10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

(Mark One)

þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year period ended December 31, 2011
	or
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to ____________

Commission File Number: 2-93277-D

MEDIZONE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

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

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

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

Securities registered pursuant to Section 12(b) of the Act:   None

Securities registered pursuant to Section 12(g) of the Act:   None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o No þ

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes o No þ

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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, 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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o
Non-accelerated filer o	Smaller reporting company þ

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

The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2011 was approximately $49,523,358, computed by reference to the average bid and asked price of the common stock on such date of $0.215 per share.

There were 279,598,038 shares of the registrant’s common stock outstanding as of February 28, 2012.

Documents incorporated by reference. None.

MEDIZONE INTERNATIONAL, INC.

FORM 10-K

For the fiscal year ended December 31, 2011

TABLE OF CONTENTS

		Page
Part I
Item 1	Business	3
Item 1A	Risk Factors	11
Item 2	Properties	17
Item 3	Legal Proceedings	17
Item 4	Mine Safety Disclosures (omitted)
Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	18
Item 6	Selected Financial Data (omitted)
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 7A	Quantitative and Qualitative Disclosures About Market Risk (omitted)
Item 8	Financial Statements and Supplementary Data	22
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	22
Item 9A	Controls and Procedures	22
Item 9B	Other Information	23
Part III
Item 10	Directors, Executive Officers and Corporate Governance	24
Item 11	Executive Compensation	27
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	28
Item 13	Certain Relationships and Related Transactions, and Director Independence	29
Item 14	Principal Accounting Fees and Services	30
Part IV
Item 15	Exhibits, Financial Statement Schedules	31
Signatures		33

Item 1.  Business

The statements contained in this report on Form 10-K that are not purely historical are considered to be “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 represent our expectations, beliefs, anticipations, commitments, intentions, and strategies regarding the future and include, but are not limited to, the risks and uncertainties outlined in Item 1A Risk Factors and Item 7 Management’s Discussion and Analysis of Financial Condition and Results of Operations.  Readers are cautioned that actual results could differ materially from the anticipated results or other expectations that are expressed in forward-looking statements within this report.  The forward-looking statements included in this report speak only as of the date hereof.

In this Annual Report on Form 10-K, unless indicated otherwise, references to “dollars” and “$” are to United States dollars.

This Annual Report contains references to trade names, label designs, trademarks and registered marks of Medizone International, Inc., and its subsidiaries and other entities as indicated. Unless otherwise provided, trademarks identified by ® or™ are the registered trademarks or trademarks, respectively, of Medizone International, Inc. or its subsidiaries. All other trademarks are the properties of their respective owners and Medizone International, Inc. does not claim any interest in such marks.

Introduction

Medizone International, Inc. and its subsidiaries (collectively, “Medizone,” the “Company,” “we,” “us,” “our”) is a development stage company conducting research into the use of ozone in the disinfection of surgical and other medical treatment facilities and in other applications.

Ozone is a gas composed of three oxygen atoms (O3) in an unstable and highly reactive form.  Ozone naturally tends to seek its normal state, exhibiting a short half-life as it reverts back to oxygen (O2) fairly rapidly.  There are many uses of ozone as a disinfecting agent.  Although Ozone does react with organic matter it leaves no residue in water or on the treated product.  Ozone also does not form any toxic byproducts and when used in water which 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.

Development of Our Business

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

Early in 2008, we began to consider other applications of our core technologies and new technologies with lower development costs with the objective of moving us to revenue production in the shortest period of time.  This new direction included re-positioning the Company to pursue an initiative in the field of hospital disinfection. 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 disinfection and critical infrastructure de-contamination.

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By way of explanation, “log reduction” is a mathematical term (as is “log increase”) used to show the relative number of live microbes eliminated from a surface by disinfecting or cleaning.  For example, a “5-log reduction” means lowering the number of microorganisms by 100,000-fold, that is, if a surface has 100,000 pathogenic microbes on it, a 5-log reduction would reduce the number of microorganisms to one, as indicated in the following table:  

·1 log reduction means the number of germs is 10 times smaller

·2 log reduction means the number of germs is 100 times smaller

·3 log reduction means the number of germs is 1000 times smaller

·4 log reduction means the number of germs is 10,000 times smaller

·5 log reduction means the number of germs is 100,000 times smaller

·6 log reduction means the number of germs is 1,000,000 times smaller

·7 log reduction means the number of germs is 10,000,000 times smaller

This change in our research and development focus was based, in part, on a review of published data on hospital-derived infections, an area of rapidly growing concern in the medical community.  We identified an opportunity to build on our experience with ozone technologies and ozone’s bio-oxidative qualities in pursuing this initiative and 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 plasma fractionates) as well as biologically contaminated equipment and spaces.

We expect our unique ozone generating technologies will 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, 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 United States.  We expect that current data, if available, would indicate that deaths in the United States from hospital-acquired MRSA infections now exceed 100,000 per year.

In response to this situation, we have developed a prototype of 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 device, its development pathway is not subject to a stringent and expensive regulatory review process.  We anticipate that the development pathway will be based on independent peer-reviewed science and engineering excellence.  Our team is also developing a variant of AsepticSure™ for governmental use with bio-terrorism countermeasures.

During May 2009, we commenced the first of a series of trials designed to confirm that our AsepticSure™ Hospital Disinfection 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 engaged an internationally recognized expert in medical microbiology and hospital infections to lead these trials.

We commenced a second series of laboratory trials in early June 2009, after the first series produced results that our researchers deemed to have demonstrated significant bactericidal effects against C. difficile, E. coli, Pseudomonas aeruginosa, MRSA and Vanocomycin-resistant Enterococci (“VRE”), the main causative agents of hospital derived nosocomial infections. This second series of laboratory trials resulted in what are estimated to be levels of bactericidal action necessary to achieve our commercial objectives.

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In October 2009, we began a third series of laboratory trials to establish the precise protocols necessary 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 was completed during January 2010 and demonstrated predictably 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 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 expect that this development will significantly expand the utility and acceptance or our AsepticSure™ technology.

In connection with our trials described above, we also designed and produced a development prototype which has demonstrated that it can reach both the charge time and saturation requirements of its design criteria.  In January 2010, we started mock-up trials for both public (hospital) and government (bio-terrorism countermeasures) applications of our system. Results obtained during early February 2010 demonstrated that every full-scale test run completed in our hospital room mock-up facility had resulted in the total elimination of all bacteria present in the room. Additional testing was designed to confirm in a more realistic hospital setting these laboratory findings indicating extremely high antibacterial efficacy for our novel technology (6-7.2 log reductions) against the primary causative agents of hospital acquired infections (HAIs), sometimes referred to as “Super Bugs.”  We 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 have now systematically collected empirically verifiable scientific data on all of the remaining causative agents of HAIs.  We have also disinfected Bacillus subtilis, the recognized surrogate for anthrax in full-sized room settings to a sterilization standard of >6 log, which we interpret as a positive indicator that AsepticSure™ could play a vital role in the government arena of bio-terrorism countermeasures.  

We started hospital beta-testing of a prototype system utilizing the original technology during the summer of 2010, with the initial phases successfully completed during early October 2010.  The first round of in-hospital beta-testing for this AsepticSure™ hospital disinfection system was completed on October 9, 2010, at a Hotel Dieu hospital in Kingston, Ontario, Canada.  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. One hundred percent 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 we believe 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 disinfection system.

In addition to the hospital disinfection system, we employ an ozone-destruct unit which is used following disinfection of the treated infrastructure to reverse the O3 gas 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 disinfection followed by ozone destruct to habitable standards in ninety minutes or less.  This short turn-around period is considered of great importance relative to commercialization of the technology.  

In addition, work completed by the Company at Queen’s University 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 our unique and patented gas mixture, which provides an additional application of the AsepticSure™ technology, beyond that of hospital acquired infections for the food processing industry.

Importantly, the AsepticSure™ system is proving equally effective in disinfecting carpets and drapes as well as hard surfaces to greater than 6 log kill (6-log is generally recognized within the scientific community as the standard for sterilization).  We are not aware of any other system in the world capable of making this claim that utilizes green technology and allows content to remain in the room during disinfection.

In November of 2011 Medizone awarded the production manufacturing contract for AsepticSure™ to SMTC Corporation (SMTC), headquartered in Toronto, Canada.  SMTC maintains manufacturing facilities in Canada, the United States, Mexico and China.  We believe SMTC has the capacity to address all AsepticSure™ manufacturing requirements for the foreseeable future.

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Recent Developments

During January 2012, technology transfer of the production design was completed from ADA Innovations (“ADA”), our production development partner, to SMTC.  An initial order was placed for 5 production validation units to be built.  The production validation units are intended to be used for regulatory compliance and licensing validation, additional testing and early delivery positions.

In February 2012, SMTC reported that certain supply-side and tooling delays have set the anticipated delivery date for the initial units back by a number of weeks, although the first units are still anticipated for delivery during the first calendar quarter of 2012.

We have adopted a “soft launch” philosophy.  The objective of the soft launch is to deliver 15 to 20 AsepticSure™ systems to end-users during the second and third calendar quarters of 2012.  Robustness, ease of use and overall system performance will be evaluated during the soft launch.  The purpose of using a soft launch is to insure that when production is ramped up, which is anticipated toward the end of the third quarter and the beginning of the fourth quarter of 2012, we can be confident that increased production will hold minimal risk relative to product performance and reliability.

It is currently anticipated that the soft launch should provide enough information by the end of the third quarter that we will be comfortable in increasing production significantly should there be sufficient demand for our product.  At this time, based on the number of inquiries we are receiving, and the fact that the HAI problem continues to grow worse globally based on frequent media reports, we expect to see significant product demand once we are prepared for a product launch.  Assuming our soft launch is successful and we are able to ramp up production as anticipated, we currently anticipate we will deliver or have ordered a minimum of 30 machines by the end of the third quarter.  While only a rough estimate, that number is based on the fact that we currently have standing orders for six machines and 20 additional units are anticipated for delivery to a single customer during calendar 2012.  In recent developments based on potential customer surveys for both the veterinary and hospital sectors, the service model appears to be a preferred choice.

We are currently developing relationships with hospital and long-term care cleaning providers at this time and we expect to see significant demand from service companies actively involved in addressing hospital HAI issues as end users of AsepticSure™.  One such company that we anticipate supplying product to as part of the soft launch program is located in the San Francisco Bay area of California.  We will also be involving our Canadian distributor, Canmedical in the soft launch.  The San Francisco-based service provider’s client list includes highly acclaimed research hospitals and laboratories in the region.  Canmedical has approximately 50 hospitals on its customer list in Ontario, Canada, as well as more than 3,200 veterinary customers across the nation.

While we anticipate that in the future it is likely we may partner with a larger corporate entity as a partner to expand sales growth utilizing their distribution system, our current sales model is to establish a limited number of distributors during the soft launch phase.  Following the soft launch, we intend to significantly increase our distribution system along with ramped up sales.

International Recognition of AsepticSure™

In May 2011, a prestigious peer review medical journal, The American Journal of Infection Control (“AJIC”), e-published a peer-reviewed article on the science of AsepticSure™ and its unprecedented micro microbial disinfection ability. (> 6 log kill for all pathogens tested), titled: “Effectiveness of a novel ozone-based system for the rapid high-level disinfection of health care spaces and surfaces,” authored by Dick Zoutman, MD, FRCPC, Michael Shannon, M.A., M.Sc., M.D., and Arkady Mandel, M.D., Ph.D., D.Sc., Kingston, and Ottawa, Ontario, Canada. The review was based on the work completed at our laboratories located at Innovation Park, Queen’s University, in Kingston, Ontario, Canada. The print edition of the article appeared in the December 2011 issue of the AJIC.

In July 2011, canadaNOW, a bi-annual national magazine of the Canadian university research parks, featured AsepticSure™ in an article titled, “Taking on the ‘silent epidemic.”  Also in July 2011, AsepticSure™ was awarded one of three Awards for Innovation at the First International Conference on Prevention and Infection Control (ICPICP) sponsored by the World Health Organization in Geneva, Switzerland.

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Canadian Foundation for Global Health – Consolidated Variable Interest Entity

In 2008, we assisted in the formation of 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 us 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 may not contract for research or other services on our behalf without our prior approval.  In addition, our understanding with the CFGH provides that 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 will be our sole and exclusive property.

The CFGH is registered as a not-for-profit corporation under Canadian Federal Charter.  Dr. Shannon M.A., M.Sc., M.D. is President of CFGH and maintains offices at CFGH.  Mr. Brad Goble, President of TDVGlobal, Inc., is also a board member of CFGH and serves as the Secretary-Treasurer for that 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 Chief Executive Officer and Chairman), Daniel D. Hoyt (one of our directors), Dr. 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 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 position and operations of CFGH are being consolidated with our financial results and in our consolidated financial statements included within this annual report.  

Medizone Canada Limited

We own all of the issued and outstanding stock of Medizone Canada, Ltd., a Canadian corporation (“MedCan”). MedCan was a participant in the Canadian Blood Forces Program’s SIV Study, but is not currently engaged in any business activity.

Government Regulation

The U.S. Environmental Protection Agency (“EPA”) allows use of ozone with no reporting or record keeping requirements. The U.S. Food and Drug Administration (“FDA”) approved ozone in bottled water in 1982 and granted a petition for use with fruits, vegetables, meat and poultry in June 2000.  The U.S. Department of Agriculture (“USDA”) approved ozone as organic under the USDA Organic Rule in 2000.

Ozone can damage the lungs if it is inhaled.  Inhaling ozone may cause respiratory problems in healthy individuals and may worsen chronic respiratory diseases.  Because of these risks, it is important to follow proper procedures when using ozone technology.  Along with technology development and scientific testing of our disinfection system, we are developing protocols for room sealing during the treatment period, followed by ozone-destruct to habitable standards prior to re-entry and returning the space to service.  We utilize appropriate detection equipment and have taken countermeasures in design and in the test lab environment to reduce the risk of exposure to these substances in levels that would be harmful to personnel employing the technology.  The correct use of our equipment should not expose a human to any toxic gas levels that are not within EPA standards.

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We have established and recently expanded a regulatory consulting team to determine the application of government regulation on our technology and its use on a region by region basis with the objective of achieving global approvals for the implementation of our systems.  In connection with our assessment of applicable regulations we have determined that our ozone-based technology will be assessed by the EPA.  In certain applications, it may be considered a pesticide used for decontamination (as would be the case in anti-terrorism applications).  In that event, submission of safety and effectiveness data may be required. The precedent technology is vaporized hydrogen peroxide.  The EPA may be most interested in bactericidal and sporicidal activity and ozone destruction and residual ozone levels.  According to our data, residual ozone levels achieved are a safe level of <0.02 ppm.  As a result, we do not anticipate any EPA-related regulatory issues.  In some countries we will seek regulatory approval of AsepticSure™ as a medical device, as noted below.  In the US as an example, obtaining approval as an FDA Class 1 medical device will allow us to make claims regarding the level of disinfection achieved (> 6-log), that we would not otherwise be allowed to claim.  Achieving approval as a Class 1 device is not considered onerous and should not be confused with the expense and time typically required to obtain drug approvals from the FDA.  By following this regulatory path, we expect to clearly separate our system from any perceived competing technologies that simply do not achieve the same level of disinfection (ie: 100% kill).

In addition, our ozone-based technology should be considered a Class I medical device by the FDA (Code LRJ, Class I Disinfectant, Medical Devices; covered under 880.6890 General Purpose Disinfectants). This is the lowest and safest medical device class. According to FDA 21 CFR Parts 862-892, the technology is exempted from pre-market authorization, so FDA approval need only be sought when the technology is mature, validated and market-ready. The standard FDA Class I device marketing application will apply.  As a result, we do not anticipate any FDA-related regulatory issues adversely affecting our products or their use.

The manufacturing and marketing of our AsepticSure™ system is subject to the standards of Good Manufacturing Practices. We do not anticipate any difficulty or unreasonable expense in meeting these standards.  

For the foreseeable future, we have suspended our efforts to seek FDA approval of our precise mixture of ozone and oxygen (the “Drug”), which previously was part of our principal focus and business plans.  In the future, should we obtain substantial additional funding or generate revenues sufficient to support a return to our viral disease treatment program, and should we choose to do so, we may resume the testing, manufacturing and marketing of the Drug and related drug delivery technology, as well as our related research and development activities, all of which are subject to regulation for safety, efficacy and quality by numerous governmental authorities in the United States and other countries.  At this time, because we believe that complying with these regulations would involve a considerable amount of time, expense and uncertainty, we intend to direct our development efforts to the launch of the AsepticSure™ system.  We project that the AsepticSure™ system, because it does not fall under the FDA description of a drug or treatment, will provide a much more cost-effective path for us to generate revenues in a reasonable period of time and at greatly reduced cost when compared to the development of a drug, advanced level medical device or treatment protocol. At this time we anticipate that our AsepticSure™ disinfection technology will actually save more lives and alleviate more suffering than our previously pursued medical treatment programs would have.  One thing that is very exciting about AsepticSure™ is that its employment in the medical sector should not only greatly reduce human suffering and improve mortality, but that it will do so while reducing overall medical costs.

Intellectual Property

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

We also claim ownership and protection of certain product names, unregistered trademarks, and service marks under common law.  Common law trademark rights do not provide the same level of protection that is afforded by the registration of a trademark.  In addition, common law trademark rights are limited to the geographic area in which the trademark is actually used.  We believe these trademarks, whether registered or claimed under common law, constitute valuable assets, adding to recognition of our Company and the effective marketing of our products and technology.  Trademark registration once obtained is essentially perpetual, subject to the payment of a renewal fee.  We therefore believe that these proprietary rights have been and will continue to be important in enabling us to compete.

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

Patents.  On July 6, 2009, we filed U.S. patent application (US 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 (U.S. patent application US 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, we filed an international patent application (PCT/CA 2010/000998) under the auspices of the Patent Co-operation Treaty (“PCT”) to secure international patent protection for our AsepticSure™ technology.  The international patent application consolidates the two previously filed patent applications 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 aeruginosa, MRSA and VRE down to complete sterilization standards. After the international patent application has been searched and examined by the International Patent Office authorities, we can register it in any or all countries of the world that have ratified the PCT (over 120 countries, which include all major industrialized countries except Taiwan), and secure grant of patents on the application in countries of our choice.

During September 2010, we filed an additional international patent application (PCT/CA2010/001364) covering recent developments in our variant of AsepticSure™, designed for government use in bio-terrorism countermeasures.  

An additional U.S. provisional patent application (US 61/380.758) 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.

Also during September 2010, we filed a U.S. provisional patent application (US 61/380.825) covering the use of AsepticSure™ for disinfecting sports equipment and training facilities included those associated with professional, college and high school level teams.  Recent investigations indicate a broad range of bacteria at high concentration actually resides 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.

During September 2010, we filed U.S. provisional patent application (US 61/380.763) “Combating Insect Infestations.”  Additional research is needed to prove the effectiveness of the AsepticSure™ technology with this application.  Based on results thus far produced at both Purdue University and from within our own laboratories at Innovation Park, Queen’s University, it appears AsepticSure™ is capable of eradicating both the bed bugs and their larva in one treatment.  However, results using the same formula as that used to kill bacteria and viruses take approximately 37 hours.  On-going research using revised treatment formulas is now underway in an effort to decrease the overall treatment time required for 100% kill with a single treatment.

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During late September 2010, we filed a fourth U.S. provisional patent application (61/384495) 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 estimate 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.  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.Research has confirmed that combining low concentrations of ozone and hydrogen peroxide produces a unique highly potent free radical in the polyoxide family known as Trioxidane.  It is this combination when introduced into a contaminated space at a specific humidity and temperature that generates green killing power unique to AsepticSure™.  The degradation products of this process are water and oxygen, so AseptiSure can be highly efficacious yet friendly to the environment.  This advanced process is protected in both our granted patent and our patent applications.

In addition to the patents filed in connection with our AsepticSure system, in prior years we filed patent applications related to our original ozone technologies, as follows:

·U.S. equipment patent (U.S. Patent No. 5,052,382) entitled “Apparatus for the Controlled Generation and Administration of Ozone” (“Patent No. 1”);

·U.S. patent (U.S. Patent No. 6073627) entitled “External Application of Ozone/Oxygen For Pathogenic Conditions, a process patent for the treatment of external afflictions.”  This patent also describes equipment evolutions and treatment envelope design for external medical applications (“Patent No. 2”);

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

·Process U.S. patent (U.S. Patent No. 4,632,980) entitled “Ozone Decontamination of Blood and Blood Products,” covering a procedure for ozone decontamination of blood and blood products through the treatment of blood and blood components.  This patent expired in February 2003.  Many of the claims and primary aspects of the technology covered by this patent are assumed by or incorporated in Patent Nos. 1 and 2 described above.

Advances in Patent Protection for AsepticSure™

On November 22, 2011, our Canadian National patent application for our foundational patent was granted.  (Canadian Patent No. 2735739)  International application filings of that granted patent have now been filed in the United States, Mexico, Brazil, India, Singapore, Japan, Korea, China and the 37 countries of the European Union, including the United Kingdom.

In January of 2012, we also received a formal report from the Patent Corporation Treaty Examiners on both our Medical Countermeasures Application (Anthrax – etc.) and our application for treating pests such as bed bugs.  The Examiners reported they had found no prior art of which we were not previously aware.  In respect to both cases all claims have been ruled to “possess both novelty and inventive step, so they can proceed without further amendment or argument.”

Competition

The market for hospital disinfection in which we intend to do business is extremely competitive. We are aware of one company, for example, that has commenced research into the use of ozone as a sterilization product for the food industry that might eventually compete with us in the sterilization market for hospitals and other medical infrastructure. Other companies, foundations, research laboratories or institutions may also be conducting similar investigations into the use of ozone for this application of which we are not aware.  Unless patent protection is obtainable, we should expect significant competition once we have proven the science.

Employees

As of December 31, 2011, we had four employees (of which three are full-time employees) and a number of outside consultants and experts engaged in product development, government relations and science.  The total number of people now involved in the AsepticSure™ research, development and manufacturing program as either employees, consultants, contractors or business support on either a full time or part time basis now exceeds 20.

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Additional Available Information

We maintain executive offices and principal facilities at 4000 Bridgeway, Suite 401, Sausalito, California 94965.  Our telephone number is (415) 331-0303.  We maintain a World Wide Web site at http://medizoneint.com.  The information on our web site should not be considered part of this report on Form 10-K.

We make available, free of charge at our corporate web site, copies of our annual reports on SEC Form 10-K, quarterly reports on SEC Form 10-Q, current reports on SEC Form 8-K, proxy statements, and all amendments to these reports, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act.  This information may also be obtained from the SEC’s on-line database, which is located at www.sec.gov.

Item 1A.  Risk Factors

Forward-Looking Statements and Certain Risks

Statements contained in this report that are not purely historical are “forward-looking statements” within the meaning of Section 21E of the Exchange Act.  These statements relate to our expectations, hopes, beliefs, commitments, intentions, and strategies regarding the future.  They may be identified by the use of words or phrases, such as “believe,” “expect,” “anticipate,” “should,” “plan,” “estimate,” and “potential,” among others.  Forward-looking statements include, but are not limited to, statements contained in “Business” and “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 our existing assets to fund future operations and capital spending needs.  Actual results could differ materially from the anticipated results or other expectations expressed in these forward-looking statements for the reasons discussed below.  The forward-looking statements in this Annual Report are made as of the date of this Report, and we assume no obligation to update them or to update the reasons why our actual results could differ from those that we have projected in these forward-looking statements.

We encounter substantial risks in our business, any one of which may adversely affect our business, results of operations or financial condition.  The fact that some of these risk factors may be the same or similar to those that we have filed with the Securities and Exchange Commission in past reports, means only that the risks are present in multiple periods.  We believe that many of the risks that are described here are part of doing business in the industry in which we operate or intend to operate and will likely be present in all periods.  The fact that certain risks are endemic to the industry does not lessen their significance.  These risk factors should be read together with the other items in this report, including Item 1, “Business,” and Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”  Among others, risks and uncertainties that may affect our business, financial condition, performance, development, and results of operations include the following:

Risks Related to Our Business

We have a history of losses and have s substantial accumulated deficit, which raise substantial doubt about our ability to continue as a going concern.  We have incurred significant losses since inception, which resulted in an accumulated deficit of $26,741,298 at December 31, 2011.  These losses and this significant deficit raise substantial doubt about our ability to continue as a going concern.  The accompanying audited consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

We are a development stage company with significant accumulated deficits, and we can expect losses to continue for the foreseeable future.We have not generated any revenues from operations. No assurance can be given that our business activities will ever generate revenues. Even with funding to continue our research and development activities, we expect to continue to incur substantial losses for the foreseeable future.

We currently have limited financing to meet our current operating expenses. We will require additional financing in the future to cover our operating costs.  If we are unable to obtain additional financing, we may be required to take out bankruptcy or liquidate the Company.  We have financed our operations since inception by the sale of common stock in small private placements to accredited investors and draw downs under a private equity line of credit.  There is no assurance we will successfully accomplish our objectives or that necessary additional financing will be obtained in a timely manner or on terms that are favorable to the Company.

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

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

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

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

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

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

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We may face significant competition, including competition from larger and better funded enterprises. We expect to face competition in some of our markets from well-funded and significantly larger companies, some of which enjoy significant name recognition or market share in the sterilization and decontamination industries. We may not be successful in our efforts to compete with these companies.  There can be no assurance that our technology will have advantages over those of competitors which will be significant enough to cause users to use it. The products in which our technology may be incorporated will compete with products currently marketed, and competition from such products is expected to increase.

Many of the companies currently producing products or using techniques have significantly greater financial resources and expertise in research and development, marketing, manufacturing, pre-clinical and clinical testing, obtaining regulatory approvals and marketing. Smaller companies may also prove to be significant competitors, particularly through collaborative arrangements with large third parties. Academic institutions, governmental agencies and public and private research organizations also conduct research, seek patent protection and establish collaborative arrangements for product and clinical development and marketing. Many of these competitors have products or techniques approved or in development and operate large, well-funded research and development programs. Moreover, these companies and institutions may be in the process of developing technology that could be developed more quickly or ultimately proved safer or more effective than our technology.

Our proposed business may subject us to the potential for product liability claims. Although we intend to insure for this liability, the claims might in some cases exceed the amount of coverage available to us.  The testing, marketing and sale of medical or clinical products and other products using our technology involve unavoidable risks. The use of any of our potential products in clinical or other tests or as a result of the sale of our products, or the use of our technology in products, may expose us to potential liability resulting from the use of such products. That liability may result from claims made directly by consumers or by regulatory agencies, companies or others selling such products. We currently have limited clinical trial insurance and no product liability insurance coverage.  We anticipate obtaining and maintaining appropriate insurance coverage as products become ready to be commercialized.  We cannot assure that we will be able to obtain this insurance or, if we can obtain insurance, that the insurance can be acquired at a reasonable cost or in sufficient amounts to protect us against potential liability.  The obligation to pay any product liability claim in excess of insurance coverage or the recall of any products incorporating our technology could have a material adverse effect on our business, financial condition and future prospects.

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

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

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Market Risks

There is only a volatile limited market for our common stock.  Recent history relating to the market prices of public companies indicates that, from time to time, there may be periods of extreme volatility in the market price of securities because of factors unrelated to the operating performance of, or announcements concerning, the issuers of the affected stock, and especially for stock traded on the OTC Bulletin Board.  During the year ended December 31, 2011, the common stock traded on the OTC Bulletin Board from a high closing price of $0.37 to a low of $0.12 per share.  See “Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”  General market price declines, market volatility, especially for low priced securities, or factors related to the general economy or to our business in the future could adversely affect the price of the common stock.  With the low price of our common stock, any securities placement by us would be very dilutive to existing stockholders, thereby limiting the nature of future equity placements.

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

We have entered into a Stock Purchase Agreement providing us with a private equity line under which the purchaser will pay less than the then-prevailing market price for our common stock.  Pursuant to an agreement (the “Stock Purchase Agreement”) with an investor, Mammoth Corporation (“Mammoth”), Mammoth has agreed that it will, if we require, purchase shares of our common stock at a 25 percent discount to the lowest closing bid price of the common stock on any trading day during the five consecutive trading days immediately preceding the date of our notice to Mammoth of our election to put shares pursuant to the Stock Purchase Agreement.  Mammoth has a financial incentive to sell our common stock immediately upon receiving the shares to realize the profit equal to the difference between the discounted price and the market price.  If Mammoth sells the shares, the price of our common stock could decrease. If our stock price decreases, Mammoth may have a further incentive to sell the shares of our common stock that it holds. These sales may have a further impact on our stock price.

The ownership interest of our stockholders may be diluted and the value of our common stock may decline by exercising our right to require Mammoth to purchase shares pursuant to our Stock Purchase Agreement.  Effective November 17, 2010, we entered into a $10,000,000 Stock Purchase Agreement with Mammoth.  Pursuant to the Stock Purchase Agreement, when we deem it necessary, we may raise capital through the private sale of our common stock to Mammoth at a price equal to 75 percent of the lowest closing bid price of our common stock on any trading day during the five consecutive trading day period immediately preceding the date our notice is delivered to Mammoth.  Because the purchase price to be paid by Mammoth is lower than the prevailing market price of our common stock, to the extent that we exercise our put right, your ownership interest may be diluted.

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

Holders of our common stock are subject to the risk of additional and substantial dilution to their interests as a result of the issuances of common stock in connection with the Stock Purchase Agreement. The following table describes the number of shares of common stock that would be issuable, assuming that the full amount available under the Stock Purchase Agreement, namely $10,000,000, had been put to Mammoth (irrespective of the availability of registered shares), and further assuming that the applicable conversion price at the time of such put were the following amounts:

Hypothetical Purchase Price Under Stock Purchase Agreement		Shares Issuable Upon Draw Downs Aggregating $10,000,000
$	0.05		200,000,000
$	0.10		100,000,000
$	0.15		66,666,667
$	0.20		50,000,000
$	0.25		40,000,000

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Given the formulas for calculating the shares to be issued in connection with puts under the Stock Purchase Agreement, there effectively is no limitation on the number of shares of common stock which may be issued in connection with a Draw Down Notice under the Stock Purchase Agreement, except for the number of shares registered under the registration statement filed by the Company covering the resale of shares issued in connection with the Stock Purchase Agreement.  As such, stockholders are subject to the risk of substantial dilution to their interests as a result of our issuance of shares under the Stock Purchase Agreement.

For example, if the Company were to draw down an aggregate of $5,000,000 under the Stock Purchase Agreement, and the applicable purchase price paid to us by Mammoth were $0.15, the number of shares issuable to Mammoth would be approximately 33,333,333 shares.  As of December 31, 2011, we had 272,041,949 shares of common stock issued and outstanding.  An issuance of 33,333,333 shares would constitute an increase in the issued and outstanding common stock of approximately 11 percent.  By way of information, during 2011, our stock price has ranged from $0.12 to $0.37 per share.

If all of the 66,666,667 shares available under the line of credit for sale to Mammoth were issued and outstanding as of December 31, 2011, such shares would represent approximately 20 percent of the total common stock outstanding or approximately 22 percent of the non-affiliate shares of common stock outstanding as of December 31, 2011.

Our issuances of shares in connection with the Stock Purchase Agreement likely will result in overall dilution to market value and relative voting power of previously issued common stock, which could result in substantial dilution to the value of shares held by stockholders.  The issuance of common stock to Mammoth likely will result in substantial dilution to the equity interests of all holders of our common stock, except Mammoth.  Specifically, the issuance of a significant amount of additional common stock will result in a decrease of the relative voting control of the common stock issued and outstanding prior to the issuance of common stock in connection with draw downs made under the Stock Purchase Agreement.  Furthermore, public resales of common stock by Mammoth following the issuance of common stock in connection with draw downs under the Stock Purchase Agreement likely will depress the prevailing market price of the common stock.  Even prior to the time of actual conversions, exercises, and public resales, the market “overhang” resulting from the mere existence of our obligation to honor such conversions or exercises could depress the market price of our common stock.

Existing stockholders likely will experience decreases in market value of their common stock in relation to our issuance of shares in connection with draw downs made under the Stock Purchase Agreement. The formula for determining the number of shares of common stock to be issued in connection with the equity line under the Stock Purchase Agreement is based, in part, on the market price of the common stock and includes a discount from the market price equal to 75 percent of the lowest closing bid price of the common stock over the five consecutive day trading period prior to our making a draw down.  Sales to Mammoth at prices below the market price at the time of such sales could have a material adverse impact on the value of our common stock held by other investors.

There is an increased potential for short sales of the common stock due to the sales of shares sold to Mammoth in connection with the Stock Purchase Agreement, which could materially affect the market price of the stock.  Downward pressure on the market price of the common stock that likely will result from sales of the common stock by Mammoth issued under the Stock Purchase Agreement could encourage short sales of common stock by market participants other than Mammoth.  Generally, short selling means selling a security, contract or commodity not owned by the seller.  The seller is committed to eventually purchase the financial instrument previously sold.  Short sales are used to capitalize on an expected decline in the security's price.  As we put shares to Mammoth, which Mammoth purchases and may then sell into the market, such sales by Mammoth could have a tendency to depress the price of the stock, which could increase the potential for short sales.  Significant amounts of such short selling could place further downward pressure on the market price of our common stock, which would, in turn, result in additional shares being issued in connection with draws on the Stock Purchase Agreement.

Certain restrictions on the extent of draw downs may have little, if any, effect on the adverse impact of our issuance of shares under the Stock Purchase Agreement, and as such, Mammoth may sell a large number of shares, resulting in substantial dilution to the value of shares held by existing stockholders.  We are prohibited from putting shares to Mammoth under the Stock Purchase Agreement if the sale of shares under such put would result in Mammoth’s holding more than 4.9 percent of the then-outstanding shares of common stock.  These restrictions, however, do not prevent Mammoth from selling shares of common stock received in connection with a Draw Down, and then receiving additional shares of common stock in connection with a subsequent Draw Down.  In this way, Mammoth could sell more than 4.9 percent of the outstanding common stock in a relatively short time frame while never holding more than 4.9 percent at one time.

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Because the purchase price paid by Mammoth for the shares of issued under the Stock Purchase Agreement is based on the market price of our common stock, if the market price declines we may be unable to make Draw Downs under the Stock Purchase Agreement without registering additional shares, which would impose additional costs in connection with the Stock Purchase Agreement.  We have filed a registration statement with the SEC to register the shares of common stock that may be issued under the Stock Purchase Agreement.  If the market price of our common stock declines, the number of shares of common stock issuable in connection with the Stock Purchase Agreement will increase.  Accordingly, we may run out of shares registered under the registration statement to issue to Mammoth in connection with Draw Downs under the Stock Purchase Agreement.  In such an event, we would be required to, and would, file additional registration statements to cover the resale of additional shares issuable pursuant to the Stock Purchase Agreement.  The filing of the additional registration statements would impose additional costs in connection with the Stock Purchase Agreement.

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

Our common stock is subject to the "Penny Stock" rules of the SEC.  The trading market for our securities is limited, which makes transactions in our stock cumbersome and may reduce the value of an investment in our stock. The SEC has adopted Rule 15g-9 which establishes the definition of a "penny stock," for the purposes relevant to us, as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. For any transaction involving a penny stock, unless exempt, the rules require:

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

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

In order to approve a person's account for transactions in penny stocks, the broker or dealer must:

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

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

The broker or dealer must also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock market, which, in highlight form:

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

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

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

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

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

Item 2.  Properties

Effective January 1, 2012, our principal executive offices are located in leased premises at 4000 Bridgeway, Suite 401, Sausalito, California.  The lease has a term of one year, through December 31, 2012 with monthly lease payments of $2,100.  Also, we lease a certified laboratory located at Innovation Park, Queen’s University in Kingston, Ontario, Canada, which has provided a primary research and development platform as we proceed toward commercialization of our products.  The lease term has been extended to June 30, 2012, with monthly lease payments of Canadian Dollars (“CD”) $1,350 plus the applicable Goods and Services Tax (“GST”).  A second laboratory space for full scale room testing has been extended to June 30, 2012, with monthly lease payments of CD$1,250, plus the applicable GST.

We estimate that our current facilities are sufficient to meet our needs until we begin to have revenues from operations.

Item 3.  Legal Proceedings

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

Several years ago, a former consultant brought an action against the Company styled Rakas vs. Medizone International, Inc., in the Supreme Court of New York, Westchester County (Index No. 08798/00) claiming we had failed to pay consulting fees under a consulting agreement.  We deny that we owe any fees to the consultant. In September 2001, the parties agreed to settle the matter for $25,000.  Our lack of funds prevented us from consummating the settlement, and the plaintiff moved the court to enter a default judgment in the amount of $143,000 in January 2002.  On May 8, 2002, the court vacated the default judgment and ordered that we post a bond of $25,000 to cover the settlement previously entered into by the parties.  We have not posted this bond, and we have accrued the entire amount of the judgment, plus fees of $21,308.

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PART II

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

Market Information

Our common stock is traded on the OTC Bulletin Board market under the symbol MZEI.OB.

The following table sets forth the range of the high and low bid quotations of the common stock for the past two years in the over-the-counter market, as reported by the OTC Bulletin Board. The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions.

Fiscal Year 2010	High		Low
First Quarter Ended March 31	$	0.38	$	0.10
Second Quarter Ended June 30	$	0.33	$	0.16
Third Quarter Ended September 30	$	0.32	$	0.18
Fourth Quarter Ended December 31	$	0.32	$	0.16
Fiscal Year 2011
First Quarter Ended March 31	$	0.19	$	0.14
Second Quarter Ended June 30	$	0.37	$	0.12
Third Quarter Ended September 30	$	0.24	$	0.15
Fourth Quarter Ended December 31	$	0.25	$	0.12

Holders

As of December 31, 2011, there were approximately 2,600 holders of record of the common stock and 272,041,949 shares of common stock outstanding.

Dividend Policy

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

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Transfer Agent and Registrar

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

Issuer Purchases of Equity Securities

The Company did not purchase any of its securities during the year ended December 31, 2011.

Recent Sales of Unregistered Securities

The following information is furnished regarding our sale of securities without registration under the Securities Act of 1933, as amended (the “Securities Act”) during the period covered by this Annual Report that has not previously been included in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K filed by the Company:

During November and December 2011, the Company sold an aggregate of 1,550,000 restricted shares of common stock, to eight accredited investors, not otherwise affiliated with the Company, for cash proceeds of $155,000 at a price of $0.10 per share.  There were no underwriters involved.

During January and February 2012, the Company sold an aggregate of 6,653,000 restricted shares of common stock, to approximately 30 accredited investors, for cash proceeds of $665,300 at a price of $0.10 per share.  There were no underwriters involved.

During January 2012, the Company issued 903,089 shares of common stock to Mammoth (as part of the Equity Line) for cash proceeds of $149,010, at a price of $0.165 per share.  There were no underwriters involved.

Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read in conjunction with the Consolidated Financial Statements and notes thereto appearing elsewhere in this Report.

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Results of Operations

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

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 U.S. bankruptcy laws.

During the year ended December 31, 2011, we had a net loss of $1,940,217, compared to a net loss during the year ended December 31, 2010 of $2,756,126.  The primary reason for the significant decrease in the net loss from the prior year is the result of certain issuances of restricted common stock and options issued to directors, officers, employees and consultants during 2010, as discussed below.  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 restricted common stock issuances and options granted by the Company.

General and administrative expenses in 2011 were $946,833, compared to $1,802,151 in 2010.  The majority of these costs include payroll and consulting fees, professional fees, director fees, and performance bonuses.  The significant decrease from the prior year was primarily the result of the Company’s Board of Directors issuing restricted shares of common stock for services performed by its directors and certain employees valued at $840,000 in July 2010.  No fees were paid to non-employee directors during the year ended December 31, 2011.  The remaining general and administrative expenses include rent, office expenses and travel expenses.

Research and development expenses in 2011 were $945,848, compared to $920,291 in 2010, which is a slight increase from the prior year as we continue to incur additional research and development costs, as a result of (a) prototype development costs, consulting, and other research activities.  The slight increase is a result of significant work performed under the services agreement with ADA for final development and production manufacturing of portable versions of the AsepticSure™ disinfection system, totaling approximately $570,000, which was offset by (b) prototype development costs in 2010 for a predecessor company to ADA, consulting and other research activities, as well as the grant of common stock options to a director in lieu of restricted common stock shares valued at approximately $203,000.  Since inception through December 31, 2011, we have spent a total of $5,105,928 for research and development related to our ozone technology and related apparatus.  Research and development expenses include prototypes, consultant fees, interface development costs, and research stage ozone generator and instrument development.

Principal amounts owed on notes payable totaled $283,249 at December 31, 2011, and $283,266 at December 31, 2010.  Interest expense on these obligations totaled $23,848 in 2011 and $23,861 in 2010.  The applicable interest rates on this debt ranged from 7.75 percent to 10 percent per annum.

Liquidity and Capital Resources

At December 31, 2011, our working capital deficiency was $3,264,298, compared to $2,852,175 at December 31, 2010.  The stockholders’ deficit at December 31, 2011, was $3,334,561 compared to $2,956,790 at December 31, 2010.

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.  As discussed above, we entered into the Stock Purchase Agreement with Mammoth, in November 2010, and established the Equity Line.  We do not anticipate needing to draw the full amount of the Equity Line to implement our business plan and to develop and market our location sterilization technologies.  We believe that we will need approximately $3,000,000 during the next twelve months for continued research, development, marketing, and related activities, as well as for general corporate purposes, including final product development and initiation of sales.  Pursuant to the Stock Purchase Agreement, the frequency and amounts of draws are within our control.  We are not obligated to make any draws, and we may draw any amount up to the full amount of the Equity Line, in our discretion.  We do not plan to draw more funds (and correspondingly put more shares to Mammoth) under the Equity Line than is necessary to implement our business plan.

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Also, during 2011, we raised a total of $1,545,905 through the sale of 12,679,778 shares of common stock at prices ranging from $0.08 to $0.192 per share, which funds have been used to keep us current in our reporting obligations under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and to pay certain other corporate obligations including the initial costs of development for our hospital sterilization system.  Subsequent to December 31, 2011, through the date of this report, we have raised a total of $789,310 through the sale of 7,306,089 shares of common stock at prices ranging from $0.10 to $0.165 per share.  In addition, if we were to need additional resources outside the Equity Line, we believe we would be able to raise additional funds from some of the same investors who have purchased shares in previous years, although there is no guarantee that these investors will purchase additional shares.

Our audited consolidated financial statements included in this Annual Report have been prepared on the assumption that the Company will continue as a going concern. Since inception, 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 we do not obtain additional financing in the near future, either through the Stock Purchase Agreement or otherwise, we may be required to curtail or discontinue operations or possibly to seek protection under the bankruptcy laws.

Critical Accounting Policies and Estimates

We have identified the policies below as critical to our business operations and the understanding of our results of operations.

The preparation of consolidated financial statements requires our management to make significant estimates and judgments that affect the reported amounts of assets, liabilities, 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 value of assets and liabilities.  The actual results may differ from these estimates under different assumptions or conditions.

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

Recent Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures about Fair Value Measurements (“ASU 2010-06). ASU 2010-06 affects all entities that are required to make disclosures about recurring and nonrecurring fair value measurements under FASB ASC Topic 820, originally issued as FASB Statement No. 157, Fair Value Measurements.  This ASU requires certain new disclosures and clarifies two existing disclosure requirements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years.  The adoption of this new standard had no impact on our Consolidated Financial Statements.

Off-Balance Sheet Arrangements

We have not entered into any financial guarantees or other commitments to guarantee the payment obligations of any third parties.  We have not entered into any derivative contracts that are indexed to our shares and classified as stockholder’s equity (deficit) or that are not reflected in our consolidated financial statements.  Furthermore, we do not have any retained or contingent interest in assets transferred to an unconsolidated entity that serves as credit, liquidity or market risk support to such entity.  We do not have any variable interest in any unconsolidated entity that provides financing, liquidity, market risk or credit support to us or engages in leasing, hedging or research and development services with us.

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Outlook

The following discussion is intended to provide a brief overview of management’s plan moving forward with our AsepticSure™ product line as we transition our operations from research and development to production and sales.  The achievement of these plans is subject to risks and the following statements are subject to the cautionary statement under the caption “Forward-Looking Statements and Risks Affecting the Company” above.  Those risks include, but are not limited to the results of ongoing clinical studies, economic conditions, product and technology development, production efficiencies, product demand, the existence of competitive products, an increasingly competitive environment for our technologies, successful testing and government regulatory issues as well as the outcome of various relationships with other companies that are still in the development stage at the time of this filing.

The AsepticSure™ production design targets a lead-free, high level green content and system design intended to be globally acceptable to the most stringent regulatory and import licensing bodies.  Our original market penetration plan, initially targeted North America exclusively.  However, at the FIME Medical Purchasing Show in Miami, we received a very high level of interest in our system from many other parts of the world, particularly South America.  Hospital Acquired Infections (HAIs) such as Methicillin resistant Staphylococcus aureus (MRSA) appears to be of special concern in the region.

We have also received applications from potential distributors for our system from regions as varied as Malaysia, Indonesia, and the Middle East, as well as Central and South America.  In light of this expanded and strong interest from markets outside North America, we have revised our marketing plans and have identified qualified and experienced medical distribution companies to represent our product into certain sectors of South America, in addition to our originally planned markets in North America.  Each country and region has its own import and licensing regulations.  In this regard, management feels the prudent approach is to establish sales in regions of demonstrated interest where we believe demand may lead to increased sales in a reasonable period of time.  Pre-sales have also played a role in identifying our initial markets from a regulatory perspective.  We also have added New Zealand to our list as we have received initial pre-sale orders with deposits from New Zealand, as well as the United States.  Production units for these orders are scheduled for delivery during March 2012.

While we anticipate achieving significant sales through a modest distribution system in 2012, our eventual goal continues to be that of partnering with a much larger corporation that is globally established in the disinfection market for the sales and marketing of AsepticSure™ on a macro level.  We will negotiate our current distribution agreements while keeping that eventual objective in mind.  We believe that our ability to achieve significant sales following the soft launch phase will be enhanced by the support of our recently announced production relationship with SMTC.

Item 8.  Financial Statements and Supplementary Data

Our Consolidated Financial Statements and their footnotes are set forth beginning on page 37 of this Report.

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

None.

Item 9A.  Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that information that is required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding any required disclosure.  In designing and evaluating these 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 disclosure controls and procedures.

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As of the end of the period covered by this report, our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a- 15(e) under the Exchange Act).  Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures were effective to provide reasonable assurance as of December 31, 2011.

Management’s Report on Internal Control Over Financial Reporting

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

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

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

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

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

Our management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011.  In making this assessment, management used the criteria that have been set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on its assessment, using those criteria, management concluded that, as of January 1, 2012, the Company’s internal control over financial reporting was effective.

Changes in Internal Control Over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the quarter ended December 31, 2011, that have materially affected, or that are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Item 9B.  Other Information

None.

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PART III

Item 10.  Directors, Executive Officers and Corporate Governance

Directors and Executive Officers

The following table contains information concerning our directors and executive officers as of December 31, 2011.

Name	Age	Position
Edwin G. Marshall	69	Chairman of the Board, Chief Executive Officer
Richard G. Solomon	69	Director
Daniel D. Hoyt	72	Director
Michael E. Shannon	63	Director, President, and Director of Medical Affairs, President of CFGH
Thomas E. Auger	42	Chief Financial Officer

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

Edwin G. Marshallbecame Chairman of the Board in June 1997, following a successful hostile proxy takeover. He was appointed Chief Executive Officer in April 1998.  Mr. Marshall attended the College of Marin, with a double major in business and fire science. From 1964 to 1978, Mr. Marshall worked in the fire service in a city with a major chemical industrial complex, leaving with the rank of Captain. He then pursued various business interests including ownership of a real estate brokerage firm and part-ownership of a number of other small businesses in other fields.  He has been a private investor in real estate, precious metals, and stocks since 1973.  Mr. Marshall serves both as our Chairman and as our Chief Executive Officer. The Board of Directors has determined that it is most efficient at this time while the Company continues in the development stage for Mr. Marshall to serve as both Chairman and Chief Executive Officer of the Company.

Richard G. Solomonis a director.  Mr. Solomon has been one of our stockholders since 1992. He was a director in 1996 and 1997 and was reappointed to the Board of Directors in May 2000.  Mr. Solomon received a Bachelor of Commerce degree (University of Otago, NZ), and a Diploma of Business and Industrial Administration (University of Auckland).  He is an Associate Chartered Accountant. Mr. Solomon’s career has been in business and investment. For 20 years he developed and operated a private hospital operating company, Haven Care Hospitals Limited.  He was a long-standing board member and president of the New Zealand Hospitals Association and he was instrumental in the establishment of the New Zealand Council of Healthcare Standards, Inc., now known as Quality Health New Zealand. He has been retired from active business since 1996.

Daniel D. Hoytbecame a director in January 2002. Mr. Hoyt is a graduate of the University of Indiana, where he received a Bachelor of Science degree in Business Administration. Over the past 25 years, he has become a recognized leader in the life insurance industry, working as a career agent for American United Life Insurance Company. Mr. Hoyt’s clients have ranged from large public companies to small private businesses. In recent years he has spent most of his time in public speaking and relationship building in the insurance industry. His previous work experience includes seven years with Merrill Lynch as well as serving as the Chief Executive for the Chamber of Commerce in three Indiana communities. From June 1996 until June 2010, Mr. Hoyt was the Chairman of the Board of Biological Systems, Inc., a privately held corporation involved with bio-cleansing remediation systems for animal fats and oil-based materials.  He also serves on the Development Board of the Indiana University Simon Cancer Center (since January 2000) and on the Board of the St. Vincent Foundation in Indianapolis, Indiana.

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Dr. Michael E. Shannon M.A., M.Sc., M.D., became a director on August 18, 2008 and President of the Company in 2011.  He also serves as Director of Medical Affairs.  Dr. Shannon received his medical degree from Queen’s University in Canada, which included advanced training in surgery and sports medicine. He also holds post-graduate degrees in neurochemistry and physiology. He has been actively engaged in applied medical research within these areas for over 27 years. He served in the Canadian Forces for 31 years retiring at the rank of Commodore (Brigadier General equivalent) as Deputy Surgeon General for Canada. During the first Gulf War, Dr. Shannon served as the senior medical liaison officer for all of the Canadian forces. In 1996 he assumed responsibilities within Health Canada for re-organizing the Canadian blood system. Working with both the provincial and federal governments, he oversaw the development of a new corporate entity dedicated exclusively to the management of blood services in Canada.  He was then appointed Director General for the Laboratory Centre for Disease Control, a position he held for three years. In December 2000, Dr. Shannon left the Canadian federal government to pursue a new career in industry. In that capacity, he simultaneously directed a phase III clinical trial in Canada, the United States and Great Britain for an artificial blood substitute product. Following completion of that work, he was asked to accept a special assignment with the Canadian Federal Government Auditor General’s office, his assignment being to conduct a cost benefit analysis of all government sponsored pharmacare programs and make recommendations directly to the Parliament of Canada. His assignment and presentation to Parliament was completed in November 2004. Dr. Shannon then served on a special assignment to the Canadian Public Health Agency (Centers for Disease Control equivalent in the United States) as Senior Medical Advisor. His responsibility was to direct the rebuilding of the Emergency Medical Response Capacity for Canada. In this regard and under his direction, the largest emergency medical response exercise in the history of the country, involving the overnight construction of a mobile hospital, hundreds of doctors and thousands of patients, was successfully held in Toronto in December 2007.  Dr. Shannon has been actively engaged in medical bio-oxidative (O3 based) research since 1987 and was directly responsible for the first human clinical trial to have ever been approved in North America which examined the efficacy of O3 delivered via minor autohemotherapy in the treatment of AIDS. He was also responsible for several primate studies utilizing O3 involving scientists from various departments within the Canadian Federal Government, as well as senior investigators from the Company and Cornell University. Dr. Shannon has served as the Senior Medical Advisor to the Company since 2002. In August of 2008, he accepted a position on the Board of Directors of the Company and assumed responsibility for medical affairs. In October 2008, he was also appointed the President of the CFGH.

Thomas (Tommy) E. Auger joined us as our Chief Financial Officer in December 2010.  Since August 2010, Mr. Auger has been engaged as a consultant on accounting and financial operations for private companies and senior management through Advanced CFO Solutions, L.C., in Salt Lake City, Utah.  Mr. Auger is also the Chief Financial Officer of Alphagraphics, Inc.  From August 2008 until August 2010, he was the Chief Financial Officer of Red Ledges Land Development, Inc., a private developer of recreational and vacation properties in Utah.  From September 2004 until August 2008, he was vice president of finance and administration for Talisker Corporation, a private company engaged in developing, owning and operating recreation properties and resorts in North America.  From 1994 until 2004, Mr. Auger was an accountant with the international accounting firms Deloitte and Touche (1994-1995), KPMG LLP (1995 to 1999 and 2002 to 2004) and Arthur Andersen (1999 to 2002).  Mr. Auger is a CPA licensed in Utah and Oklahoma and a member of the American Institute of Certified Public Accountants and the Utah Association of Certified Public Accountants (“UACPA”).  He is a member of the UACPA Leadership Council, and also served as committee chair of the ProNet council for many years.  He received an MS in Accounting in 1994 and a BS in Accounting in May 1993 from Oklahoma City University.

Meetings of the Board of Directors

The Board of Directors is elected by and is accountable to the stockholders.  The Board establishes policy and provides strategic direction, oversight, and control of the Company.  The Board met four times during the year ended December 31, 2010, and five times in 2011.  All directors participated in at least 80 percent of the meetings held by the Board.  The Board has no standing audit, compensation, nominating or other committees.  

Code of Ethics

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

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Board’s Role in Risk Oversight

Because we do not have an Audit Committee at this time as explained below, the full Board of Directors is responsible for the assessment and oversight of our financial risk exposures.  The Board of Directors plays an active role in our risk oversight and is responsible for overseeing the processes established to report and monitor systems that mitigate material risks applicable to our Company. These risks include financial, technological, competitive and operational risks.  The Board of Directors assesses the risks affecting or potentially affecting the business on an ongoing basis at its regular and special meetings.  The Board of Directors dedicates time at each of these meetings to review and consider these risks.  As we begin to bring our technology to market and our operations become more complex, we expect to increase the number of independent directors on our Board of Directors and to organize the committees described below to assist management in assessing and overseeing our management of risks affecting our business.

The Board of Directors and Committees

Currently, only Mr. Hoyt is an independent director as defined by the rules of any securities exchange or inter-dealer quotation system.  Our common stock is currently traded on the OTC Bulletin Board.  These markets do not impose definitions or standards relating to director independence or the makeup of committees with independent directors.  The Company does not have a “lead independent director.”  The Company is a development stage entity with minimal operations.  

Audit Committee

As of the date of this Annual Report, we do not have a standing Audit Committee.  We intend to establish an Audit Committee of the Board of Directors, which will consist of independent directors, of which at least one director will qualify as a qualified financial expert as defined in the regulations of the SEC.  The Audit Committee’s duties would be to recommend to our Board of Directors the engagement of independent auditors to audit our consolidated financial statements and to review our accounting and auditing principles.  The Audit Committee would review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors, if any, and independent public accountants, including their recommendations to improve the system of accounting and internal control.  The Audit Committee would at all times be composed exclusively of directors who are, in the opinion of our Board of Directors, free from any relationship that would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and GAAP.

Compensation Committee

As of the date of this Annual Report, we do not have a standing Compensation Committee.  We intend to establish a Compensation Committee of the Board of Directors.  The Compensation Committee would review and approve our salary and benefits policies, including compensation of executive officers.  The Compensation Committee would also administer any stock option plans that we may adopt and recommend and approve grants of stock options under such plans.

Nominating and Corporate Governance Committee

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

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Item 11.  Executive Compensation

The following Summary Compensation Table shows compensation paid for each of the past two years to our Chief Executive Officer (our principal executive officer) and our executive officers other than the Chief Executive Officer who were serving as executive officers at the end of our last completed fiscal year, December 31, 2011 (“Named Executive Officers”).

Summary Compensation Table

Name and principal position	Year	Salary ($)		Stock awards ($)		Option awards ($)		Total ($)
(a)	(b)	(c)		(d)		(e)		(f)
Edwin G. Marshall (1) (2)	2011	$	170,000	$	0	$	0	$	170,000
Chairman and Chief Executive Officer	2010	$	170,000	$	210,000	$	0	$	380,000
Michael E. Shannon (3)	2011	$	237,854	$	0	$	0	$	237,854
Director of Medical Affairs	2010	$	234,633	$	0	$	203,022	$	437,655
Tommy E. Auger (4)	2011	$	60,000	$	0	$	20,042	$	80,042
	2010	$	3,000	$	0	$	0	$	3,000

(1)           No other cash payments were made or accrued during the years indicated. Amount in column (d) represents compensation paid in the form of restricted shares of common stock for services performed by Mr. Marshall as a director of the Company (see “Director Compensation” following this section).  Cash payments of salary made to Dr. Jill Marshall (Mr. Marshall’s wife) were $67,000 and $60,000 in 2011 and 2010, respectively. Those payments are not included in the table.  

(2)           Aggregate accrued and unpaid wages owed Mr. Marshall for prior periods at December 31, 2011, totaled $1,089,004. Aggregated accrued and unpaid wages and consulting fees owed to Dr. Jill Marshall for prior periods at December 31, 2011, totaled $447,583.

(3)           Dr. Shannon is President of Medizone and of the CFGH and the Medical Affairs Director of the Company.  His salary (column (c)) is paid by the CFGH in Canadian dollars.  Base salary is CD$240,000 per year.  The above amounts have been converted to U.S. dollars using the average exchange rate between the Canadian and the U.S. dollar for each year.  The average exchange rate for 2010 was 0.977636.  The average exchange rate for 2011 was 0.991057.  Column (e) represents compensation paid to Dr. Shannon in the form of stock options granted as compensation for Dr. Shannon’s service as a member of our Board of Directors (see “Director Compensation”), valued using the Black-Scholes option pricing model.  Not included in the table are accrued and unpaid consulting fees owed to Dr. Shannon for periods prior to 2011, which totaled $111,109 as of December 31, 2011.

(4)           Mr. Auger became our Chief Financial Officer on December 30, 2010.  Mr. Auger’s services are provided to the Company under a consulting agreement with Advanced CFO Solutions, which employs Mr. Auger. Mr. Auger’s salary is paid by Advanced CFO Solutions from the fee paid by the Company under the consulting agreement.  The fee paid to Advanced CFO Solutions during the year ended December 31, 2011 was $60,000. On March 17, 2011, the Company granted Mr. Auger an option to purchase 150,000 shares of common stock at an exercise price of $0.14 per share.  The option vested as to all shares on December 30, 2011 and the option is exercisable through March 16, 2016.

We do not have any written employment agreements with any employee. Our Board of Directors does not have a compensation committee or audit committee.  The Board determines matters concerning the compensation of executive officers.

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Compliance with Section 16(a) of the Exchange Act

Section 16(a) of the Exchange Act requires our officers, directors, and persons who beneficially own more than 10 percent of our common stock to file reports of ownership and changes in ownership with the SEC and are also required to furnish us with copies of all Section 16(a) forms that they file.

Based solely upon a review of these forms that were furnished to us, and based on representations made by certain persons who were subject to this obligation that such filings were not required to be made, we believe that all reports required to be filed by these individuals and persons under Section 16(a) were filed during fiscal year 2011, and that such filings were timely except that Mr. Marshall filed one late Form 4, Mr. Hoyt filed one late Form 4 and a late Form 5, and Dr. Shannon filed three late Forms 4.

Director Compensation

We did not pay any compensation to our non-employee directors during the year ended December 31, 2011.

In February of 2012, in lieu of other compensation each director of the Company was awarded stock options for the purchase of 1,000,000 shares of common stock, exercisable at a price of $0.23 per share, which was the closing price of the Company’s common stock reported on the OTC Bulletin Board on February 21, the date of grant. The members of the Board of Directors had not previously been compensated for their service since July of 2010.

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

The following table sets forth certain information as of February 28, 2012, regarding the number of shares of common stock beneficially owned by (i) each person or entity known to us to own more than five percent of our common stock; (ii) each of our Named Executive Officers; (iii) each of our directors; and (iv) all of our executive officers and directors as a group.

Except as otherwise noted, the persons named in the table have sole voting and dispositive power with respect to all shares beneficially owned, subject to community property laws where applicable.  Except as otherwise indicated, the business address of each of the individuals listed in the table is c/o Medizone International, Inc., 4000 Bridgeway, Suite 401, Sausalito, California 94965.

Title of class	Name and Address of beneficial owner (1)	Amount and nature of beneficial ownership		Percentage of class
Common Stock	Edwin G. Marshall, Director and Chief Executive Officer (2)		16,482,597		5.7	%
Common Stock	Richard G. Solomon, Director (3)		14,102,345		4.9	%
Common Stock	Daniel D. Hoyt, Director (4)		10,001,988		3.5	%
Common Stock	Michael E. Shannon, Director (5)		6,989,000		2.4	%
Common Stock	Tommy E. Auger, CFO(6)		400,000		*
Common Stock	All Officers and Directors As a Group (5 persons) (7)		47,975,930		16.5	%

* Less than one percent of the issued and outstanding common stock.

28

(1)           Except as otherwise indicated, the address of the stockholder is: c/o Medizone International, Inc., 4000 Bridgeway, Suite 401, Sausalito, California 94965.

(2)           Amount indicated includes (i) 2,670,000 shares owned of record by Mr. Marshall’s wife, (ii) 11,259,729 shares owned directly by Mr. Marshall, and (iii) 52,868 shares held by Mr. and Mrs. Marshall as joint tenants.  Also includes 2,500,000 shares subject to purchase under options that had vested or will vest within 60 days of the date of this Annual Report, which are held in the names of Mr. Marshall (for 2,000,000 shares) and his wife, Dr. Jill Marshall (for 500,000 shares).

(3)           Amount indicated includes (i) 5,633,844 shares held directly by Mr. Solomon, (ii) 42,000 shares held by immediate family members of Mr. Solomon, (iii) 7,426,501 shares held by Solomon Family Trust, an entity of which Mr. Solomon is the trustee, and (iv) 1,000,000 shares issuable upon the exercise of options held by Mr. Solomon that have vested or that will vest within 60 days of the date of this Annual Report.

(4)           Includes 8,501,988 shares owned directly by Mr. Hoyt and 1,500,000 shares subject to purchase under options that have vested or that will vest within 60 days of the date of this Annual Report.

(5)           Includes 2,489,000 shares owned of record and 4,500,000 shares subject to purchase under options that have vested or that will vest within 60 days of the date of this Annual Report.

(6)           Options to purchase 400,000 shares of common stock that have vested or that will vest within 60 days of the date of this Annual Report.

(7)           Based on a total of 279,598,038 shares outstanding at the date of this Annual Report, plus 6,650,000 shares that may be issued upon the exercise of options that have vested as well as 3,250,000 shares issuable under options that will vest within 60 days of the date of this report. 

Item 13.  Certain Relationships and Related Transactions, and Director Independence

Transactions with Related Parties

We owe accrued and unpaid compensation to our Chairman and Chief Executive Officer.  We also owe accrued and unpaid compensation to former officers, including Mr. Marshall’s wife, Dr. Jill Marshall.  See “Executive Compensation.”  We have not entered into any other transactions with related persons during the last two completed fiscal years that resulted in indebtedness or otherwise involved amounts in excess of the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years.

In December 2011 and February 2012, Richard Solomon, a director of the Company, purchased a total of 1,500,000 shares of common stock from the Company in a private placement at the offering price of $0.10 per share, or an aggregate purchase price of $150,000 paid in cash to the Company.  Mr. Solomon’s purchase of these shares was on the same terms and conditions as those applicable to purchases made by unaffiliated investors in the private placement.

Any future transactions between us and our officers, directors, principal stockholders or affiliates will be on terms no less favorable to us than could be obtained from an unaffiliated third party, and will be approved by a majority of disinterested directors.

29

Director Independence

We have one independent director as defined by the rules of any securities exchange or inter-dealer quotation system.  Our common stock is currently traded on the OTC Bulletin Board, which does not impose standards relating to director independence or the makeup of committees with independent directors, or provide definitions of independence.

Our Board of Directors has determined during the year ended December 31, 2011 that Daniel Hoyt, a director, was “independent” in accordance with standards for independence set forth in the Sarbanes-Oxley Act of 2002 (“SOX”).  There were no transactions, relationships or arrangements not disclosed pursuant to Item 404(a) that were considered by the Board of Directors under the applicable independence definitions in determining that Mr. Hoyt is independent.

Item 14.  Principal Accounting Fees and Services.

Audit Fees

The Company’s independent registered public accounting firm for the past two fiscal years has been HJ Associates & Consultants, LLP (“HJA”). The aggregate fees billed to the Company by HJA for professional services rendered in fiscal years 2011 and 2010 in connection with (i) the audit of the Company’s consolidated annual financial statements set forth in its Annual Report on Form 10-K for the fiscal year ended December 31, 2011, and its Annual Report on Form 10-K for the fiscal year ended December 31, 2010, and (ii) the review of the Company’s quarterly consolidated financial statements set forth in its quarterly reports for each of its fiscal quarters in such years totaled approximately $25,500 per year.

 All Other Fees

The Company did not engage HJA on any other matters not otherwise included in the above categories in either fiscal year 2011 or 2010, other than the review of the Company’s S-1 registration statement related to the Stock Purchase Agreement during 2010.  Aggregate fees billed to the Company by HJA in connection with this review were approximately $2,500.

30

PART IV

Item 15.  Exhibits, Financial Statement Schedules

(a)   The following documents are filed as part of this Annual Report:

(1)           Financial Statements 

Report of Independent Registered Public Accounting Firms

Consolidated Financial Statements:

Consolidated Balance Sheets, December 31, 2011 and 2010

Consolidated Statements of Operations and Other Comprehensive Loss, for the years Ended December 31, 2011 and 2010 and from Inception on January 31, 1986 through December 31, 2011

Consolidated Statements of Stockholders’ Equity (Deficit) December 31, 2011 and 2010

Consolidated Statements of Cash Flows for the years ended December 31, 2011 and 2010 and from Inception on January 31, 1986 through December 31, 2011

Notes to the Consolidated Financial Statements

(2)           Schedules – None

31

(3)           Exhibits:

Exhibit  No.	Description
2	Agreement and Plan of Reorganization, March 12, 1986 (1)
3(i)(a)	Articles of Incorporation (1)
3(i)(b)	Articles of Amendment to Articles of Incorporation (2)
3(i)(c)	Articles of Amendment to Articles of Incorporation (3)
3(ii)	Bylaws (1)
10(a)	Letter of Understanding (4)
10(b)	Termination of Joint Venture (5)
10(c)	Stock Purchase Agreement (6)
21	Subsidiaries of Registrant (7)
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase
101.DEF**	XBRL Taxonomy Extension Definition Linkbase
101.LAB**	XBRL Taxonomy Extension Label Linkbase
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase

*             Filed herewith.

** Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

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

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

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

(4) Incorporated by reference to Annual Report on Form 10-KSB for the period ended December 31, 2008.

(5) Incorporated by reference to Annual Report on Form 10-K for the period ended December 31, 2009.

(6) Incorporated by reference to Current Report on Form 8-K, dated November 23, 2010.

(7) Incorporated by reference to Exhibit 21, Registration Statement on Form S-1, effective January 27, 2011.

32

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Medizone International, Inc. has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	MEDIZONE INTERNATIONAL, INC.
Dated: February 28, 2012	By:	/s/ Edwin G. Marshall
		Edwin G. Marshall, Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date
/s/ Edwin G. Marshall	Chief Executive Officer (Principal Executive Officer) and Director	February 28, 2012
Edwin G. Marshall
/s/ Michael E. Shannon	President and Director	February 28, 2012
Michael E. Shannon
/s/ Daniel D. Hoyt	Director	February 28, 2012
Daniel D. Hoyt
/s/ Richard G. Solomon	Director	February 28, 2012
Richard G. Solomon
/s/ Tommy E. Auger	Chief Financial Officer (Principal	February 28, 2012
Tommy E. Auger	Financial and Accounting Officer)

33

EXHIBITS TO

ANNUAL REPORT ON FORM 10-K

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2010

Exhibits Filed Herewith

Exhibit Number	Description
31.1	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS**	XBRL Instance Document
101.SCH**	XBRL Taxonomy Extension Schema
101.CAL**	XBRL Taxonomy Extension Calculation Linkbase
101.DEF**	XBRL Taxonomy Extension Definition Linkbase
101.LAB**	XBRL Taxonomy Extension Label Linkbase
101.PRE**	XBRL Taxonomy Extension Presentation Linkbase

34

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	PAGE
Report of Independent Registered Public Accounting Firm	36
Consolidated Financial Statements:
Consolidated Balance Sheets, December 31, 2011 and 2010	37
Consolidated Statements of Operations and Other Comprehensive Loss, for the years ended December 31, 2011 and 2010 and from Inception on January 31, 1986 through December 31, 2011	38
Consolidated Statements of Stockholders’ Equity (Deficit) December 31, 2011 and 2010	39
Consolidated Statements of Cash Flows, for the years ended December 31, 2011 and 2010 and from Inception on January 31, 1986 through December 31, 2011	52
Notes to the Consolidated Financial Statements	53

35

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors

Medizone International, Inc. and Subsidiaries

(A Development Stage Company)

Sausalito, California

We have audited the consolidated balance sheets of Medizone International, Inc. and Subsidiaries (a development stage company) as of December 31, 2011 and 2010, and the related consolidated statements of operations and other comprehensive loss, stockholders’ equity (deficit), and cash flows for the years then ended, and from inception on January 31, 1986 through December 31, 2011.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion.  An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Medizone International, Inc. and Subsidiaries (a development stage company) as of December 31, 2011 and 2010, and the results of their operations and their cash flows for the years then ended, and from inception on January 31, 1986 through December 31, 2011, in conformity with U.S. generally accepted accounting principles.

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  As discussed in Note 12 to the consolidated financial statements, the Company has incurred significant recurring losses which have resulted in a deficit accumulated during the development stage and a deficit in stockholders’ equity.  This raises substantial doubt about its ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 12.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/HJ Associates & Consultants, LLP

HJ Associates & Consultants, LLP

Salt Lake City, Utah

February 28, 2012

36

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Balance Sheets

ASSETS
	December 31,
	2011			2010
CURRENT ASSETS
Cash	$	129,759		$	435,894
Prepaid expenses		47,286			8,800
Deferred consulting fees		-			63,923
Total Current Assets		177,045			508,617
PROPERTY AND EQUIPMENT, NET		3,975			1,344
OTHER ASSETS
Trademark and patents, net		146,342			117,771
Lease deposit		4,272			1,122
Total Other Assets		150,614			118,893
TOTAL ASSETS	$	331,634		$	628,854
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable	$	475,912		$	451,412
Accounts payable – related parties		229,669			228,269
Accrued expenses		451,986			427,529
Accrued expenses – related parties		1,960,527			1,964,316
Due to stockholders		-			6,000
Customer deposits		40,000			-
Notes payable		283,249			283,266
Total Current Liabilities		3,441,343			3,360,792
CONTINGENT LIABILITIES (Note 5)		224,852			224,852
TOTAL LIABILITIES		3,666,195			3,585,644
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, 272,041,949 and 259,362,171 shares issued  and outstanding, respectively		272,042			259,362
Additional paid-in capital		23,155,777			21,593,448
Other comprehensive loss		(21,082	)		(8,519	)
Deficit accumulated during the development stage		(26,741,298	)		(24,801,081	)
Total Stockholders' Deficit		(3,334,561	)		(2,956,790	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	331,634		$	628,854

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

37

MEDIZONE INTERNATIONAL, INC., AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Operations and Other Comprehensive Loss

	For the Years Ended December 31,						From Inception on January 31, 1986 Through December 31,
	2011			2010			2011
REVENUES	$	-		$	-		$	133,349
EXPENSES
Cost of sales		-			-			103,790
General and administrative		946,833			1,802,151			19,359,651
Research and development		945,848			920,291			5,105,928
Expense on extension of warrants		-			-			2,092,315
Depreciation and amortization		22,541			9,823			83,055
Bad debt expense		-			-			48,947
Total Expenses		1,915,222			2,732,265			26,793,686
Loss from Operations		(1,915,222	)		(2,732,265	)		(26,660,337	)
OTHER INCOME (EXPENSES)
Gain on sales of subsidiaries		-			-			208,417
Debt forgiveness		-			-			61,514
Non-controlling interest in loss		-			-			26,091
Other income		-			-			19,780
Interest expense		(24,995	)		(23,861	)		(1,166,501	)
Loss on termination of license agreement		-			-			(125,000	)
Total Other Expenses		(24,995	)		(23,861	)		(975,699	)
LOSS BEFORE EXTRAORDINARY ITEMS		(1,940,217	)		(2,756,126	)		(27,636,036	)
EXTRAORDINARY ITEMS
Debt forgiveness		-			-			479,738
Lawsuit settlement		-			-			415,000
Total Extraordinary Items		-			-			894,738
NET LOSS		(1,940,217	)		(2,756,126	)		(26,741,298	)
OTHER COMPREHENSIVE LOSS
Loss on foreign currency translation		(12,563	)		(4,908	)		(21,082	)
TOTAL COMPREHENSIVE LOSS	$	(1,952,780	)	$	(2,761,034	)	$	(26,762,380	)
BASIC LOSS PER SHARE	$	(0.01	)	$	(0.01	)
WEIGHTED AVERAGE NUMBER OF  COMMON SHARES OUTSTANDING		266,147,052			249,635,605

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

38

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit)

												Deficit
										Other		Accumulated
							Additional			Compre-		During the
	Common Stock						Paid-in			hensive		Development
	Shares		Amount		Subscribed		Capital			Loss		Stage
Balance, January 31, 1986 (inception)		-	$	-	$	-	$	-		$	-	$	-
Initial capitalization of Medizone -  Nevada at $0.03 per share		5,500,000		5,500		-		150,128			-		-
Common shares issued in acquisitionof Medizone -  Delaware		37,500,000		37,500		-		(37,500	)		-		-
Common stock issued for services  rendered in July 1986 at $0.10  per share		50,000		50		-		4,950			-		-
Common stock issued in conversion  of warrants during 1986 at $0.10  per share		7,814,600		7,815		-		773,645			-		-
Stock issuance costs		-		-		-		(105,312	)		-		-
Net loss for the year ended  December 31, 1986		-		-		-		-			-		(796,068	)
Balance, December 31, 1986		50,864,600		50,865		-		785,911			-		(796,068	)
Common stock issued upon exercise  of warrants in January 1987 at $0.10  per share		2,600		2		-		257			-		-
Common stock issued for patent in  March 1987 at $0.69 per share		1,000,000		1,000		-		692,750			-		-
Common stock issued for cash in  June 1987 at an average price of  $0.16 per share		950,000		950		-		149,050			-		-
Common stock issued for services  in June and July 1987 at an  average price of $0.12 per share		203,167		203		-		24,314			-		-
Common stock issued through  exercise of options in August 1987  at $1.75 per share		250,000		250		-		437,250			-		-
Net loss for the year ended  December 31, 1987		-		-		-		-			-		(2,749,400	)
Balance, December 31, 1987		53,270,367	$	53,270	$	-	$	2,089,532		$	-	$	(3,545,468	)

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

39

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

											Deficit
									Other		Accumulated
							Additional		Compre-		During the
	Common Stock						Paid-in		hensive		Development
	Shares		Amount		Subscribed		Capital		Loss		Stage
Balance, December 31, 1987		53,270,367	$	53,270	$	-	$	2,089,532	$	-	$	(3,545,468	)
Common stock issued through  exercise of options in January 1988  at $0.50 per share		200,000		200		-		99,800		-		-
Common stock issued for cash in  September 1988 at $0.08 per share		1,000,000		1,000		-		79,000		-		-
Common stock issued for services  at an average price of $0.23  Per share		35,000		35		-		7,965		-		-
Additional capital contributed		-		-		-		174,126		-		-
Net loss for the year ended  December 31, 1988		-		-		-		-		-		(714,347	)
Balance, December 31, 1988		54,505,367		54,505		-		2,450,423		-		(4,259,815	)
Common stock issued for services  at an average price of $0.18 per share		261,889		262		-		46,363		-		-
Common stock issued for cash at  an average price of $0.05 per share		5,790,000		5,790		-		285,710		-		-
Common stock issued for services  and in lieu of outstanding debt at  an average price of $0.12 per share		4,749,532		4,750		-		578,978		-		-
Common stock issued upon exercise  of options at $0.16 per share		375,000		375		-		59,125		-		-
Net loss for the year ended  December 31, 1989		-		-		-		-		-		(862,051	)
Balance, December 31, 1989		65,681,788	$	65,682	$	-	$	3,420,599	$	-	$	(5,121,866	)

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

40

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

											Deficit
									Other		Accumulated
							Additional		Compre-		During the
	Common Stock						Paid-in		hensive		Development
	Shares		Amount		Subscribed		Capital		Loss		Stage
Balance, December 31, 1989		65,681,788	$	65,682	$	-	$	3,420,599	$	-	$	(5,121,866	)
Common stock issued for services  at $0.10 per share		880,000		880		-		87,120		-		-
Common stock issued for cash at an  average price of $0.04 per share		4,250,000		4,250		-		175,250		-		-
Common stock issued for services  and in lieu of outstanding debt at  an average price of $0.06 per share		2,422,727		2,423		-		137,577		-		-
Additional capital contributed		-		-		-		100,000		-		-
Net loss for the year ended  December 31, 1990		-		-		-		-		-		(606,309	)
Balance, December 31, 1990		73,234,515		73,235		-		3,920,546		-		(5,728,175	)
Common stock issued for cash at an  average price of $0.07 per share		4,366,667		4,366		-		305,634		-		-
Common stock issued for services  at an average price of $0.17 per share		425,000		425		-		72,075		-		-
Common stock issued through  exercise of options at an average  price of $0.45 per share		450,000		450		-		204,050		-		-
Additional capital contributed		-		-		-		5,000		-		-
Net loss for the year ended  December 31, 1991		-		-		-		-		-		(1,220,152	)
Balance, December 31, 1991		78,476,182	$	78,476	$	-	$	4,507,305	$	-	$	(6,948,327	)

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

41

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

											Deficit
									Other		Accumulated
							Additional		Compre-		During the
	Common Stock						Paid-in		hensive		Development
	Shares		Amount		Subscribed		Capital		Loss		Stage
Balance, December 31, 1991		78,476,182	$	78,476	$	-	$	4,507,305	$	-	$	(6,948,327	)
Common stock issued for services  at $0.20 per share		151,500		152		-		30,148		-		-
Common stock issued in lieu of  debt at $0.15 per share		250,000		250		-		37,250		-		-
Common stock issued for cash at  an average price of $0.16 per share		2,702,335		2,702		-		427,648		-		-
Common stock issued through  exercise of options at $0.50  per share		250,000		250		-		124,750		-		-
Additional capital contributed		-		-		-		81,100		-		-
Net loss for the year ended  December 31, 1992		-		-		-		-		-		(649,941	)
Balance, December 31, 1992		81,830,017		81,830		-		5,208,201		-		(7,598,268	)
Common stock issued for services  at an average price of $0.10  per share		5,347,219		5,347		-		542,859		-		-
Common stock issued for cash at  an average price of $0.18 per share		1,471,666		1,472		-		269,528		-		-
Common shares subscribed for  at $0.10 per share		-		-		2,619		259,296		-		-
Net loss for the year ended  December 31, 1993		-		-		-		-		-		(1,598,342	)
Balance, December 31, 1993		88,648,902	$	88,649	$	2,619	$	6,279,884	$	-	$	(9,196,610	)

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

42

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

													Deficit
											Other		Accumulated
								Additional			Compre-		During the
	Common Stock							Paid-in			hensive		Development
	Shares		Amount		Subscribed			Capital			Loss		Stage
Balance, December 31, 1993		88,648,902	$	88,649	$	2,619		$	6,279,884		$	-	$	(9,196,610	)
Common stock issued for services  at $0.10 per share		1,431,590		1,431		-			141,727			-		-
Common shares subscribed for at  $0.10 per share		-		-		9,552			945,682			-		-
Common shares subscribed for as  cancellations of indebtedness at  $0.10 per share		-		-		417			41,234			-		-
Common shares subscribed for as  cancellation of indebtedness at  $0.18 per share		-		-		11,250			2,022,379			-		-
Issuance of subscribed stock		10,384,900		10,385		(10,385	)		-			-		-
Issuance of shares in recognition  of disparity in purchase price in  offering		1,125,834		1,126		-			(1,126	)		-		-
Prior period adjustment		-		-		-			-			-		219,422
Net loss for the year ended  December 31, 1994		-		-		-			-			-		(1,126,315	)
Balance, December 31, 1994		101,591,226	$	101,591	$	13,453		$	9,429,780		$	-	$	(10,103,503	)

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

43

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

															Deficit
													Other		Accumulated
										Additional			Compre-		During the
	Common Stock									Paid-in			hensive		Development
	Shares			Amount			Subscribed			Capital			Loss		Stage
Balance, December 31, 1994		101,591,226		$	101,591		$	13,453		$	9,429,780		$	-	$	(10,103,503	)
Redeemable common shares  converted to common stock		200,000			200			-			39,800			-		-
Common stock issued for services  at $0.10 per share		2,050,000			2,050			-			202,950			-		-
Issuance of subscribed stock		17,524,860			17,524			(17,524	)		-			-		-
Cancellation of common shares		(1,242,727	)		(1,242	)		-			(70,563	)		-		-
Common shares subscribed for at  $0.10 per share		-			-			9,118			902,707			-		-
Prior period adjustment		-			-			-			-			-		71,806
Additional capital contributed		-			-			-			50,000			-		-
Net loss for the year ended  December 31, 1995		-			-			-			-			-		(1,081,027	)
Balance, December 31, 1995		120,123,359			120,123			5,047			10,554,674			-		(11,112,724	)
Common stock issued for cash  at $0.10 per share		100,000			100			-			9,900			-		-
Common stock issued for services  at $0.10 per share		1,415,875			1,416			-			140,171			-		-
Issuance of subscribed stock		8,412,379			8,413			(8,413	)		-			-		-
Common shares subscribed for  at $0.10 per share		-			-			6,456			718,991			-		-
Net loss for the year ended  December 31, 1996		-			-			-			-			-		(1,329,395	)
Balance, December 31, 1996		130,051,613		$	130,052		$	3,090		$	11,423,736		$	-	$	(12,442,119	)

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

44

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

														Deficit
												Other		Accumulated
										Additional		Compre-		During the
	Common Stock									Paid-in		hensive		Development
	Shares			Amount			Subscribed			Capital		Loss		Stage
Balance, December 31, 1996		130,051,613		$	130,052		$	3,090		$	11,423,736	$	-	$	(12,442,119	)
Issuance of subscribed stock		3,089,680			3,090			(3,090	)		-		-		-
Common shares subscribed for  at $0.07 per share		-			-			5,714			394,287		-		-
Common stock issued for services  at $0.10 per share		3,746,336			3,746			-			370,886		-		-
Net loss for the year ended  December 31, 1997		-			-			-			-		-		(775,559	)
Balance, December 31, 1997		136,887,629			136,888			5,714			12,188,909		-		(13,217,678	)
Common stock issued through  exercise of warrants at $0.07  per share		857,142			857			-			59,143		-		-
Common stock issued in lieu of  debt at $0.05 per share		864,747			865			-			42,372		-		-
Issuance of subscribed stock		5,714,286			5,714			(5,714	)		-		-		-
Cancellation of common shares		(630,000	)		(630	)		-			630		-		-
Common stock issued for services  at $0.05 per share		3,465,000			3,465			-			169,786		-		-
Common stock issued for services  at $0.09 per share		750,000			750			-			63,785		-		-
Common stock issued in lieu of  debt at $0.09 per share		967,630			967			-			82,214		-		-
Common stock issued for services a t $0.08 per share		50,000			50			-			3,700		-		-
Net loss for the year ended  December 31, 1998		-			-			-			-		-		(565,761	)
Balance, December 31, 1998		148,926,434		$	148,926		$	-		$	12,610,539	$	-	$	(13,783,439	)

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

45

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

													Deficit
											Other		Accumulated
									Additional		Compre-		During the
	Common Stock								Paid-in		hensive		Development
	Shares			Amount			Subscribed		Capital		Loss		Stage
Balance, December 31, 1998		148,926,434		$	148,926		$	-	$	12,610,539	$	-	$	(13,783,439	)
Common stock issued for services  at $0.07 per share		25,000			25			-		1,725		-		-
Common stock issued through exercise  of warrants at $0.07 per share		936,507			937			-		64,618		-		-
Additional expense for extension of  warrants below market value		-			-			-		123,389		-		-
Net loss for the year ended  December 31, 1999		-			-			-		-		-		(359,571	)
Balance, December 31, 1999		149,887,941			149,888			-		12,800,271		-		(14,143,010	)
Common stock issued through  exercise of warrants at $0.07 per share		3,142,857			3,143			-		216,857		-		-
Common stock issued for debt at  $0.11 per share		2,020,000			2,020			-		220,180		-		-
Common stock issued for debt at  $0.147 per share		95,000			95			-		13,905		-		-
Common stock issued for services  at $0.175 per share		350,000			350			-		60,900		-		-
Common stock issued for debt at  $0.20 per share		20,000			20			-		3,980		-		-
Common stock issued for debt at  $0.55 per share		100,000			100			-		54,900		-		-
Cancellation of common stock		(2,000,000	)		(2,000	)		-		2,000		-		-
Common stock issued for services  at $0.285 per share		300,000			300			-		85,200		-		-
Additional expense for extension of  warrants below market value		-			-			-		1,743,468		-		-
Net loss for the year ended  December 31, 2000		-			-			-		-		-		(2,187,138	)
Balance, December 31, 2000		153,915,798		$	153,916		$	-	$	15,201,661	$	-	$	(16,330,148	)

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

46

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

											Deficit
									Other		Accumulated
							Additional		Compre-		During the
	Common Stock						Paid-in		hensive		Development
	Shares		Amount		Subscribed		Capital		Loss		Stage
Balance, December 31, 2000		153,915,798	$	153,916	$	-	$	15,201,661	$	-	$	(16,330,148	)
Common stock and warrants issued  for cash at $0.20 per share		500,000		500		-		99,500		-		-
Common stock and warrants issued  for cash at $0.15 per share		200,000		200		-		29,800		-		-
Common stock and warrants issued  or cash at $0.15 per share		166,666		167		-		24,818		-		-
Common stock and warrants issued  for cash at $0.18 per share		555,555		555		-		99,441		-		-
Net loss for the year ended  December 31, 2001		-		-		-		-		-		(716,054	)
Balance, December 31, 2001		155,338,019		155,338		-		15,455,220		-		(17,046,202	)
Common stock and warrants issued  for cash at $0.10 per share		1,000,000		1,000		-		99,000		-		-
Common stock issued for services  at $0.10 per share		230,000		230		-		22,770		-		-
Common stock issued for debt  at $0.10 per share		447,368		447		-		44,290		-		-
Common stock and warrants issued  for cash at $0.10 per share		250,000		250		-		24,750		-		-
Common stock issued for services  at $0.10 per share		480,000		480		-		47,520		-		-
Net loss for the year ended  December 31, 2002		-		-		-		-		-		(687,273	)
Balance, December 31, 2002		157,745,387	$	157,745	$	-	$	15,693,550	$	-	$	(17,733,475	)

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

47

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

											Deficit
									Other		Accumulated
							Additional		Compre-		During the
	Common Stock						Paid-in		hensive		Development
	Shares		Amount		Subscribed		Capital		Loss		Stage
Balance, December 31, 2002		157,745,387	$	157,745	$	-	$	15,693,550	$	-	$	(17,733,475	)
Common stock issued in lieu of notes  payable at $0.05 per share		460,000		460		-		22,540		-		-
Common stock and warrants issued  for cash at $0.05 per share		500,000		500		-		24,500		-		-
Common stock issued for services  at $0.05 per share		100,000		100		-		4,900		-		-
Common stock and warrants issued  for cash at $0.05 per share		165,000		165		-		8,085		-		-
Common stock and warrants issued  for cash at $0.05 per share		200,000		200		-		9,800		-		-
Common stock and warrants issued  for services at $0.02 per share		2,000,000		2,000		-		38,000		-		-
Net loss for the year ended  December 31, 2003		-		-		-		-		-		(522,796	)
Balance, December 31, 2003		161,170,387		161,170		-		15,801,375		-		(18,256,271	)
Net loss for the year ended  December 31, 2004		-		-		-		-		-		(371,395	)
Balance, December 31, 2004		161,170,387		161,170		-		15,801,375		-		(18,627,666	)
Net loss for the year ended  December 31, 2005		-		-		-		-		-		(326,153	)
Balance, December 31, 2005		161,170,387		161,170		-		15,801,375		-		(18,953,819	)
Common stock warrants granted		-		-		-		2,756		-		-
Additional capital contributed		-		-		-		1,356		-		-
Net loss for the year ended  December 31, 2006		-		-		-		-		-		(356,430	)
Balance, December 31, 2006		161,170,387	$	161,170	$	-	$	15,805,487	$	-	$	(19,310,249	)

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

48

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

 

											Deficit
									Other		Accumulated
							Additional		Compre-		During the
	Common Stock						Paid-in		hensive		Development
	Shares		Amount		Subscribed		Capital		Loss		Stage
Balance, December 31, 2006		161,170,387	$	161,170	$	-	$	15,805,487	$	-	$	(19,310,249	)
Common stock warrants granted		-		-		-		30,737		-		-
Net loss for the year ended  December 31, 2007		-		-		-		-		-		(552,449	)
Balance, December 31, 2007		161,170,387		161,170		-		15,836,224		-		(19,862,698	)
Common stock issued for cash  at $0.01 per share		8,000,000		8,000		-		72,000		-		-
Common stock issued to officers,    directors and consultants in lieu of     outstanding debt at $0.02 per share		11,250,000		11,250		-		213,750		-		-
Common stock issued to a director  in Lieu of debt at $0.02 per share		409,075		409		-		7,772		-		-
Common stock issued to directors for  stock deposits previously received  at $0.02 per share		5,463,333		5,463		-		104,637		-		-
Common stock issued for cash  at $0.03 per share		3,300,000		3,300		-		95,700		-		-
Common stock issued for services  and services to be rendered at prices  from $0.03 to $0.042 per share		7,000,000		7,000		-		225,000		-		-
Common stock issued for cash at  $0.03 per share		3,333,333		3,334		-		96,666		-		-
Common stock warrants granted		-		-		-		86,572		-		-
Additional capital contributed		-		-		-		16,667		-		-
Net loss for the year ended  December 31, 2008		-		-		-		-		-		(707,542	)
Balance, December 31, 2008		199,926,128	$	199,926	$	-	$	16,754,988	$	-	$	(20,570,240	)

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

49

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

													Deficit
										Other			Accumulated
							Additional			Compre-			During the
	Common Stock						Paid-in			hensive			Development
	Shares		Amount		Subscribed		Capital			Loss			Stage
Balance, December 31, 2008		199,926,128	$	199,926	$	-	$	16,754,988		$	-		$	(20,570,240	)
Common stock issued for cash at $0.02  per share		6,000,000		6,000		-		114,000			-			-
Common stock issued for cash at $0.03  per share		21,599,999		21,600		-		626,400			-			-
Common stock issued for cash at  $0.06  per share		4,459,999		4,460		-		263,140			-			-
Common stock issued for cash at  $0.10 per share		1,324,400		1,324		-		131,116			-			-
Common stock issued for cash at $0.15    per share		66,667		67		-		9,933			-			-
Common stock issued for cash  at $0.25 per share		340,000		340		-		84,660			-			-
Common stock issued for services and  for services to be rendered at  $0.036 to $0.10 per share		2,495,474		2,495		-		163,375			-			-
Common stock issued for patent legal    work performed at $0.295 per share		50,000		50		-		14,700			-			-
Common stock issued to directors in  lieu of exercise of cashless    warrants		5,126,265		5,126		-		(5,126	)		-			-
Common stock issued to a related  company in an early termination    of a marketing rights agreement    and the termination of a joint venture    agreement at $0.40 per share		312,500		313		-		124,687			-			-
Common stock warrants granted		-		-		-		105,393			-			-
Stock options granted to a consultant    and a director for services rendered		-		-		-		146,097			-			-
Loss on foreign currency translation		-		-		-		-			(3,611	)		-
Net loss for the year ended  December 31, 2009		-		-		-		-			-			(1,474,715	)
Balance, December 31, 2009		241,701,432	$	241,701	$	-	$	18,533,363		$	(3,611	)	$	(22,044,955	)

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

50

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Stockholders' Equity (Deficit) (Continued)

														Deficit
											Other			Accumulated
								Additional			Compre-			During the
	Common Stock							Paid-in			hensive			Development
	Shares		Amount		Subscribed			Capital			Loss			Stage
Balance, December 31, 2009		241,701,432	$	241,701	$	-		$	18,533,363		$	(3,611	)	$	(22,044,955	)
Common stock issued for cash ranging from $0.12 to $0.25 per share		10,861,665		10,862		-			1,372,538			-			-
Stock issuance costs		-		-		-			(10,000	)		-			-
Common stock issued in lieu of stock issuance costs valued at $0.17 per share		588,235		588		-			(588	)		-			-
Common stock issued for services rendered and to be rendered valued at prices ranging from $0.19 to $0.29 per share		2,210,839		2,211		-			545,554			-			-
Common stock issued to officers and directors as bonus for services rendered valued at $0.21 per share		4,000,000		4,000		-			836,000			-			-
Stock options granted to a consultant for services rendered		-		-		-			46,094			-			-
Stock options granted to a director and Officer for board and other services		-		-		-			203,022			-			-
Stock options granted to a consultant for patent services rendered		-		-		-			67,465			-			-
Loss on foreign currency translation		-		-		-			-			(4,908	)		-
Net loss for the year ended December 31, 2010		-		-		-			-			-			(2,756,126	)
Balance, December 31, 2010		259,362,171	$	259,362	$	-		$	21,593,448		$	(8,519	)	$	(24,801,081	)
Common stock issued for cash ranging from $0.08 to $0.192 per share		11,554,778		11,555		-			1,404,351			-			-
Stock issuance costs		-		-		-			(4,300	)		-			-
Common shares subscribed for ranging from $0.08 to $0.12 per share						1,125			128,875			-			-
Stock options granted for services rendered									33,403
Common stock issued previously subscribed		1,125,000		1,125		(1,125	)
Loss on foreign currency translation		-		-		-			-			(12,563	)		-
Net loss for the year ended December 31, 2011		-		-		-			-			-			(1,940,217	)
Balance, December 31, 2011		272,041,949	$	272,042		-		$	23,155,777		$	(21,082	)	$	(26,741,298	)

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

51

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Consolidated Statements of Cash Flows

	For the Years Ended December 31,						From Inception on January 31, 1986 Through December 31,
	2011			2010			2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$	(1,940,217	)	$	(2,756,126	)	$	(26,741,298	)
Adjustments to reconcile net loss to net cash Used in operating activities:
Depreciation and amortization		22,452			9,740			82,883
Stock issued for services		-			1,323,843			4,714,741
Stock issued for the early termination of a marketing   rights agreement and joint venture agreement		-			-			125,000
Amortization of deferred consulting fees		63,923			21,211			201,311
Expense on extension of warrants below market value		-			-			2,092,315
Value of stock options granted		33,404			249,115			428,616
Bad debt expense		-			-			48,947
Non-controlling interest in loss		-			-			(26,091	)
Loss on disposal of equipment		-			-			693,752
Gain on settlement of debt and lawsuit settlement		-			-			(603,510	)
Changes in operating assets and liabilities:
Prepaid expenses and deposits		(36,772	)		761			(86,842	)
Customer deposits		40,000			-			40,000
Accounts payable and accounts payable – related parties		25,900			(19,345	)		1,326,458
Accrued expenses and accrued expenses – related parties		20,668			(79,059	)		3,060,536
Net Cash Used by Operating Activities		(1,770,642	)		(1,249,860	)		(14,643,182	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Trademark and patents		(49,250	)		(38,909	)		(102,392	)
Purchase of property and equipment		(4,404	)		-			(48,586	)
Net Cash Used by Investing Activities		(53,654	)		(38,909	)		(150,978	)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lawsuit settlement		-			-			415,000
Principal payments on notes payable		(4,881	)		(2,720	)		(203,679	)
Cash received from notes payable		-			-			1,129,518
Advances from stockholders		-			-			44,658
Repayment on stockholders advances		(6,000	)		(1,000	)		(31,191	)
Capital contributions		-			-			439,870
Stock issuance costs		(4,300	)		(10,000	)		(119,612	)
Increase in non-controlling interest		-			-			14,470
Issuance of common stock for cash		1,545,905			1,383,400			13,255,967
Net Cash Provided by Financing Activities		1,530,724			1,369,680			14,945,001
EFFECTS ON CURRENCY EXCHANGE RATE		(12,563	)		(4,908	)		(21,082	)
CHANGES ON CASH AND CASH EQUIVALENTS
NET INCREASE IN CASH		(306,135	)		76,003			129,759
CASH AT BEGINNING OF PERIOD		435,894			359,891			-
CASH AT END OF PERIOD	$	129,759		$	435,894		$	129,759
SUPPLEMENTAL CASH FLOW INFORMATION
CASH PAID FOR
Interest	$	1,339		$	155		$	31,357
NON-CASH FINANCING ACTIVITIES
Financing of insurance policy	$	4,864		$	2,775		$	7,639
Stock issued for prepaid consulting fees	$	-		$	63,923		$	301,811
Stock issued for conversion of debt	$	-		$	-		$	4,373,912
Stock issued for license agreement	$	-		$	-		$	693,752
Stock issued for patent costs	$	-		$	67,465		$	82,215

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

52

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 1 -        ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.      Organization

The consolidated financial statements presented are those of Medizone International, Inc. (Medizone-Nevada), and its wholly owned subsidiaries, Medizone International, Inc. (Medizone-Delaware) and Medizone Canada, Ltd. (MedCan).  The consolidated financial statements presented also include the accounts of the Canadian Foundation for Global Health (CFGH), a not-for-profit foundation based in Ottawa, Canada, considered a variable interest entity (“VIE”) as described below.  Collectively, they are referred to herein as the “Company”.  Medizone-Nevada was incorporated under the name of Madison Funding, Inc. on August 27, 1984 under the laws of the State of Nevada for the purpose of investing in, acquiring, operating and disposing of businesses or assets of any nature.  Effective March 26, 1986, Medizone-Nevada issued 37,500,000 shares of its common stock in exchange for the issued and outstanding common stock of Medizone-Delaware.

Medizone-Delaware was incorporated on January 31, 1986 under the state laws of Delaware.  At the time of the acquisition of Medizone-Delaware, Medizone-Nevada was essentially inactive, with no operations and minimal assets.  Additionally, the exchange of Medizone-Nevada’s common stock for the common stock of Medizone-Delaware resulted in the former stockholders of Medizone-Delaware obtaining control of Medizone-Nevada.  Accordingly, Medizone-Delaware became the continuing entity for accounting purposes, and the transaction was accounted for as a recapitalization of Medizone-Delaware with no adjustment to the basis of Medizone-Delaware’s assets acquired or liabilities assumed.  For legal purposes, Medizone-Nevada was the surviving entity.

On November 18, 1987, MedCan was incorporated under the laws of the Province of British Columbia.  Shortly thereafter, MedCan entered into a license agreement with the Company wherein the Company transferred to MedCan the licenses and rights necessary to permit MedCan to hold substantially the same rights with respect to the medical applications of ozone in Canada as the Company does in the United States.  As consideration for the transfer, the Company received 3,000,000 shares of MedCan and, in addition, purchased 1 share for the sum of $1.00.  Under a separate agreement among the Company, MedCan and Australian Gold Mines Corporation (“AGMC”), (which later changed its name to International Blue Sun Resource Corporation), AGMC purchased 130,000 shares of MedCan for $100,000.  On December 23, 1988, MedCan was recapitalized in a transaction in which the majority of its shares were exchanged for shares of KPC Investments (“KPC”).  Following this transaction, the Company owned 25,029,921 shares of KPC, representing 72% of the outstanding shares.  KPC then changed its name to Medizone Canada, Ltd. (“MCL”).  MedCan acquired all of the assets of MCL, consisting solely of cash in the amount of approximately $89,000.

In June 1998, the Company sold its interest in MCL for $125,000 cash and debt assumed of $8,417 less fees of $25,000 in a private transaction which resulted in a gain of $108,417 for the year ended December 31, 1998.  The Company retained ownership, however, of all of the issued and outstanding stock of MedCan, the Canadian subsidiary.

In late 2008, the Company assisted in the formation of the 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 its technology to as many in need as possible.

53

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

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

a.      Organization (Continued)

Accounting standards require a VIE to be consolidated by a company if that company absorbs a majority of the VIE’s expected losses and/or receives a majority of the 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 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 periods ended December 31, 2011 and 2010.

b.      Formation of Joint Venture

On June 22, 1995, the Company entered into a series of contracts which resulted in the formation of a joint venture subsidiary incorporated in New Zealand, Medizone New Zealand Limited (MNZ).  Prior to the cancellation of this joint venture on December 14, 2009 as described below, MNZ was a privately held corporation equally owned by the Company and Solwin Investments Limited (Solwin), a New Zealand corporation, and was a research and development stage company whose objective was to obtain regulatory approval for the distribution of the Company’s patented technology in New Zealand, Australia, South East Asia and the South Pacific Islands.  The principal of MNZ was Richard G. Solomon (Solomon), who is also a board member of the Company.

Originally, the Company had purchased 100% of MNZ from Solomon, a New Zealand citizen, who became a director of the Company in January 1996 and who caused the formation of MNZ on June 22, 1995.  Contemporaneously with this transaction, the Company sold 50% of MNZ to Solwin, a corporation owned by Solomon, for $150,000, of which the Company thereupon loaned $50,000 to MNZ on a demand basis.  The Company recognized a $100,000 gain on the sale of MNZ to Solwin.

Contemporaneous with the creation of the above share structure, the Company and MNZ entered into a Licensing Agreement (the Licensing Agreement) and a Managing Agent Agreement (the Managing Agent Agreement).

Pursuant to the Licensing Agreement, the Company granted an exclusive license to MNZ for its process and equipment patents and trademark in New Zealand.  MNZ has agreed to apply for corresponding patent protection for the patents in New Zealand and to use its best effort to exploit the rights granted in the agreement.  The License Agreement was to terminate on the date of the expiration of the last to expire of any patent obtained in New Zealand, or, if no such patents are obtained, on June 22, 2010.

Pursuant to the Managing Agent Agreement, MNZ was to act as the Company’s agent in the finding of other licensees of the Company’s patents and trademark in the following countries: Australia (including Australia and New Zealand), the South Pacific Islands, and South East Asia (including the Philippines, Indonesia and Vietnam).  The Managing Agent Agreement was to expire on the termination or expiration of the last of the licenses obtained pursuant thereto, subject to earlier termination by the Company upon an occurrence of certain events.

Until the joint venture was terminated during December 2009 as described in the following paragraph, the investment in the joint venture had been recorded under the equity method of accounting as the Company did not have ultimate control of the joint venture.

54

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

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

b.      Formation of Joint Venture (Continued)

Effective December 14, 2009, the Company’s Board of Directors, in an effort to unwind the joint venture and reconvey to the Company all global marketing rights of the Company’s intellectual property, entered into a Termination Agreement (the “Termination Agreement”) whereby the Company issued a total of 312,500 shares of common stock (valued at $0.40 per share, an approximate 4.0% increase over the market value of the shares on the date the agreement was entered into) to Solwin as consideration for the early termination of the Licensing Agreement and the Managing Agent Agreement, and to retain all rights and licenses originally granted to MNZ.  Also as part of the Termination Agreement, the Company assigned its ownership rights and shares in MNZ back to Solwin.  During 2009, the Company recorded a loss of $125,000, as the Company was unable to determine the future value of the licensing rights acquired pursuant to the Termination Agreement.

c.      Business Activities

The Company’s current objective is to pursue an initiative in the field of hospital sterilization.  The Company is working on the development of an ozone-based technology, specifically for the purpose of decontaminating and sterilizing hospital surgical suites, emergency rooms, and intensive care units.

d.      Accounting Methods

The Company’s consolidated financial statements are prepared using the accrual method of accounting.  The Company has elected a December 31 year end.

e.      Cash and Cash Equivalents

Cash equivalents include short-term, highly liquid investments with maturities of three months or less at the time of acquisition.

f.      Basic 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 Years Ended December 31,
	2011			2010
Numerator
- Loss before extraordinary items	$	(1,940,217	)	$	(2,756,126	)
- Extraordinary items		-			-
Denominator (weighted average number of shares outstanding)		266,147,052			249,635,605
Basic loss per share
- Before extraordinary items	$	(0.01	)	$	(0.01	)
- Extraordinary items		0.00			0.00
Basic loss per share	$	(0.01	)	$	(0.01	)

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

55

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

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

g.      Property and Equipment

Property and equipment is recorded at cost.  Any major additions and improvements are capitalized.  The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as gain or loss on sale of equipment.  Depreciation is computed using the straight-line method over a period of: (1) three years for computers and software and (2) five years for office equipment and furniture.

h.      Provision for Taxes

As part of the process of preparing consolidated financial statements, the Company is required to estimate income taxes in each of the jurisdictions in which it operates.  This process involves estimating the Company’s actual current income tax exposure together with assessing temporary differences resulting from differing treatment of items for income tax and financial accounting purposes.  These temporary differences result in deferred tax assets and liabilities, the net amount of which is included in the Company’s consolidated balance sheets.  When appropriate, the Company records a valuation allowance to reduce its deferred tax assets to the amount that the Company believes is more likely than not to be realized.  Key assumptions used in estimating a valuation allowance include potential future taxable income, projected income tax rates, expiration dates of net operating loss and tax credit carry forwards, and ongoing prudent and feasible tax planning strategies.

At December 31, 2011, the Company had net operating loss (“NOL”) carryforwards of approximately $8,317,000 that may be offset against future taxable income and expire in years 2012 through 2032.  If substantial changes in the Company’s ownership should occur, there would also be an annual limitation of the amount of the NOL carryforwards which could be utilized.  No tax benefit had been reported in the consolidated financial statements as, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized and the carryforwards will expire unused.  The tax benefits of the NOL carryforwards are offset by a valuation allowance of the same amount.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  If the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase income in the period such determination was made.

Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of operations.

Deferred tax assets at December 31, 2011 and 2010 are comprised of the following:

	2011			2010
Net operating loss carryforwards	$	3,243,600		$	3,124,500
Related party accruals		1,022,400			1,007,800
Depreciation		-			-
Valuation allowance		(4,266,000	)		(4,132,300	)
	$	-		$	-

56

MEDIZONE INTERNATIONAL, INC. AND UBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

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

h.      Provision for Taxes (Continued)

The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the years ended December 31, 2011 and 2010 due to the following:

	For the Years Ended December 31,
	2011			2010
Book income (loss)	$	(756,700	)	$	(1,074,900	)
Stock for expenses		46,000			109,300
Related party expense		-			(41,125	)
Depreciation		-			300
Other		15,000			400
Change in valuation allowance		695,700			1,006,025
	$	-		$	-

The Company accounts for income taxes in accordance with Accounting Standards Codification 740, Income Taxes (“ASC 740”).  The Company performs reviews of any material tax positions in accordance with and measurement standards established by ASC 740.  The Company had no unrecognized tax benefit which would affect the effective tax rate if recognized as of December 31, 2011 and 2010.  The Company also estimates that the unrecognized tax benefit will not change significantly within the next twelve months.  As the Company has significant NOL carry forwards, even if certain of the Company’s tax positions were disallowed, it is not foreseen that the Company would have to pay any taxes in the near future.  Consequently, the Company does not calculate the impact of interest or penalties on amounts that might be disallowed.

The Company files income tax returns in the U.S. federal and California jurisdictions.  With few exceptions, the Company is no longer subject to U.S. federal, state and local tax authorities for years before 2002.

i.      Principles of Consolidation

The consolidated financial statements include the accounts of Medizone International, Inc. (“Medizone-Nevada”) and its wholly owned subsidiaries, Medizone International, Inc. (“Medizone-Delaware”) and Medizone Canada, Ltd (“MedCan”).  The consolidated financial statements presented also include the accounts of the CFGH, a VIE.

All material intercompany accounts and transactions have been eliminated.

j.      Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period.  Actual results could differ from those estimates.

k.      Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred.

57

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

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

l.      Stock Warrants and Options

Prior to 2005, the Company applied the provisions of “Accounting for Stock Issued to Employees”, and related interpretations in accounting for all stock option plans. Under this standard, compensation cost was recognized for stock options and warrants granted to employees when the option/warrant price is less than the market price of the underlying common stock on the date of grant.

The standards also require the Company to provide proforma information regarding net loss and net loss per share as if compensation costs for the Company’s stock option plans and other stock awards had been determined in accordance with the fair value based method.  The Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model.

During 2006 thru 2009, the Company extended the maturity date on certain common stock warrants to certain directors and outside consultants (Note 7).  Stock based compensation expense for these warrants for the year ended December 31, 2009 was $105,393, related to the change in warrant terms.  As of December 31, 2009 all warrants were either exercised or expired.

m.      Trademark and Patents

Trademark and patents are recorded at cost.  Amortization is computed using the straight-line method over a period of seven years.  The Company evaluates the recoverability of intangibles and reviews the amortization period on a continual basis.  Several factors are used to evaluate intangibles, including management’s plans for future operations, recent operating results and projected, undiscounted cash flows.

n.      Revenue Recognition Policy

The Company currently has no source of revenues.  Revenue recognition policies will be determined when principal operations begin.

o.      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.

p.      Recent Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures about Fair Value Measurements (“ASU 2010-06). ASU 2010-06 affects all entities that are required to make disclosures about recurring and nonrecurring fair value measurements under FASB ASC Topic 820, originally issued as FASB Statement No. 157, Fair Value Measurements.  This ASU requires certain new disclosures and clarifies two existing disclosure requirements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years.  The adoption of this new standard had no impact on our Consolidated Financial Statements.

58

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

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

q. Concentration of Credit Risk

The Company maintains its cash and cash equivalents in bank deposit accounts which, at times, exceed federally insured limits. The Emergency Economic Stabilization Act of 2008 temporarily increased FDIC deposit insurance from $100,000 to $250,000 per depositor through December 31, 2009.  The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in July 2010, made this $250,000 per depositor coverage limit permanent.  At December 31, 2011 and 2010, the Company had $0 and $185,894 of cash and cash equivalents that exceeded federally insured limits.  To date, the Company has not experienced a material loss or lack of access to its invested cash or cash equivalents; however, no assurance can be provided that access to the Company’s invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

NOTE 2 -        PROPERTY AND EQUIPMENT

Property and equipment, net consists of the following at December 31, 2011 and 2010:

	2011			2010
Office equipment	$	19,249		$	19,249
Furniture		6,307			6,307
Computers and software		7,003			5,092
Leasehold improvements		2,493			-
		35,052			30,648
Accumulated depreciation		(31,077	)		(29,304	)
Property and equipment, net	$	3,975		$	1,344

Depreciation expense for the years ended December 31, 2011 and 2010 was $1,770 and $1,697, respectively.

NOTE 3 -        TRADEMARK AND PATENTS

Trademark and patents consists of the following at December 31, 2011 and 2010:

	2011			2010
Patent costs	$	174,933		$	125,683
Trademark		770			770
		175,703			126,453
Accumulated amortization		(29,361	)		(8,682	)
Trademark and patents, net	$	146,342		$	117,771

Amortization expense for the years ended December 31, 2011 and 2010 was $20,771 and $8,126, respectively.

59

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 4 -        ACCRUED EXPENSES AND ACCRUED EXPENSES – RELATED PARTIES

Accrued expenses and accrued expenses – related parties consist of the following at December 31, 2011 and 2010:

	2011		2010
Accrued payroll and consulting – related parties	$	1,841,922	$	1,845,422
Accrued interest		431,302		407,646
Accrued payroll taxes – related parties		118,605		118,894
Other accruals		20,684		19,883
Total	$	2,412,513	$	2,391,845

Accrued expenses – related parties relate to accrued but unpaid prior payroll and consulting fees (and associated taxes) for certain of the Company’s employees who are also directors, officers or stockholders.

NOTE 5 -        COMMITMENTS AND CONTINGENCIES

The Company is subject to certain claims and lawsuits arising in the normal course of business.  In the opinion of management, uninsured losses, if any, resulting from the ultimate resolution of these matters will not have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.

Litigation

Rakas vs. Medizone International, Inc. - A former consultant brought this action against the Company claiming the Company had failed to pay consulting fees under a consulting agreement.  In September 2001, the parties agreed to settle the matter for $25,000.  The Company, however, did not have the funds to pay the settlement and the plaintiff moved the court to enter a default judgment in the amount of $143,000 in January 2002.  On May 8, 2002, the court vacated the default judgment and requested that the Company post a bond of $25,000 to cover the settlement previously entered into by the parties.  The Company has been unable to post the required bond amount as of the date of this report.  Therefore, the Company has recorded, as part of accounts payable, the original default judgment in the amount of $143,000, plus fees totaling $21,308, as of December 31, 2011 and 2010.  The Company intends to contest the judgment if and when it is able to in the future.

Contingent Liabilities

As of December 31, 2011 and 2010, the Company has recorded contingent liabilities totaling $224,852 related to certain past due payables for which the Company has not received invoices or demands for over ten years.  Although management of the Company does not believe that the amounts will ever be paid, the amounts are being recorded as contingent liabilities until such time as the Company is certain that no liability exists and until the statute of limitations has expired.

The Company’s Board of Directors has approved the following salaries/consulting fees for its key officers: 1) $170,000 a year for the Company’s Chief Executive Officer and increases to $195,500 effective March 1, 2012, and 2) $60,000 a year for the Company’s Chief Financial Officer.

Operating Leases

In 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 initial lease term expired on June 30, 2011, but has been extended to June 30, 2012, with a monthly lease payment increasing from $1,300 to $1,350 Canadian Dollars (“CD”) plus the applicable Goods and Services Tax (“GST”).  

60

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 5 -        COMMITMENTS AND CONTINGENCIES

Operating Leases (Continued)

A second laboratory space for full scale room testing also expired on June 30, 2011, but was extended to June 30, 2012, with a monthly lease payment increasing from $1,200 to $1,250 CD, plus the applicable GST.  In March 2011, the Company also entered into a lease agreement and established its own corporate offices in California that includes a monthly lease payment of $2,500 U.S. Dollars and is renewable on a month to month basis following the initial lease term that ended in May 2011.  The Company elected to terminate this lease in December 2011 and enter into a new corporate office lease effective January 1, 2012 (see Note 14).

NOTE 6 -        EQUITY TRANSACTIONS

Unless otherwise stated, all transactions shown below were with unrelated parties and the securities issued were restricted.

Medizone-Nevada initially issued 5,500,000 shares in a private transaction.

On March 26, 1986, Medizone-Nevada issued 37,500,000 shares of common stock, representing 87.2% of the then outstanding shares, to the stockholders of Medizone-Delaware, including two officers and directors, in exchange for all of the shares of Medizone-Delaware.  The costs of the transactions were offset against paid-in capital.

In July 1986, the Company issued 50,000 shares of common stock to individuals for services rendered.

During the period from August 1986 through October 31, 1986, the final expiration date for exercise, warrants to purchase 7,814,600 shares together with cash totaling $781,460 were received by the Company which then issued 7,814,600 shares of new common stock.  In January 1987, an additional 2,600 shares were issued in exchange for warrants and cash of $259.

In March 1987, the Company issued 1,000,000 shares of common stock in exchange for a patent.

In June 1987, the Company issued 950,000 shares to individuals in private transaction for aggregate proceeds of $150,000.

During the period from June 1987 through July 1987, the Company issued 203,167 shares of common stock to various vendors and individuals for services rendered in 1986 and 1987.

On August 26, 1987, an officer of the Company exercised options to purchase 250,000 shares of common stock.  In January 1988, two holders exercised their options and acquired an aggregate of 200,000 shares of common stock.

On September 26, 1988, the Company sold, in a private placement, 1,000,000 shares of common stock at $0.08 per share to an individual.

During 1988, the Company issued a total of 35,000 shares of common stock for services.

During 1989, the Company issued 261,889 shares of common stock to various vendors and individuals for services rendered in 1988 and 1989.  The Company also issued 5,790,000 shares to individuals in private transactions for aggregate proceeds of $291,500.

During 1989, the Company satisfied obligations for notes payable to and accrued interest due to unrelated individuals totaling $377,539 by the issuance of 3,899,532 shares of common stock.  The Company issued 250,000 shares of common stock to an officer and 600,000 shares of common stock to three advisors to the Company as additional compensation for work done for the Company.  These issuances were ascribed values of $60,650 and $145,539, respectively, by the Company.  Two holders exercised their options and acquired an aggregate of 375,000 shares of common stock.

61

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

During 1990, the following equity transactions occurred: The Company issued 4,250,000 shares to individuals in private transactions for aggregate proceeds of $179,500; the Company satisfied obligations totaling $125,000 to the former vice president, secretary and treasurer as well as director by issuing 2,272,727 shares of common stock at $0.055 per share; the Company satisfied an outstanding account payable to an unrelated individual totaling $15,000 by the issuance of 150,000 shares of common stock at $0.10 per share; and the Company issued to an employee and four other unrelated persons as compensation or payment a total of 880,000 shares of common stock to which it ascribed a value of $88,000.

During 1991, the following equity transactions occurred: The Company issued 4,366,667 shares to individuals in private transactions for aggregate proceeds of $310,000; the Company issued a total of 425,000 shares of common stock for services and accrued liabilities of which an aggregate of 100,000 shares were issued to two directors; and three holders exercised their options and acquired an aggregate of 450,000 shares of common stock.

During 1992, the following equity transactions occurred: The Company issued 2,702,335 shares to individuals in private transactions for aggregate proceeds of $430,350; the Company issued a total of 401,500 shares of common stock for services and accrued liabilities; holders exercised options and acquired an aggregate of 250,000 shares of common stock.

During 1993, the following equity transactions occurred: The Company issued 1,471,666 shares to individuals in private transactions for aggregate proceeds of $271,000; the Company issued a total of 5,347,219 shares of common stock for services.  Also, during 1993, a total of $261,915 was received in cash for 2,619,150 shares subscribed as a result of a private placement offering.  The offering commenced as of November 26, 1993, with a maximum of $700,000 to be raised in gross proceeds from the sale of up to 7,000,000 shares.

During 1994, the following equity transactions occurred: The Company issued a total of 1,431,590 shares of common stock for services; the Company issued a total of 1,125,834 shares of common stock to certain prior purchasers of common stock in recognition of disparity in purchase in contemporaneous offerings.  Also during 1994, a total of $680,040 was received in cash for 6,800,499 shares subscribed as a result of the offering.  Subsequent to the offering, an additional $316,860 was received in cash from foreign investors subscribing to 3,168,600 shares of common stock.  On December 28, 1994, the Company settled a dispute regarding the validity of notes payable to former management in the amount of $2,033,629 by agreeing to issue 11,250,000 common shares (recorded as shares subscribed) in satisfaction of the total amount of the debt.

Also in 1994, $40,000 of notes payable (a portion of loans totaling $60,000) together with interest was satisfied by issuing 416,500 shares of common stock.

During 1995, the following equity transactions occurred: The Company issued a total of 2,050,000 shares of common stock for services. $911,825 was received from investors subscribing to 9,118,260 shares of common stock.  Also, 17,524,860 common shares, previously recorded as shares subscribed, were issued, and 1,242,727 were retired in accordance with the settlement agreement with former management.  200,000 of redeemable shares were converted into common stock.  The Company sold shares of its New Zealand subsidiary for aggregate proceeds of $150,000.

62

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

During 1996, the Company received stock subscription agreements for the purchase of 17,254,860 shares of its common stock, together with proceeds totaling $725,447 from sales of its securities to non-United States investors, outside of the United States pursuant to Regulation S promulgated under the Securities Act of 1993.  Approximately $635,447 of these proceeds were from the sale of the Company’s common stock at a per share price of $0.10 (including $37,500 for 375,000 shares from Richard G. Solomon, at the time a director of the Company).  The remaining $90,000 were from the sale of 900,000 units, each unit consisting of one share of the Company’s common stock at a per share price of $0.10 to a director pursuant to the non-public offering exemption from registration under the Securities Act.  In May 1996, the Company issued 600,000 shares of its common stock to employees and 250,000 shares of its common stock to its public relations consultant as additional compensation.  The Company also issued 565,875 shares of its common stock to various consultants for services rendered.

During 1997, the Company issued 3,089,680 previously subscribed shares of its common stock and also issued 3,746,336 shares of its common stock to various consultants for services rendered.  Also in 1997, the Company received $400,001 for subscriptions to acquire 5,714,285 shares of its common stock and warrants to purchase 9,285,715 shares of common stock at $0.07 per share, 25,000,000 shares at $0.20 per share, and 33,333,333 shares at $0.15 per share.

During 1998, the Company issued 5,714,286 previously subscribed shares of its common stock and also issued a total of 4,265,000 shares of its common stock to various individuals for services rendered.  Also in 1998, the Company issued 857,142 shares of common stock through exercise of outstanding warrants at $0.07 per share for a total of $60,000, and issued 1,832,377 shares in lieu of outstanding debt of $126,418. The Company also canceled 630,000 shares for services that were never performed.

During 1999, the Company issued 25,000 shares of its common stock to an individual for services rendered valued at $1,750.  In addition, the Company issued 936,507 shares of its common stock through the exercise of outstanding warrants at $0.07 per share for a total of $65,555.  The Company also recognized an additional expense of $123,389 for the extension of warrants below market value.

During 2000, the Company issued 3,142,857 shares of common stock through the exercise of outstanding warrants at $0.07 per share for a total of $220,000.  The Company issued common stock for services in two different instances during the year.  One issuance was of 350,000 shares of common stock for a total of $61,250.  The other issuance was for 300,000 shares of common stock for a total of $85,500.  The Company issued common stock for debt in four separate instances.  The first one being 2,020,000 shares of common stock issued for a total of $222,200.  The second issuance was 95,000 shares of common stock for a total of $14,000.  The third issuance was 20,000 shares of common stock for a total of $4,000.  The fourth issuance was 100,000 shares of common stock for a total of $55,000.  The Company also canceled 2,000,000 shares of common stock pursuant to the settlement agreement with a former Chief Financial Officer of the Company.  The Company also recognized an additional expense of $1,743,468 for the extension of warrants below market value.

During 2001, the Company issued a total of 1,422,221 shares of common stock at prices ranging from $0.15 to $0.20 per share for total proceeds of $254,981.  Pursuant to these stock issuances, the Company granted warrants to purchase 2,122,221 shares of common stock at exercise prices of $0.15 to $0.20 per share.  25,000,000 warrants previously outstanding also expired during 2001, unexercised.

During 2002, the Company issued a total of 1,250,000 shares of common stock at $0.10 per share for total proceeds of $125,000.  The Company also granted the investors warrants to purchase 1,250,000 shares of common stock at $0.10 per share, exercisable over a two-year term.  The market price of the common stock was $0.10 per share on the date of the issuance of the shares and grant of the warrants.

63

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

Also during the year ended December 31, 2002, the Company issued a total of 677,368 shares of common stock for services rendered and repayment of outstanding debt at $0.10 per share for a total of $67,737.  The Company also issued a total of 480,000 shares of common stock, pursuant to an S-8 registration, for services rendered at $0.10 per share for a total of $48,000.

During 2003, the Company issued a total of 865,000 shares of common stock at $0.05 per share for total proceeds of $43,250.  The Company also granted the investors warrants to purchase 865,000 shares of common stock at $0.05 per share, exercisable over a two-year term.  The market price of the common stock was $0.05 per share on the date of the issuance of the shares and grant of the warrants.

Also during the year ended December 31, 2003, the Company issued 460,000 shares of common stock at $0.05 per share in lieu of a note payable totaling $23,000 and 100,000 shares of common stock to an officer of the Company for services rendered valued at $0.05 per share for a total value of $5,000.

The Company also issued 2,000,000 shares of restricted common stock to an individual pursuant to a “Letter of Understanding / Employment” whereby the individual was issued the shares as an incentive for him to enter into a future employment agreement with the Company once initial funding is obtained.  The shares have been valued at $0.02 per share, the market price of the common stock on the date of issuance.  The individual was also issued 2,000,000 warrants exercisable at $0.40 per share.  The warrants cannot be exercised, however, unless the individual remains employed by the Company for a minimum of three years. The warrants carry a five year term and include a cashless exercise option.

During 2007, the Company’s Board of Directors approved various stock issuances to the Company’s directors, officers and outside consultants for a total of 11,250,000 shares of common stock, valued at $0.02 per share or $225,000, the market value of the shares on the date that the shares were approved to be issued.  These shares were eventually issued during May 2008.

During May 2008, the Company issued 8,000,000 shares of common stock for cash proceeds received during March and April 2008 totaling $80,000, or $0.01 per share.

In addition, during May 2008, a total of 5,463,333 shares of restricted common stock were issued for cash proceeds previously received during 2004, 2005 and 2006 (previously recorded as stock deposits) totaling $110,100.  An additional 409,075 shares of common stock were issued to a Company director in repayment of an $8,181 loan previously received by the Company in a prior year.

During July and September 2008, the Company issued an additional 3,300,000 shares of common stock for cash proceeds of $99,000, or $0.03 per share.

Effective September 2, 2008, the Company’s Board of Directors approved the issuance of a total of 1,000,000 restricted shares to a public relations firm, for public relations and corporate communications services to be rendered valued at $42,000, or $0.042 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  The consulting agreement is based on a one-year term, the shares will vest in equal increments, and the consulting expense will be recognized over the same period.  $14,000 of the $42,000 consulting expense was recognized during the year ended December 31, 2008, with the remaining $28,000 recognized during the year ended December 31, 2009.

Effective September 15, 2008, the Company’s Board of Directors approved the issuance of a total of 1,000,000 restricted shares to a strategic management consulting firm for services rendered valued at $40,000, or $0.04 per share, which represented the market value of the shares on the date that the shares were approved to be issued.

64

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

Effective September 19, 2008, the Company’s Board of Directors approved the issuance of a total of 4,000,000 free-trading shares to two individuals for management consulting services to be rendered valued at $120,000, or $0.03 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  The consulting agreements are based on a four-month term, the shares vest in equal increments, and the consulting expense is recognized over the same period.  $96,000 of the $120,000 consulting expense was recognized during the year ended December 31, 2008, with the remaining $24,000 recognized during the year ended December 31, 2009.

Effective November 5, 2008, the Company’s Board of Directors approved the issuance of 1,000,000 free-trading shares to an individual for consulting services to be rendered valued at $30,000, or $0.03 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  The consulting agreement is based on a six-month term, the shares vest in equal increments, and the consulting expense is recognized over the same period.  $10,000 of the $30,000 consulting expense was recognized during the year ended December 31, 2008, with the remaining $20,000 recognized during the year ended December 31, 2009.

During December 2008, the Company issued 3,333,333 shares of common stock for cash proceeds received totaling $100,000, or $0.03 per share.  Also during 2008, a director contributed services valued at $16,667.

During April 2009, the Company’s Board of Directors approved the issuance of 700,000 (350,000 restricted and 350,000 free-trading) shares to a consultant 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 vest in equal increments, and the consulting expense is to be recognized over the same period.  $16,800 of the $25,200 was recognized during the year ended December 31, 2009, with the remaining $8,400 recognized during the year ended December 31, 2010.

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, with the remaining $7,589 recognized during the year ended December 31, 2010.

During June 2009, pursuant to a consulting agreement that included a cash payment of $7,200, the Company’s Board of Directors approved the issuance of 200,000 shares of common stock to a consultant valued at $8,400, or $0.042 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 three-and-one-half month term, the shares vested in equal increments, and the total consulting expense was recognized during the year ended December 31, 2009.

During September 2009, the Company’s Board of Directors approved the issuance of 250,000 shares of common stock to a consultant valued at $25,000, or $0.10 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  15,000 of the shares issued were issued in lieu of outstanding debt owed to the consultant, totaling $1,500.  The remaining 235,000 shares issued were based on a consulting agreement expiring on January 31, 2010, the shares vest in equal increments, and the $23,500 consulting expense is to be recognized over the same period.  $18,278 of the $23,500 was recognized during the year ended December 31, 2009, with the remaining $5,222 recognized during the year ended December 31, 2010.

65

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

Total deferred consulting fees related to the above mentioned agreements as of December 31, 2009 was $21,211 which will be recognized over the subsequent periods as previously discussed.

Effective May 27, 2009, the Company’s Board of Directors approved the issuance of a total of 100,000 shares of common stock to a consultant for medical research services rendered valued at $3,900, or $0.039 per share, which represented the market value of the shares on the date that the shares were approved to be issued.

Effective June 12, 2009, the Company’s Board of Directors approved the issuance of a total of 203,497 shares of common stock to a consultant for medical research services rendered valued at $20,350, or $0.10 per share, which represented the market value of the shares on the date that the shares were approved to be issued.

On August 5, 2009, warrants held by two separate directors of the Company for a total of 6,487,408 shares were exercised, using the cashless exercise provision within the warrant agreements, resulting in the issuance of 5,126,265 shares of common stock with no cash proceeds received.

Effective October 13, 2009, the Company’s Board of Directors approved the issuance of a total of 453,569 shares of common stock to two separate consultants for medical research and website design services rendered valued at $29,483, or $0.065 per share, which represented the market value of the shares on the date that the shares were approved to be issued.

Effective November 30, 2009, the Company’s Board of Directors approved the issuance of a total of 50,000 shares of common stock to a patent attorney for patent legal services rendered valued at $14,750, or $0.295 per share, which represented the market value of the shares on the date that the shares were approved to be issued.

Effective December 15, 2009, the Company’s Board of Directors approved the issuance of a total of 88,408 shares of common stock to a consultant for medical research services rendered valued at $34,037, or $0.0385 per share, which represented the market value of the shares on the date that the shares were approved to be issued.

During the year ended December 31, 2009, the Company issued a total of 33,791,065 shares of common stock for cash proceeds received totaling $1,263,040, at prices ranging from $0.02 to $0.25 per share.

As previously discussed in Note 1, effective December 14, 2009, the Company’s Board of Directors approved the issuance of a total of 312,500 restricted shares of common stock to Solwin, pursuant to a Termination Agreement.  The shares were valued at $0.40 per share, which represented an approximate 4.0% increase over the market value of the shares on the date of the agreement.  The shares were issued as full consideration for the early termination of a Licensing Agreement and a Managing Agent Agreement, and to retain all rights and licenses originally granted to MNZ.  Also as part of the Termination Agreement, the Company assigned its ownership rights and shares in MNZ back to Solwin.  For the year ended December 31, 2009, the Company recorded a loss of $125,000, as the Company was unable to determine the future value of the licensing rights acquired pursuant to the Termination Agreement.

Common Stock for Cash – 2010

In January and February 2010, the Company 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 accredited investors not otherwise affiliated with the Company.  There were no underwriters involved.

66

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

In April, May and June 2010, the Company issued an aggregate of 3,622,777 shares of common stock for cash proceeds totaling $441,400, at prices ranging from $0.12 to $0.18 per share.  The shares were issued in private transactions to accredited investors not otherwise affiliated with the Company.  The Company also paid stock offering costs to an investment firm of $10,000 who assisted us in raising these funds.  

In July and August 2010, the Company issued an aggregate of 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 accredited investors not otherwise affiliated with the Company.  There were no underwriters involved.

In October and December 2010, the Company issued an aggregate of 1,472,222 shares of common stock for cash proceeds totaling $185,000, at prices ranging from $0.12 to $0.18 per share.  The shares were issued in private transactions to accredited investors not otherwise affiliated with the Company. There were no underwriters involved.  

Restricted Stock for Services – 2010

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

In March 2010, the Company issued 250,000 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 authorized the issuance of the shares.  The consulting agreement was based on a term through June 30, 2010, the shares vested in equal increments, and the consulting expense was recognized over the same period during 2010.  

In April 2010, the Company issued 120,000 shares of common stock 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 Board authorized the issuance of the shares.  These shares had no vesting requirements.

Also, in April 2010, the Company issued 588,235 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 authorized the issuance of the shares.  The Company recognized this as a stock issuance cost at the date of issuance and such shares had no vesting requirements.

In July 2010, the Company issued 135,000 shares of common stock to an investor relations company pursuant to a one-year agreement, valued at $25,650, or $0.19 per share, which represented the market value of the shares on the date that the Board authorized the issuance of shares. This agreement was based on a term through July 2011, the shares vest in equal increments, and the expense will be recognized over such period. $11,756 of the $25,650 was recognized during the year ended December 31, 2010, with the remaining $13,894 to be recognized during the year ended December 31, 2011.

In July 2010, the Company issued a total of 4,000,000 shares of common stock to certain directors and officers for board service and performance bonuses valued at $840,000, or $0.21 per share, which represented the market value of the shares on the date that the disinterested members of the Board authorized the issuance of shares. The Company recognized this expense at the date of issuance and such shares had no vesting requirements.

67

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

In August 2010, the Company issued a total of 225,000 shares of common stock to two consultants for consulting, marketing, and web support services valued at $60,750, or $0.27 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  There were two agreements: (a) the first agreement was for a period from July 2010 to March 2011 and (b) the second agreement was for the period from August 2010 to August 2011. For both agreements, the shares vest in equal increments and the consulting expense will be recognized over such periods.  $28,721 of the $60,750 was recognized during the year ended December 31, 2010, with the remaining $32,029 to be recognized during the year ended December 31, 2011.

In August 2010, the Company issued 118,839 shares of common stock in lieu of outstanding consulting fees valued at $32,086, or $0.27 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  An additional 1,000,000 shares of common stock were approved and issued to this same consultant in September 2010, as bonus compensation for extending his consulting agreement.  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 authorized the issuance of the shares.  

In November 2010, the Company issued 125,000 shares of common stock to an individual, as a performance bonus for research and development consulting services rendered as of the date of issuance, valued at $31,250, or $0.25 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  The Company recognized this expense at the date of issuance and such shares had no vesting requirements.

In December 2010, the Company issued 100,000 shares of common stock to an individual, as part of a web services and media representation consulting agreement, valued at a total cost of $18,000, or $0.18 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  The consulting agreement is for the year of 2011, the shares vest in equal increments, and such expense will be recognized over the period of such agreement.      

These sales and grants 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 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.  

Common Stock for Cash – 2011

During February 2011, the Company issued 582,065 shares of common stock to Mammoth, an accredited investor (as part of the Equity Line), for cash proceeds of $59,000 (net of $4,300 of stock issuance costs) at a price of $0.10875 per share.  There were no underwriters involved.  

During March 2011, the Company sold an aggregate of 1,000,000 restricted shares of common stock that were subscribed for as of March 31, 2011 and issued in April 2011.  The purchasers of these shares were two accredited investors, not otherwise affiliated with the Company.  The Company received cash proceeds of $120,000, or $0.12 per share in connection with these sales.  There were no underwriters involved.  

During April and May 2011, the Company issued 3,649,867 shares of common stock to Mammoth (as part of the Equity Line) for cash proceeds of $658,012.  The sales were made pursuant to two separate “Draw Down Notices” issued by the Company under the Stock Purchase Agreement. The first notice was effective May 18, 2011, for 1,583,771 shares and proceeds of $261,322, or approximately $0.165 per share.  The second notice was effective June 16, 2011, for 2,066,096 shares and proceeds of $396,690, or approximately $0.192 per share.  There were no underwriters involved.

68

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

Common Stock for Cash – 2011

During April, May and June 2011, the Company sold an aggregate of 4,625,000 restricted shares of common stock, to accredited investors, not otherwise affiliated with the Company, for cash proceeds of $370,000 at a price of $0.08 per share.  There were no underwriters involved.

During June 2011, the Company entered into a transaction, with an accredited investor not otherwise affiliated with the Company, for 125,000 restricted shares of common stock that were subscribed for as of June 30, 2011 and issued in July 2011, for cash proceeds of $10,000 at a price of $0.08 per share.  There were no underwriters involved.

During September 2011, the Company issued 1,147,846 shares of common stock to Mammoth (as part of the Equity Line) for cash proceeds of $169,594, at a price of $0.14775 per share.  There were no underwriters involved.

During November and December 2011, the Company sold an aggregate of 1,550,000 restricted shares of common stock, to eight accredited investors, not otherwise affiliated with the Company, for cash proceeds of $155,000 at a price of $0.10 per share.  There were no underwriters involved.

Recapitalization

Effective August 26, 2009, authorized by the stockholders at the Company’s annual stockholder’s meeting, the Company’s Articles of Incorporation (“AOI”) were amended to include a class of Preferred Stock, par value $0.00001, with authorized shares of 50,000,000.  No shares of Preferred Stock have been issued, however, as of December 31, 2010.  The rights and preferences of the newly authorized preferred shares will be determined by the Company’s Board at a later time.  The AOI were also amended to increase the authorized shares of common stock from 250,000,000 to 395,000,000 shares, par value $0.001.

Stock Purchase Agreement

On November 17, 2010, the Company entered into a Common Stock Purchase Agreement (the “Stock Purchase Agreement”), with Mammoth Corporation (“Mammoth”) providing for a financing arrangement that is sometimes referred to as a committed equity line financing facility (or “Equity Line”). The Stock Purchase Agreement provides that, upon the terms and subject to the conditions in the Stock Purchase Agreement, Mammoth is committed to purchase up to $10,000,000 of shares of our common stock over the 24-month term of the Stock Purchase Agreement under certain specified conditions and limitations.  Furthermore, in no event may Mammoth purchase any shares of the Company’s common stock which, when aggregated with all other shares of common stock then beneficially owned by Mammoth, would result in the beneficial ownership by Mammoth of more than 4.9 percent of the then outstanding shares of the Company’s common stock. These maximum share and beneficial ownership limitations may not be waived by the parties.

Under the terms of the Stock Purchase Agreement, the Company has the opportunity for a 24-month period, commencing on the date on which the SEC first declares effective the registration statement, to require Mammoth to purchase up to $10,000,000 in shares of common stock. For each share of common stock purchased under the Stock Purchase Agreement, Mammoth will pay to the Company a purchase price equal to 75 percent of the lowest closing bid price during the five consecutive trading day period (the “Draw Down Pricing Period”) preceding the date a draw down notice (the “Draw Down Notice”) is delivered by us to Mammoth (the “Draw Down Date”) in a manner provided by the Stock Purchase Agreement.  Subject to the limitations outlined below, the Company may, at its sole discretion, issue a Draw Down Notice to Mammoth, and Mammoth will then be irrevocably bound to purchase such shares.

69

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

Each Draw Down Notice must specify the lowest purchase price during the Draw Down Pricing Period at which the Company will sell the shares to Mammoth, which shall not be less than 75 percent of the lowest closing bid price during the Draw Down Pricing Period. Furthermore, the number of shares to be issued is limited by multiplying by five the average daily trading volume for the 30 trading days immediately preceding the delivery of the Draw Down Notice. The Draw Down Notice will also include the aggregate dollar amount of the Draw Down, which will not be less than $25,000 and not more than $500,000 in any Draw Down Notice.  There must be a minimum of 15 trading days between each Draw Down Notice.  Regardless of the maximum amount indicated in the Draw Down Notice, Mammoth is not obligated to purchase shares under any Draw Down Notice in an amount which, when added to the number of shares of common stock then beneficially owned by Mammoth, will result in Mammoth owning more than 4.9 percent of the outstanding shares of the Company’s common stock.

The Company agreed to pay up to $5,000 of reasonable attorneys’ fees and expenses (of which the Company paid $4,300 during the year ended December 31, 2011 to fully satisfy this obligation) incurred by Mammoth in connection with the preparation, negotiation, execution and delivery of the Stock Purchase Agreement and related transaction documentation. Further, if the Company issues a Draw Down Notice and fails to deliver the shares to Mammoth on the applicable settlement date, and such failure continues for 10 trading days, the Company agreed to pay Mammoth, in addition to all other remedies available to Mammoth under the Stock Purchase Agreement, an amount in cash equal to $100 for each $5,000 of the Draw Down Amount for the first 10 days such delivery is late, and $350 for each $5,000 of the Draw Down Amount for each trading day beyond 10 trading days that such delivery is late.

In connection with the Stock Purchase Agreement, the Company granted registration rights to Mammoth, and agreed to register the resale of shares issued to Mammoth in connection with Draw Downs made in connection with the Stock Purchase Agreement.  In January 2011, the Company filed a registration statement to cover the resale by Mammoth of up to 66,666,667 shares of our common stock under the Stock Purchase Agreement.  The Company is not permitted to make Draw Downs under the Stock Purchase Agreement at any time there is not an effective registration statement registering the resale of shares of common stock by Mammoth.  On January 25, 2011, the registration statement was made effective by the SEC.  As previously mentioned, the Company has made four Draw Down requests under the Stock Purchase Agreement during the year ended December 31, 2011 as well as one subsequent to year-end as noted in Note 14 below.

The Stock Purchase Agreement may be terminated at any time by the mutual written consent of the parties. Unless earlier terminated, the Stock Purchase Agreement will terminate automatically on the 24-month anniversary of the effective date of the registration statement (which term may not be extended by the parties).

ADA Innovations

In December 2010, the Company reached a Services Agreement with ADA Innovations (“ADA”) for final development and production manufacturing of portable versions (the “Projects”) of the Company’s AsepticSure™ disinfection systems (“ADS”).  A contract containing the terms of the agreement and detailed development plan was executed by the parties in January 2011, and amended in January 2012.

In addition, BiOzone Corporation will remain involved as a development support partner and manufacturer of laboratory equipment, and will assist, as requested, in construction of permanent installations for large-scale industrial applications.  Any and all notes, reports, information, inventions, sketches, plans concepts, data or other works created by ADA on its behalf under the Services Agreement will be the sole and exclusive property of the Company.  

70

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 6 -        EQUITY TRANSACTIONS (Continued)

In addition, BiOzone Corporation will remain involved as a development support partner and manufacturer of laboratory equipment, and will assist, as requested, in construction of permanent installations for large-scale industrial applications.  Any and all notes, reports, information, inventions, sketches, plans concepts, data or other works created by ADA on its behalf under the Services Agreement will be the sole and exclusive property of the Company.  The term of the Services Agreement continues until the completion of the development and design projects contemplated by the Services Agreement, unless terminated earlier by either party in accordance with specific notices as outlined in the Services Agreement.  Deliverables will include: (1) the pre-production prototype designed and manufactured to our specifications, (2) design and device content compliant with all North America, Europe and United Kingdom regulatory and licensing agency regulations, (3) a soft launch program managed by ADA and the Company, intended to be followed by increased production, and (4) additional outsourced macro-manufacturing capacity as required, supervised by the parties.  The Company will pay ADA as services are provided.  During the year ended December 31, 2011, the Company incurred expenses totaling approximately $607,000, for services provided under the Services Agreement.  Of these amounts, approximately $569,000 were recorded as research and development costs.

NOTE 7 -        COMMON STOCK WARRANTS AND OPTIONS

Warrants

All outstanding warrants were either exercised or expired unexercised prior to the year ended December 31, 2009, thus there are no warrants outstanding as of December 31, 2011 and 2010.  In June 2009, and various dates over the past several years, the Company’s Board agreed to extend the expiration date on certain outstanding warrants to purchase common stock to August 19, 2009.  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 $105,393 was recorded for the year ended December 31, 2009, under the Black-Scholes option pricing model for these warrant extensions.

The Company estimated the fair value of the warrants at the date of the maturity extension, based on the following weighted average assumptions during 2009:

Risk-free interest rate	0.11% - 0.27%
Expected life	1 to 4 months
Expected volatility	139.91% - 245.55%
Dividend yield	0.00%

71

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 7 -        COMMON STOCK WARRANTS AND OPTIONS (Continued)

As discussed in Note 6, on August 5, 2009, warrants held by two separate directors of the Company for a total of 6,487,408 shares were exercised, using the cashless exercise provision within the warrant agreements, resulting in the issuance of 5,126,265 shares of common stock with no cash proceeds received.  On August 19, 2009, all remaining warrants expired unexercised.  As a result, the Company’s outstanding warrants as of December 31, 2011, 2010 and 2009 were zero.

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 December 31, 2011 and 2010, 1,000,000 of the 1,500,000 options granted to this consultant had not yet vested.  

In March 2010, the Company granted 250,000 options to an individual for research and development consulting services to be rendered through September 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 during 2010.

In July 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 December 31, 2011 and 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, in July 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 6 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 had no vesting provisions.  The value of these options granted, totaling $203,022, was recognized as board compensation during July 2010.

In August 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 in 2010, which costs will be amortized over the expected life of the patent.

In September 2010, the Company granted 250,000 options to an outside consultant in connection with extending his consulting agreement with the Company through September 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 December 31, 2011 and 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.

72

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 7 -        COMMON STOCK WARRANTS AND OPTIONS (Continued)

In March 2011, the Company granted options for the purchase of 150,000 shares of common stock to an individual for accounting related services to be performed through December 30, 2011, which do not vest until such date.  The options have an exercise price of $0.14 per share, and are exercisable for up to five years.  The grant date fair value of these options was $20,042, in connection with which the Company recognized this entire amount during the year ended December 31, 2011.

In March 2011, the Company granted options for the purchase of 100,000 shares of common stock to an individual for web and press support services to be performed through December 30, 2011, which do not vest until such date. The options have an exercise price of $0.14 per share, and are exercisable for up to five years.  The grant date fair value of these options was $13,361, in connection with which the Company recognized this entire amount during the year ended December 31, 2011.

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	2.43%
Expected life	5 years
Expected volatility	176.45%
Dividend yield	0.00%

A summary of the status of the Company’s outstanding options as of December 31, 2011 and changes during the year then ended is presented below:

	Shares			Weighted Average Exercise Price
Outstanding, beginning of period		7,750,000		$	0.17
Granted		250,000		$	0.14
Expired/Canceled		(250,000	)	$	0.20
Exercised		-			n/a
Outstanding, end of period		7,750,000		$	0.17
Exercisable		3,250,000		$	0.15

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 $33,403 and $249,115 was recorded for the years ended December 31, 2011 and 2010, respectively, under the Black-Scholes option pricing model.  An additional amount of $67,465 has been capitalized as patent costs during 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.

NOTE 8 -        PROTOTYPE AGREEMENT

In June 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.  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 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 December 31, 2010, thus no shares have been issued and the Prototype Agreement was not renewed.

73

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 9 -        DUE TO STOCKHOLDERS AND ACCOUNTS PAYABLE – RELATED PARTIES

As of December 31, 2009, certain directors had advanced a total of $7,000 to the Company to cover operating expenses.  During 2011 and 2010, the Company repaid $6,000 and $1,000, respectively, of the amount outstanding.  As of December 31, 2011, there is no outstanding balance.

As of December 31, 2011 and 2010, the Company had outstanding $229,669 and $228,269, respectively, owed to certain consultants for unpaid previous years services. These consultants are stockholders of the Company and therefore have been classified as related parties.

NOTE 10 -      NOTES PAYABLE

Notes payable consisted of the following at December 31, 2011 and 2010:

	2011			2010
Notes payable to ten stockholders, due on demand, plus interest at 10% per annum (in arrears).  The Company is obligated to accept the rate at face value plus accrued interest as partial payment for shares the lenders may purchase from the Company upon exercise of the lenders’ option to acquire shares from the Company.	$	60,815		$	60,815
Notes payable to directors totaling $28,000 and a note payable to a third party in the amount of $9,000, due on April 22, 1995 (principal and accrued interest in arrears as of report date), plus interest at 8% per  annum.  Each lender has the right to convert any portion of the principal and interest into common stock at a price per share equal to the price per share under a prior private placement transaction.		37,000			37,000
Notes payable to former directors and a family member of a former director, due at various dates in 1995, 1996 and 1997 (principal and accrued interest in arrears as of report date), plus interest at 8% per annum.  The Company has the right to repay the loans with restricted stock at $0.10 per share if alternative financings do not occur.		182,676			182,676
Note payable to a financing company, payable in nine monthly installments currently at $705, interest at 7.75% per annum, matures on March 31, 2012.		2,758			2,775
Total Notes Payable		283,249			283,266
Less: Current Portion		(283,249	)		(283,266	)
Long-Term Notes Payable	$	-		$	-

The aggregate principal maturities of notes payable are as follows:

Year Ended December 31,	Amount
2012	$	283,249

74

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 11 -      DEBT FORGIVENESS

During the year ended December 31, 2009, an outside attorney of the Company forgave a total of $61,514 in previously accrued interest on past due balances.

NOTE 12 -      GOING CONCERN

The Company’s consolidated financial statements are prepared using US GAAP 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 December 31, 2011, which have resulted in an accumulated deficit of $26,741,298 at December 31, 2011.  The Company has funds sufficient to cover its operating costs for the next few months, has a working capital deficit of approximately $3,264,298, 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. If the Company were unsuccessful in any of the additional funding noted below, it will most likely be forced to substantially reduce or cease operations.

As discussed in Note 6 above, the Company entered into the Stock Purchase Agreement and established the Equity Line.  The Company does not anticipate needing to draw the full amount of the Equity Line to implement our business plan and to develop and market its location sterilization technologies.  The Company believes that it will need approximately $3 million during the twelve months following the SEC effective date for research, development, marketing, and related activities, as well as for general corporate purposes, including final product development and initiation of sales.  Pursuant to the Stock Purchase Agreement with Mammoth, the frequency and amounts of draws are within its control.  The Company is not obligated to make any draws, and the Company may draw any amount up to the full amount of the Equity Line, in its discretion.  The Company does not plan to draw more funds (and correspondingly put more shares to Mammoth) under the Equity Line than is necessary to implement its business plan.

Also, during 2011, the Company raised a total of $1,545,906 through the sale of 12,679,778 shares of common stock at prices ranging from $0.08 to $0.192 per share, which funds have been used to keep the Company current in its reporting obligations under the Exchange Act and to pay certain other corporate obligations including the initial costs of development for its hospital sterilization system.  Subsequent to December 31, 2011, through the date of this report, the Company raised a total of $789,310 through the sale of 7,306,089 shares of common stock at prices ranging from $0.10 to $0.165 per share.  In addition, if the Company were to need additional resources outside the Equity Line, the Company believes the Company would be able to raise additional funds from some of the same investors who have purchased shares from 2009 to 2012, 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 on a monthly basis, as needed as apparent to subsequent investments made as noted above and below in Note 14.

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.

75

MEDIZONE INTERNATIONAL, INC. AND SUBSIDIARIES

(A Development Stage Company)

Notes to the Consolidated Financial Statements

December 31, 2011 and 2010

NOTE 13 –     CUSTOMER DEPOSITS

In November 2011, the Company awarded the production manufacturing contract for AsepticSure™ to SMTC Corporation (SMTC), headquartered in Toronto, Canada.  SMTC maintains manufacturing facilities in Canada, the United States, Mexico and China.  The Company believes SMTC has the capacity to address all AsepticSure™ manufacturing requirements for the foreseeable future.  In January 2012, the Company initialed its first purchase order for five production validation units to be manufactured.  The production validation units are intended to be used for regulatory compliance and licensing validation, additional testing and early delivery purposes.

As of December 31, 2011, the Company received two purchase orders and related customer deposits totaling $40,000 to purchase the AsepticSure™ disinfection systems.  The Company anticipates deliveries of its first disinfection systems early in 2012.  As of December 31, 2011, these customer deposits have been reflected as current liabilities in the accompanying consolidated balance sheet.

NOTE 14 –     SUBSEQUENT EVENTS

Effective January 1, 2012, the Company entered into a lease agreement for its corporate offices in California that includes a monthly lease payment of $2,100 U.S. Dollars and has a lease term through December 31, 2012.

During January and February 2012, the Company sold an aggregate of 6,653,000 restricted shares of common stock to approximately 30 accredited investors for cash proceeds of $665,300 at a price of $0.10 per share.  There were no underwriters involved.

During January 2012, the Company issued 903,089 shares of common stock to Mammoth (as part of the Equity Line) for cash proceeds of $149,010, at a price of $0.165 per share.  There were no underwriters involved.

On February 21, 2012, the Board of Directors approved the 2012 Equity Incentive Award Plan and authorized up to 10,000,000 shares of common stock to be available for awards under the Plan.

On February 21, 2012, each of four directors of the Company was awarded stock options for the purchase of 1,000,000 shares of common stock, exercisable at a price of $0.23 per share, which was the closing price of the Company’s common stock reported on the OTC Bulletin Board on the date of grant.  In addition, certain officers, consultants and employees of the Company were awarded options in the aggregate for the purchase of 1,050,000 shares of stock at an exercise price of $0.23 per share.  Each of the options granted was fully vested on the date of grant.

76

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Edwin G. Marshall, certify that:

1.           I have reviewed this annual report on Form 10-K of Medizone International, Inc.

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Edwin G. Marshall                                                   

Name:           Edwin G. Marshall

Title:           Chief Executive Officer (Principal Executive Officer)

Date:           February 28, 2012

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Thomas E. (Tommy) Auger, certify that:

1.           I have reviewed this annual report on Form 10-K of Medizone International, Inc.

2.           Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.           Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.           The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.           Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.           Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.           Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.           Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.           The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.           All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.           Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/ Thomas E. (Tommy) Auger

Name:           Thomas E. (Tommy) Auger

Title:           Chief Financial Officer (Principal Accounting and Financial Officer)

Date:           February 28, 2012

EX-32.1

Exhibit 32.1

CERTIFICATION OF PERIODIC REPORT

I, Edwin G. Marshall, Chairman of the Board and Chief Executive Officer of Medizone International, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1)           the Annual Report on Form 10-K of the Company for the year ended December 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

(2)           the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 28, 2012

/s/ Edwin G. Marshall                                                      

Edwin G. Marshall

Chairman of the Board and Chief Executive Officer

(Principal Executive Officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

EX-32.2

Exhibit 32.2

CERTIFICATION OF PERIODIC REPORT

I, Thomas E. (Tommy) Auger, Chief Financial Officer of Medizone International, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

(1)           the Annual Report on Form 10-K of the Company for the year ended December 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78m); and

(2)           the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: February 28, 2012

/s/ Thomas E. (Tommy) Auger

Thomas E. (Tommy) Auger

Chief Financial Officer

(Principal Financial and Accounting Officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

XML

NOTE 2 - PROPERTY AND EQUIPMENT

12 Months Ended

Dec. 31, 2011

Property, Plant and Equipment Disclosure [Text Block]

NOTE 2 -        PROPERTY AND EQUIPMENT

Property and equipment, net consists of the following at December 31, 2011 and 2010:

	2011			2010
Office equipment	$	19,249		$	19,249
Furniture		6,307			6,307
Computers and software		7,003			5,092
Leasehold improvements		2,493			-
		35,052			30,648
Accumulated depreciation		(31,077	)		(29,304	)
Property and equipment, net	$	3,975		$	1,344

Depreciation expense for the years ended December 31, 2011 and 2010 was $1,770 and $1,697, respectively.

XML

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2011

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

NOTE 1 -        ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.      Organization

The consolidated financial statements presented are those of Medizone International, Inc. (Medizone-Nevada), and its wholly owned subsidiaries, Medizone International, Inc. (Medizone-Delaware) and Medizone Canada, Ltd. (MedCan).  The consolidated financial statements presented also include the accounts of the Canadian Foundation for Global Health (CFGH), a not-for-profit foundation based in Ottawa, Canada, considered a variable interest entity (“VIE”) as described below.  Collectively, they are referred to herein as the “Company”.  Medizone-Nevada was incorporated under the name of Madison Funding, Inc. on August 27, 1984 under the laws of the State of Nevada for the purpose of investing in, acquiring, operating and disposing of businesses or assets of any nature.  Effective March 26, 1986, Medizone-Nevada issued 37,500,000 shares of its common stock in exchange for the issued and outstanding common stock of Medizone-Delaware.

Medizone-Delaware was incorporated on January 31, 1986 under the state laws of Delaware.  At the time of the acquisition of Medizone-Delaware, Medizone-Nevada was essentially inactive, with no operations and minimal assets.  Additionally, the exchange of Medizone-Nevada’s common stock for the common stock of Medizone-Delaware resulted in the former stockholders of Medizone-Delaware obtaining control of Medizone-Nevada.  Accordingly, Medizone-Delaware became the continuing entity for accounting purposes, and the transaction was accounted for as a recapitalization of Medizone-Delaware with no adjustment to the basis of Medizone-Delaware’s assets acquired or liabilities assumed.  For legal purposes, Medizone-Nevada was the surviving entity.

On November 18, 1987, MedCan was incorporated under the laws of the Province of British Columbia.  Shortly thereafter, MedCan entered into a license agreement with the Company wherein the Company transferred to MedCan the licenses and rights necessary to permit MedCan to hold substantially the same rights with respect to the medical applications of ozone in Canada as the Company does in the United States.  As consideration for the transfer, the Company received 3,000,000 shares of MedCan and, in addition, purchased 1 share for the sum of $1.00.  Under a separate agreement among the Company, MedCan and Australian Gold Mines Corporation (“AGMC”), (which later changed its name to International Blue Sun Resource Corporation), AGMC purchased 130,000 shares of MedCan for $100,000.  On December 23, 1988, MedCan was recapitalized in a transaction in which the majority of its shares were exchanged for shares of KPC Investments (“KPC”).  Following this transaction, the Company owned 25,029,921 shares of KPC, representing 72% of the outstanding shares.  KPC then changed its name to Medizone Canada, Ltd. (“MCL”).  MedCan acquired all of the assets of MCL, consisting solely of cash in the amount of approximately $89,000.

In June 1998, the Company sold its interest in MCL for $125,000 cash and debt assumed of $8,417 less fees of $25,000 in a private transaction which resulted in a gain of $108,417 for the year ended December 31, 1998.  The Company retained ownership, however, of all of the issued and outstanding stock of MedCan, the Canadian subsidiary.

In late 2008, the Company assisted in the formation of the 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 its technology to as many in need as possible.

Accounting standards require a VIE to be consolidated by a company if that company absorbs a majority of the VIE’s expected losses and/or receives a majority of the 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 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 periods ended December 31, 2011 and 2010.

b.      Formation of Joint Venture

On June 22, 1995, the Company entered into a series of contracts which resulted in the formation of a joint venture subsidiary incorporated in New Zealand, Medizone New Zealand Limited (MNZ).  Prior to the cancellation of this joint venture on December 14, 2009 as described below, MNZ was a privately held corporation equally owned by the Company and Solwin Investments Limited (Solwin), a New Zealand corporation, and was a research and development stage company whose objective was to obtain regulatory approval for the distribution of the Company’s patented technology in New Zealand, Australia, South East Asia and the South Pacific Islands.  The principal of MNZ was Richard G. Solomon (Solomon), who is also a board member of the Company.

Originally, the Company had purchased 100% of MNZ from Solomon, a New Zealand citizen, who became a director of the Company in January 1996 and who caused the formation of MNZ on June 22, 1995.  Contemporaneously with this transaction, the Company sold 50% of MNZ to Solwin, a corporation owned by Solomon, for $150,000, of which the Company thereupon loaned $50,000 to MNZ on a demand basis.  The Company recognized a $100,000 gain on the sale of MNZ to Solwin.

Contemporaneous with the creation of the above share structure, the Company and MNZ entered into a Licensing Agreement (the Licensing Agreement) and a Managing Agent Agreement (the Managing Agent Agreement).

Pursuant to the Licensing Agreement, the Company granted an exclusive license to MNZ for its process and equipment patents and trademark in New Zealand.  MNZ has agreed to apply for corresponding patent protection for the patents in New Zealand and to use its best effort to exploit the rights granted in the agreement.  The License Agreement was to terminate on the date of the expiration of the last to expire of any patent obtained in New Zealand, or, if no such patents are obtained, on June 22, 2010.

Pursuant to the Managing Agent Agreement, MNZ was to act as the Company’s agent in the finding of other licensees of the Company’s patents and trademark in the following countries: Australia (including Australia and New Zealand), the South Pacific Islands, and South East Asia (including the Philippines, Indonesia and Vietnam).  The Managing Agent Agreement was to expire on the termination or expiration of the last of the licenses obtained pursuant thereto, subject to earlier termination by the Company upon an occurrence of certain events.

Until the joint venture was terminated during December 2009 as described in the following paragraph, the investment in the joint venture had been recorded under the equity method of accounting as the Company did not have ultimate control of the joint venture.

Effective December 14, 2009, the Company’s Board of Directors, in an effort to unwind the joint venture and reconvey to the Company all global marketing rights of the Company’s intellectual property, entered into a Termination Agreement (the “Termination Agreement”) whereby the Company issued a total of 312,500 shares of common stock (valued at $0.40 per share, an approximate 4.0% increase over the market value of the shares on the date the agreement was entered into) to Solwin as consideration for the early termination of the Licensing Agreement and the Managing Agent Agreement, and to retain all rights and licenses originally granted to MNZ.  Also as part of the Termination Agreement, the Company assigned its ownership rights and shares in MNZ back to Solwin.  During 2009, the Company recorded a loss of $125,000, as the Company was unable to determine the future value of the licensing rights acquired pursuant to the Termination Agreement.

c.      Business Activities

The Company’s current objective is to pursue an initiative in the field of hospital sterilization.  The Company is working on the development of an ozone-based technology, specifically for the purpose of decontaminating and sterilizing hospital surgical suites, emergency rooms, and intensive care units.

d.      Accounting Methods

The Company’s consolidated financial statements are prepared using the accrual method of accounting.  The Company has elected a December 31 year end.

e.      Cash and Cash Equivalents

Cash equivalents include short-term, highly liquid investments with maturities of three months or less at the time of acquisition.

f.      Basic 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 Years Ended December 31,
	2011			2010
Numerator
- Loss before extraordinary items	$	(1,940,217	)	$	(2,756,126	)
- Extraordinary items		-			-
Denominator (weighted average number of shares outstanding)		266,147,052			249,635,605
Basic loss per share
- Before extraordinary items	$	(0.01	)	$	(0.01	)
- Extraordinary items		0.00			0.00
Basic loss per share	$	(0.01	)	$	(0.01	)

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

g.      Property and Equipment

Property and equipment is recorded at cost.  Any major additions and improvements are capitalized.  The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as gain or loss on sale of equipment.  Depreciation is computed using the straight-line method over a period of: (1) three years for computers and software and (2) five years for office equipment and furniture.

h.      Provision for Taxes

As part of the process of preparing consolidated financial statements, the Company is required to estimate income taxes in each of the jurisdictions in which it operates.  This process involves estimating the Company’s actual current income tax exposure together with assessing temporary differences resulting from differing treatment of items for income tax and financial accounting purposes.  These temporary differences result in deferred tax assets and liabilities, the net amount of which is included in the Company’s consolidated balance sheets.  When appropriate, the Company records a valuation allowance to reduce its deferred tax assets to the amount that the Company believes is more likely than not to be realized.  Key assumptions used in estimating a valuation allowance include potential future taxable income, projected income tax rates, expiration dates of net operating loss and tax credit carry forwards, and ongoing prudent and feasible tax planning strategies.

At December 31, 2011, the Company had net operating loss (“NOL”) carryforwards of approximately $8,317,000 that may be offset against future taxable income and expire in years 2012 through 2032.  If substantial changes in the Company’s ownership should occur, there would also be an annual limitation of the amount of the NOL carryforwards which could be utilized.  No tax benefit had been reported in the consolidated financial statements as, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized and the carryforwards will expire unused.  The tax benefits of the NOL carryforwards are offset by a valuation allowance of the same amount.  Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  If the Company were to determine that it would be able to realize its deferred tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase income in the period such determination was made.

Interest and penalties associated with unrecognized tax benefits are classified as additional income taxes in the statement of operations.

Deferred tax assets at December 31, 2011 and 2010 are comprised of the following:

	2011			2010
Net operating loss carryforwards	$	3,243,600		$	3,124,500
Related party accruals		1,022,400			1,007,800
Depreciation		-			-
Valuation allowance		(4,266,000	)		(4,132,300	)
	$	-		$	-

The income tax provision differs from the amount of income tax determined by applying the U.S. federal income tax rate to pretax income from continuing operations for the years ended December 31, 2011 and 2010 due to the following:

	For the Years Ended December 31,
	2011			2010
Book income (loss)	$	(756,700	)	$	(1,074,900	)
Stock for expenses		46,000			109,300
Related party expense		-			(41,125	)
Depreciation		-			300
Other		15,000			400
Change in valuation allowance		695,700			1,006,025
	$	-		$	-

The Company accounts for income taxes in accordance with Accounting Standards Codification 740, Income Taxes (“ASC 740”).  The Company performs reviews of any material tax positions in accordance with and measurement standards established by ASC 740.  The Company had no unrecognized tax benefit which would affect the effective tax rate if recognized as of December 31, 2011 and 2010.  The Company also estimates that the unrecognized tax benefit will not change significantly within the next twelve months.  As the Company has significant NOL carry forwards, even if certain of the Company’s tax positions were disallowed, it is not foreseen that the Company would have to pay any taxes in the near future.  Consequently, the Company does not calculate the impact of interest or penalties on amounts that might be disallowed.

The Company files income tax returns in the U.S. federal and California jurisdictions.  With few exceptions, the Company is no longer subject to U.S. federal, state and local tax authorities for years before 2002.

i.      Principles of Consolidation

The consolidated financial statements include the accounts of Medizone International, Inc. (“Medizone-Nevada”) and its wholly owned subsidiaries, Medizone International, Inc. (“Medizone-Delaware”) and Medizone Canada, Ltd (“MedCan”).  The consolidated financial statements presented also include the accounts of the CFGH, a VIE.

All material intercompany accounts and transactions have been eliminated.

j.      Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in United States of America (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of expenses during the reporting period.  Actual results could differ from those estimates.

k.      Advertising

The Company follows the policy of charging the costs of advertising to expense as incurred.

l.      Stock Warrants and Options

Prior to 2005, the Company applied the provisions of “Accounting for Stock Issued to Employees”, and related interpretations in accounting for all stock option plans. Under this standard, compensation cost was recognized for stock options and warrants granted to employees when the option/warrant price is less than the market price of the underlying common stock on the date of grant.

The standards also require the Company to provide proforma information regarding net loss and net loss per share as if compensation costs for the Company’s stock option plans and other stock awards had been determined in accordance with the fair value based method.  The Company estimates the fair value of each stock award at the grant date by using the Black-Scholes option pricing model.

During 2006 thru 2009, the Company extended the maturity date on certain common stock warrants to certain directors and outside consultants (Note 7).  Stock based compensation expense for these warrants for the year ended December 31, 2009 was $105,393, related to the change in warrant terms.  As of December 31, 2009 all warrants were either exercised or expired.

m.      Trademark and Patents

Trademark and patents are recorded at cost.  Amortization is computed using the straight-line method over a period of seven years.  The Company evaluates the recoverability of intangibles and reviews the amortization period on a continual basis.  Several factors are used to evaluate intangibles, including management’s plans for future operations, recent operating results and projected, undiscounted cash flows.

n.      Revenue Recognition Policy

The Company currently has no source of revenues.  Revenue recognition policies will be determined when principal operations begin.

o.      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.

p.      Recent Accounting Pronouncements

The Financial Accounting Standards Board (“FASB”) has issued Accounting Standards Update (“ASU”) No. 2010-06, Fair Value Measurements and Disclosures about Fair Value Measurements (“ASU 2010-06). ASU 2010-06 affects all entities that are required to make disclosures about recurring and nonrecurring fair value measurements under FASB ASC Topic 820, originally issued as FASB Statement No. 157, Fair Value Measurements.  This ASU requires certain new disclosures and clarifies two existing disclosure requirements. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosures about purchases, sales, issuances, and settlements in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010 and for interim periods within those fiscal years.  The adoption of this new standard had no impact on our Consolidated Financial Statements.

q. Concentration of Credit Risk

The Company maintains its cash and cash equivalents in bank deposit accounts which, at times, exceed federally insured limits. The Emergency Economic Stabilization Act of 2008 temporarily increased FDIC deposit insurance from $100,000 to $250,000 per depositor through December 31, 2009.  The Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law in July 2010, made this $250,000 per depositor coverage limit permanent.  At December 31, 2011 and 2010, the Company had $0 and $185,894 of cash and cash equivalents that exceeded federally insured limits.  To date, the Company has not experienced a material loss or lack of access to its invested cash or cash equivalents; however, no assurance can be provided that access to the Company’s invested cash and cash equivalents will not be impacted by adverse conditions in the financial markets.

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Consolidated Balance Sheets (USD $)	Dec. 31, 2011	Dec. 31, 2010
CURRENT ASSETS
Cash	$ 129,759	$ 435,894
Prepaid expenses	47,286	8,800
Deferred consulting fees		63,923
Total Current Assets	177,045	508,617
PROPERTY AND EQUIPMENT, NET	3,975	1,344
OTHER ASSETS
Trademark and patents, net	146,342	117,771
Lease deposit	4,272	1,122
Total Other Assets	150,614	118,893
TOTAL ASSETS	331,634	628,854
CURRENT LIABILITIES
Accounts payable	475,912	451,412
Accounts payable – related parties	229,669	228,269
Accrued expenses	451,986	427,529
Accrued expenses – related parties	1,960,527	1,964,316
Due to stockholders		6,000
Customer deposits	40,000
Notes payable	283,249	283,266
Total Current Liabilities	3,441,343	3,360,792
CONTINGENT LIABILITIES (Note 5)	224,852	224,852
TOTAL LIABILITIES	3,666,195	3,585,644
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred stock, 50,000,000 shares authorized of $0.00001 par value, no shares issued or outstanding	0	0
Common stock, 395,000,000 shares authorized of $0.001 par value, 272,041,949 and 259,362,171 shares issued and outstanding, respectively	272,042	259,362
Additional paid-in capital	23,155,777	21,593,448
Other comprehensive loss	(21,082)	(8,519)
Deficit accumulated during the development stage	(26,741,298)	(24,801,081)
Total Stockholders' Deficit	(3,334,561)	(2,956,790)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$ 331,634	$ 628,854

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Consolidated Statement of Stockholders' Equity (Deficit) (Parentheticals) (USD $)	12 Months Ended																			12 Months Ended				12 Months Ended														12 Months Ended																																		12 Months Ended
	Dec. 31, 1987 Common stock issued for services Common Stock [Member]	Dec. 31, 1986 Common stock issued for services Common Stock [Member]	Dec. 31, 2010 Common stock issued for services Common Stock [Member]	Dec. 31, 2009 Common stock issued for services Common Stock [Member]	Dec. 31, 2003 Common stock issued for services Common Stock [Member]	Dec. 31, 2002 Common stock issued for services Common Stock [Member]	Dec. 31, 2000 Common stock issued for services Common Stock [Member]	Dec. 31, 1999 Common stock issued for services Common Stock [Member]	Dec. 31, 1998 Common stock issued for services Common Stock [Member]	Dec. 31, 1997 Common stock issued for services Common Stock [Member]	Dec. 31, 1995 Common stock issued for services Common Stock [Member]	Dec. 31, 1994 Common stock issued for services Common Stock [Member]	Dec. 31, 1993 Common stock issued for services Common Stock [Member]	Dec. 31, 1992 Common stock issued for services Common Stock [Member]	Dec. 31, 1991 Common stock issued for services Common Stock [Member]	Dec. 31, 1990 Common stock issued for services Common Stock [Member]	Dec. 31, 1989 Common stock issued for services Common Stock [Member]	Dec. 31, 1988 Common stock issued for services Common Stock [Member]	Dec. 31, 1996 Common stock issued for services Common Stock Subscribed	Dec. 31, 1987 Common stock issued for conversion of warrants Common Stock [Member]	Dec. 31, 1986 Common stock issued for conversion of warrants Common Stock [Member]	Dec. 31, 2000 Common stock issued for conversion of warrants Common Stock [Member]	Dec. 31, 1998 Common stock issued for conversion of warrants Common Stock [Member]	Dec. 31, 1988 Common stock issued for cash Common Stock [Member]	Dec. 31, 1987 Common stock issued for cash Common Stock [Member]	Dec. 31, 2010 Common stock issued for cash Common Stock [Member]	Dec. 31, 2009 Common stock issued for cash Common Stock [Member]	Dec. 31, 2008 Common stock issued for cash Common Stock [Member]	Dec. 31, 2003 Common stock issued for cash Common Stock [Member]	Dec. 31, 2002 Common stock issued for cash Common Stock [Member]	Dec. 31, 2001 Common stock issued for cash Common Stock [Member]	Dec. 31, 1996 Common stock issued for cash Common Stock [Member]	Dec. 31, 1993 Common stock issued for cash Common Stock [Member]	Dec. 31, 1992 Common stock issued for cash Common Stock [Member]	Dec. 31, 1991 Common stock issued for cash Common Stock [Member]	Dec. 31, 1990 Common stock issued for cash Common Stock [Member]	Dec. 31, 1989 Common stock issued for cash Common Stock [Member]	Dec. 31, 1988 Common stock issued for the exercise of options Common Stock [Member]	Dec. 31, 1987 Common stock issued for the exercise of options Common Stock [Member]	Dec. 31, 1992 Common stock issued for the exercise of options Common Stock [Member]	Dec. 31, 1989 Common stock issued for the exercise of options Common Stock [Member]	Dec. 31, 2011 Common stock shares subscribed Common Stock Subscribed	Dec. 31, 1994 Common stock shares subscribed Common Stock Subscribed	Dec. 31, 2008 Common stock issued for debt Common Stock [Member]	Dec. 31, 2002 Common stock issued for debt Common Stock [Member]	Dec. 31, 2000 Common stock issued for debt Common Stock [Member]	Dec. 31, 1994 Common stock issued for debt Common Stock Subscribed	Dec. 31, 2000 Common stock issued for debt Common Stock [Member]	Dec. 31, 1998 Common stock issued for debt Common Stock [Member]	Dec. 31, 2008 Common stock issued for services Common Stock [Member]	Dec. 31, 2002 Common stock issued for services Common Stock [Member]	Dec. 31, 1998 Common stock issued for services Common Stock [Member]	Dec. 31, 2003 Common stock issued for services Common Stock [Member]	Dec. 31, 1998 Common stock issued for services Common Stock [Member]	Dec. 31, 2000 Common stock issued for debt at $0.147 per share Common Stock [Member]	Dec. 31, 2000 Common stock issued for services at $0.285 per share Common Stock [Member]	Dec. 31, 2011 Common stock issued for cash Common Stock [Member]	Dec. 31, 2009 Common stock issued for cash Common Stock [Member]	Dec. 31, 2008 Common stock issued for cash Common Stock [Member]	Dec. 31, 2003 Common stock issued for cash Common Stock [Member]	Dec. 31, 2001 Common stock issued for cash Common Stock [Member]	Dec. 31, 2009 Common stock issued for cash Common Stock [Member]	Dec. 31, 2008 Common stock issued for cash Common Stock [Member]	Dec. 31, 2003 Common stock issued for cash Common Stock [Member]	Dec. 31, 2001 Common stock issued for cash Common Stock [Member]	Dec. 31, 2009 Common stock issued for cash Common Stock [Member]	Dec. 31, 2008 Common stock issued for cash Common Stock [Member]	Dec. 31, 2009 Common stock issued for cash Common Stock [Member]	Dec. 31, 2009 Common stock issued for cash Common Stock [Member]	Dec. 31, 2009 Common stock issued for patent legal work Common Stock [Member]	Dec. 31, 2010 Common stock issued for stock issuance costs Common Stock [Member]	Dec. 31, 1987 Common Stock [Member]	Dec. 31, 2010 Common Stock [Member]	Dec. 31, 2009 Common Stock [Member]	Dec. 31, 2008 Common Stock [Member]	Dec. 31, 2003 Common Stock [Member]	Dec. 31, 2002 Common Stock [Member]	Dec. 31, 2001 Common Stock [Member]	Dec. 31, 2000 Common Stock [Member]	Dec. 31, 1999 Common Stock [Member]	Dec. 31, 1998 Common Stock [Member]	Dec. 31, 1992 Common Stock [Member]	Dec. 31, 1991 Common Stock [Member]	Dec. 31, 1990 Common Stock [Member]	Dec. 31, 1989 Common Stock [Member]	Dec. 31, 1986 Common Stock [Member]	Dec. 31, 1997 Common Stock Subscribed	Dec. 31, 1996 Common Stock Subscribed	Dec. 31, 1995 Common Stock Subscribed	Dec. 31, 1994 Common Stock Subscribed	Dec. 31, 1993 Common Stock Subscribed
Equity issuance, value per share (in Dollars per share)	$ 0.12	$ 0.10			$ 0.05	$ 0.10	$ 0.175	$ 0.07	$ 0.08	$ 0.10	$ 0.10	$ 0.10	$ 0.10	$ 0.20	$ 0.17	$ 0.10	$ 0.18	$ 0.23	$ 0.10	$ 0.10	$ 0.10	$ 0.07	$ 0.07	$ 0.08	$ 0.16		$ 0.25	$ 0.01	$ 0.05	$ 0.10	$ 0.20	$ 0.10	$ 0.18	$ 0.16	$ 0.07	$ 0.04	$ 0.05	$ 0.50	$ 1.75	$ 0.50	$ 0.16		$ 0.10	$ 0.02	$ 0.10	$ 0.11	$ 0.10	$ 0.20	$ 0.05		$ 0.10	$ 0.05	$ 0.02	$ 0.09	$ 0.147	$ 0.285		$ 0.02	$ 0.03	$ 0.05	$ 0.15	$ 0.03	$ 0.02	$ 0.05	$ 0.15	$ 0.06	$ 0.03	$ 0.10	$ 0.15	$ 0.295	$ 0.17	$ 0.69	$ 0.21	$ 0.40	$ 0.02	$ 0.05	$ 0.10	$ 0.18	$ 0.55	$ 0.07	$ 0.09	$ 0.15	$ 0.45	$ 0.06	$ 0.12	$ 0.03	$ 0.07	$ 0.10	$ 0.10	$ 0.18	$ 0.10
Equity issuance, date	Dec. 31, 1987	Jul. 31, 1986																		Jan. 31, 1987	Dec. 31, 1986			Sep. 30, 1988	Jun. 30, 1987													Jan. 31, 1988	Aug. 31, 1987																																	Mar. 31, 1987
Equity issuance, value per share range			$0.19 to $0.29	$0.036 to $0.10																						$0.12 to $0.25																$0.08 to $0.12								$0.03 to $0.042							$0.08 to $0.192

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Consolidated Statements of Cash Flows (USD $)	12 Months Ended		311 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2011
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss	$ (1,940,217)	$ (2,756,126)	$ (26,741,298)
Adjustments to reconcile net loss to net cash Used in operating activities:
Depreciation and amortization	22,452	9,740	82,883
Stock issued for services		1,323,843	4,714,741
Stock issued for the early termination of a marketing rights agreement and joint venture agreement			125,000
Amortization of deferred consulting fees	63,923	21,211	201,311
Expense on extension of warrants below market value			2,092,315
Value of stock options granted	33,404	249,115	428,616
Bad debt expense			48,947
Non-controlling interest in loss			(26,091)
Loss on disposal of equipment			693,752
Gain on settlement of debt and lawsuit settlement			(603,510)
Changes in operating assets and liabilities:
Prepaid expenses and deposits	(36,772)	761	(86,842)
Customer deposits	40,000		40,000
Accounts payable and accounts payable – related parties	25,900	(19,345)	1,326,458
Accrued expenses and accrued expenses – related parties	20,668	(79,059)	3,060,536
Net Cash Used by Operating Activities	(1,770,642)	(1,249,860)	(14,643,182)
CASH FLOWS FROM INVESTING ACTIVITIES:
Trademark and patents	(49,250)	(38,909)	(102,392)
Purchase of property and equipment	(4,404)		(48,586)
Net Cash Used by Investing Activities	(53,654)	(38,909)	(150,978)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from lawsuit settlement			415,000
Principal payments on notes payable	(4,881)	(2,720)	(203,679)
Cash received from notes payable			1,129,518
Advances from stockholders			44,658
Repayment on stockholders advances	(6,000)	(1,000)	(31,191)
Capital contributions			439,870
Stock issuance costs	(4,300)	(10,000)	(119,612)
Increase in non-controlling interest			14,470
Issuance of common stock for cash	1,545,905	1,383,400	13,255,967
Net Cash Provided by Financing Activities	1,530,724	1,369,680	14,945,001
EFFECTS ON CURRENCY EXCHANGE RATE	(12,563)	(4,908)	(21,082)
NET INCREASE IN CASH	(306,135)	76,003	129,759
CASH AT BEGINNING OF PERIOD	435,894	359,891
CASH AT END OF PERIOD	129,759	435,894	129,759
CASH PAID FOR
Interest	1,339	155	31,357
NON-CASH FINANCING ACTIVITIES
Financing of insurance policy	4,864	2,775	7,639
Stock issued for prepaid consulting fees		63,923	301,811
Stock issued for conversion of debt			4,373,912
Stock issued for license agreement			693,752
Stock issued for patent costs		$ 67,465	$ 82,215

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Consolidated Balance Sheets (Parentheticals) (USD $)	Dec. 31, 2011	Dec. 31, 2010
Preferred stock, shares authorized	50,000,000	50,000,000
Preferred stock, par value (in Dollars per share)	$ 0.00001	$ 0.00001
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, shares authorized	395,000,000	395,000,000
Common stock, par value (in Dollars per share)	$ 0.001	$ 0.001
Common stock, shares issued	272,041,949	259,362,171
Common stock, shares outstanding	272,041,949	259,362,171

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NOTE 10 - NOTES PAYABLE

12 Months Ended

Dec. 31, 2011

Debt Disclosure [Text Block]

NOTE 10 -      NOTES PAYABLE

Notes payable consisted of the following at December 31, 2011 and 2010:

	2011			2010
Notes payable to ten stockholders, due on demand, plus interest at 10% per annum (in arrears).  The Company is obligated to accept the rate at face value plus accrued interest as partial payment for shares the lenders may purchase from the Company upon exercise of the lenders’ option to acquire shares from the Company.	$	60,815		$	60,815
Notes payable to directors totaling $28,000 and a note payable to a third party in the amount of $9,000, due on April 22, 1995 (principal and accrued interest in arrears as of report date), plus interest at 8% per  annum.  Each lender has the right to convert any portion of the principal and interest into common stock at a price per share equal to the price per share under a prior private placement transaction.		37,000			37,000
Notes payable to former directors and a family member of a former director, due at various dates in 1995, 1996 and 1997 (principal and accrued interest in arrears as of report date), plus interest at 8% per annum.  The Company has the right to repay the loans with restricted stock at $0.10 per share if alternative financings do not occur.		182,676			182,676
Note payable to a financing company, payable in nine monthly installments currently at $705, interest at 7.75% per annum, matures on March 31, 2012.		2,758			2,775
Total Notes Payable		283,249			283,266
Less: Current Portion		(283,249	)		(283,266	)
Long-Term Notes Payable	$	-		$	-

The aggregate principal maturities of notes payable are as follows:

Year Ended December 31,	Amount
2012	$	283,249

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Document And Entity Information (USD $)	12 Months Ended
	Dec. 31, 2011	Feb. 28, 2012	Jun. 30, 2011
Document and Entity Information [Abstract]
Entity Registrant Name	Medizone International Inc
Document Type	10-K
Current Fiscal Year End Date	--12-31
Entity Common Stock, Shares Outstanding		279,598,038
Entity Public Float			$ 49,523,358
Amendment Flag	false
Entity Central Index Key	0000753772
Entity Current Reporting Status	Yes
Entity Voluntary Filers	No
Entity Filer Category	Smaller Reporting Company
Entity Well-known Seasoned Issuer	No
Document Period End Date	Dec. 31, 2011
Document Fiscal Year Focus	2011
Document Fiscal Period Focus	FY

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NOTE 11 - DEBT FORGIVENESS

12 Months Ended

Dec. 31, 2011

Debt Forgiveness Disclosure [Text Block]

NOTE 11 -      DEBT FORGIVENESS

During the year ended December 31, 2009, an outside attorney of the Company forgave a total of $61,514 in previously accrued interest on past due balances.

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Consolidated Statements of Operations and Other Comprehensive Loss (USD $)	12 Months Ended		311 Months Ended
	Dec. 31, 2011	Dec. 31, 2010	Dec. 31, 2011
REVENUES			$ 133,349
EXPENSES
Cost of sales			103,790
General and administrative	946,833	1,802,151	19,359,651
Research and development	945,848	920,291	5,105,928
Expense on extension of warrants			2,092,315
Depreciation and amortization	22,541	9,823	83,055
Bad debt expense			48,947
Total Expenses	1,915,222	2,732,265	26,793,686
Loss from Operations	(1,915,222)	(2,732,265)	(26,660,337)
OTHER INCOME (EXPENSES)
Gain on sales of subsidiaries			208,417
Debt forgiveness			61,514
Non-controlling interest in loss			26,091
Other income			19,780
Interest expense	(24,995)	(23,861)	(1,166,501)
Loss on termination of license agreement			(125,000)
Total Other Expenses	(24,995)	(23,861)	(975,699)
LOSS BEFORE EXTRAORDINARY ITEMS	(1,940,217)	(2,756,126)	(27,636,036)
EXTRAORDINARY ITEMS
Debt forgiveness			479,738
Lawsuit settlement			415,000
Total Extraordinary Items			894,738
NET LOSS	(1,940,217)	(2,756,126)	(26,741,298)
OTHER COMPREHENSIVE LOSS
Loss on foreign currency translation	(12,563)	(4,908)	(21,082)
TOTAL COMPREHENSIVE LOSS	$ (1,952,780)	$ (2,761,034)	$ (26,762,380)
BASIC LOSS PER SHARE (in Dollars per share)	$ (0.01)	$ (0.01)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING (in Shares)	266,147,052	249,635,605

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NOTE 5 - COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2011

Commitments and Contingencies Disclosure [Text Block]

NOTE 5 -        COMMITMENTS AND CONTINGENCIES

The Company is subject to certain claims and lawsuits arising in the normal course of business.  In the opinion of management, uninsured losses, if any, resulting from the ultimate resolution of these matters will not have a material effect on the Company’s consolidated financial position, results of operations, or cash flows.

Litigation

Rakas vs. Medizone International, Inc. - A former consultant brought this action against the Company claiming the Company had failed to pay consulting fees under a consulting agreement.  In September 2001, the parties agreed to settle the matter for $25,000.  The Company, however, did not have the funds to pay the settlement and the plaintiff moved the court to enter a default judgment in the amount of $143,000 in January 2002.  On May 8, 2002, the court vacated the default judgment and requested that the Company post a bond of $25,000 to cover the settlement previously entered into by the parties.  The Company has been unable to post the required bond amount as of the date of this report.  Therefore, the Company has recorded, as part of accounts payable, the original default judgment in the amount of $143,000, plus fees totaling $21,308, as of December 31, 2011 and 2010.  The Company intends to contest the judgment if and when it is able to in the future.

Contingent Liabilities

As of December 31, 2011 and 2010, the Company has recorded contingent liabilities totaling $224,852 related to certain past due payables for which the Company has not received invoices or demands for over ten years.  Although management of the Company does not believe that the amounts will ever be paid, the amounts are being recorded as contingent liabilities until such time as the Company is certain that no liability exists and until the statute of limitations has expired.

The Company’s Board of Directors has approved the following salaries/consulting fees for its key officers: 1) $170,000 a year for the Company’s Chief Executive Officer and increases to $195,500 effective March 1, 2012, and 2) $60,000 a year for the Company’s Chief Financial Officer.

Operating Leases

In 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 initial lease term expired on June 30, 2011, but has been extended to June 30, 2012, with a monthly lease payment increasing from $1,300 to $1,350 Canadian Dollars (“CD”) plus the applicable Goods and Services Tax (“GST”).  

A second laboratory space for full scale room testing also expired on June 30, 2011, but was extended to June 30, 2012, with a monthly lease payment increasing from $1,200 to $1,250 CD, plus the applicable GST.  In March 2011, the Company also entered into a lease agreement and established its own corporate offices in California that includes a monthly lease payment of $2,500 U.S. Dollars and is renewable on a month to month basis following the initial lease term that ended in May 2011.  The Company elected to terminate this lease in December 2011 and enter into a new corporate office lease effective January 1, 2012 (see Note 14).

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NOTE 4 - ACCRUED EXPENSES AND ACCRUED EXPENSES - RELATED PARTIES

12 Months Ended

Dec. 31, 2011

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

NOTE 4 -        ACCRUED EXPENSES AND ACCRUED EXPENSES – RELATED PARTIES

Accrued expenses and accrued expenses – related parties consist of the following at December 31, 2011 and 2010:

	2011		2010
Accrued payroll and consulting – related parties	$	1,841,922	$	1,845,422
Accrued interest		431,302		407,646
Accrued payroll taxes – related parties		118,605		118,894
Other accruals		20,684		19,883
Total	$	2,412,513	$	2,391,845

Accrued expenses – related parties relate to accrued but unpaid prior payroll and consulting fees (and associated taxes) for certain of the Company’s employees who are also directors, officers or stockholders.

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NOTE 12 - GOING CONCERN

12 Months Ended

Dec. 31, 2011

Going Concern Disclosure [Text Block]

NOTE 12 -      GOING CONCERN

The Company’s consolidated financial statements are prepared using US GAAP 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 December 31, 2011, which have resulted in an accumulated deficit of $26,741,298 at December 31, 2011.  The Company has funds sufficient to cover its operating costs for the next few months, has a working capital deficit of approximately $3,264,298, 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. If the Company were unsuccessful in any of the additional funding noted below, it will most likely be forced to substantially reduce or cease operations.

As discussed in Note 6 above, the Company entered into the Stock Purchase Agreement and established the Equity Line.  The Company does not anticipate needing to draw the full amount of the Equity Line to implement our business plan and to develop and market its location sterilization technologies.  The Company believes that it will need approximately $3 million during the twelve months following the SEC effective date for research, development, marketing, and related activities, as well as for general corporate purposes, including final product development and initiation of sales.  Pursuant to the Stock Purchase Agreement with Mammoth, the frequency and amounts of draws are within its control.  The Company is not obligated to make any draws, and the Company may draw any amount up to the full amount of the Equity Line, in its discretion.  The Company does not plan to draw more funds (and correspondingly put more shares to Mammoth) under the Equity Line than is necessary to implement its business plan.

Also, during 2011, the Company raised a total of $1,545,906 through the sale of 12,679,778 shares of common stock at prices ranging from $0.08 to $0.192 per share, which funds have been used to keep the Company current in its reporting obligations under the Exchange Act and to pay certain other corporate obligations including the initial costs of development for its hospital sterilization system.  Subsequent to December 31, 2011, through the date of this report, the Company raised a total of $789,310 through the sale of 7,306,089 shares of common stock at prices ranging from $0.10 to $0.165 per share.  In addition, if the Company were to need additional resources outside the Equity Line, the Company believes the Company would be able to raise additional funds from some of the same investors who have purchased shares from 2009 to 2012, 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 on a monthly basis, as needed as apparent to subsequent investments made as noted above and below in Note 14.

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.

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NOTE 8 - PROTOTYPE AGREEMENT

12 Months Ended

Dec. 31, 2011

Prototype Agreement Disclosure [Text Block]

NOTE 8 -        PROTOTYPE AGREEMENT

In June 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.  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 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 December 31, 2010, thus no shares have been issued and the Prototype Agreement was not renewed.

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NOTE 6 - EQUITY TRANSACTIONS

12 Months Ended

Dec. 31, 2011

Stockholders' Equity Note Disclosure [Text Block]

NOTE 6 -        EQUITY TRANSACTIONS

Unless otherwise stated, all transactions shown below were with unrelated parties and the securities issued were restricted.

Medizone-Nevada initially issued 5,500,000 shares in a private transaction.

On March 26, 1986, Medizone-Nevada issued 37,500,000 shares of common stock, representing 87.2% of the then outstanding shares, to the stockholders of Medizone-Delaware, including two officers and directors, in exchange for all of the shares of Medizone-Delaware.  The costs of the transactions were offset against paid-in capital.

In July 1986, the Company issued 50,000 shares of common stock to individuals for services rendered.

During the period from August 1986 through October 31, 1986, the final expiration date for exercise, warrants to purchase 7,814,600 shares together with cash totaling $781,460 were received by the Company which then issued 7,814,600 shares of new common stock.  In January 1987, an additional 2,600 shares were issued in exchange for warrants and cash of $259.

In March 1987, the Company issued 1,000,000 shares of common stock in exchange for a patent.

In June 1987, the Company issued 950,000 shares to individuals in private transaction for aggregate proceeds of $150,000.

During the period from June 1987 through July 1987, the Company issued 203,167 shares of common stock to various vendors and individuals for services rendered in 1986 and 1987.

On August 26, 1987, an officer of the Company exercised options to purchase 250,000 shares of common stock.  In January 1988, two holders exercised their options and acquired an aggregate of 200,000 shares of common stock.

On September 26, 1988, the Company sold, in a private placement, 1,000,000 shares of common stock at $0.08 per share to an individual.

During 1988, the Company issued a total of 35,000 shares of common stock for services.

During 1989, the Company issued 261,889 shares of common stock to various vendors and individuals for services rendered in 1988 and 1989.  The Company also issued 5,790,000 shares to individuals in private transactions for aggregate proceeds of $291,500.

During 1989, the Company satisfied obligations for notes payable to and accrued interest due to unrelated individuals totaling $377,539 by the issuance of 3,899,532 shares of common stock.  The Company issued 250,000 shares of common stock to an officer and 600,000 shares of common stock to three advisors to the Company as additional compensation for work done for the Company.  These issuances were ascribed values of $60,650 and $145,539, respectively, by the Company.  Two holders exercised their options and acquired an aggregate of 375,000 shares of common stock.

During 1990, the following equity transactions occurred: The Company issued 4,250,000 shares to individuals in private transactions for aggregate proceeds of $179,500; the Company satisfied obligations totaling $125,000 to the former vice president, secretary and treasurer as well as director by issuing 2,272,727 shares of common stock at $0.055 per share; the Company satisfied an outstanding account payable to an unrelated individual totaling $15,000 by the issuance of 150,000 shares of common stock at $0.10 per share; and the Company issued to an employee and four other unrelated persons as compensation or payment a total of 880,000 shares of common stock to which it ascribed a value of $88,000.

During 1991, the following equity transactions occurred: The Company issued 4,366,667 shares to individuals in private transactions for aggregate proceeds of $310,000; the Company issued a total of 425,000 shares of common stock for services and accrued liabilities of which an aggregate of 100,000 shares were issued to two directors; and three holders exercised their options and acquired an aggregate of 450,000 shares of common stock.

During 1992, the following equity transactions occurred: The Company issued 2,702,335 shares to individuals in private transactions for aggregate proceeds of $430,350; the Company issued a total of 401,500 shares of common stock for services and accrued liabilities; holders exercised options and acquired an aggregate of 250,000 shares of common stock.

During 1993, the following equity transactions occurred: The Company issued 1,471,666 shares to individuals in private transactions for aggregate proceeds of $271,000; the Company issued a total of 5,347,219 shares of common stock for services.  Also, during 1993, a total of $261,915 was received in cash for 2,619,150 shares subscribed as a result of a private placement offering.  The offering commenced as of November 26, 1993, with a maximum of $700,000 to be raised in gross proceeds from the sale of up to 7,000,000 shares.

During 1994, the following equity transactions occurred: The Company issued a total of 1,431,590 shares of common stock for services; the Company issued a total of 1,125,834 shares of common stock to certain prior purchasers of common stock in recognition of disparity in purchase in contemporaneous offerings.  Also during 1994, a total of $680,040 was received in cash for 6,800,499 shares subscribed as a result of the offering.  Subsequent to the offering, an additional $316,860 was received in cash from foreign investors subscribing to 3,168,600 shares of common stock.  On December 28, 1994, the Company settled a dispute regarding the validity of notes payable to former management in the amount of $2,033,629 by agreeing to issue 11,250,000 common shares (recorded as shares subscribed) in satisfaction of the total amount of the debt.

Also in 1994, $40,000 of notes payable (a portion of loans totaling $60,000) together with interest was satisfied by issuing 416,500 shares of common stock.

During 1995, the following equity transactions occurred: The Company issued a total of 2,050,000 shares of common stock for services. $911,825 was received from investors subscribing to 9,118,260 shares of common stock.  Also, 17,524,860 common shares, previously recorded as shares subscribed, were issued, and 1,242,727 were retired in accordance with the settlement agreement with former management.  200,000 of redeemable shares were converted into common stock.  The Company sold shares of its New Zealand subsidiary for aggregate proceeds of $150,000.

During 1996, the Company received stock subscription agreements for the purchase of 17,254,860 shares of its common stock, together with proceeds totaling $725,447 from sales of its securities to non-United States investors, outside of the United States pursuant to Regulation S promulgated under the Securities Act of 1993.  Approximately $635,447 of these proceeds were from the sale of the Company’s common stock at a per share price of $0.10 (including $37,500 for 375,000 shares from Richard G. Solomon, at the time a director of the Company).  The remaining $90,000 were from the sale of 900,000 units, each unit consisting of one share of the Company’s common stock at a per share price of $0.10 to a director pursuant to the non-public offering exemption from registration under the Securities Act.  In May 1996, the Company issued 600,000 shares of its common stock to employees and 250,000 shares of its common stock to its public relations consultant as additional compensation.  The Company also issued 565,875 shares of its common stock to various consultants for services rendered.

During 1997, the Company issued 3,089,680 previously subscribed shares of its common stock and also issued 3,746,336 shares of its common stock to various consultants for services rendered.  Also in 1997, the Company received $400,001 for subscriptions to acquire 5,714,285 shares of its common stock and warrants to purchase 9,285,715 shares of common stock at $0.07 per share, 25,000,000 shares at $0.20 per share, and 33,333,333 shares at $0.15 per share.

During 1998, the Company issued 5,714,286 previously subscribed shares of its common stock and also issued a total of 4,265,000 shares of its common stock to various individuals for services rendered.  Also in 1998, the Company issued 857,142 shares of common stock through exercise of outstanding warrants at $0.07 per share for a total of $60,000, and issued 1,832,377 shares in lieu of outstanding debt of $126,418. The Company also canceled 630,000 shares for services that were never performed.

During 1999, the Company issued 25,000 shares of its common stock to an individual for services rendered valued at $1,750.  In addition, the Company issued 936,507 shares of its common stock through the exercise of outstanding warrants at $0.07 per share for a total of $65,555.  The Company also recognized an additional expense of $123,389 for the extension of warrants below market value.

During 2000, the Company issued 3,142,857 shares of common stock through the exercise of outstanding warrants at $0.07 per share for a total of $220,000.  The Company issued common stock for services in two different instances during the year.  One issuance was of 350,000 shares of common stock for a total of $61,250.  The other issuance was for 300,000 shares of common stock for a total of $85,500.  The Company issued common stock for debt in four separate instances.  The first one being 2,020,000 shares of common stock issued for a total of $222,200.  The second issuance was 95,000 shares of common stock for a total of $14,000.  The third issuance was 20,000 shares of common stock for a total of $4,000.  The fourth issuance was 100,000 shares of common stock for a total of $55,000.  The Company also canceled 2,000,000 shares of common stock pursuant to the settlement agreement with a former Chief Financial Officer of the Company.  The Company also recognized an additional expense of $1,743,468 for the extension of warrants below market value.

During 2001, the Company issued a total of 1,422,221 shares of common stock at prices ranging from $0.15 to $0.20 per share for total proceeds of $254,981.  Pursuant to these stock issuances, the Company granted warrants to purchase 2,122,221 shares of common stock at exercise prices of $0.15 to $0.20 per share.  25,000,000 warrants previously outstanding also expired during 2001, unexercised.

During 2002, the Company issued a total of 1,250,000 shares of common stock at $0.10 per share for total proceeds of $125,000.  The Company also granted the investors warrants to purchase 1,250,000 shares of common stock at $0.10 per share, exercisable over a two-year term.  The market price of the common stock was $0.10 per share on the date of the issuance of the shares and grant of the warrants.

Also during the year ended December 31, 2002, the Company issued a total of 677,368 shares of common stock for services rendered and repayment of outstanding debt at $0.10 per share for a total of $67,737.  The Company also issued a total of 480,000 shares of common stock, pursuant to an S-8 registration, for services rendered at $0.10 per share for a total of $48,000.

During 2003, the Company issued a total of 865,000 shares of common stock at $0.05 per share for total proceeds of $43,250.  The Company also granted the investors warrants to purchase 865,000 shares of common stock at $0.05 per share, exercisable over a two-year term.  The market price of the common stock was $0.05 per share on the date of the issuance of the shares and grant of the warrants.

Also during the year ended December 31, 2003, the Company issued 460,000 shares of common stock at $0.05 per share in lieu of a note payable totaling $23,000 and 100,000 shares of common stock to an officer of the Company for services rendered valued at $0.05 per share for a total value of $5,000.

The Company also issued 2,000,000 shares of restricted common stock to an individual pursuant to a “Letter of Understanding / Employment” whereby the individual was issued the shares as an incentive for him to enter into a future employment agreement with the Company once initial funding is obtained.  The shares have been valued at $0.02 per share, the market price of the common stock on the date of issuance.  The individual was also issued 2,000,000 warrants exercisable at $0.40 per share.  The warrants cannot be exercised, however, unless the individual remains employed by the Company for a minimum of three years. The warrants carry a five year term and include a cashless exercise option.

During 2007, the Company’s Board of Directors approved various stock issuances to the Company’s directors, officers and outside consultants for a total of 11,250,000 shares of common stock, valued at $0.02 per share or $225,000, the market value of the shares on the date that the shares were approved to be issued.  These shares were eventually issued during May 2008.

During May 2008, the Company issued 8,000,000 shares of common stock for cash proceeds received during March and April 2008 totaling $80,000, or $0.01 per share.

In addition, during May 2008, a total of 5,463,333 shares of restricted common stock were issued for cash proceeds previously received during 2004, 2005 and 2006 (previously recorded as stock deposits) totaling $110,100.  An additional 409,075 shares of common stock were issued to a Company director in repayment of an $8,181 loan previously received by the Company in a prior year.

During July and September 2008, the Company issued an additional 3,300,000 shares of common stock for cash proceeds of $99,000, or $0.03 per share.

Effective September 2, 2008, the Company’s Board of Directors approved the issuance of a total of 1,000,000 restricted shares to a public relations firm, for public relations and corporate communications services to be rendered valued at $42,000, or $0.042 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  The consulting agreement is based on a one-year term, the shares will vest in equal increments, and the consulting expense will be recognized over the same period.  $14,000 of the $42,000 consulting expense was recognized during the year ended December 31, 2008, with the remaining $28,000 recognized during the year ended December 31, 2009.

Effective September 15, 2008, the Company’s Board of Directors approved the issuance of a total of 1,000,000 restricted shares to a strategic management consulting firm for services rendered valued at $40,000, or $0.04 per share, which represented the market value of the shares on the date that the shares were approved to be issued.

Effective September 19, 2008, the Company’s Board of Directors approved the issuance of a total of 4,000,000 free-trading shares to two individuals for management consulting services to be rendered valued at $120,000, or $0.03 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  The consulting agreements are based on a four-month term, the shares vest in equal increments, and the consulting expense is recognized over the same period.  $96,000 of the $120,000 consulting expense was recognized during the year ended December 31, 2008, with the remaining $24,000 recognized during the year ended December 31, 2009.

Effective November 5, 2008, the Company’s Board of Directors approved the issuance of 1,000,000 free-trading shares to an individual for consulting services to be rendered valued at $30,000, or $0.03 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  The consulting agreement is based on a six-month term, the shares vest in equal increments, and the consulting expense is recognized over the same period.  $10,000 of the $30,000 consulting expense was recognized during the year ended December 31, 2008, with the remaining $20,000 recognized during the year ended December 31, 2009.

During December 2008, the Company issued 3,333,333 shares of common stock for cash proceeds received totaling $100,000, or $0.03 per share.  Also during 2008, a director contributed services valued at $16,667.

During April 2009, the Company’s Board of Directors approved the issuance of 700,000 (350,000 restricted and 350,000 free-trading) shares to a consultant 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 vest in equal increments, and the consulting expense is to be recognized over the same period.  $16,800 of the $25,200 was recognized during the year ended December 31, 2009, with the remaining $8,400 recognized during the year ended December 31, 2010.

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, with the remaining $7,589 recognized during the year ended December 31, 2010.

During June 2009, pursuant to a consulting agreement that included a cash payment of $7,200, the Company’s Board of Directors approved the issuance of 200,000 shares of common stock to a consultant valued at $8,400, or $0.042 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 three-and-one-half month term, the shares vested in equal increments, and the total consulting expense was recognized during the year ended December 31, 2009.

During September 2009, the Company’s Board of Directors approved the issuance of 250,000 shares of common stock to a consultant valued at $25,000, or $0.10 per share, which represented the market value of the shares on the date that the shares were approved to be issued.  15,000 of the shares issued were issued in lieu of outstanding debt owed to the consultant, totaling $1,500.  The remaining 235,000 shares issued were based on a consulting agreement expiring on January 31, 2010, the shares vest in equal increments, and the $23,500 consulting expense is to be recognized over the same period.  $18,278 of the $23,500 was recognized during the year ended December 31, 2009, with the remaining $5,222 recognized during the year ended December 31, 2010.

Total deferred consulting fees related to the above mentioned agreements as of December 31, 2009 was $21,211 which will be recognized over the subsequent periods as previously discussed.

Effective May 27, 2009, the Company’s Board of Directors approved the issuance of a total of 100,000 shares of common stock to a consultant for medical research services rendered valued at $3,900, or $0.039 per share, which represented the market value of the shares on the date that the shares were approved to be issued.

Effective June 12, 2009, the Company’s Board of Directors approved the issuance of a total of 203,497 shares of common stock to a consultant for medical research services rendered valued at $20,350, or $0.10 per share, which represented the market value of the shares on the date that the shares were approved to be issued.

On August 5, 2009, warrants held by two separate directors of the Company for a total of 6,487,408 shares were exercised, using the cashless exercise provision within the warrant agreements, resulting in the issuance of 5,126,265 shares of common stock with no cash proceeds received.

Effective October 13, 2009, the Company’s Board of Directors approved the issuance of a total of 453,569 shares of common stock to two separate consultants for medical research and website design services rendered valued at $29,483, or $0.065 per share, which represented the market value of the shares on the date that the shares were approved to be issued.

Effective November 30, 2009, the Company’s Board of Directors approved the issuance of a total of 50,000 shares of common stock to a patent attorney for patent legal services rendered valued at $14,750, or $0.295 per share, which represented the market value of the shares on the date that the shares were approved to be issued.

Effective December 15, 2009, the Company’s Board of Directors approved the issuance of a total of 88,408 shares of common stock to a consultant for medical research services rendered valued at $34,037, or $0.0385 per share, which represented the market value of the shares on the date that the shares were approved to be issued.

During the year ended December 31, 2009, the Company issued a total of 33,791,065 shares of common stock for cash proceeds received totaling $1,263,040, at prices ranging from $0.02 to $0.25 per share.

As previously discussed in Note 1, effective December 14, 2009, the Company’s Board of Directors approved the issuance of a total of 312,500 restricted shares of common stock to Solwin, pursuant to a Termination Agreement.  The shares were valued at $0.40 per share, which represented an approximate 4.0% increase over the market value of the shares on the date of the agreement.  The shares were issued as full consideration for the early termination of a Licensing Agreement and a Managing Agent Agreement, and to retain all rights and licenses originally granted to MNZ.  Also as part of the Termination Agreement, the Company assigned its ownership rights and shares in MNZ back to Solwin.  For the year ended December 31, 2009, the Company recorded a loss of $125,000, as the Company was unable to determine the future value of the licensing rights acquired pursuant to the Termination Agreement.

Common Stock for Cash – 2010

In January and February 2010, the Company 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 accredited investors not otherwise affiliated with the Company.  There were no underwriters involved.

In April, May and June 2010, the Company issued an aggregate of 3,622,777 shares of common stock for cash proceeds totaling $441,400, at prices ranging from $0.12 to $0.18 per share.  The shares were issued in private transactions to accredited investors not otherwise affiliated with the Company.  The Company also paid stock offering costs to an investment firm of $10,000 who assisted us in raising these funds.  

In July and August 2010, the Company issued an aggregate of 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 accredited investors not otherwise affiliated with the Company.  There were no underwriters involved.

In October and December 2010, the Company issued an aggregate of 1,472,222 shares of common stock for cash proceeds totaling $185,000, at prices ranging from $0.12 to $0.18 per share.  The shares were issued in private transactions to accredited investors not otherwise affiliated with the Company. There were no underwriters involved.  

Restricted Stock for Services – 2010

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

In March 2010, the Company issued 250,000 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 authorized the issuance of the shares.  The consulting agreement was based on a term through June 30, 2010, the shares vested in equal increments, and the consulting expense was recognized over the same period during 2010.  

In April 2010, the Company issued 120,000 shares of common stock 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 Board authorized the issuance of the shares.  These shares had no vesting requirements.

Also, in April 2010, the Company issued 588,235 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 authorized the issuance of the shares.  The Company recognized this as a stock issuance cost at the date of issuance and such shares had no vesting requirements.

In July 2010, the Company issued 135,000 shares of common stock to an investor relations company pursuant to a one-year agreement, valued at $25,650, or $0.19 per share, which represented the market value of the shares on the date that the Board authorized the issuance of shares. This agreement was based on a term through July 2011, the shares vest in equal increments, and the expense will be recognized over such period. $11,756 of the $25,650 was recognized during the year ended December 31, 2010, with the remaining $13,894 to be recognized during the year ended December 31, 2011.

In July 2010, the Company issued a total of 4,000,000 shares of common stock to certain directors and officers for board service and performance bonuses valued at $840,000, or $0.21 per share, which represented the market value of the shares on the date that the disinterested members of the Board authorized the issuance of shares. The Company recognized this expense at the date of issuance and such shares had no vesting requirements.

In August 2010, the Company issued a total of 225,000 shares of common stock to two consultants for consulting, marketing, and web support services valued at $60,750, or $0.27 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  There were two agreements: (a) the first agreement was for a period from July 2010 to March 2011 and (b) the second agreement was for the period from August 2010 to August 2011. For both agreements, the shares vest in equal increments and the consulting expense will be recognized over such periods.  $28,721 of the $60,750 was recognized during the year ended December 31, 2010, with the remaining $32,029 to be recognized during the year ended December 31, 2011.

In August 2010, the Company issued 118,839 shares of common stock in lieu of outstanding consulting fees valued at $32,086, or $0.27 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  An additional 1,000,000 shares of common stock were approved and issued to this same consultant in September 2010, as bonus compensation for extending his consulting agreement.  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 authorized the issuance of the shares.  

In November 2010, the Company issued 125,000 shares of common stock to an individual, as a performance bonus for research and development consulting services rendered as of the date of issuance, valued at $31,250, or $0.25 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  The Company recognized this expense at the date of issuance and such shares had no vesting requirements.

In December 2010, the Company issued 100,000 shares of common stock to an individual, as part of a web services and media representation consulting agreement, valued at a total cost of $18,000, or $0.18 per share, which represented the market value of the shares on the date that the Board authorized the issuance of the shares.  The consulting agreement is for the year of 2011, the shares vest in equal increments, and such expense will be recognized over the period of such agreement.      

These sales and grants 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 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.  

Common Stock for Cash – 2011

During February 2011, the Company issued 582,065 shares of common stock to Mammoth, an accredited investor (as part of the Equity Line), for cash proceeds of $59,000 (net of $4,300 of stock issuance costs) at a price of $0.10875 per share.  There were no underwriters involved.  

During March 2011, the Company sold an aggregate of 1,000,000 restricted shares of common stock that were subscribed for as of March 31, 2011 and issued in April 2011.  The purchasers of these shares were two accredited investors, not otherwise affiliated with the Company.  The Company received cash proceeds of $120,000, or $0.12 per share in connection with these sales.  There were no underwriters involved.  

During April and May 2011, the Company issued 3,649,867 shares of common stock to Mammoth (as part of the Equity Line) for cash proceeds of $658,012.  The sales were made pursuant to two separate “Draw Down Notices” issued by the Company under the Stock Purchase Agreement. The first notice was effective May 18, 2011, for 1,583,771 shares and proceeds of $261,322, or approximately $0.165 per share.  The second notice was effective June 16, 2011, for 2,066,096 shares and proceeds of $396,690, or approximately $0.192 per share.  There were no underwriters involved.

Common Stock for Cash – 2011

During April, May and June 2011, the Company sold an aggregate of 4,625,000 restricted shares of common stock, to accredited investors, not otherwise affiliated with the Company, for cash proceeds of $370,000 at a price of $0.08 per share.  There were no underwriters involved.

During June 2011, the Company entered into a transaction, with an accredited investor not otherwise affiliated with the Company, for 125,000 restricted shares of common stock that were subscribed for as of June 30, 2011 and issued in July 2011, for cash proceeds of $10,000 at a price of $0.08 per share.  There were no underwriters involved.

During September 2011, the Company issued 1,147,846 shares of common stock to Mammoth (as part of the Equity Line) for cash proceeds of $169,594, at a price of $0.14775 per share.  There were no underwriters involved.

During November and December 2011, the Company sold an aggregate of 1,550,000 restricted shares of common stock, to eight accredited investors, not otherwise affiliated with the Company, for cash proceeds of $155,000 at a price of $0.10 per share.  There were no underwriters involved.

Recapitalization

Effective August 26, 2009, authorized by the stockholders at the Company’s annual stockholder’s meeting, the Company’s Articles of Incorporation (“AOI”) were amended to include a class of Preferred Stock, par value $0.00001, with authorized shares of 50,000,000.  No shares of Preferred Stock have been issued, however, as of December 31, 2010.  The rights and preferences of the newly authorized preferred shares will be determined by the Company’s Board at a later time.  The AOI were also amended to increase the authorized shares of common stock from 250,000,000 to 395,000,000 shares, par value $0.001.

Stock Purchase Agreement

On November 17, 2010, the Company entered into a Common Stock Purchase Agreement (the “Stock Purchase Agreement”), with Mammoth Corporation (“Mammoth”) providing for a financing arrangement that is sometimes referred to as a committed equity line financing facility (or “Equity Line”). The Stock Purchase Agreement provides that, upon the terms and subject to the conditions in the Stock Purchase Agreement, Mammoth is committed to purchase up to $10,000,000 of shares of our common stock over the 24-month term of the Stock Purchase Agreement under certain specified conditions and limitations.  Furthermore, in no event may Mammoth purchase any shares of the Company’s common stock which, when aggregated with all other shares of common stock then beneficially owned by Mammoth, would result in the beneficial ownership by Mammoth of more than 4.9 percent of the then outstanding shares of the Company’s common stock. These maximum share and beneficial ownership limitations may not be waived by the parties.

Under the terms of the Stock Purchase Agreement, the Company has the opportunity for a 24-month period, commencing on the date on which the SEC first declares effective the registration statement, to require Mammoth to purchase up to $10,000,000 in shares of common stock. For each share of common stock purchased under the Stock Purchase Agreement, Mammoth will pay to the Company a purchase price equal to 75 percent of the lowest closing bid price during the five consecutive trading day period (the “Draw Down Pricing Period”) preceding the date a draw down notice (the “Draw Down Notice”) is delivered by us to Mammoth (the “Draw Down Date”) in a manner provided by the Stock Purchase Agreement.  Subject to the limitations outlined below, the Company may, at its sole discretion, issue a Draw Down Notice to Mammoth, and Mammoth will then be irrevocably bound to purchase such shares.

Each Draw Down Notice must specify the lowest purchase price during the Draw Down Pricing Period at which the Company will sell the shares to Mammoth, which shall not be less than 75 percent of the lowest closing bid price during the Draw Down Pricing Period. Furthermore, the number of shares to be issued is limited by multiplying by five the average daily trading volume for the 30 trading days immediately preceding the delivery of the Draw Down Notice. The Draw Down Notice will also include the aggregate dollar amount of the Draw Down, which will not be less than $25,000 and not more than $500,000 in any Draw Down Notice.  There must be a minimum of 15 trading days between each Draw Down Notice.  Regardless of the maximum amount indicated in the Draw Down Notice, Mammoth is not obligated to purchase shares under any Draw Down Notice in an amount which, when added to the number of shares of common stock then beneficially owned by Mammoth, will result in Mammoth owning more than 4.9 percent of the outstanding shares of the Company’s common stock.

The Company agreed to pay up to $5,000 of reasonable attorneys’ fees and expenses (of which the Company paid $4,300 during the year ended December 31, 2011 to fully satisfy this obligation) incurred by Mammoth in connection with the preparation, negotiation, execution and delivery of the Stock Purchase Agreement and related transaction documentation. Further, if the Company issues a Draw Down Notice and fails to deliver the shares to Mammoth on the applicable settlement date, and such failure continues for 10 trading days, the Company agreed to pay Mammoth, in addition to all other remedies available to Mammoth under the Stock Purchase Agreement, an amount in cash equal to $100 for each $5,000 of the Draw Down Amount for the first 10 days such delivery is late, and $350 for each $5,000 of the Draw Down Amount for each trading day beyond 10 trading days that such delivery is late.

In connection with the Stock Purchase Agreement, the Company granted registration rights to Mammoth, and agreed to register the resale of shares issued to Mammoth in connection with Draw Downs made in connection with the Stock Purchase Agreement.  In January 2011, the Company filed a registration statement to cover the resale by Mammoth of up to 66,666,667 shares of our common stock under the Stock Purchase Agreement.  The Company is not permitted to make Draw Downs under the Stock Purchase Agreement at any time there is not an effective registration statement registering the resale of shares of common stock by Mammoth.  On January 25, 2011, the registration statement was made effective by the SEC.  As previously mentioned, the Company has made four Draw Down requests under the Stock Purchase Agreement during the year ended December 31, 2011 as well as one subsequent to year-end as noted in Note 14 below.

The Stock Purchase Agreement may be terminated at any time by the mutual written consent of the parties. Unless earlier terminated, the Stock Purchase Agreement will terminate automatically on the 24-month anniversary of the effective date of the registration statement (which term may not be extended by the parties).

ADA Innovations

In December 2010, the Company reached a Services Agreement with ADA Innovations (“ADA”) for final development and production manufacturing of portable versions (the “Projects”) of the Company’s AsepticSure™ disinfection systems (“ADS”).  A contract containing the terms of the agreement and detailed development plan was executed by the parties in January 2011, and amended in January 2012.

In addition, BiOzone Corporation will remain involved as a development support partner and manufacturer of laboratory equipment, and will assist, as requested, in construction of permanent installations for large-scale industrial applications.  Any and all notes, reports, information, inventions, sketches, plans concepts, data or other works created by ADA on its behalf under the Services Agreement will be the sole and exclusive property of the Company.  

In addition, BiOzone Corporation will remain involved as a development support partner and manufacturer of laboratory equipment, and will assist, as requested, in construction of permanent installations for large-scale industrial applications.  Any and all notes, reports, information, inventions, sketches, plans concepts, data or other works created by ADA on its behalf under the Services Agreement will be the sole and exclusive property of the Company.  The term of the Services Agreement continues until the completion of the development and design projects contemplated by the Services Agreement, unless terminated earlier by either party in accordance with specific notices as outlined in the Services Agreement.  Deliverables will include: (1) the pre-production prototype designed and manufactured to our specifications, (2) design and device content compliant with all North America, Europe and United Kingdom regulatory and licensing agency regulations, (3) a soft launch program managed by ADA and the Company, intended to be followed by increased production, and (4) additional outsourced macro-manufacturing capacity as required, supervised by the parties.  The Company will pay ADA as services are provided.  During the year ended December 31, 2011, the Company incurred expenses totaling approximately $607,000, for services provided under the Services Agreement.  Of these amounts, approximately $569,000 were recorded as research and development costs.

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NOTE 7 - COMMON STOCK WARRANTS AND OPTIONS

12 Months Ended

Dec. 31, 2011

Schedule of Stockholders' Equity Note, Warrants or Rights [Table Text Block]

NOTE 7 -        COMMON STOCK WARRANTS AND OPTIONS

Warrants

All outstanding warrants were either exercised or expired unexercised prior to the year ended December 31, 2009, thus there are no warrants outstanding as of December 31, 2011 and 2010.  In June 2009, and various dates over the past several years, the Company’s Board agreed to extend the expiration date on certain outstanding warrants to purchase common stock to August 19, 2009.  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 $105,393 was recorded for the year ended December 31, 2009, under the Black-Scholes option pricing model for these warrant extensions.

The Company estimated the fair value of the warrants at the date of the maturity extension, based on the following weighted average assumptions during 2009:

Risk-free interest rate	0.11% - 0.27%
Expected life	1 to 4 months
Expected volatility	139.91% - 245.55%
Dividend yield	0.00%

As discussed in Note 6, on August 5, 2009, warrants held by two separate directors of the Company for a total of 6,487,408 shares were exercised, using the cashless exercise provision within the warrant agreements, resulting in the issuance of 5,126,265 shares of common stock with no cash proceeds received.  On August 19, 2009, all remaining warrants expired unexercised.  As a result, the Company’s outstanding warrants as of December 31, 2011, 2010 and 2009 were zero.

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 December 31, 2011 and 2010, 1,000,000 of the 1,500,000 options granted to this consultant had not yet vested.  

In March 2010, the Company granted 250,000 options to an individual for research and development consulting services to be rendered through September 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 during 2010.

In July 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 December 31, 2011 and 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, in July 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 6 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 had no vesting provisions.  The value of these options granted, totaling $203,022, was recognized as board compensation during July 2010.

In August 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 in 2010, which costs will be amortized over the expected life of the patent.

In September 2010, the Company granted 250,000 options to an outside consultant in connection with extending his consulting agreement with the Company through September 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 December 31, 2011 and 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.

In March 2011, the Company granted options for the purchase of 150,000 shares of common stock to an individual for accounting related services to be performed through December 30, 2011, which do not vest until such date.  The options have an exercise price of $0.14 per share, and are exercisable for up to five years.  The grant date fair value of these options was $20,042, in connection with which the Company recognized this entire amount during the year ended December 31, 2011.

In March 2011, the Company granted options for the purchase of 100,000 shares of common stock to an individual for web and press support services to be performed through December 30, 2011, which do not vest until such date. The options have an exercise price of $0.14 per share, and are exercisable for up to five years.  The grant date fair value of these options was $13,361, in connection with which the Company recognized this entire amount during the year ended December 31, 2011.

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	2.43%
Expected life	5 years
Expected volatility	176.45%
Dividend yield	0.00%

A summary of the status of the Company’s outstanding options as of December 31, 2011 and changes during the year then ended is presented below:

	Shares			Weighted Average Exercise Price
Outstanding, beginning of period		7,750,000		$	0.17
Granted		250,000		$	0.14
Expired/Canceled		(250,000	)	$	0.20
Exercised		-			n/a
Outstanding, end of period		7,750,000		$	0.17
Exercisable		3,250,000		$	0.15

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 $33,403 and $249,115 was recorded for the years ended December 31, 2011 and 2010, respectively, under the Black-Scholes option pricing model.  An additional amount of $67,465 has been capitalized as patent costs during 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.

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NOTE 9 - DUE TO STOCKHOLDERS AND ACCOUNTS PAYABLE - RELATED PARTIES

12 Months Ended

Dec. 31, 2011

Related Party Transactions Disclosure [Text Block]

NOTE 9 -        DUE TO STOCKHOLDERS AND ACCOUNTS PAYABLE – RELATED PARTIES

As of December 31, 2009, certain directors had advanced a total of $7,000 to the Company to cover operating expenses.  During 2011 and 2010, the Company repaid $6,000 and $1,000, respectively, of the amount outstanding.  As of December 31, 2011, there is no outstanding balance.

As of December 31, 2011 and 2010, the Company had outstanding $229,669 and $228,269, respectively, owed to certain consultants for unpaid previous years services. These consultants are stockholders of the Company and therefore have been classified as related parties.

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NOTE 14 - SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2011

Subsequent Events [Text Block]

NOTE 14 –     SUBSEQUENT EVENTS

Effective January 1, 2012, the Company entered into a lease agreement for its corporate offices in California that includes a monthly lease payment of $2,100 U.S. Dollars and has a lease term through December 31, 2012.

During January and February 2012, the Company sold an aggregate of 6,653,000 restricted shares of common stock to approximately 30 accredited investors for cash proceeds of $665,300 at a price of $0.10 per share.  There were no underwriters involved.

During January 2012, the Company issued 903,089 shares of common stock to Mammoth (as part of the Equity Line) for cash proceeds of $149,010, at a price of $0.165 per share.  There were no underwriters involved.

On February 21, 2012, the Board of Directors approved the 2012 Equity Incentive Award Plan and authorized up to 10,000,000 shares of common stock to be available for awards under the Plan.

On February 21, 2012, each of four directors of the Company was awarded stock options for the purchase of 1,000,000 shares of common stock, exercisable at a price of $0.23 per share, which was the closing price of the Company’s common stock reported on the OTC Bulletin Board on the date of grant.  In addition, certain officers, consultants and employees of the Company were awarded options in the aggregate for the purchase of 1,050,000 shares of stock at an exercise price of $0.23 per share.  Each of the options granted was fully vested on the date of grant.

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Consolidated Statement of Stockholders' Equity (Deficit) (USD $)	Common stock issued for services Common Stock [Member] USD ($)	Common stock issued for services Additional Paid-in Capital [Member] USD ($)	Common stock issued for conversion of warrants Common Stock [Member] USD ($)	Common stock issued for conversion of warrants Additional Paid-in Capital [Member] USD ($)	Common stock issued for cash Common Stock [Member] USD ($)	Common stock issued for cash Additional Paid-in Capital [Member] USD ($)	Common stock issued for the exercise of options Common Stock [Member] USD ($)	Common stock issued for the exercise of options Additional Paid-in Capital [Member] USD ($)	Common stock shares subscribed Common Stock Subscribed USD ($)	Common stock shares subscribed Additional Paid-in Capital [Member] USD ($)	Common stock issued for debt Common Stock [Member] USD ($)	Common stock issued for debt Common Stock Subscribed USD ($)	Common stock issued for debt Additional Paid-in Capital [Member] USD ($)	Common stock issued for debt Common Stock [Member] USD ($)	Common stock issued for debt Additional Paid-in Capital [Member] USD ($)	Common stock issued for services Common Stock [Member] USD ($)	Common stock issued for services Additional Paid-in Capital [Member] USD ($)	Common stock issued for services Common Stock [Member] USD ($)	Common stock issued for services Additional Paid-in Capital [Member] USD ($)	Common stock issued for debt at $0.147 per share Common Stock [Member] USD ($)	Common stock issued for debt at $0.147 per share Additional Paid-in Capital [Member] USD ($)	Common stock issued for services at $0.285 per share Common Stock [Member] USD ($)	Common stock issued for services at $0.285 per share Additional Paid-in Capital [Member] USD ($)	Common stock issued for cash Common Stock [Member] USD ($)	Common stock issued for cash Additional Paid-in Capital [Member] USD ($)	Common stock issued for cash Common Stock [Member] USD ($)	Common stock issued for cash Additional Paid-in Capital [Member] USD ($)	Common stock issued for cash Common Stock [Member] USD ($)	Common stock issued for cash Additional Paid-in Capital [Member] USD ($)	Common stock issued for cash Common Stock [Member] USD ($)	Common stock issued for cash Additional Paid-in Capital [Member] USD ($)	Common stock issued for cash Common Stock [Member] USD ($)	Common stock issued for cash Additional Paid-in Capital [Member] USD ($)	Common stock issued for patent legal work Common Stock [Member] USD ($)	Common stock issued for patent legal work Additional Paid-in Capital [Member] USD ($)	Common stock issued for stock issuance costs Common Stock [Member] USD ($)	Common stock issued for stock issuance costs Additional Paid-in Capital [Member] USD ($)	Stock options granted for services Additional Paid-in Capital [Member]	Stock options granted for services Additional Paid-in Capital [Member]	Common Stock [Member] USD ($)	Common Stock Subscribed USD ($)	Additional Paid-in Capital [Member] USD ($)	Accumulated Other Comprehensive Income (Loss) [Member] USD ($)	Retained Earnings [Member] USD ($)	Total USD ($)
Balance at Dec. 31, 1985
Initial capitalization of Medizone - Nevada at $0.03 per share																																								$ 5,500		$ 150,128
Initial capitalization of Medizone - Nevada at $0.03 per share (in Shares)																																								5,500,000
Common shares issued in acquisitionof Medizone - Delaware																																								37,500		(37,500)
Common shares issued in acquisitionof Medizone - Delaware (in Shares)																																								37,500,000
Common stock issued for services	50	4,950
Common stock issued for services, shares (in Shares)	50,000
Common stock issued for exercise of warrants			7,815	773,645
Common stock issued for exercise of warrants, shares (in Shares)			7,814,600
Stock issuance costs																																										(105,312)
Net loss																																												(796,068)
Balance at Dec. 31, 1986																																								50,865		785,911		(796,068)
Balance, shares (in Shares) at Dec. 31, 1986																																								50,864,600
Common stock issued for services	203	24,314
Common stock issued for services, shares (in Shares)	203,167
Common stock issued for exercise of options							250	437,250
Common stock issued for exercise of options, shares (in Shares)							250,000
Common stock issued for exercise of warrants			2	257
Common stock issued for exercise of warrants, shares (in Shares)			2,600
Common stock issued for patent in March 1987 at $0.69 per share																																								1,000		692,750
Common stock issued for patent in March 1987 at $0.69 per share (in Shares)																																								1,000,000
Common stock issued for cash					950	149,050
Common stock issued for cash, shares (in Shares)					950,000
Net loss																																												(2,749,400)
Balance at Dec. 31, 1987																																								53,270		2,089,532		(3,545,468)
Balance, shares (in Shares) at Dec. 31, 1987																																								53,270,367
Common stock issued for services	35	7,965
Common stock issued for services, shares (in Shares)	35,000
Additional capital contributed																																										174,126
Common stock issued for exercise of options							200	99,800
Common stock issued for exercise of options, shares (in Shares)							200,000
Common stock issued for cash					1,000	79,000
Common stock issued for cash, shares (in Shares)					1,000,000
Net loss																																												(714,347)
Balance at Dec. 31, 1988																																								54,505		2,450,423		(4,259,815)
Balance, shares (in Shares) at Dec. 31, 1988																																								54,505,367
Common stock issued for services	262	46,363
Common stock issued for services, shares (in Shares)	261,889
Common stock issued for exercise of options							375	59,125
Common stock issued for exercise of options, shares (in Shares)							375,000
Common stock issued for cash					5,790	285,710
Common stock issued for cash, shares (in Shares)					5,790,000
Common stock issued for services and in lieu of outstanding debt																																								4,750		578,978
Common stock issued for services and in lieu of outstanding debt, shares (in Shares)																																								4,749,532
Net loss																																												(862,051)
Balance at Dec. 31, 1989																																								65,682		3,420,599		(5,121,866)
Balance, shares (in Shares) at Dec. 31, 1989																																								65,681,788
Common stock issued for services	880	87,120
Common stock issued for services, shares (in Shares)	880,000
Additional capital contributed																																										100,000
Common stock issued for cash					4,250	175,250
Common stock issued for cash, shares (in Shares)					4,250,000
Common stock issued for services and in lieu of outstanding debt																																								2,423		137,577
Common stock issued for services and in lieu of outstanding debt, shares (in Shares)																																								2,422,727
Net loss																																												(606,309)
Balance at Dec. 31, 1990																																								73,235		3,920,546		(5,728,175)
Balance, shares (in Shares) at Dec. 31, 1990																																								73,234,515
Common stock issued for services	425	72,075
Common stock issued for services, shares (in Shares)	425,000
Additional capital contributed																																										5,000
Common stock issued for exercise of options																																								450		204,050
Common stock issued for exercise of options, shares (in Shares)																																								450,000
Common stock issued for cash					4,366	305,634
Common stock issued for cash, shares (in Shares)					4,366,667
Net loss																																												(1,220,152)
Balance at Dec. 31, 1991																																								78,476		4,507,305		(6,948,327)
Balance, shares (in Shares) at Dec. 31, 1991																																								78,476,182
Common stock issued for services	152	30,148
Common stock issued for services, shares (in Shares)	151,500
Common stock issued for debt																																								250		37,250
Common stock issued for debt , shares (in Shares)																																								250,000
Additional capital contributed																																										81,100
Common stock issued for exercise of options							250	124,750
Common stock issued for exercise of options, shares (in Shares)							250,000
Common stock issued for cash					2,702	427,648
Common stock issued for cash, shares (in Shares)					2,702,335
Net loss																																												(649,941)
Balance at Dec. 31, 1992																																								81,830		5,208,201		(7,598,268)
Balance, shares (in Shares) at Dec. 31, 1992																																								81,830,017
Common stock issued for services	5,347	542,859
Common stock issued for services, shares (in Shares)	5,347,219
Common stock issued for cash					1,472	269,528
Common stock issued for cash, shares (in Shares)					1,471,666
Common shares subscribed																																									2,619	259,296
Net loss																																												(1,598,342)
Balance at Dec. 31, 1993																																								88,649	2,619	6,279,884		(9,196,610)
Balance, shares (in Shares) at Dec. 31, 1993																																								88,648,902
Common stock issued for services	1,431	141,727
Common stock issued for services, shares (in Shares)	1,431,590
Common stock issued for debt												417	41,234																												11,250	2,022,379
Issuance of subscribed stock																																								10,385	(10,385)
Issuance of subscribed stock, shares (in Shares)																																								10,384,900
Issuance of shares in recognition of disparity in purchase price in offering																																								1,126		(1,126)
Issuance of shares in recognition of disparity in purchase price in offering (in Shares)																																								1,125,834
Prior period adjustment																																												219,422
Common shares subscribed									9,552	945,682
Net loss																																												(1,126,315)
Balance at Dec. 31, 1994																																								101,591	13,453	9,429,780		(10,103,503)
Balance, shares (in Shares) at Dec. 31, 1994																																								101,591,226
Redeemable common shares converted to common stock																																								200		39,800
Redeemable common shares converted to common stock (in Shares)																																								200,000
Common stock issued for services	2,050	202,950
Common stock issued for services, shares (in Shares)	2,050,000
Issuance of subscribed stock																																								17,524	(17,524)
Issuance of subscribed stock, shares (in Shares)																																								17,524,860
Cancellation of common shares																																								(1,242)		(70,563)
Cancellation of common shares (in Shares)																																								(1,242,727)
Prior period adjustment																																												71,806
Additional capital contributed																																										50,000
Common shares subscribed																																									9,118	902,707
Net loss																																												(1,081,027)
Balance at Dec. 31, 1995																																								120,123	5,047	10,554,674		(11,112,724)
Balance, shares (in Shares) at Dec. 31, 1995																																								120,123,359
Common stock issued for services	1,416	140,171
Common stock issued for services, shares (in Shares)	1,415,875
Issuance of subscribed stock																																								8,413	(8,413)
Issuance of subscribed stock, shares (in Shares)																																								8,412,379
Common stock issued for cash					100	9,900
Common stock issued for cash, shares (in Shares)					100,000
Common shares subscribed																																									6,456	718,991
Net loss																																												(1,329,395)
Balance at Dec. 31, 1996																																								130,052	3,090	11,423,736		(12,442,119)
Balance, shares (in Shares) at Dec. 31, 1996																																								130,051,613
Common stock issued for services	3,746	370,886
Common stock issued for services, shares (in Shares)	3,746,336
Issuance of subscribed stock																																								3,090	(3,090)
Issuance of subscribed stock, shares (in Shares)																																								3,089,680
Common shares subscribed																																									5,714	394,287
Net loss																																												(775,559)
Balance at Dec. 31, 1997																																								136,888	5,714	12,188,909		(13,217,678)
Balance, shares (in Shares) at Dec. 31, 1997																																								136,887,629
Common stock issued for services	50	3,700														3,465	169,786	750	63,785
Common stock issued for services, shares (in Shares)	50,000															3,465,000		750,000
Common stock issued for debt														865	42,372																									967		82,214
Common stock issued for debt , shares (in Shares)														864,747																										967,630
Issuance of subscribed stock																																								5,714	(5,714)
Issuance of subscribed stock, shares (in Shares)																																								5,714,286
Cancellation of common shares																																								(630)		630
Cancellation of common shares (in Shares)																																								(630,000)
Common stock issued for exercise of warrants			857	59,143
Common stock issued for exercise of warrants, shares (in Shares)			857,142
Net loss																																												(565,761)
Balance at Dec. 31, 1998																																								148,926		12,610,539		(13,783,439)
Balance, shares (in Shares) at Dec. 31, 1998																																								148,926,434
Common stock issued for services	25	1,725
Common stock issued for services, shares (in Shares)	25,000
Common stock issued for exercise of warrants																																								937		64,618
Common stock issued for exercise of warrants, shares (in Shares)																																								936,507
Additional expense for extension of warrants below market value																																										123,389
Net loss																																												(359,571)
Balance at Dec. 31, 1999																																								149,888		12,800,271		(14,143,010)
Balance, shares (in Shares) at Dec. 31, 1999																																								149,887,941
Common stock issued for services	350	60,900																				300	85,200
Common stock issued for services, shares (in Shares)	350,000																					300,000
Common stock issued for debt											2,020		220,180	20	3,980					95	13,905																			100		54,900
Common stock issued for debt , shares (in Shares)											2,020,000			20,000						95,000																				100,000
Cancellation of common shares																																								(2,000)		2,000
Cancellation of common shares (in Shares)																																								(2,000,000)
Common stock issued for exercise of warrants			3,143	216,857
Common stock issued for exercise of warrants, shares (in Shares)			3,142,857
Additional expense for extension of warrants below market value																																										1,743,468
Net loss																																												(2,187,138)
Balance at Dec. 31, 2000																																								153,916		15,201,661		(16,330,148)
Balance, shares (in Shares) at Dec. 31, 2000																																								153,915,798
Common stock issued for cash					500	99,500																		200	29,800	167	24,818													555		99,441
Common stock issued for cash, shares (in Shares)					500,000																			200,000		166,666														555,555
Net loss																																												(716,054)
Balance at Dec. 31, 2001																																								155,338		15,455,220		(17,046,202)
Balance, shares (in Shares) at Dec. 31, 2001																																								155,338,019
Common stock issued for services	230	22,770														480	47,520
Common stock issued for services, shares (in Shares)	230,000															480,000
Common stock issued for debt											447		44,290
Common stock issued for debt , shares (in Shares)											447,368
Common stock issued for cash					1,000	99,000																																		250		24,750
Common stock issued for cash, shares (in Shares)					1,000,000																																			250,000
Net loss																																												(687,273)
Balance at Dec. 31, 2002																																								157,745		15,693,550		(17,733,475)
Balance, shares (in Shares) at Dec. 31, 2002																																								157,745,387
Common stock issued for services	100	4,900																2,000	38,000
Common stock issued for services, shares (in Shares)	100,000																	2,000,000
Common stock issued for debt																																								460		22,540
Common stock issued for debt , shares (in Shares)																																								460,000
Common stock issued for cash					500	24,500																		165	8,085	200	9,800
Common stock issued for cash, shares (in Shares)					500,000																			165,000		200,000
Net loss																																												(522,796)
Balance at Dec. 31, 2003																																								161,170		15,801,375		(18,256,271)
Balance, shares (in Shares) at Dec. 31, 2003																																								161,170,387
Net loss																																												(371,395)
Balance at Dec. 31, 2004																																								161,170		15,801,375		(18,627,666)
Balance, shares (in Shares) at Dec. 31, 2004																																								161,170,387
Net loss																																												(326,153)
Balance at Dec. 31, 2005																																								161,170		15,801,375		(18,953,819)
Balance, shares (in Shares) at Dec. 31, 2005																																								161,170,387
Common stock warrants granted																																										2,756
Additional capital contributed																																										1,356
Net loss																																												(356,430)
Balance at Dec. 31, 2006																																								161,170		15,805,487		(19,310,249)
Balance, shares (in Shares) at Dec. 31, 2006																																								161,170,387
Common stock warrants granted																																										30,737
Net loss																																												(552,449)
Balance at Dec. 31, 2007																																								161,170		15,836,224		(19,862,698)
Balance, shares (in Shares) at Dec. 31, 2007																																								161,170,387
Common stock warrants granted																																										86,572
Common stock issued for services																7,000	225,000
Common stock issued for services, shares (in Shares)																7,000,000
Common stock issued for debt											409		7,772																											11,250		213,750
Common stock issued for debt , shares (in Shares)											409,075																													11,250,000
Additional capital contributed																																										16,667
Common stock issued for cash					8,000	72,000																		3,300	95,700	5,463	104,637	3,334	96,666
Common stock issued for cash, shares (in Shares)					8,000,000																			3,300,000		5,463,333		3,333,333
Net loss																																												(707,542)
Balance at Dec. 31, 2008																																								199,926		16,754,988		(20,570,240)
Balance, shares (in Shares) at Dec. 31, 2008																																								199,926,128
Common stock warrants granted																																										105,393
Stock options granted (in Shares)																																										146,097
Loss on foreign currency translation																																											(3,611)
Common stock issued for services	2,495	163,375																																50	14,700
Common stock issued for services, shares (in Shares)	2,495,474																																	50,000
Common stock issued for exercise of warrants																																								5,126		(5,126)
Common stock issued for exercise of warrants, shares (in Shares)																																								5,126,265
Common stock issued to a related company in an early termination of a marketing rights agreement and the termination of a joint venture agreement at $0.40 per share																																								313		124,687
Common stock issued to a related company in an early termination of a marketing rights agreement and the termination of a joint venture agreement at $0.40 per share (in Shares)																																								312,500
Common stock issued for cash					340	84,660																		6,000	114,000	21,600	626,400	4,460	263,140	1,324	131,116	67	9,933
Common stock issued for cash, shares (in Shares)					340,000																			6,000,000		21,599,999		4,459,999		1,324,400		66,667
Net loss																																												(1,474,715)
Balance at Dec. 31, 2009																																								241,701		18,533,363	(3,611)	(22,044,955)
Balance, shares (in Shares) at Dec. 31, 2009																																								241,701,432
Stock options granted (in Shares)																																						203,022	67,465			46,094
Loss on foreign currency translation																																											(4,908)
Common stock issued for services	2,211	545,554																																						4,000		836,000
Common stock issued for services, shares (in Shares)	2,210,839																																							4,000,000
Common stock issued for cash					10,862	1,372,538
Common stock issued for cash, shares (in Shares)					10,861,665
Stock issuance costs																																				588	(588)					(10,000)
Stock issuance costs, shares (in Shares)																																				588,235
Net loss																																												(2,756,126)	(2,756,126)
Balance at Dec. 31, 2010																																								259,362		21,593,448	(8,519)	(24,801,081)	(2,956,790)
Balance, shares (in Shares) at Dec. 31, 2010																																								259,362,171					259,362,171
Stock options granted (in Shares)																																										33,403
Loss on foreign currency translation																																											(12,563)
Issuance of subscribed stock																																								1,125	(1,125)
Issuance of subscribed stock, shares (in Shares)																																								1,125,000
Common stock issued for cash																								11,555	1,404,351
Common stock issued for cash, shares (in Shares)																								11,554,778
Common shares subscribed									1,125	128,875
Stock issuance costs																																										(4,300)
Net loss																																												(1,940,217)	(1,940,217)
Balance at Dec. 31, 2011																																								$ 272,042		$ 23,155,777	$ (21,082)	$ (26,741,298)	$ (3,334,561)
Balance, shares (in Shares) at Dec. 31, 2011																																								272,041,949					272,041,949

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NOTE 3 - TRADEMARK AND PATENTS

12 Months Ended

Dec. 31, 2011

Intangible Assets Disclosure [Text Block]

NOTE 3 -        TRADEMARK AND PATENTS

Trademark and patents consists of the following at December 31, 2011 and 2010:

	2011			2010
Patent costs	$	174,933		$	125,683
Trademark		770			770
		175,703			126,453
Accumulated amortization		(29,361	)		(8,682	)
Trademark and patents, net	$	146,342		$	117,771

Amortization expense for the years ended December 31, 2011 and 2010 was $20,771 and $8,126, respectively.

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NOTE 13 - CUSTOMER DEPOSITS

12 Months Ended

Dec. 31, 2011

Other Liabilities Disclosure [Text Block]

NOTE 13 –     CUSTOMER DEPOSITS

In November 2011, the Company awarded the production manufacturing contract for AsepticSure™ to SMTC Corporation (SMTC), headquartered in Toronto, Canada.  SMTC maintains manufacturing facilities in Canada, the United States, Mexico and China.  The Company believes SMTC has the capacity to address all AsepticSure™ manufacturing requirements for the foreseeable future.  In January 2012, the Company initialed its first purchase order for five production validation units to be manufactured.  The production validation units are intended to be used for regulatory compliance and licensing validation, additional testing and early delivery purposes.

As of December 31, 2011, the Company received two purchase orders and related customer deposits totaling $40,000 to purchase the AsepticSure™ disinfection systems.  The Company anticipates deliveries of its first disinfection systems early in 2012.  As of December 31, 2011, these customer deposits have been reflected as current liabilities in the accompanying consolidated balance sheet.