2010.

During February 2010, the Company’s Board of Directors approved the issuance of a total of 137,000 restricted shares of common stock to two consultants for consulting, marketing, and web support services valued at a total of $39,730, or $0.29 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  Both consulting agreements were based on a five-month term, the shares vested in equal increments, and the consulting expense was recognized over the same period during 2010.  

On March 29, 2010, the Company’s Board of Directors approved the issuance of a total of 250,000 restricted shares of common stock to a consulting firm for investor relation services valued at $47,500, or $0.19 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  The consulting agreement was for the period of April 1, 2010 through June 30, 2010.  The entire amount of $47,500 was recognized as consulting fees during the second quarter of 2010 at $15,833 per month.

As previously discussed in Note 6, on March 29, 2010, the Company granted options to acquire 250,000 free-trading shares of common stock to an individual to assist the Company in the scientific development of its technology as well as patent support for the period of April 1, 2010 through September 30, 2010.  The options have an exercise price of $0.19 per share, and are exercisable for up to five years.  Pursuant to the Black-Scholes option pricing model, the value of these options is $46,094, which amount was recognized as an expense through September 30, 2010.  


On April 9, 2010, the Company’s Board of Directors approved the issuance of a total of 588,235 restricted shares of common stock in satisfaction of a one-year contract with an investment firm to assist the Company in raising the necessary capital to continue the development of the Company’s research and technology.  The shares were valued at $100,000, or $0.17 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  $47,500 of the $100,000 value has been recognized as a stock offering cost, and offset against the cash proceeds received as a result of the investment firm’s efforts, during the period ended September 30, 2010 with the remaining $52,500 recorded as deferred stock offering costs as of September 30, 2010, to be recognized as stock offering costs during the remaining period of the contract at $8,333 per month.


On April 12, 2010, the Company’s Board of Directors approved the issuance of a total of 120,000 restricted shares of common stock to a consultant in lieu of outstanding consulting fees valued at $22,800, or $0.19 per share, which represented the market value of the shares on the date that the shares were approved to be issued.


On July 8, 2010, the Company’s Board of Directors approved the issuance of 135,000 shares of restricted shares of common stock to an investor relations company pursuant to a one-year agreement through July 15, 2011.  The shares are valued at $25,650, or $0.19 per share, the market value of the shares on the date that the Board of Directors approved the issuance of the shares.  The shares vest in equal increments and the expense is to be recorded over the period of the agreement.  $5,343 of the $25,650 consulting expense was recognized during the nine months ended September 30, 2010, with the remaining $20,307 recorded as deferred consulting fees, to be recognized over the remaining period at $2,137 per month.



15


MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements (Unaudited)

September 30, 2010 and December 31, 2009


NOTE 7 -

STOCK TRANSACTIONS AND SIGNIFICANT CONTRACTS (Continued)


On July 21, 2010, the Company’s Board of Directors approved the issuance of a total of 4,000,000 shares of restricted common stock to certain directors and officers for board service and performance bonuses.  These shares were valued at a total of $840,000, or $0.21 per share, the market value of the shares on the date that the dis-interested members of the Board of Directors authorized the issuance of the shares. The value of the shares, or $840,000, was recorded as director compensation and bonus expense for the nine months ended September 30, 2010.  As discussed in Note 6, these same directors and officers also were granted options for the purchase of a total of 3,500,000 shares of common stock, exercisable at $0.20 per share for a period of five years.  These options do not vest, however, until the Company achieves commercial sales.


On August 26, 2010, the Company’s Board of Directors approved the issuance of a total of 225,000 restricted shares of common stock to two consultants for consulting, marketing, and web support services valued at a total of $60,750, or $0.27 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  The first agreement was for the period of July 15, 2010 through March 31, 2011.  The second agreement was for the period of August 26, 2010 through August 26, 2011.  For both agreements, the shares vest in equal increments and the consulting expense is recognized over the period of the contracts.  $10,754 of the $60,750 consulting expense was recognized during the nine months ended September 30, 2010, with the remaining $49,996 recorded as deferred consulting fees, to be recognized over the remaining period of each contract.


Also on August 26, 2010, the Company’s Board of Directors approved the issuance of 118,839 restricted shares of common stock to a consultant in lieu of outstanding consulting fees valued at $32,087, or $0.27 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  An additional 1,000,000 restricted shares of common stock were approved and issued to this same consultant on September 1, 2010, as bonus compensation for extending his consulting agreement through September 1, 2011.  These shares were valued at $270,000, or $0.27 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  The entire amount was recorded as bonus compensation during the nine months ended September 30, 2010.


NOTE 8 -

PROTOTYPE AGREEMENT


On June 29, 2010, the Company entered into a six-month “Prototype Evaluation Agreement (Prototype Agreement) with a company to produce a prototype AsepticSure system apparatus prior to August 24, 2010 and a second prototype apparatus prior to September 24, 2010.  


However, due to certain unforeseen delays with the company producing the prototypes, these prototype apparatuses have not been successfully completed (to the point that they are fully verified to the Company’s specifications) as of the date of this report.  The Company’s engineers are actively working with this company with the hope that verification of all operating parameters will be achievable by November 2010.

 

As additional consideration for the assistance provided by this company pursuant to this Prototype Agreement, the Company has agreed to issue 1,000,000 shares of restricted common stock upon the Company’s acceptance of the completed prototype apparatuses, with any required changes agreed to, as being ready for regular production.  This did not happen, however, prior to September 30, 2010, thus no shares have been issued.


NOTE 9 -

FAIR VALUE OF FINANCIAL INSTRUMENTS


The Company’s financial instruments consist of cash and cash equivalents, accounts payable, and notes payable.  The carrying amount of cash and cash equivalents and accounts payable approximates their fair value because of the short-term nature of these items.  The carrying amount of the notes payable approximates fair value as the individual borrowings bear interest at rates that approximate market interest rates for similar debt instruments.




16


MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements (Unaudited)

September 30, 2010 and December 31, 2009


NOTE 10 -

SUBSEQUENT EVENTS


The Company has evaluated subsequent events per the requirements of Topic 855 and notes that there are no significant subsequent events to be reported.



17


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

General

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

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

Corporate Operations

Early in 2008, our management and Board of Directors began to consider other applications of our core technologies and new technologies with lower development costs with the objective of moving us to revenue production in the shortest period of time.

Beginning in 2008, management re-positioned the Company to pursue an initiative in the field of hospital sterilization.  Following laboratory results with Bacillus subtilis, an internationally recognized surrogate for Anthrax, that produced 7 log reductions (sterilization), we have expanded our research and business plan to include bio-terrorism countermeasures as well as hospital sterilization and critical infrastructure de-contamination.

This change in focus is based, in part, on a review of published data on hospital-derived infections, an area of rapidly growing concern in the medical community. Management believes that there is an opportunity to build on our experience with ozone technologies and its bio-oxidative qualities in pursuing this initiative. We have shifted our near term efforts towards one of our founding tenets, namely that under the right conditions, ozone can be extremely effective at sterilizing biological fluids (blood, serum, and plasma and its fractionates) as well as biologically contaminated equipment and spaces.

We believe that our unique ozone generating technologies could play a vital role in addressing what public health officials and surgeons world-wide are beginning to recognize as "the silent epidemic" (American Academy of Orthopedic Surgeons, May 2008, copy on file with the Company (“AAOS Study”)), a reference to MRSA (methicillin-resistant staphylococcus aureus) infection.  This is a strain of Staphylococcus aureus bacteria (“staph”) that is resistant to the broad-spectrum antibiotics commonly used to treat it. MRSA can be fatal.  According to the AAOS Study, "the number of hospital admissions for MRSA has exploded in the past decade. By 2005, admissions were triple the number in 2000 and 10-fold higher than in 1995. In 2005, in the United States alone, 368,600 hospital admissions for MRSA — including 94,000 invasive infections — resulted in 18,650 deaths. The number of MRSA fatalities in 2005 surpassed the number of fatalities from hurricane Katrina and AIDS combined and is substantially higher than fatalities at the peak of the U. S. polio epidemic."  Indeed, biological contamination of medical treatment areas such as hospitals and chronic care facilities has recently been identified by several world renowned public health institutions, including the Centers for Disease Control or “CDC” (CDC Report, 17 Oct, 2007, copy on file with the Company), as one of the greatest threats to public health and safety in the industrial world. This concern was reflected in an article published in the journal Science (18 July 2008, Vol 321, pp 356-361, copy on file with the Company) which estimated that hospital-based infections in 2006 accounted for almost 100,000 deaths in the US alone.

In response to this situation, we are developing a highly portable, low-cost, ozone-based technology (AsepticSure) specifically for the purpose of decontaminating and sterilizing hospital surgical suites, emergency rooms, and intensive care units. Since this technology is not considered a medical treatment or a diagnostic, its development pathway is not subject to a stringent and expensive regulatory review process.  The development pathway will be based on independent peer-reviewed science and engineering excellence.  A government variant of AsepticSure is being developed for bio-terrorism countermeasures.



18


In 2008, we entered into a five-year agreement with BiOzone Corporation (BiOzone).  Under the agreement, BiOzone and the Company have been developing equipment for specialized laboratory trials, a prototype AsepticSure system for hospital beta-testing and ozone destruct technology.  The agreement also covers initial product manufacturing by BiOzone exclusively for Medizone. Under this agreement, we retain the right to outsource additional manufacturing capacity.  

During May 2009, we commenced the first of a series of trials designed to confirm that our AsepticSure Hospital Sterilization System can rapidly eliminate hospital-based bacterial pathogens known to be responsible for the growing number of deaths and serious infections currently plaguing the healthcare system worldwide.  We have engaged an internationally recognized expert in medical microbiology and hospital infections to lead the trials.  

A second series of laboratory trials were commenced in early June 2009, after the first series produced results that management believes to have demonstrated significant bactericidal effects against C-difficile, E-coli, Pseudomonas aeruginous, MRSA and VRE, the main causative agents of hospital derived nosocomial infections.  This second series of laboratory trials resulted in what management believes to be levels of bactericidal action necessary to achieve our commercial objectives.  

A third series of laboratory trials were commenced during October 2009 in order to establish the precise protocols necessary in order to obtain maximum bactericidal action in combination with minimum turn-around times in keeping with normal hospital flow patterns.  This third series of laboratory trials were completed during January 2010.  These tests now predictably demonstrate greater than 6 logs (99.9999%) of bacterial “kill” across the full spectrum of hospital contaminants including MRSA, C difficile, E coli, Pseudomonas aeruginosa and VRE (Vanocomycin-resistant Enterococci) in addition to the internationally accepted surrogate for Anthrax, Bacillus subtilis.  Our research has shown that the technology can now achieve a level of bacterial decontamination heretofore unseen in open space settings using conventional means.  We now believe that this development will significantly expand the utility and acceptance for the AsepticSure technology.   

Simultaneously with this recent testing, a development prototype was completed, which has demonstrated that it can reach both the charge time and saturation requirements of its design criteria.   Mock-up trials began in January 2010 for both public (hospital) and government (bio-terrorism countermeasures) applications.  Results obtained during early February 2010 show that every full-scale test run completed in our hospital room mock-up facility has resulted in the total elimination of all bacteria present in the room. In this current phase of development, we will attempt to confirm, in a more realistic hospital setting, recent laboratory findings indicating extremely high antibacterial efficacy for its novel technology (6-7.2 log reductions) against the primary causative agents of hospital acquired infections (HAI’s), sometimes referred to as “Super Bugs”.  We have now completed multiple runs with very high concentrations of MRSA, VRE and E coli samples that were distributed throughout the test room.  In every instance, the AsepticSure system produced greater than 6 log (99.9999%) reductions, which by definition, is sterilization.  We now intend to systematically collect empirically verifiable scientific data on all of the remaining causative agents of HAI’s.  Given these recent results in a full room test setting which precisely mirrors our laboratory setup, we fully expect the same results with all remaining bacteria as well as Bacillus subtilis, the recognized surrogate for Anthrax.   Additional full-scale prototypes have subsequently been developed utilizing a somewhat different technology from the original technology.  

Hospital beta-testing of a prototype began during the summer of 2010, with the initial phases successfully completed during early October 2010, utilizing the original technology.  The first round of in-hospital beta-testing for this AsepticSure hospital sterilization system was completed on October 9, 2010 at a hospital in Kingston, Ontario, Canada, using a development prototype.  The targeted hospital space was artificially contaminated with high concentrations of MRSA and C difficile, using both regulatory compliant stainless steel discs and carpet samples typically found in many health care facilities. 100% of the MRSA and C difficile was eliminated from the discs (7.1 logs for MRSA and 6.2 logs for C difficile).   The pathogens were also completely eliminated from all contaminated carpet samples, something believed to be unachievable with any other technology. Testing further indicated that beyond the test samples artificially introduced, all pre-occurring pathogens present before testing were also eliminated on all surfaces by the AsepticSure hospital sterilization system.

Additional in-hospital beta testing is anticipated later this year and continuing into 2011.  Our goal is to demonstrate an actual and significant reduction in the rate of re-infection for hospital acquired infections by institutions utilizing our system.  

On June 29, 2010, we entered into a six-month “Prototype Evaluation Agreement” (“Prototype Agreement”) with a company to produce a prototype AsepticSure system apparatus prior to August 24, 2010 and a second prototype apparatus prior to September 24, 2010.  However, due to certain unforeseen delays with the company producing the prototypes, these prototype apparatuses have not been successfully completed (to the point that they are



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fully verified to our specifications) as of the date of this report.  Our engineers are actively working with this company with the hope that verification of all operating parameters will be achievable by November 2010.  


As additional consideration for the assistance provided by this company pursuant to this Prototype Agreement, we agreed to issue 1,000,000 shares of restricted common stock upon our acceptance of the prototype apparatuses, with any required changes agreed to, as being ready for regular production.  This did not happen, however, prior to September 30, 2010, thus no shares have been issued.


In addition to the hospital sterilization initiative, we have developed an ozone-destruct unit which is used following sterilization of the treated infrastructure to reverse the ozone gas (O3) in the space, and turn it back into O2 in a short period of time.  We have initially targeted the treatment of a typically sized surgical suite including sterilization followed by ozone destruct to habitable standards in two hours or less.  This short turn-around period is considered of great importance relative to commercialization of the technology.  While full room-scale testing only began in January 2010, preliminary results have demonstrated greater than 6 log (99.9999%) reductions are obtainable with the room cleared and then returned to service in under two hours.  To date, the results have demonstrated that the system meets our design criteria.

In addition, work just recently completed by the Company at Queens University has demonstrated that the AsepticSure system can reliably eliminate in excess of 7 logs (99.99999%) reductions of Listeria monocytogenes and Salmonella typhium with 30-minute exposure to its unique and patented gas mixture, which provides an additional application of the AsepticSure technology, beyond that of hospital acquired infections.

An application for registration of a trademark has been filed for the system with the United States Patent and Trademark Office for the mark AsepticSure. The mark is used to describe a portable decontamination and sterilization system for hospitals, government buildings, schools and other functionally critical environments that might currently require, or need to be prepared for countermeasures capability from contamination by infectious biological agents such as C difficile, E coli, Pseudomonas aeruginous, MRSA and VRE.

On July 6, 2009, we filed US patent application 61/223,219 titled “Healthcare Facility Disinfecting System” for the AsepticSure technology.  The patent covers disinfection for rooms and their contents within all healthcare facilities, mobile or stationary, and other critical infrastructure such as schools and government buildings.  

During the third round of trials, additional technologies were added to the AsepticSure system, each having their own antimicrobial effects, which in combination, were shown not to be additive, but multiplicative.  The unprecedented results obtained of 6-log reductions or greater with all HAI associated pathogens provided us with valuable inventive information that resulted in a second patent filing made on January 20, 2010.  

This second patent filing (US patent application 61/295,851) was filed to protect improvements in our basic procedure and protocol achieved by combining it with another procedure, resulting in a significant increase in disinfecting capabilities demonstrated during the third round of laboratory trials against a wide variety of bacteria and on a range of different surfaces commonly found in healthcare and other essential facilities.  Both patent applications currently afford international protection for this technology, and can be expanded into full international patent applications, in countries of our choice.

On July 7, 2010, the Company filed an international patent application under the auspices of the Patent Co-operation Treaty (PCT) to secure international patent protection for its AsepticSure technology.  The international patent application consolidates the two previously filed patent applications as described above and expands the technical evidence, both laboratory scale and practical scale, supporting the effectiveness of the technology in clearing healthcare and other critical infrastructure of bacterial infections such as C difficile, E coli, Pseudomonas aeruginous, MRSA and VRE down to complete sterilization standards.  After the international patent application has been searched and examined by the International Patent Office authorities, the Company can register it in any or all countries of the world that have ratified the PCT (of which there are over 140 such countries, which includes all major industrialized countries), and secure grant of patents on the application in countries of its choice.

During September 2010, we filed an additional international patent application covering recent developments in our variant of AsepticSure, designed for government use in bio-terrorism countermeasures.  The application, filed under the Patent Co-operation Treaty, extends coverage to over 120 countries, including all major industrialized countries for this government variant.  An additional U.S. provisional patent application was filed covering the use of AsepticSure in food processing plants and related facilities for the sterilization of food-borne pathogens such as Listeria, Salmonella, and other human harmful, food-poisoning-causing bacteria.  



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Also during September 2010, an additional U.S. provisional patent application was filed covering the use of AsepticSure for disinfecting sports equipment and training facilities included those associated with professional, college and high school level teams.  We believe that recent investigations have revealed a broad range of bacteria at high concentration actually residing within unclean sports equipment which tend to be covered in mucus, sweat, dead skin, and occasionally blood; ideal culture media for bacteria, fungi and mold.   We believe that these recent filings offer a significant enhancement of our intellectual property protection for these specific applications.  

During late September 2010, we filed a fourth U.S. provisional patent application involving “Advanced Oxidative Sterilization Processes.”  In conjunction with this filing, we are now exploring a new development in the field of oxidative chemistry which we believe will have a significant impact on our future technology and the ease with which we can effectively decontaminate hospitals, chronic care facilities, veterinary facilities, hotels, cruise ships, sports facilities and the equipment thereon.  We believe that our research to date demonstrates that the combination of modest levels of ozone and low concentrations of peroxide, properly delivered at the right temperature and humidity, will reliably eliminate bacteria loads of at least 6 logs (sterilization standard) on a broad range of surface materials.  Research is now underway at our laboratories on a parallel track with our hospital beta-testing program to evaluate the merits of a multifactorial decontamination system which appears to further increase the potency of our AsepticSure technology, while dramatically reducing the exposure time, both of which are believed to have significant implications for certain applications.

 Effective July 1, 2009, we entered into a lease agreement and established our own certified laboratory located at Innovation Park, Queen’s University in Kingston, Ontario, Canada, which has provided us with a primary research and development platform as we proceed towards commercialization of the AsepticSure product.  Our laboratory space was doubled in size during January 2010 in order to conduct full-size room testing (mock-trials).

Once the trial program for the AsepticSure hospital sterilization system is concluded, we expect to out-source the manufacturing of the product and partner with large, well established companies that are already fully embedded in our sector of business as suppliers, such as medical device manufacturers or service companies.  

We possibly may partner with several such companies, perhaps covering different geographical markets such as North America, Asia, and Europe.  The same may prove to be true for the outsourcing of additional manufacturing capacity.  By developing relationships with multiple corporate partners, management believes that we will be able to better maintain control over our products and obtain more competitive returns.  We have held preliminary talks with potential corporate partners in the hospital sector, but have not committed to any corporate relationship at the present time.  At this time, we intend to maintain sales of the government variant of AsepticSure in-house, as we have full-time staff and consultants that are very experienced in dealing with government affairs and government contracts.

Canadian Foundation for Global Health (CFGH) – Consolidated Variable Interest Entity

We assisted in the formation of the Canadian Foundation for Global Health (“CFGH”), a not-for-profit foundation based in Ottawa, Canada.  We helped establish CFGH for two primary purposes: (1) to establish an independent not-for-profit foundation intended to have a continuing working relationship with Medizone 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 us to use a tiered pricing structure for services and products in emerging economies and extend the reach of our technology to as many in need as possible.

The CFGH is specifically not authorized to contract for research or other services on our behalf without prior approval.  All intellectual property, including but not limited to, scientific results, patents and trademarks that are derived from work done on our behalf or at our request, by CFGH or parties contracted by CFGH with our prior approval, are the sole and exclusive property of Medizone.

 The CFGH is registered as a not-for-profit corporation under Canadian Federal Charter.  CFGH maintains offices at 170 Lauier Avenue West in Ottawa, Canada.  Dr. Michael E. Shannon M.A., M.Sc., M.D. is President of CFGH and maintains offices at CFGH.  Dr. Shannon is also a member of our Board of Directors and is our Director of Medical Affairs.  Mr. Brad Goble, President of TDVGlobal, Inc., is also a board member of CFGH and serves as the Secretary-Treasurer for the organization. According to its website, TDVGlobal, Inc. “is a strategic management consulting company” focusing on the public sector.  It is based in Ottawa, Ontario, Canada.  Other members of the CFGH board are Edwin G. Marshall (our CEO and Chairman), Daniel D. Hoyt, a director of the Company, Jill C. Marshall, NMD, Mr. Marshall’s wife and a former corporate officer of the Company, and Dr. Ron St. John.

We follow the accounting standard which requires 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’s expected residual returns as a result of holding variable interests, which are the ownership, contractual, or other financial interests in the entity.  In addition, a legal entity is considered to be a VIE, if it does not have sufficient



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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 it.  We have determined that CFGH meets the requirements of a VIE, effective upon the first advance to CFGH on February 12, 2009.  Accordingly, the financial condition and operations of CFGH are being consolidated with Medizone as of and for the quarters ended September 30, 2010 and 2009.

Results of Operations

We were incorporated in January 1986.  We are a development stage company primarily engaged in research into the medical uses of ozone.  Our current work is in the field of hospital sterilization, not human therapies.  We have not generated, and cannot predict when or if we will generate, revenues or sufficient cash flow 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 United States bankruptcy laws.

Three Months Ended September 30, 2010 and 2009

There were no sales during the quarters ended September 30, 2010 or 2009. For the three months ended September 30, 2010, we had a net loss of $1,681,826, compared with a net loss for the three months ended September 30, 2009 of $472,994.  Our primary expense is payroll and consulting fees, research and development costs, office expenses, together with interest expense and additional expense recorded as a result of options granted to consultants, and the extension of certain stock purchase warrants outstanding.  The reason for the significant increase in the net loss for the three months ended September 30, 2010 over the prior year is the result of certain issuances of restricted common stock and common stock options as discussed in the following paragraph.

During the three months ended September 30, 2010, we incurred an additional expense of $840,000 as a result of the issuance of a total of 4,000,000 shares of common stock to certain directors and officers for board service and performance bonuses.  An additional expense of $203,022 was incurred during the three months ended September 30, 2010 as a result of the valuation of 1,000,000 common stock options granted to a board member in lieu of the share issuance described in the preceding sentence.   We also incurred an additional expense of $270,000 for the three months ended September 30, 2010 as a result of the issuance of 1,000,000 shares of common stock to a consultant as bonus compensation for extending his consulting agreement through September 1, 2011.

For the three months ended September 30, 2010 and 2009, we incurred $485,011 and $165,237 in research and development costs as a result of prototype development costs, consulting, and other research activities.  Since inception, we have spent a total of $4,015,823 for research and development related to our ozone technology and related apparatus. Research and development expenses include consultant fees, interface development costs, prototypes, and research stage ozone generator and instrument development.

General and administrative expenses in the quarter ended September 30, 2010, were $1,187,936 compared to $301,149 during the same period in 2009. The majority of these costs include payroll and consulting fees, professional fees, director fees, and performance bonuses, as previously discussed.  The remaining general and administrative expenses include rent, office expenses and travel expenses.  

Principal amounts owed on notes payable totaled $285,302 and $283,211 at September 30, 2010 and December 31, 2009, respectively.  Interest expense on these obligations during the three months ended September 30, 2010 and 2009 was $5,995 and $5,990, respectively.  

Nine Months Ended September 30, 2010 and 2009

There were no sales during the nine months ended September 30, 2010 or 2009. For the nine months ended September 30, 2010, we had a net loss of $2,379,787, compared with a net loss for the nine months ended September 30, 2009 of $986,389.  Our primary expense is payroll and consulting fees, research and development costs, office expenses, together with interest expense and additional expense recorded as a result of options granted to consultants, and the extension of certain stock purchase warrants outstanding.  The reason for the significant increase in the net loss for the nine months ended September 30, 2010 over the prior year is the result of certain issuances of restricted common stock and common stock options as previously discussed.

For the nine months ended September 30, 2010 and 2009, we incurred $776,034 and $305,883 in research and development costs as a result of prototype development costs, consulting, and other research activities.  Since inception, we have spent a total of $4,015,823 for research and development related to our ozone technology and related apparatus. Research and development expenses include consultant fees, interface development costs, prototypes, and research stage ozone generator and instrument development.



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General and administrative expenses in the nine months ended September 30, 2010, were $1,580,634 compared to $617,377 during the same period in 2009. The majority of these costs include payroll and consulting fees, professional fees, director fees, and performance bonuses, as previously discussed.  The remaining general and administrative expenses include rent, office expenses and travel expenses.  

Principal amounts owed on notes payable totaled $285,302 and $283,211 at September 30, 2010 and December 31, 2009, respectively.  Interest expense on these obligations during the nine months ended September 30, 2010 and 2009 was $17,867 and $17,818, respectively.  

The Company also recorded debt forgiveness of $61,614 from a professional service firm during the nine months ended September 30, 2009.

Liquidity and Capital Resources

At September 30, 2010, our working capital deficiency was $2,704,758, compared to a working capital deficiency of $3,072,253 at December 31, 2009.  The stockholders’ deficit at September 30, 2010 was $2,763,529 compared to $3,273,502 at December 31, 2009.  

As a development stage company, we have had no revenues. We will continue to require additional financing to fund operations and to continue to fund the research necessary to undertake our new business plans, to further the ongoing testing as previously described, and then to market a system for hospital and medical sterilization.  Our only source of financing to date has been the periodic sale of common stock. During the nine months ended September 30, 2010, we generated cash of $1,188,400 (net of stock offering costs paid in cash of $10,000) through common stock sales at prices ranging from $0.12 to $0.25 per share.  However, we will need to raise additional capital during early 2011 in order to continue our research and development activities and to sustain operations.  We believe that we will be able to raise these additional needed funds from some of the same investors who have purchased shares over the past several years, although there is no assurance that these investors will purchase additional shares.  However, these investors have verbally committed to continue to fund our projects on a monthly basis, as needed.  

Our unaudited financial statements included in this report have been prepared on the assumption that the Company will continue as a going concern. Through the date of this report, it has been necessary to rely upon financing from the sale of our equity securities to sustain operations as indicated above. Additional financing will be required if we are to continue as a going concern. If additional financing is not obtained in the near future, we will be required to curtail or discontinue operations, or seek protection under the bankruptcy laws. Even if additional financing becomes available, there can be no assurance that it will be on terms favorable to the Company. In any event, this additional financing will likely result in immediate and possibly substantial dilution to existing shareholders.

Forward-Looking Statements and Risks Affecting the Company

The statements contained in this report on Form 10-Q that are not purely 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. These statements regard our expectations, hopes, beliefs, anticipations, commitments, intentions and strategies regarding the future. They may be identified by the use of the words or phrases "believes," "expects," "anticipates," "should," "plans," "estimates," and "potential," among others. Forward-looking statements include, but are not limited to, statements contained in Management's Discussion and Analysis of Financial Condition and Results of Operations regarding our financial performance, revenue and expense levels in the future and the sufficiency of existing assets to fund future operations and capital spending needs. Actual results could differ materially from the anticipated results or other expectations expressed in such forward-looking statements for the reasons detailed in our Annual Report on Form 10-K for the year ended December 31, 2009.  The Company believes that many of the risks previously discussed and in its SEC filings are part of doing business in the industry in which we operate and compete 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 ability to obtain needed financing.





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Critical Accounting Policies and Estimates

This Discussion and Analysis of Financial Condition and Results of Operations is based upon our unaudited financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of such statements requires management to make estimates and assumptions that affect the reported amounts of revenues and expenses during the reporting period and the reported amounts of assets and liabilities as of the date of the financial statements. These estimates are based on historical experience and other assumptions that management considers to be appropriate in the circumstances. However, actual future results may vary from these estimates, since 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 bad debts, intangible assets, warranty obligations, product liability, revenue, and income taxes.

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

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are exposed to changes in prevailing market interest rates affecting the return on our investments but do not consider this interest rate market risk exposure to be material to our financial condition or results of operations.  We invest primarily in United States Treasury instruments with short-term (less than one year) maturities.  The carrying amount of these investments approximates fair value due to the short-term maturities.  Under current policies, we do not use derivative financial instruments, derivative commodity instruments or other financial instruments to manage our exposure to changes in interest rates or commodity prices.

Item 4.  Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As required by SEC Rule 13a-15(b), an evaluation was performed under the supervision and with the participation of management, including our principal executive officer and our principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based upon that evaluation, management, including the principal executive officer and principal financial officer, concluded that the design and operation of these disclosure controls and procedures were effective at the reasonable assurance level.

There has been no change in our internal controls over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION

Item 1.     Legal Proceedings


There were no material developments during the quarter ended September 30, 2010 relative to the legal matters previously disclosed by the Company in reports on Form 10-K or Form 10-Q filed with the Securities and Exchange Commission.


Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds


Nine Months Ended September 30, 2010


In January and February, 2010, we issued an aggregate of 500,000 shares of common stock for cash proceeds totaling $125,000, or $0.25 per share.  The shares were issued in private transactions to four accredited investors not otherwise affiliated with the Company.  There were no underwriters involved.  In April, May and June 2010, we issued an additional 3,622,777 shares of common stock for cash proceeds totaling $441,400, at prices ranging from



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$0.12 to $0.18 per share.  We also paid stock offering costs to an investment firm of $10,000 who assisted us in raising these funds.  These shares were issued in private transactions to a total of thirteen accredited investors not otherwise affiliated with the Company.  In July and August 2010, we issued an additional 5,266,666 shares of common stock for cash proceeds totaling $632,000, at $0.12 per share.  These shares were issued in private transactions to a total of twenty-one accredited investors not otherwise affiliated with the Company.  All of these proceeds received were used for general operating expenses and to pay for the development of the AsepticSure hospital sterilization system.  These sales were made without registration under the Securities Act of 1933, as amended, (the Securities Act) in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made to accredited investors, and the exemptions provided under Regulation D and Rule 506 under the Securities Act for private and limited offers and sales of securities made to accredited investors.  


During February 2010, we issued a total of 137,000 restricted shares of common stock to two consultants for consulting, marketing, and web support services valued at a total of $39,730, or $0.29 per share, which represented the market value of the shares on the date that our Board of Directors authorized the issuance of the shares.  Both consulting agreements were based on a five-month term through June 30, 2010, the shares vested in equal increments, and the consulting expense was recognized over the same period.  


On March 29, 2010, we issued a total of 250,000 restricted shares of common stock to a consulting firm for investor relation services valued at $47,500, or $0.19 per share, which represented the market value of the shares on the date that the Board of Directors authorized the issuance of the shares.  The consulting agreement is for the period of April 1, 2010 through June 30, 2010.  


On April 9, 2010, we issued a total of 588,235 restricted shares of common stock in satisfaction of a one-year contract with an investment firm to assist the Company in raising required capital, valued at $100,000, or $0.17 per share, which represented the market value of the shares on the date that the Board of Directors authorized the issuance of the shares.


On April 12, 2010, we issued 120,000 restricted shares of common stock in lieu of outstanding consulting fees totaling $22,800, or $0.17 per share, which represented the market value of the shares on the date that the Board of Directors authorized the issuance of the shares.


On July 8, 2010, we issued 135,000 restricted shares of common stock to an investor relations company pursuant to a one-year agreement through July 15, 2011.  The shares were valued at $25,650, or $0.19 per share, which represented the market value of the shares on the date that the Board of Directors authorized the issuance of shares.  The shares vest in equal increments and the expense is being recorded over the period of the agreement.


On July 21, 2010, we issued a total of 4,000,000 shares of restricted common stock to certain directors and officers for board service and performance bonuses.  These shares were valued at a total of $840,000, or $0.21 per share, which represented the market value of the shares on the date that the dis-interested members of the Board of Directors authorized the issuance of shares.  


On August 26, 2010, we issued a total of 225,000 restricted shares of common stock to two consultants for consulting, marketing, and web support services valued at a total of $60,750, or $0.27 per share, which represented the market value of the shares on the date that our Board of Directors authorized the issuance of the shares.  The first agreement was for the period of July 15, 2010 through March 31, 2011.  The second agreement was for the period of August 26, 2010 through August 26, 2011.  For both agreements, the shares vest in equal increments and the consulting expense is recognized over the period of the contracts.  


Also on August 26, 2010, we issued 118,839 restricted shares of common stock in lieu of outstanding consulting fees totaling $32,087, or $0.27 per share, which represented the market value of the shares on the date that the Board of Directors authorized the issuance of the shares.  An additional 1,000,000 restricted shares of common stock were approved and issued to this same consultant on September 1, 2010, as bonus compensation for extending his consulting agreement through September 1, 2011.  These shares were valued at $270,000, or $0.27 per share, which represented the market value of the shares on the date that the Board of Directors authorized the issuance of the shares.  


These issuances of shares for services rendered were made without registration under the Securities Act in reliance upon exemptions from registration, including, without limitation, the exemption provided under Section 4(2) of the Securities Act for private and limited offers and sales of securities made solely to accredited investors.



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Item 3.

Defaults Upon Senior Securities


None


Item 4.

(Removed and Reserved)


None


Item 5.

Other Information


None


Item 6.

Exhibits


Exhibit 31.01

Certification of Principal Executive Officer, Section 302 of the Sarbanes-Oxley Act of 2002.


Exhibit 31.02

Certification of Principal Financial Officer, Section 302 of the Sarbanes-Oxley Act of 2002.


Exhibit 32.01

Certification of Principal Executive Officer, Section 906 of the Sarbanes-Oxley Act of 2002.


Exhibit 32.02

Certification of Principal Financial Officer, Section 906 of the Sarbanes-Oxley Act of 2002.



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/ Steve M. Hanni

Steve M. Hanni, Chief Financial Officer

(Principal Financial and Principal Accounting Officer)

November 12, 2010



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