10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K 

 (Mark One)

☑	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the year ended December 31, 2016
	or
☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from __________ to ____________

Commission File Number: 2-93277-D

MEDIZONE INTERNATIONAL, INC.

(Exact name of registrant as specified in its charter)

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

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

Registrant’s telephone number, including area code:  (269) 202-5020

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 ☐ No ☑

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

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate 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 ☑ No ☐

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. ☐

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 ☐	Accelerated filer ☐
Non-accelerated filer ☐	Smaller reporting company ☑

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

The aggregate market value of common stock held by non-affiliates of the registrant as of June 30, 2016, the last business day of the registrant’s most recently completed second fiscal quarter, was $17,201,024 computed by reference to the close price of the common stock on such date of $0.05 per share.

There were 394,934,068 shares of the registrant’s common stock outstanding as of March 22, 2017.

Documents incorporated by reference.  None 

MEDIZONE INTERNATIONAL, INC.

FORM 10-K

For the year ended December 31, 2016

TABLE OF CONTENTS

		Page
Part I
Item 1	Business	3
Item 1A	Risk Factors	8
Item 1B	Unresolved Staff Comments	12
Item 2	Properties	12
Item 3	Legal Proceedings	12
Item 4	Mine Safety Disclosures	13
Part II
Item 5	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	14
Item 6	Selected Financial Data	15
Item 7	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	18
Item 8	Financial Statements and Supplementary Data	18
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	18
Item 9A	Controls and Procedures	18
Item 9B	Other Information	19
Part III
Item 10	Directors, Executive Officers and Corporate Governance	20
Item 11	Executive Compensation	24
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	25
Item 13	Certain Relationships and Related Transactions, and Director Independence	26
Item 14	Principal Accounting Fees and Services	27
Part IV
Item 15	Exhibits, Financial Statement Schedules	29
Signatures		31

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report on Form 10-K (including documents incorporated by reference herein) contains forward-looking statements based on our management’s beliefs and assumptions and on information currently available to our management. These forward-looking statements involve known and unknown substantial risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in this report in greater detail under the heading “Risk Factors” in Item 1A of this Annual Report on Form 10-K. Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Annual Report on Form 10-K. You can identify these statements by the fact that they do not relate strictly to historic or current facts. We use words like “anticipates,” “believes,” “could,” “estimates,” “expects,” “future,” “intends,” “may,” “plans,” “potential,” “should,” “will,” “would” and similar expressions to mean that the statements are forward-looking. Although we believe that our plans, intentions and expectations are reasonable, we may not achieve our plans, intentions or expectations. Given these uncertainties, you should not place undue reliance on these forward-looking statements. They can be affected by inaccurate assumptions we might make or by known or unknown risks and uncertainties. In addition, you should note that our past financial and operational performance is not necessarily indicative of future financial and operational performance. We undertake no obligation to update any forward-looking statements after the date of this Annual Report on Form 10-K, whether as a result of new information, future events, or otherwise, except as required by applicable law.

PART I

Throughout this Annual Report on Form 10-K, unless expressly indicated or the context requires otherwise, we use the terms “Medizone,” “Company,” “we,” “us,” and “our” to refer to Medizone International, Inc., a Nevada corporation, and, where appropriate, its affiliate. In addition, unless indicated otherwise, references to “dollars” and “$” are to United States dollars.

We own or have rights to the trademarks “Medizone” and “AsepticSure®.” and the stylized logos “Medizone,” “O3” and “AsepticSure”. Solely for convenience, some of the copyrights, trademarks, service marks and trade names referred to in this report are listed without the ©, ®, and ™ symbols, but we will assert, to the fullest extent under applicable law, our rights to our copyrights, trademarks, service marks, trade names and domain names. The trademarks, service marks and trade names of other companies appearing in this report are, to our knowledge, the property of their respective owners.

Item 1. Business

Introduction

Medizone International, Inc. was incorporated in January 1986. Our focus is in the field of hospital disinfection. During the year ended December 31, 2012, we generated our first significant revenues from the sale of our AsepticSure hospital disinfection system. We cannot predict when or if we will generate sufficient cash flows from operating activities to fund continuing or planned operations. If we fail to obtain additional funding, we will be forced to suspend or permanently cease operations, and may need to seek protection under U.S. bankruptcy laws.

We are a co-founder of Canadian Foundation for Global Health (“CFGH”), which was formed to establish an independent not-for-profit foundation for research that could ultimately attract the finest scientific, medical and academic professionals possible to work on projects deemed to be of social benefit, and 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.

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

Recent Developments

On February 22, 2017, Edwin G. Marshall, our Chief Executive Officer and Chairman informed the Company’s Board of Directors that he had decided to resign from the Board of Directors and retire from all positions with the Company, effective February 28, 2017. Mr. Marshall also advised the Board that his decision was not based on any disagreement with the Company on any matter relating to our operations, policies or practices. In addition, Dr. Jill Marshall, our Director of Operations, resigned effective February 28, 2017. Mr. Marshall and Dr. Marshall will support a transition to new Company management over a period of 30 to 60 days as needed and as requested by the Board of Directors.

The Board of Directors appointed David A. Esposito as Chairman and Interim Chief Executive Officer effective March 1, 2017. Mr. Esposito has been a director of the Company since 2014. He currently serves as President and CEO of Armune BioScience, Inc., an early stage medical diagnostics company focused on developing and commercializing unique technology for diagnostic and prognostic tests for prostate, lung, and breast cancers. As Interim CEO of Medizone, Mr. Esposito will lead the search for individuals with experience commercializing healthcare products to focus the Company’s efforts to raise capital for operations and to build out the Company’s sales efforts in the United States market.

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Our Business

AsepticSure is the name of our patented, United States Environmental Protection Agency (“EPA”) registered (Reg. No. 90607-3) ozone disinfectant formula used for disinfection of non-porous surfaces in hospitals, clinics, hotels, sporting venues and in the food industry, long-term care facilities, and other critical infrastructures. In the AsepticSure system, oxygen atoms are misted into the environment with a hydrogen peroxide vapor, creating Trioxidane, and successfully achieving high rates of bactericidal kill inside an enclosed space without any residual damage to the room contents.

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

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

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

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

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

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

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

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

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The AsepticSure Solution

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

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

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

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

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

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

Developing the Market

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

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

During the EPA approval process in the United States, we pursued opportunities in Saudi Arabia, Canada, and South America. Our licensee and distributor in South America is GYD S.A. (GYD). In 2016, we granted GYD exclusive distribution rights for AsepticSure in Chile, Brazil, Colombia and Peru. GYD will lead the regulatory approval process throughout South America and exclusive distribution rights will be expanded to other countries in South America on a country-by-country basis as GYD achieves regulatory approvals and establishes channels of distribution.

Following receipt of EPA registration of AsepticSure in November 2016, we commenced implementing a plan for commercialization of our system in the United States. During the first six months of 2017, we will implement a Product Evaluation Program (PEP). This will include placing devices, free consumables and service/support for a three to six month trial and demonstration and then transitioning to purchase. Results of the evaluations will be published and used to develop and expand a key opinion leader network. During the latter half of the year, we will undertake sales contract implementation, which will include on-site training and in-service, as-needed technical support and on-site service as we identify effective sales channels and distribution to accelerate growth.

5

Regulatory Affairs

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

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

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

We are also seeking certification from the U.S. Food and Drug Administration (“FDA”) that AsepticSure should not be deemed to be a medical device by the FDA. We do not anticipate these additional steps will adversely impact our business plan for 2017. As of the filing of this report, we have not received official notification of the status of AsepticSure from the FDA. We remain actively engaged in the evolving regulatory process of both the EPA and the FDA and do not anticipate any adverse regulatory impact to our current business planning assumptions for 2017.

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

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

Intellectual Property

Trademarks

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

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

6

Trade Secrets

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

Patents

We own the following patents:

Canada:

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

· Patent No. 2846256 – Sports Equipment and Facility Disinfection

United States:

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

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

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

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

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

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

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

Europe:

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

China:

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

Singapore:

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

Mexico:

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

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

7

Competition

The market for hospital disinfection is very competitive. There are numerous technologies that are competing in a similar market segment as AsepticSure. Ultra-violet light, hydrogen peroxide vapors, ozone based technologies in addition to improvements in traditional cleaning methods continue to make this market competitive and a driver of innovation. Companies that market hydrogen peroxide based products, include TOMI Environmental Solutions, Inc., Steris Corporation, Bioquell, Inc. and Sanosil Ltd. 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. These competitors may have longer operating histories, greater name recognition, larger installed customer bases, and substantially greater financial and marketing resources than Medizone. Our ability to compete successfully in our industry will depend, among other things, upon our ability to market and sell our disinfectant system and related services. There can be no assurance that we will be able to compete successfully or that future competition will not have a material adverse effect on our business, results or operations, and financial condition.

Employees

As of December 31, 2016, we had two full-time employees and two part-time employees.

Additional Available Information

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

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

Item 1A. Risk Factors

Forward-Looking Statements and Certain Risks

Certain factors may have a material adverse effect on our business, financial condition, and results of operations. You should consider carefully the risks and uncertainties described below, in addition to other information contained in this Annual Report on Form 10-K, including our consolidated financial statements and related notes. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that adversely affect our business. If any of the following risks actually occurs, our business, financial condition, results of operations, and future prospects could be materially and adversely affected. In that event, the trading price of our common stock could decline, and you could lose part or all of your investment.

Risks Related to Our Business

We have a history of losses and have a substantial accumulated deficit, which raise substantial doubt about our ability to continue as a going concern. Our significant losses since inception and accumulated deficit of $38,072,182 as of December 31, 2016, raise substantial doubt about our ability to continue as a going concern. The accompanying audited consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

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

8

We currently have limited financing to meet our operating expenses. We will require additional financing in the future to cover our operating costs. If we are unable to obtain additional financing or generate significant revenues from sales of our disinfection systems, we may be required to file for bankruptcy or liquidate. We have financed our operations since inception primarily by the sale of common stock in small private placements to accredited investors and drawdowns 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 acceptable to us.

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

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

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

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

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

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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, or that our trade secrets and other confidential and proprietary information will not otherwise become known or be independently discovered or reverse-engineered by competitors.

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

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

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

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

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

We operate in a heavily regulated industry. In the United States, the federal government is responsible for helping all Americans receive the best and safest care. The Federal government can change policy quickly in the interest of patient care. We need to be prepared for all potential regulatory scenarios in the major markets of the world.

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 Over-the-Counter Bulletin Board (“OTCQB”). During the year ended December 31, 2016, our common stock traded on the OTCQB from a high closing price of $0.15 to a low of $0.04 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 dilutive to existing stockholders, thereby limiting the nature of future equity placements.

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

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

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

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

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

Our common stock is subject to the “Penny Stock” rules of the SEC. Our common stock is currently traded on the OTC Markets and is considered a “penny stock.” The OTC Markets are generally regarded as a less efficient trading market than the NASDAQ Capital Market. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks.” Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and any salesperson in the transaction, and monthly account statements indicating the market value of each penny stock held in the customer’s account. In addition, the penny stock rules require that, prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our common stock. 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.

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 which will have an adverse effect on the market for our shares.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

Our principal executive offices are located in leased premises at 350 E. Michigan Ave, Suite 500, Kalamazoo, Michigan. Also, 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 is June 2016 through June 2018 with a lease payment of $3,550 Canadian Dollars plus the applicable goods and services tax. We estimate that our current facilities are sufficient to meet our needs for at least the next 12 months.

Item 3. Legal Proceedings

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

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Several years ago, a former consultant brought an action against the Company styled Rakas vs. Medizone International, Inc., in the Supreme Court of New York, Westchester County (Index No. 08798/00) claiming we had failed to pay consulting fees under a consulting agreement. We deny that we owe any fees to the consultant. In September 2001, the parties agreed to settle the matter for $25,000. Our lack of funds prevented us from consummating the settlement, and the plaintiff moved the court to enter a default judgment in the amount of $143,000 in January 2002. On May 8, 2002, the court vacated the default judgment and ordered that we post a bond of $25,000 to cover the settlement previously entered into by the parties. The Company has been unable to post the required bond amount as of the date of this report. Therefore, the Company has recorded a liability (included in accounts payable) for the original default judgment of $143,000, plus fees totaling $21,308, as of December 31, 2016, and 2015. The Company intends to contest the judgment when it is able to do so in the future.

Item 4. Mine Safety Disclosures

Not applicable.

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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 OTCQB market under the symbol MZEI. 

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 OTCQB market, as reported by the OTCQB (see www.otcmarkets.com). The quotations reflect inter-dealer prices without retail mark-up, mark-down or commission, and may not represent actual transactions. 

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

Holders

As of December 31, 2016, we had approximately 2,300 holders of record of our common stock and 393,934,068 shares of common stock outstanding.

Dividend Policy

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

Transfer Agent and Registrar

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

Issuer Purchases of Equity Securities

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

Securities Authorized for Issuance Under Equity Compensation Plans

The table below provides certain information as of December 31, 2016, with respect to compensation plans (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance. The table includes shares subject to awards granted or available for grant under consulting agreements as well as the following plans: 2008 Equity Compensation Plan, 2009 Incentive Stock Plan, 2012 Equity Incentive Award Plan, and 2014 Equity Incentive Plan. The table does not include warrants to purchase up to $1,000,000 of common stock, with the exercise price to be determined at the time of exercise based on a twenty-day trading average, that were issued in connection with a distribution agreement, described below under the heading “Recent Sales of Unregistered Securities”.

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Equity Compensation Plan Information

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

(1) All available shares for issuance are approved for issuance under the 2016 Equity Incentive Award Plan. No further equity awards or grants will be made under any of the Prior Plans.

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 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.

In October 2016, we issued an aggregate of 20,000,000 common shares at $0.05 per share pursuant to the exercise of warrants, for aggregate cash consideration of $1,000,000. The shares were issued without registration under the Securities Act in reliance upon exemptions from registration for securities sold in transactions under Section 4(a)(2) of the Securities Act and regulations promulgated thereunder.

In connection with the amendment and restatement of a distribution agreement for certain territories in South America on October 21, 2016, we granted warrants (the “New Warrants”) to a distributor exercisable for one year commencing January 31, 2017 and expiring January 30, 2018, for the purchase of shares of common stock for a total purchase price of $1,000,000. The per-share purchase price and number of shares issuable upon exercise of the New Warrants will be determined based upon the market price of the Company’s common stock for the 20 trading days immediately preceding the date of exercise of the New Warrants.

Item 6. Selected Financial Data

Not required.

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

You should read the following discussion of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included in this Annual Report on Form 10-K. In addition to our historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in this Annual Report on Form 10-K, particularly in Part I, Item 1A, “Risk Factors.” 

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Results of Operations

Year Ended December 31, 2016 Compared to Year Ended December 31, 2015 

For the year ended December 31, 2016, we had a net loss of $2,673,836, compared to a net loss for 2015 of $2,035,922. For the year ended December 31, 2016, we had a total comprehensive loss of $2,684,911, compared to a total comprehensive loss for 2015 of $2,014,719.  The primary reasons for the increase in net loss are (1) non-cash expense incurred in connection with warrants issued to purchase up to $1,000,000 of common stock to a distributor under an amended distribution agreement, and (2) higher legal costs, primarily in connection with the Company’s annual meeting of stockholders. The increase is offset, in part, by significantly decreased stock-based compensation expense in 2016 compared to expense in 2015 related to options granted to directors, officers, employees and consultants.  Our primary expenses are payroll and consulting fees, research and development expenses, office expenses, interest expense and compensation expense recorded as a result of our granting of stock options.  Net loss per common share was ($0.01) in 2016 and 2015.

For the year ended December 31, 2016, we had sales of $237,000 compared to sales of $197,000 for the year ended December 31, 2015. Related cost of goods sold totaled $203,460 and $114,811 for the years ended December 31, 2016 and 2015, respectively. We anticipate that as we commence our commercial launch of AsepticSure in the United States in late 2017, our revenues will increase. In 2015, we recognized revenue for previously received deposits from customers totaling $30,000 for units delivered in 2015.

General and administrative expenses for 2016 were $2,068,391 compared to $1,737,175 for 2015. The key expenses include payroll and consulting fees, professional fees, director fees, and compensation expense recorded as a result of granting stock options. The increase in expense is primarily due to expense associated with issuing warrants to purchase up to $1,000,000 of common stock to a distributor as a result of an amended distribution agreement and higher legal fees, offset, in part, by significantly reduced stock-based compensation expense in 2016 for options granted to directors, employees and consultants in comparison to 2015. The remaining general and administrative expenses include rent, office expenses and travel expenses. We anticipate that our general and administrative expenses will increase in late 2017 as we prepare for and implement the commercial launch of AsepticSure in the United States.

Research and development expenses for 2016 were $501,734, compared to $299,649 for 2015. The increase from the prior year was primarily due to consulting and engineering costs related to upgrading AsepticSure units. Research and development expenses include consultant fees, interface development costs, prototypes, and research stage ozone generator and instrument development. We anticipate our research and development expenses will remain approximately the same in 2017.

Warrants to purchase our common stock that do not meet the requirements for classification as equity, in accordance with the Derivatives and Hedging Topic of the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC), are classified as liabilities. We record these derivative financial instruments as liabilities in our balance sheet measured at their fair value. We record changes in fair value of such instruments as non-cash gains or losses in the consolidated statements of operations. In October 2016, we recorded a warrant liability of $938,051 related to the issuance of warrants for up to $1,000,000, for which the number of shares will be determined based on a 20-day average stock price prior to the date of exercise with the exercise price discounted at 40%. As of December 31, 2016, we recorded a loss on the warrant liability of $47, 212. A loss on change in warrant liability represents an increase in the amount of our warrant liability during that year. The warrants expire on January 30, 2018.

Notes payable totaled $372,332 as of December 31, 2016, and $372,396 as of December 31, 2015. Interest expense on these obligations totaled $33,850 for 2016 and $27,872 for 2015. The interest rates on this debt ranged from 4.88% to 12.00% per annum.

We anticipate that our revenues, related cost of goods sold and general and administrative expenses (including selling expenses) will increase in 2017 as we launch the AsepticSure product in the U.S., while research and development expenses remain approximately the same.

Liquidity and Capital Resources

As of December 31, 2016, our working capital deficiency was $4,126,861 compared to $2,675,007 as of December 31, 2015. The total stockholders’ deficit as of December 31, 2016 was $4,046,145 compared to $2,569,234 as of December 31, 2015.

During 2016, we generated minimal sales of our AsepticSure® disinfection system. We will continue to require additional financing to fund operations and to undertake our new business plans, to further the ongoing testing, and to market our hospital and medical disinfection system. We believe we will need approximately $1,500,000 during the next 12 months for continued production manufacturing, research, development, and marketing activities, as well as for general corporate purposes.

During 2016, we raised a total of $160,000 through the sale of 4,000,000 shares of common stock at a price of $0.04 per share. Additionally, we received proceeds of $1,000,000 resulting from the exercise of warrants for 20,000,000 shares of common stock at $0.05 per share. We used the proceeds from these securities issuances to keep current in our reporting obligations under the Exchange Act and to pay other corporate obligations.

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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, revenues, and expenses. By their nature, these judgments are subject to an inherent degree of uncertainty. On an on-going basis, we evaluate these estimates, including those related to intangible assets, revenues, expenses, and income taxes. We base our estimates on historical experience and other facts and circumstances that are believed to be reasonable, and the results form the basis for making judgments about the carrying values of assets and liabilities. The actual results may differ from these estimates under different assumptions or conditions.

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

We record compensation expense in connection with the granting of stock options and their vesting periods based on their fair values. We estimate the fair values of stock option awards issued to employees, consultants and others by using the Black-Scholes option-pricing model. For stock options with a service condition, the expense is measured at the grant date and expensed over the vesting period. For stock options with a performance condition, the expense is measured when it is probable that the performance condition will be met, subsequently re-measured at each reporting date, and trued up upon the completion of the performance condition.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under US GAAP.  The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.  ASU No. 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing US GAAP.  ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, and interim periods therein.  Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. We are assessing the impact, if any, of implementing this guidance on our consolidated financial position, results of operations and liquidity.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.  ASU No. 2014-15 sets forth management’s responsibility to evaluate, each reporting period, whether there is substantial doubt about the entity’s ability to continue as a going concern, and if so, to provide related footnote disclosures.  ASU No. 2014-15 is effective for annual reporting periods beginning after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016.  The implementation of this guidance had no impact on the presentation of the Company’s financial statements.

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

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

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU No. 2016-09 is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification in the statement of cash flows, and forfeitures. ASU No. 2016-09 is effective for fiscal years and interim periods within those years after December  15, 2016. We are assessing the impact that ASU No. 2016-09 may have on our future financial position, results of operations and liquidity.

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In October 2016, the FASB issued ASU No. 2016-17, Interests held Through Related Parties That are Under Common Control. ASU No. 2016-17 clarifies the consolidation process for the primary beneficiary of a Variable Interest Entity (“VIE”) should that related party have indirect interests under common control with the reporting entity. ASU No. 2016-17 is effective for years ending after December 31, 2016, and are assessing the impact that ASU No. 2016-17 may have 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, except as 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 interests 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.

Going Concern

The accompanying financial statements have been prepared in conformity with US GAAP, which contemplates continuation of the Company as a going concern. Our history of recurring losses, significant accumulated deficit, negative working capital and deficit in stockholders’ equity and the potential inability for us to make a profit from selling our products and services raise substantial doubt about our ability to continue as a going concern. Since inception, it has been necessary for us to rely upon financing from the sale of our equity securities to sustain operations. Additional financing will be required if we are to continue as a going concern. If we do not obtain additional financing in the near future, we may be required to curtail or discontinue operations or to seek protection under the bankruptcy laws.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk

Not required.

Item 8. Financial Statements and Supplementary Data

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

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

None

Item 9A. Controls and Procedures

Disclosure Controls and Procedures

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

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

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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 US GAAP. Internal control over financial reporting includes those policies and procedures that:

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

· Provide reasonable assurance that transactions are recorded, as necessary, to permit preparation of financial statements in accordance with US GAAP and that receipts and expenditures of the Company are being made only in accordance with authorizations of 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, including our Principal Executive Officer and our Principal Financial Officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria that have been set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework (1992). Based on its assessment, using those criteria, management concluded that, as of December 31, 2016, the Company’s internal control over financial reporting was effective.

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

Changes in Internal Control over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the quarter ended December 31, 2016, 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, 2016:

Name	Age	Position
Edwin G. Marshall	74	Chairman of the Board, Chief Executive Officer
Michael E. Shannon	69	Director, President, and Director of Medical Affairs, President of CFGH
Daniel D. Hoyt	77	Director
David A. Esposito	48	Director
Vincent C. Caponi	66	Director
Stephanie L. Sorensen	47	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. 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. On February 28, 2017, Mr. Marshall resigned from his roles and responsibilities as Chairman of the Board and Chief Executive Officer.

Dr. Michael E. Shannon M.A., M.Sc., M.D., became a director on August 18, 2008 and President of the Company in 2011. He also serves as Director of Medical Affairs since 2002 and in October 2008 was appointed President of CFGH. Dr. Shannon received his medical degree from Queen’s University in Canada, which included advanced training in surgery and sports medicine. He also holds post-graduate degrees in neurochemistry and physiology. He has been actively engaged in applied medical research within these areas for over 28 years. He served in the Canadian Forces for 31 years retiring at the rank of Commodore (Brigadier General equivalent) as Deputy Surgeon General for Canada. During the first Gulf War, Dr. Shannon served as the senior medical liaison officer for all of the Canadian forces. In 1996 he assumed responsibilities within Health Canada for re-organizing the Canadian blood system. Working with both the provincial and federal governments, he oversaw the development of a new corporate entity dedicated exclusively to the management of blood services in Canada. He was then appointed Director General for the Laboratory Centre for Disease Control, a position he held for three years. In December 2000, Dr. Shannon left the Canadian federal government to pursue a new career in industry. In that capacity, he simultaneously directed a phase III clinical trial in Canada, the United States and Great Britain for an artificial blood substitute product. Following completion of that work, he was asked to accept a special assignment with the Canadian Federal Government Auditor General’s office, his assignment being to conduct a cost benefit analysis of all government sponsored pharmacare programs and make recommendations directly to the Parliament of Canada. His assignment and presentation to Parliament was completed in November 2004. Dr. Shannon then served on a special assignment to the Canadian Public Health Agency (Centers for Disease Control equivalent in the United States) as Senior Medical Advisor. His responsibility was to direct the rebuilding of the Emergency Medical Response Capacity for Canada. In this regard and under his direction, the largest emergency medical response exercise in the history of the country, involving the overnight construction of a mobile hospital, hundreds of doctors and thousands of patients, was successfully held in Toronto in December 2007. Dr. Shannon has been actively engaged in medical bio-oxidative (O3) 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.

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 38 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 is the immediate past Vice-Chair of the Board of the St. Vincent Foundation in Indianapolis, Indiana. Mr. Hoyt serves on our Audit and Compensation Committees.

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

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

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

Meetings of the Board of Directors

The Board of Directors is elected by and is accountable to the stockholders. The Board of Directors establishes policy and provides strategic direction, oversight, and control of the Company. The Board of Directors met three times during the year ended December 31, 2016. All directors participated in all of the meetings held by the Board of Directors. The Board of Directors has an audit and a compensation committee, but has not yet established a 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 executive officers, as well as all employees and consultants. We have communicated the high level of ethical conduct expected from all of our employees, including our officers and our consultants. We will disclose any changes or amendments to or waivers from the Code of Ethics applicable to the named executive officers by posting such changes or waivers to our website.

The Board of Directors and Committees

The Board of Directors has determined that as of December 31, 2016, Mr. Hoyt, Mr. Esposito and Mr. Caponi were independent directors as defined by the rules of the NASDAQ Stock Market, as discussed below. In conjunction with Mr. Esposito’s appointment as our Chairman and Interim Chief Executive Officer on March 1, 2107, Mr. Esposito is no longer considered an independent director and is no longer eligible to serve on the committees of the Board. Our common stock is currently traded on the OTCQB. This market does not impose definitions or standards relating to director independence or the composition of committees with independent directors. We have not appointed a “lead independent director.”

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Board Committees

Audit Committee. The Audit Committee of the Board of Directors (the “Audit Committee”) is a standing committee of the Board, which has been established as required by Section 3(a) of the Exchange Act. As of the date of this report, the members of the Audit Committee are Mr. Hoyt and Mr. Caponi. Until March 1, 2017, Mr. Esposito was also a member and was the Chairman of the Audit Committee. The Board has determined that Mr. Caponi is an “audit committee financial expert,” as defined by the applicable regulations promulgated by the SEC under the Exchange Act. The Board also believes that each member of the Audit Committee meets stock exchange requirements regarding financial literacy. The Audit Committee’s responsibilities include: (i) appointing the independent registered public accounting firm of the Company, (ii) reviewing, approving and monitoring the scope and cost of any proposed audit and non-audit services that are provided by, as well as the qualifications and independence of, the independent registered public accounting firm, (iii) reviewing and monitoring with the independent registered public accounting firm, and any internal audit staff, the results of audits, any recommendations from the independent registered public accounting firm and the status of management’s actions for implementing such recommendations, as well as the quality and adequacy of our internal financial controls and any internal audit staff, and (iv) reviewing and monitoring our annual and quarterly financial statements and the status of material pending litigation and regulatory proceedings. The Audit Committee met once in 2016.

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

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

Risk Oversight and Management

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

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

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

Board Committee Charters

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

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REPORT OF THE AUDIT COMMITTEE OF THE BOARD OF DIRECTORS

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

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

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

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

Audit Committee:

David A. Esposito

Vincent C. Caponi

Daniel D. Hoyt

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Item 11. Executive Compensation

The following table sets forth all compensation paid to each person who served as a principal executive officer or principal financial and accounting officer (collectively, the “Named Executive Officers”) during 2015 and 2016, including any other executive officer who received more than $100,000 in annual compensation from the Company.

Summary Compensation Table

Name and principal position	Year	Salary			Option Awards			Total
(a)	(b)	(c)			(e)			(f)
Edwin G. Marshall (1)	2016		$	195,000		$	—		$	195,000
Chairman and Chief Executive Officer	2015		$	195,000		$	113,640		$	308,640
Michael E. Shannon (2)	2016		$	175,922		$	—		$	175,922
President and Director of Medical Affairs	2015		$	190,187		$	113,640		$	303,827

(1)

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

(2)

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

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

On February 28, 2017, Mr. Marshall resigned from his position as Chairman of the Board and Chief Executive Officer and Dr. Marshall resigned as Director of Operations. In connection with these resignations, Mr. Marshall and Dr. Marshall entered into Separation and Release Agreements which terminated their respective employment agreements. The Separation and Release Agreements address the payment schedule related to certain promissory notes, issued to Mr. and Dr. Marshall and the changes in awards granted under our 2014 Equity Incentive Plan, modifying the exercise period of the grants from three weeks to three years following termination.

Additionally, in conjunction with Mr. Esposito’s appointment to Chairman of the Board and Interim Chief Executive Officer on March 1, 2017, we entered into an employment agreement with Mr. Esposito which states the terms of his employment and compensation. Mr. Esposito’s annual base salary is $225,000, and he is eligible to receive a target bonus of 50% of base salary based on performance goals determined by the Board. Mr. Esposito also received a stock award of 1,000,000 shares of common stock upon his appointment and is eligible to receive an additional 1,000,000 shares of common stock upon AsepticSure’s commercialization in the US market. Additionally, stock options granted to Mr. Esposito on February 26, 2014 shall vest as follows: 750,000 shares upon execution of this Agreement; and 250,000 shares upon completion of original commercial milestones as established in the original option grant agreement.

Compliance with Section 16(a) of the Exchange Act 

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

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Outstanding Equity Awards as of Fiscal Year-End 2016

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

	Option Awards
Name	Number of securities underlying unexercised options (#) exercisable		Number of securities underlying unexercised options (#) unexercisable		Equity incentive plan awards: number of securities underlying unexercised unearned options (#)		Option exercise price ($)			Optionexpiration date
(a)	(b)		(c)		(d)		(e)			(f)
Edwin G. Marshall
Principal Executive Officer		1,000,000		—		—		$	0.23	2/21/17
		250,000		—		—		$	0.163	4/30/19
		1,500,000		—		—		$	0.087	8/18/20
Michael E. Shannon
President		1,000,000		—		—		$	0.23	2/21/17
		250,000		—		—		$	0.163	4/30/19
		1,000,000		—		—		$	0.13	8/15/19
		1,500,000		—		—		$	0.087	8/18/20

Director Compensation

Our directors did not receive any form of compensation during the year ended December 31, 2016.

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

The following tables contain information as of March 22, 2017 (the “Table Date”) with respect to beneficial ownership of shares of our common stock, for (1) all persons known to be holders of more than 5% of our voting securities based solely on the Company’s review of SEC filings, (2) each director, (3) each Named Executive Officer in the Summary Compensation Table of this report holding office on the Table Date, and (4) all executive officers and directors as a group. As of the Table Date, 394,934,068 shares of the Company’s common stock were issued and outstanding.

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.

Title of class	Name and Address of beneficial owner (1)	Amount and nature of beneficial ownership		Percentage of class
Common Stock	Edwin G. Marshall, Former Chairman and Chief Executive Officer (2)		16,226,951		4.1	%
Common Stock	David A. Esposito, (Chairman and Interim Chief Executive Officer (3)		6,940,000		1.7	%
Common Stock	Michael E. Shannon, Director and President (4)		6,239,000		1.6	%
Common Stock	Daniel D. Hoyt, Director (5)		10,149,888		2.6	%
Common Stock	Vincent C. Caponi, Director (6)		2,750,000		*
Common Stock	Stephanie L. Sorensen, Chief Financial Officer (7)		250,000		*
Common Stock	All Officers and Directors as a Group (6 persons) (8)		42,555,839		10.3	%

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

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(1) Except as otherwise indicated, the address of the stockholder is: c/o Medizone International, Inc., 350 E. Michigan Ave, Suite 500, Kalamazoo, Michigan, 49007.

(2) Amount indicated includes (i) 2,670,000 shares owned of record by Mr. Marshall’s wife, (ii) 9,077,683 shares owned directly by Mr. Marshall, and (iii) 904,268 shares held by Mr. and Mrs. Marshall as joint tenants. Also includes 3,575,000 shares subject to purchase under options that have vested, which are held in the names of Mr. Marshall (for 2,750,000 shares) and his wife, Dr. Jill Marshall (for 825,000 shares).

(3) Includes 3,440,000 shares owned of record and 3,500,000 shares subject to purchase under options that have vested. Does not include additional stock award of 1,000,000 shares to be issued upon AsepticSure’s commercialization in the U.S. or unvested options for the purchase of 250,000 shares of common stock granted February 26, 2014.

(4) Includes 2,489,000 shares owned of record and 3,750,000 shares subject to purchase under options that have vested.

(5) Includes 8,501,988 shares owned directly by Mr. Hoyt and 1,750,000 shares subject to purchase under options that have vested.

(6) Includes 2,750,000 shares subject to purchase under options that have vested.

(7) Includes 250,000 shares subject to purchase under options that vested.

(8) Based on a total of 394,934,068 shares outstanding as of the Table Date, plus 16,575,000 shares that may be issued upon the exercise of options that have vested, totaling 411,759,068 shares. 

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

Transactions with Related Parties

We settled accrued and unpaid compensation to our former Chairman and Chief Executive Officer for periods prior to December 31, 2009 through the issuance of a promissory note. We also settled accrued and unpaid compensation and accrued expenses for those prior periods to Mr. Marshall’s wife, Dr. Jill Marshall, our former Director of Operations, through the issuance of a promissory note. See “Executive Compensation.” Except as disclosed herein, 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 as of year-end for the last two years.

Transactions between us and our officers, directors, principal stockholders or affiliates are subject to approval by the Audit Committee or by a majority of disinterested directors.

Director Independence

The NASDAQ Stock Markets (“NASDAQ”) and New York Stock Exchange have established rules and regulations which generally require companies listed on these exchanges to have a board of directors with a majority of independent directors. Our common stock is currently traded on the OTCQB, which does not impose standards relating to director independence or the composition of committees with independent directors, or provide definitions of independence. With the resignation of Mr. Marshall and the appointment of Mr. Esposito as Chief Executive Officer, as of the date of this report, we have an equal number of independent and non-independent directors.

To assist the Board in making its determination regarding director independence, the Board has adopted independence standards that conform to the independence requirements of the NASDAQ Stock Market. In addition to evaluating each director’s independence, the Board considers all relevant facts and circumstances in making its independence determination. We assess director independence on an annual basis. The Board has determined, after careful review that Mr. Caponi and Mr. Hoyt are independent based on the rules of the NASDAQ Stock Market and applicable regulations of the SEC. In particular, the Board noted that each of these directors (1) is not an officer or employee of the Company, and (2) has no direct or indirect relationship with the Company that would interfere with the exercise of his independent judgment in carrying out his responsibilities as a director. The Board also has determined that each independent director also qualifies as “independent” as the term is used in Item 407 of Regulation S-K as promulgated by the SEC and as that term is defined under NASDAQ Rule 4200(a)(15). In addition, each member of the Audit Committee is independent as required under Section 10A(m)(3) of the Exchange Act.

26

Involvement in Certain Legal Proceedings

During the past 10 years, none of our directors has been: 

(i) involved in any bankruptcy petition filed by or against such person or any business of which such person was a general partner or executive officer, either at the time of the bankruptcy or within two years prior to that time;

(ii) named as a defendant or counter-claimant in any civil litigation;

(iii) convicted or plead nolo contendere in any criminal proceeding or is subject to a pending criminal proceeding (excluding traffic violations and other minor offences);

(iv) subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of business, securities, futures, commodities or banking activities;

(v) found by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated; 

(vi) involved in any judicial or administrative proceeding resulting from involvement in mail or wire fraud or fraud in connection with any business entity;

(vii) involved in any judicial or administrative proceedings based on violations of federal or state securities, commodities, banking or insurance laws and regulations, or any settlement to such actions (other than settlements of civil proceedings among private parties);

(viii) involved in any disciplinary sanction or orders imposed by a stock, commodities or derivatives exchange or other similar self- regulatory organization.

Item 14. Principal Accounting Fees and Services

Policy on Pre-Approval of Audit and Permissible Non-Audit Services

For the year ended December 31, 2016, the Audit Committee approved the engagement of our independent registered public accounting firm and has the ultimate authority and responsibility to select, evaluate and where appropriate, replace the independent registered public accounting firm and nominate an independent registered public accounting firm for stockholder approval.

Prior to the performance of any services, the Audit Committee approves all audit and non-audit services to be provided by the Company’s independent registered public accounting firm and the fees to be paid therefor, as well as certain services to be provided by the independent registered public accounting firm. 

In 2016, the Board of Directors considered whether the performance of non-audit services was compatible with maintaining the independence of our independent registered public accounting firm, Tanner LLC (“Tanner”). The appointment of Tanner was ratified by our stockholders at the annual meeting of shareholders held in December 2016.

Independence

Tanner has advised us that it has no direct or indirect financial interest in the Company or its affiliate and that it has had, during the last three years, no connection with the Company or its affiliate, other than as the Company’s independent registered public accounting firm or in connection with certain other activities, as described below.

27

Services

Tanner performed services consisting of the audit of the annual consolidated financial statements and the review of the quarterly financial statements of the Company and its affiliate for 2016 and 2015. Tanner did not perform any financial information systems design and implementation services for the Company.

The following table summarizes the audit fees (which include quarterly reviews and periodic filings) paid to Tanner for the years ended December 31, 2016 and 2015. The table also includes tax compliance fees paid to Tanner for the years indicated.

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

28

PART IV

Item 15. Exhibits, Financial Statement Schedules

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

(1)           The following Audited Financial Statements are filed as part of this report.
Report of Independent Registered Public Accounting Firm
	Consolidated Balance Sheets as of December 31, 2016 and 2015
	Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2016 and 2015
	Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2016 and 2015
	Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015
	Notes to Consolidated Financial Statements

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

Exhibit No.	Description
2	Agreement and Plan of Reorganization, March 12, 1986 (1)
3(i)(a)	Articles of Incorporation (1)
3(i)(b)	Articles of Amendment to Articles of Incorporation (2)
3(i)(c)	Articles of Amendment to Articles of Incorporation (3)
3(i)(d)	Certificate of Amendment to Articles of Incorporation (4)
3(ii)	Bylaws (1)
10.1	Employment Agreement between Medizone International, Inc. and David A. Esposito dated effective March 1, 2017 (5)
10.2	Waiver of Claims, General Release and Non-Solicitation Agreement dated February 28, 2017, between Medizone International, Inc. and Edwin G. Marshall (5)
10.3	Waiver of Claims, General Release and Non-Solicitation Agreement dated February 28, 2017, between Medizone International, Inc. and Jill Marshall (5)
10.4	Amended and Restated Distribution Agreement dated effective October 21, 2016 (6)
10.5	Executive Employment Agreement with Stephanie L. Sorensen dated October 1, 2016 (6)
10.6	Form of New Warrants (7)
10.7	2016 Equity Incentive Award Plan (8)

29

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

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

30

SIGNATURES

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

	MEDIZONE INTERNATIONAL, INC.
Dated: March 22, 2017	By:	/s/ David A. Esposito
		David A. Esposito, Chief Executive Officer

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

Name	Title	Date
/s/ David A. Esposito	Interim Chief Executive Officer (Principal Executive Officer) and Director	March 22, 2017
David A. Esposito
/s/ Michael E. Shannon	President and Director	March 22, 2017
Michael E. Shannon
/s/ Daniel D. Hoyt	Director	March 22, 2017
Daniel D. Hoyt
/s/ Vincent C. Caponi	Director	March 22, 2017
Vincent C. Caponi
/s/ Stephanie L. Sorensen	Chief Financial Officer (Principal Accounting and Financial Officer)	March 22, 2017
Stephanie L. Sorensen

31

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page
Report of Independent Registered Public Accounting Firm	33
Consolidated Balance Sheets as of December 31, 2016 and 2015	34
Consolidated Statements of Comprehensive Loss for the Years Ended December 31, 2016 and 2015	35
Consolidated Statements of Stockholders’ Deficit for the Years Ended December 31, 2016 and 2015	36
Consolidated Statements of Cash Flows for the Years Ended December 31, 2016 and 2015	37
Notes to the Consolidated Financial Statements	38

32

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders

Medizone International, Inc.

We have audited the accompanying consolidated balance sheets of Medizone International, Inc. and affiliate (collectively, the Company) as of December 31, 2016 and 2015, and the related consolidated statements of comprehensive loss, stockholders' deficit, and cash flows for each of the years in the two-year period ended December 31, 2016. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2016 and 2015, and the consolidated results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2016 in conformity with U.S. generally accepted accounting principles. 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern.  As discussed in Note 13 to the consolidated financial statements, the Company has incurred recurring losses which have resulted in a significant accumulated deficit and deficit in stockholders' equity.  Additionally, the Company has minimal cash and negative working capital as of December 31, 2016.  These matters, among others, raise substantial doubt about the Company's ability to continue as a going concern.  Management's plans in regard to these matters are described in Note 13.  The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Tanner LLC

March 22, 2017

33

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE

Consolidated Balance Sheets

ASSETS
	December 31,
	2016			2015
Current assets:
Cash	$	398,290		$	745,078
Inventory		109,573			277,823
Prepaid expenses		81,666			31,986
Total current assets		589,529			1,054,887
Property and equipment, net		-			415
Other assets:
Trademark and patents, net		151,444			176,086
Lease deposit		4,272			4,272
Total other assets		155,716			180,358
Total assets	$	745,245		$	1,235,660
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities:
Accounts payable	$	459,654		$	491,044
Accounts payable – related parties		-			233,109
Accrued expenses		592,621			554,834
Accrued expenses – related parties		538,887			1,928,659
Other payables		224,852			224,852
Notes payable		297,332			297,396
Notes payable – related parties		1,617,881			-
Warrant liability		985,163			-
Total current liabilities		4,716,390			3,729,894
Notes payable, net of current portion		75,000			75,000
Total liabilities		4,791,390			3,804,894
Commitments and contingencies (Notes 5, 10 and 13)
Stockholders’ deficit:
Preferred stock, $0.00001 par value: 50,000,000 authorized; no shares outstanding		-			-
Common stock, $0.001 par value: 395,000,000 authorized; 393,934,068 and 369,434,068 shares issued and outstanding, respectively		393,934			369,434
Additional paid-in capital		33,680,146			32,496,646
Accumulated other comprehensive loss		(48,043	)		(36,968	)
Accumulated deficit		(38,072,182	)		(35,398,346	)
Total stockholders’ deficit		(4,046,145	)		(2,569,234	)
Total liabilities and stockholders’ deficit	$	745,245		$	1,235,660

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

34

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE 

Consolidated Statements of Comprehensive Loss

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

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

35

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE 

Consolidated Statements of Stockholders’ Deficit

							Accumulated
	Common Stock				Additional Paid-in		Other Comprehensive			Accumulated			Total Stockholders’
	Shares		Amount		Capital		Loss			Deficit			Deficit
Balance, December 31, 2014		346,034,068	$	346,034	$	30,052,656	$	(58,098	)	$	(33,362,424	)	$	(3,021,832	)
Common stock issued for cash ranging from $0.05 to $0.10 per share		23,400,000		23,400		1,652,600		-			-			1,676,000
Stock-based compensation		-		-		791,390		-			-			791,390
Gain on foreign currency translation		-		-		-		21,130			-			21,130
Net loss		-		-		-		-			(2,035,922	)		(2,035,922	)
Balance, December 31, 2015		369,434,068		369,434		32,496,646		(36,968	)		(35,398,346	)		(2,569,234	)
Common stock issued for services at $0.096 per share		500,000		500		47,500		-			-			48,000
Common stock issued for cash ranging from $0.04 to $0.05 per share		24,000,000		24,000		1,136,000		-			-			1,160,000
Loss on foreign currency translation		-		-		-		(11,075	)		-			(11,075	)
Net loss		-		-		-		-			(2,673,836	)		(2,673,836	)
Balance, December 31, 2016		393,934,068	$	393,934	$	33,680,146	$	(48,043	)	$	(38,072,182	)	$	(4,046,145	)

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

36

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE

Consolidated Statements of Cash Flows

	For the Years Ended December 31,
	2016			2015
Cash flows from operating activities:
Net loss	$	(2,673,836	)	$	(2,035,922	)
Adjustments to reconcile net loss to net cash    used in operating activities:
Depreciation and amortization		56,311			53,442
Stock-based compensation		48,000			791,390
Fair value of warrants issued for services		937,951			-
Change in warrant liability		47,212			-
Changes in operating assets and liabilities:
Inventory		168,250			(12,589	)
Prepaid expenses		17,075			95,127
Customer deposits		-			(30,000	)
Accounts payable and accounts payable – related parties		(36,389	)		20,898
Accrued expenses and accrued expenses – related parties		37,787			38,400
Net cash used in operating activities		(1,397,639	)		(1,079,254	)
Cash flows from investing activities:
Expenditures for trademark and patents		(31,255	)		(21,041	)
Net cash used in investing activities		(31,255	)		(21,041	)
Cash flows from financing activities:
Principal payments on notes payable		(66,819	)		(67,253	)
Issuance of notes payable		-			75,000
Issuance of common stock for cash		1,160,000			1,676,000
Net cash provided by financing activities		1,093,181			1,683,747
Effects of foreign currency exchanges rates on cash		(11,075	)		21,130
Net (decrease) increase in cash		(346,788	)		604,582
Cash as of beginning of the year		745,078			140,496
Cash as of end of the year	$	398,290		$	745,078
Supplemental cash flow information:
Cash paid for interest	$	12,956		$	1,126
Supplemental disclosure of non-cash financing activities:
Financing of insurance premiums	$	66,755		$	66,408
Settlement of accounts payable and accrued expenses with notes payable – related party	$	1,617,881		$	-

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

37

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a.             Organization

The consolidated financial statements presented are those of Medizone International, Inc. (Medizone) and the Canadian Foundation for Global Health (CFGH), a not-for-profit foundation based in Ottawa, Canada, considered to be a variable interest entity (VIE) as described below. Collectively, they are referred to herein as the “Company”. The Company is in the business of designing, manufacturing and selling a patented system using ozone in the disinfection of surgical and other medical treatment facilities and in other applications.

In late 2008, the Company assisted in the formation of CFGH, a not-for-profit foundation. The Company helped establish CFGH for two primary purposes: (1) to establish an independent not-for-profit foundation intended to have a continuing working relationship with the Company for research purposes that is best positioned to attract the finest scientific, medical and academic professionals possible to work on projects deemed to be of social benefit; and (2) to provide a means for the Company to use a tiered pricing structure for services and products in emerging economies and extend the reach of its technology to as many in need as possible. 

U.S. generally accepted accounting principles (US GAAP) require a VIE to be consolidated by a company if that company absorbs a majority of the VIE’s expected losses and/or receives a majority of the VIE’s expected residual returns as a result of holding variable interests (ownership, contractual, or other financial interests) in the VIE. In addition, a legal entity is considered to be a VIE, if it does not have sufficient equity at risk to finance its own activities without relying on financial support from other parties. If the legal entity is a VIE, then the reporting entity determined to be the primary beneficiary of the VIE must consolidate the financial results of the VIE with it. Accordingly, the financial position and results of operations of CFGH are consolidated with Medizone as of and for the years ended December 31, 2016 and 2015.

b.             Business Activities

The Company’s objective is to pursue an initiative in the field of hospital disinfection. The Company has developed an ozone-based technology, specifically for the purpose of decontaminating and disinfecting hospital surgical suites, emergency rooms, and intensive care units.

c.             Basic and Diluted Net Loss Per Common Share

The computations of basic and diluted net loss per common share are based on the weighted average number of common shares outstanding during the years as follows:

	For the Years Ended December 31,
	2016				2015
Numerator (net loss)		$	(2,673,836	)		$	(2,035,922	)
Denominator (weighted average number of common shares outstanding)			375,118,494				355,464,753
Basic and diluted net loss per common share		$	(0.01	)		$	(0.01	)

Common stock equivalents, consisting of 20,715,000 options and warrants to purchase up to $1,000,000 of common stock with the number of shares determined based on a 20-day average stock price prior to the date of exercise, have not been included in the calculation, as their effect is antidilutive for the years presented.

d.             Property and Equipment

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

38

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

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

e.             Provision for Income Taxes

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

As of December 31, 2016, the Company had NOL carryforwards of approximately $12,451,000 that may be offset against future taxable income, if any, and expire through 2035.  If substantial changes in the Company’s ownership should occur, there would also be an annual limitation of the amount of the NOL carryforwards available for use.  No tax benefit has been reported in the consolidated financial statements as, in the opinion of management, it is more likely than not that all of the deferred income tax assets will not be realized and the NOL carryforwards will expire unused.  Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  If the Company were to determine that it would be able to realize its deferred income tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase net income or decrease net loss in the period such determination was made.

Interest and penalties associated with any underpayment of income taxes would be classified as income tax provision in the statements of comprehensive loss.  The Company has elected to present revenues net of any tax collected.

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

	2016			2015
Net operating loss carryforwards	$	4,959,900		$	4,408,800
Related-party accruals		1,564,700			1,165,900
Valuation allowance		(6,524,600	)		(5,574,700	)
	$	-		$	-

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

	2016			2015
Income tax benefit based on U.S. statutory rate of 34%	$	(909,100	)	$	(692,200	)
Stock issued for expenses		-			269,100
Other		(40,800	)		94,000
Change in valuation allowance		949,900			329,100
	$	-		$	-

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

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 examinations for years before 2013.

f.              Principles of Consolidation

The consolidated financial statements include the accounts of Medizone and the accounts of CFGH, a VIE. All material intercompany accounts and transactions have been eliminated.

39

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

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

g.             Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities as of the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

h.             Advertising

The Company expenses the costs of advertising as incurred. The Company did not incur any advertising expense for the years ended December 31, 2016 and 2015.

i.              Stock Options

The Company records compensation expense in connection with the granting of stock options and their vesting periods based on their fair values. The Company estimates the fair values of stock option awards issued to employees, consultants and others by using the Black-Scholes option-pricing model. For stock options with a service condition, the expense is measured at the grant date and expensed over the vesting period. For stock options with a performance condition, the expense is measured when it is probable that the performance condition will be met, subsequently re-measured at each reporting date, and trued up upon the final completion of the performance condition.

j.              Common Stock Warrant Liability

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

k.             Trademark and Patents

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

l.              Revenue Recognition Policy

The Company recognizes revenue when it ships its products, title and risk of loss passes to customers, payment from the customer is reasonably assured and the price is fixed or determinable. The Company records customer deposits received in advance of shipping products as a liability.

m.            Inventory

The Company’s inventory consists of its AsepticSure® product and is valued on a specific identification basis. The Company generally purchases its inventory as a finished product from unrelated manufacturing companies. The Company determined that there was no obsolete or excess inventory as of December 31, 2016, and 2015.

n.             Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, accounts payable, accrued expenses, notes payable and warrant liability. The carrying amounts of cash, accounts payable, and accrued expenses approximate their fair values because of the short-term nature of these instruments. The carrying amounts of the notes payable approximate fair values as the individual borrowings bear interest at rates that approximate market interest rates for similar debt instruments. The fair value of the warrant liability represents its estimated fair value using the Black-Scholes option pricing model.

40

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

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

n.            Fair Value of Financial Instruments (continued)

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

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

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

· Level 3 measurements are unobservable inputs.

o.             Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under US GAAP.  The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.  ASU No. 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing US GAAP.  ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, and interim periods therein.  Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods therein.  The Company is assessing the impact, if any, of implementing this guidance on the Company’s financial position, results of operations and liquidity.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.   ASU No. 2014-15 sets forth management’s responsibility to evaluate, each reporting period, whether there is substantial doubt about the entity’s ability to continue as a going concern, and if so, to provide related footnote disclosures.   ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016.  The implementation of this guidance had no impact on the presentation of the Company’s financial statements.

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

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

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU No. 2016-09 is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification in the statement of cash flows, and forfeitures. ASU No. 2016-09 is effective for fiscal years, and interim periods within those years beginning after December 15, 2016. The Company is assessing the impact of ASU No. 2016-09 on its future financial position, results of operations and liquidity. 

41

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE

Notes to Consolidated Financial Statements 

December 31, 2016 and 2015

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

o.             Recent Accounting Pronouncements (continued)

In October 2016, the FASB issued ASU No. 2016-17, Interests held Through Related Parties That are Under Common Control. ASU No. 2016-17 clarifies the consolidation process for the primary beneficiary of a Variable Interest Entity (VIE) should that related party have indirect interests under common control with the reporting entity. ASU No. 2016-17 is effective for years ending after December 31, 2016, and the Company is assessing the impact that ASU No. 2016-17 may have on its consolidated financial statements. 

p.             Concentration of Credit Risk

The Company maintains its cash in bank deposit accounts which cash, at times, exceeds federally insured limits. As of December 31, 2016, the Company had approximately $229,000 of cash balances that exceeded U.S. federally insured limits. To date, the Company has not experienced a material loss or lack of access to its cash; however, no assurance can be provided that access to the Company’s cash will not be impacted by adverse conditions in the financial markets.

NOTE 2 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of December 31, 2016 and 2015:

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

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

NOTE 3 - TRADEMARK AND PATENTS

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

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

Amortization expense for the years ended December 31, 2016 and 2015 was $55,896 and $53,027, respectively. The future amortization as of December 31, 2016, is as follows: 2017-$51,331; 2018-$38,750; 2019-$25,086; 2020-$17,543; 2021-$10,297 and thereafter-$8,437.

NOTE 4 - ACCOUNTS PAYABLE – RELATED PARTIES

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

NOTE 5 - ACCRUED EXPENSES

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

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

42

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE

Notes to Consolidated Financial Statements 

December 31, 2016 and 2015

NOTE 6 - ACCRUED EXPENSES – RELATED PARTIES

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

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

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

NOTE 7 - NOTES PAYABLE

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

	2016			2015
Unsecured notes payable to former directors and a family member of a former director, due at various dates in 1995, 1996 and 1997, interest at 8%. The Company has the right to repay the loans with restricted stock at $0.10 per share if alternative financings do not occur. These notes payable are in default.	$	182,676		$	182,676
Unsecured notes payable to a third party in the amount of $50,000, due on September 8, 2018, interest at 12%. Accrued interest due semi-annually, January 5 and July 5 of each year. The note holder has the right to convert 20% of the then outstanding principal into common shares at $0.10 per share.		50,000			50,000
Unsecured notes payable to 10 stockholders, due on demand, interest at 10%. The Company is obligated to accept the principal at face value plus accrued interest as partial payment for shares the lenders may purchase from the Company upon exercise of the lenders’ option to acquire shares from the Company.		60,815			60,815
Unsecured notes payable to a third party in the amount of $25,000, due on September 17, 2018, interest at 12%. Accrued interest due semi-annually, January 5 and July 5 of each year. The note holder has the right to convert 20% of the then outstanding principal into common shares at $0.10 per share.		25,000			25,000
Unsecured notes payable to directors totaling $28,000 and a note payable to a third party in the amount of $9,000, due on April 22, 1995, interest at 8%. Each lender has the right to convert any portion of the principal and interest into common stock at a price per share equal to the price per share under a prior private placement transaction. These notes payable are in default.		37,000			37,000
Unsecured notes payable to a financing company, payable in nine monthly installments, interest ranging from 4.88% to 6.68%, mature in April, July and November 2017.		16,841			16,905
Total notes payable		372,332			372,396
Less notes payable current portion		(297,332	)		(297,396	)
Total notes payable long term, net of current portion	$	75,000		$	75,000

NOTE 8 - NOTES PAYABLE – RELATED PARTIES

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

43

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

NOTE 9 - WARRANT LIABILITY

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

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

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

As of December 31, 2016, the Company recorded an increase of $47,212 in the warrant liability which resulted from an increase in the Company’s stock price at the end of the year, for a total liability of $985,163.

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Litigation

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.

Rakas vs. Medizone International, Inc. - A former consultant brought this action against the Company claiming the Company had failed to pay consulting fees under a consulting agreement. In September 2001, the parties agreed to settle the matter for $25,000. The Company, however, did not have the funds to pay the settlement and the plaintiff moved the court to enter a default judgment in the amount of $143,000 in January 2002. On May 8, 2002, the court vacated the default judgment and requested that the Company post a bond of $25,000 to cover the settlement previously entered into by the parties. The Company has been unable to post the required bond amount as of the date of this report. Therefore, the Company has recorded in accounts payable, the original default judgment in the amount of $143,000, plus fees totaling $21,308, as of December 31, 2016 and 2015. The Company intends to contest the judgment if and when it is able to do so in the future.

Other Payables

As of December 31, 2016 and 2015, the Company has recorded other payables totaling $224,852 related to certain past due payables for which the Company has not received invoices or demands for over 10 years. Although management of the Company does not believe that the amounts will be paid, the amounts have been recorded as other payables until such time as the Company is certain that no liability exists.

Operating Leases

The Company operates a certified laboratory located at Innovation Park, Queen’s University in Kingston, Ontario, Canada, which provides a primary research and development platform. The lease term is June 30, 2016 through June 29, 2018 with a monthly lease payment of $3,550 Canadian dollars (“CD”) plus the applicable goods and services tax (“GST”).

44

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

NOTE 10 - COMMITMENTS AND CONTINGENCIES (continued)

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

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

NOTE 11 - EQUITY TRANSACTIONS

Unless otherwise stated, the following equity transactions were with unrelated parties and the securities issued were restricted. There were no underwriters involved.

Common Stock for Cash – 2015

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

During February and March 2015, the Company sold an aggregate of 3,000,000 restricted shares of common stock to seven accredited investors for cash proceeds totaling $150,000, or $0.05 per share.

During April, May and June 2015, the Company sold an aggregate of 7,500,000 restricted shares of common stock to eight accredited investors for cash proceeds totaling $375,000, or $0.05 per share.

During August 2015, the Company sold an aggregate of 2,600,000 restricted shares of common stock to five accredited investors for cash proceeds totaling $130,000, or $0.05 per share.

During November 2015, the Company sold 10,000,000 restricted shares of common stock to an accredited investor for cash proceeds totaling $1,000,000, or $0.10 per share.

Common Stock for Cash or Services Provided – 2016

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

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

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

Recapitalization

The Company’s amended Articles of Incorporation include a class of preferred stock, par value $0.00001, with authorized shares of 50,000,000. To date, no shares of preferred stock have been issued. The rights and preferences of the authorized preferred shares will be determined by the Company’s Board of Directors.

On December 15, 2016, the Company’s stockholders approved the Board’s recommendation to increase the number of shares of common stock authorized from 395,000,000 shares to 500,000,000 shares in order to provide the Company with sufficient authorized shares to accomplish its objectives. The Company filed an amendment to modify its Articles of Incorporation with the State of Nevada on January 4, 2017, which was approved by the State on January 24, 2017.

45

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE

Notes to Consolidated Financial Statements 

December 31, 2016 and 2015

NOTE 12 - COMMON STOCK OPTIONS

In May 2012, the Company granted options for the purchase of 1,000,000 shares of common stock to a consultant for distribution channel related services to be performed. The options have vested as of December 31, 2015. The options have an exercise price of $0.17 per share, and are exercisable for up to five years. The Company recognized $69,300 of expense during the year ended December 31, 2015. 

In August 2013, the Company granted options for the purchase of 250,000 shares of common stock to a consultant. These options are exercisable at $0.10 per share for five years from the date of grant with 50,000 options vesting immediately and the other 200,000 options vesting upon the achievement of certain milestones, which were met in 2015. The Company recognized the remaining expense of $17,659 during the year ended December 31, 2015.

On February 26, 2014, the Company granted to a new director options for the purchase of 2,000,000 shares of common stock, with an exercise price of $0.1095 per share. Of these options, 1,000,000 vested February 26, 2015 and the remaining 1,000,000 options will vest upon the successful achievement of certain milestones. Unvested options vest immediately in the event of a change in control of the Company. The options are exercisable for five years. The Company recognized $16,017 during the year ended December 31, 2015 in connection with the options that vested on February 26, 2015. The Company will measure and begin recognizing the remaining expense when the achievement of the required milestones becomes probable.

On February 26, 2014, the Company granted options to six consultants and service providers for the purchase of a total of 250,000 shares of common stock at an exercise price of $0.1095 per share. Options for 200,000 shares vested immediately upon grant and options for the remaining 50,000 shares vested January 9, 2015. The options are exercisable for five years. The grant date fair value of these options was $24,023. The Company recognized expense of $800 during the year ended December 31, 2015.

On May 6, 2014, the Company granted options to a consultant for the purchase of 100,000 shares of common stock at an exercise price of $0.19 per share. Options for 50,000 shares vested immediately upon grant and options for the remaining 50,000 vested during 2015. The options are exercisable for five years. The Company recognized expense of $8,342 during the year ended December 31, 2015.

On October 7, 2014, the Company granted to a new board member options for the purchase of 1,000,000 shares of common stock, with an exercise price of $0.16 per share. These options vested October 7, 2015. The options are exercisable for five years. The grant date fair value of the options was $140,178. The Company recognized $105,133 during the year ended December 31, 2015.

On December 4, 2014, the Company granted options to four consultants for the purchase of 140,000 shares of common stock at an exercise price of $0.11 per share. The required milestones have been met and the shares are fully vested. The options are exercisable for five years. The total value of these options at the date of grant was $13,461, which the Company recognized as an expense during the year ended December 31, 2015.

In August 2015, the Company granted options for the purchase of a total of 7,150,000 shares of common stock for services rendered, as follows: 6,000,000 shares total to five directors of the Company, 650,000 shares total to four consultants, and 500,000 shares to an employee of the Company. All options vested upon grant, have an exercise price of $0.088 per share, and are exercisable for up to five years. The total value of these options at the date of grant was $541,687, which the Company recognized as an expense during the year ended December 31, 2015.

In August 2015, the Company granted options to a consultant for the purchase of a total of 250,000 shares of common stock at an exercise price of $0.085 per share. These options vested upon grant and are exercisable for up to five years. The total value of these options at the date of grant was $18,991, which the Company recognized as an expense during the year ended December 31, 2015.

The Company’s 2014 Equity Compensation Plan (the “2014 Plan”) was adopted on April 30, 2014 by the Board of Directors. The Company filed a registration statement on Form S-8 on July 17, 2014, to register 6,000,000 shares of common stock that may be issued under awards made pursuant to the 2014 Plan. As of December 31, 2016, the Company had no remaining options available for grant under the 2014 Plan and previously adopted plans.

46

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

NOTE 12 - COMMON STOCK OPTIONS (continued)

The Company’s 2016 Equity Incentive Award Plan (the “2016 Plan”) was adopted on December 15, 2016 by the stockholders. The 2016 Plan replaces the Company’s 2008 Equity Compensation Plan (“2008 Plan”), 2009 Incentive Stock Plan (“2009 Plan”), 2012 Equity Incentive Award Plan (“2012 Plan”), and the 2014 Equity Incentive Plan (“2014 Plan” and, together with the 2008, 2009 and 2012 Plans, the “Prior Plans”). Options and awards previously granted under the Prior Plans that have not yet expired by their terms will remain outstanding until their expiration dates. The Company will no longer make any grants or awards under the Prior Plans. The 2016 Plan replaces all previous plans and reserves a total of 10,000,000 shares of common stock for awards granted under the 2016 Plan. As of December 31, 2016, no shares had been issued.

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 expected volatility of the Company’s stock price, the weighted average risk-free interest rate, and the weighted average expected life of the options. Because the Company does not pay dividends, the dividend rate variable in the Black-Scholes option-pricing model is zero. Expense of $0 and $791,390 was recorded for the years ended December 31, 2016 and 2015, respectively. Excluding options whose performance condition is not yet deemed probable as of December 31, 2016, the Company had various unvested outstanding options with related unrecognized expense of $104,647. The Company will recognize this expense when achievement of the required milestones become probable.

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

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

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

Risk-free interest rate		1.85	%
Expected life	5 years
Expected volatility		130.34	%
Dividend yield		0.00	%

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

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

As of December 31, 2016, the aggregate intrinsic value of the outstanding vested options was $1,597,426. No shares were exercised in 2016.

47

MEDIZONE INTERNATIONAL, INC. AND AFFILIATE

Notes to Consolidated Financial Statements

December 31, 2016 and 2015

NOTE 13 - GOING CONCERN

The Company’s consolidated financial statements are prepared in accordance with US GAAP which assumes an entity is a going concern and contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has incurred significant recurring losses from its inception through December 31, 2016, which have resulted in an accumulated deficit of $38,072,182 as of December 31, 2016. The Company has minimal cash, has a working capital deficit of $4,126,861, and a total stockholders’ deficit of $4,046,145 as of December 31, 2016. The Company has relied almost exclusively on debt and equity financing to sustain its operations. Accordingly, there is substantial doubt about its ability to continue as a going concern.

Continuation of the Company as a going concern is dependent upon obtaining additional capital and ultimately, upon the Company attaining profitable operations. The Company will require substantial additional funds to continue to develop its products, product manufacturing, and to fund additional losses, until revenues are sufficient to cover the Company’s operating expenses. If the Company is unsuccessful in obtaining the necessary additional funding, it will most likely be forced to substantially reduce or cease operations.

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

During 2016, the Company raised a total of $160,000 through the sale of 4,000,000 shares of common stock at a price of $0.04 per share. Additionally, the Company received proceeds of $1,000,000 resulting from the exercise of warrants for 20,000,000 shares of common at $0.05 per share. The Company used the proceeds from these securities issuances to keep current in its reporting obligations under the Exchange Act and to pay certain other corporate obligations.

The ability of the Company to continue as a going concern is dependent on successfully accomplishing the plan described in the preceding paragraphs and eventually attaining profitable operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

NOTE 14 - SUBSEQUENT EVENTS

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

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

On February 28, 2017, the Company entered into separation and release agreements (Separation Agreements) with our former Chairman and CEO, Edwin Marshall, and our former Director of Operation, Dr. Jill Marshall. The Separation Agreements include principal payment schedules for promissory notes issued to these individuals and modify the terms of common stock option awards granted to them under the 2014 Equity Incentive Plan by increasing the exercise period of the grants from three weeks to three years following termination.

On March 1, 2017, the Company issued to its new chairman and interim CEO a stock award of 1,000,000 shares of common stock and is eligible to receive an additional 1,000,000 shares of common stock upon AsepticSure’s commercialization in the US market. Additionally, stock options granted to the Company’s new CEO Chairman and Interim CEO on February 26, 2014 shall vest as follows: 750,000 shares upon execution of this Agreement; and 250,000 shares upon completion of original commercial milestones as established in the original option grant agreement.

48

EX-31.1

Exhibit 31.1

CERTIFICATION

I, David A. Esposito, 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 affiliate, 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 the 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/ David A. Esposito
Name:	David A. Esposito
Title:	Interim Chief Executive Officer (Principal Executive Officer)
Date:	March 22, 2017

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Stephanie L. Sorensen, 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 affiliate, 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 the 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/Stephanie L. Sorensen
Name:	Stephanie L. Sorensen
Title:	Chief Financial Officer (Principal Accounting and Financial Officer)
Date:	March 22, 2017

EX-32.1

Exhibit 32.1

CERTIFICATION OF PERIODIC REPORT

I, David A. Esposito, Chairman of the Board and Interim 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, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) 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: March 22, 2017

/s/ David A. Esposito

David A. Esposito

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, Stephanie L. Sorensen, 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, 2016 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) 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: March 22, 2017

/s/ Stephanie L. Sorensen

Stephanie L. Sorensen

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

Document And Entity Information - USD ($)	12 Months Ended
	Dec. 31, 2016	Mar. 22, 2017	Jun. 30, 2016
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		394,934,068
Entity Public Float			$ 17,201,024
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, 2016
Document Fiscal Year Focus	2016
Document Fiscal Period Focus	FY

XML

Consolidated Balance Sheets - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Current assets:
Cash	$ 398,290	$ 745,078
Inventory	109,573	277,823
Prepaid expenses	81,666	31,986
Total current assets	589,529	1,054,887
Property and equipment, net	0	415
Other assets:
Trademark and patents, net	151,444	176,086
Lease deposit	4,272	4,272
Total other assets	155,716	180,358
Total assets	745,245	1,235,660
Current liabilities:
Accounts payable	459,654	491,044
Accounts payable – related parties	0	233,109
Accrued expenses	592,621	554,834
Accrued expenses – related parties	538,887	1,928,659
Other payables	224,852	224,852
Notes payable	297,332	297,396
Notes payable – related parties	1,617,881	0
Warrant liability	985,163	0
Total current liabilities	4,716,390	3,729,894
Notes payable, net of current portion	75,000	75,000
Total liabilities	4,791,390	3,804,894
Commitments and contingencies (Notes 5, 10 and 13)
Stockholders’ deficit:
Preferred stock, $0.00001 par value: 50,000,000 authorized; no shares outstanding	0	0
Common stock, $0.001 par value: 395,000,000 authorized; 393,934,068 and 369,434,068 shares issued and outstanding, respectively	393,934	369,434
Additional paid-in capital	33,680,146	32,496,646
Accumulated other comprehensive loss	(48,043)	(36,968)
Accumulated deficit	(38,072,182)	(35,398,346)
Total stockholders’ deficit	(4,046,145)	(2,569,234)
Total liabilities and stockholders’ deficit	$ 745,245	$ 1,235,660

XML

Consolidated Balance Sheets (Parentheticals) - $ / shares	Dec. 31, 2016	Dec. 31, 2015
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 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 outstanding	393,934,068	369,434,068

XML

Consolidated Statements of Comprehensive Loss - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Revenues	$ 237,000	$ 197,000
Operating expenses:
Cost of revenues	203,460	114,811
General and administrative	2,068,391	1,737,175
Research and development	501,734	299,649
Depreciation and amortization	56,311	53,442
Total operating expenses	2,829,896	2,205,077
Loss from operations	(2,592,896)	(2,008,077)
Loss on warrant liability	(47,212)	0
Interest expense	(33,850)	(27,872)
Interest income	122	27
Net loss	(2,673,836)	(2,035,922)
Other comprehensive loss:
Gain (loss) on foreign currency translation	(11,075)	21,130
Total comprehensive loss	$ (2,684,911)	$ (2,014,792)
Basic and diluted net loss per common share (in Dollars per share)	$ (0.01)	$ (0.01)
Weighted average number of common shares outstanding (in Shares)	375,118,494	355,464,753

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Consolidated Statements of Stockholders' Equity (Deficit) - USD ($)	Common Stock [Member]	Additional Paid-in Capital [Member]	AOCI Attributable to Parent [Member]	Retained Earnings [Member]	Total
Balance at Dec. 31, 2014	$ 346,034	$ 30,052,656	$ (58,098)	$ (33,362,424)	$ (3,021,832)
Balance (in Shares) at Dec. 31, 2014	346,034,068
Common stock issued for cash	$ 23,400	1,652,600			1,676,000
Common stock issued for cash (in Shares)	23,400,000
Stock-based compensation		791,390			791,390
Loss on foreign currency translation			21,130		21,130
Net loss				(2,035,922)	(2,035,922)
Balance at Dec. 31, 2015	$ 369,434	32,496,646	(36,968)	(35,398,346)	$ (2,569,234)
Balance (in Shares) at Dec. 31, 2015	369,434,068				369,434,068
Common stock issued for services	$ 500	47,500			$ 48,000
Common stock issued for services (in Shares)	500,000
Common stock issued for cash	$ 24,000	1,136,000			$ 1,160,000
Common stock issued for cash (in Shares)	24,000,000				4,000,000
Loss on foreign currency translation			(11,075)		$ (11,075)
Net loss				(2,673,836)	(2,673,836)
Balance at Dec. 31, 2016	$ 393,934	$ 33,680,146	$ (48,043)	$ (38,072,182)	$ (4,046,145)
Balance (in Shares) at Dec. 31, 2016	393,934,068				393,934,068

XML

Consolidated Statements of Stockholders' Equity (Deficit) (Parentheticals) - $ / shares	Dec. 31, 2016	Dec. 31, 2015
Common stock issued for cash, per share	$ 0.04
Common stock issued for services, per share	0.05
Common Stock [Member]
Common stock issued for services, per share	0.096
Minimum [Member] | Common Stock [Member]
Common stock issued for cash, per share	0.04	$ 0.05
Maximum [Member] | Common Stock [Member]
Common stock issued for cash, per share	$ 0.05	$ 0.10

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Consolidated Statements of Cash Flows - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Cash flows from operating activities:
Net loss	$ (2,673,836)	$ (2,035,922)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	56,311	53,442
Stock-based compensation	48,000	791,390
Fair value of warrants issued for services	937,951	0
Change in warrant liability	47,212	0
Changes in operating assets and liabilities:
Inventory	168,250	(12,589)
Prepaid expenses	17,075	95,127
Customer deposits	0	(30,000)
Accounts payable and accounts payable – related parties	(36,389)	20,898
Accrued expenses and accrued expenses – related parties	37,787	38,400
Net cash used in operating activities	(1,397,639)	(1,079,254)
Cash flows from investing activities:
Expenditures for trademark and patents	(31,255)	(21,041)
Net cash used in investing activities	(31,255)	(21,041)
Cash flows from financing activities:
Principal payments on notes payable	(66,819)	(67,253)
Issuance of notes payable	0	75,000
Issuance of common stock for cash	1,160,000	1,676,000
Net cash provided by financing activities	1,093,181	1,683,747
Effects of foreign currency exchanges rates on cash	(11,075)	21,130
Net (decrease) increase in cash	(346,788)	604,582
Cash as of beginning of the year	745,078	140,496
Cash as of end of the year	398,290	745,078
Supplemental cash flow information:
Cash paid for interest	12,956	1,126
Supplemental disclosure of non-cash financing activities:
Financing of insurance premiums	66,755	66,408
Settlement of accounts payable and accrued expenses with notes payable – related party	$ 1,617,881	$ 0

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NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [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) and the Canadian Foundation for Global Health (CFGH), a not-for-profit foundation based in Ottawa, Canada, considered to be a variable interest entity (VIE) as described below. Collectively, they are referred to herein as the “Company”. The Company is in the business of designing, manufacturing and selling a patented system using ozone in the disinfection of surgical and other medical treatment facilities and in other applications.

In late 2008, the Company assisted in the formation of CFGH, a not-for-profit foundation. The Company helped establish CFGH for two primary purposes: (1) to establish an independent not-for-profit foundation intended to have a continuing working relationship with the Company for research purposes that is best positioned to attract the finest scientific, medical and academic professionals possible to work on projects deemed to be of social benefit; and (2) to provide a means for the Company to use a tiered pricing structure for services and products in emerging economies and extend the reach of its technology to as many in need as possible. 

U.S. generally accepted accounting principles (US GAAP) require a VIE to be consolidated by a company if that company absorbs a majority of the VIE’s expected losses and/or receives a majority of the VIE’s expected residual returns as a result of holding variable interests (ownership, contractual, or other financial interests) in the VIE. In addition, a legal entity is considered to be a VIE, if it does not have sufficient equity at risk to finance its own activities without relying on financial support from other parties. If the legal entity is a VIE, then the reporting entity determined to be the primary beneficiary of the VIE must consolidate the financial results of the VIE with it. Accordingly, the financial position and results of operations of CFGH are consolidated with Medizone as of and for the years ended December 31, 2016 and 2015.

b.             Business Activities

The Company’s objective is to pursue an initiative in the field of hospital disinfection. The Company has developed an ozone-based technology, specifically for the purpose of decontaminating and disinfecting hospital surgical suites, emergency rooms, and intensive care units.

c.             Basic and Diluted Net Loss Per Common Share

The computations of basic and diluted net loss per common share are based on the weighted average number of common shares outstanding during the years as follows:

	For the Years Ended December 31,
	2016				2015
Numerator (net loss)		$	(2,673,836	)		$	(2,035,922	)
Denominator (weighted average number of common shares outstanding)			375,118,494				355,464,753
Basic and diluted net loss per common share		$	(0.01	)		$	(0.01	)

Common stock equivalents, consisting of 20,715,000 options and warrants to purchase up to $1,000,000 of common stock with the number of shares determined based on a 20-day average stock price prior to the date of exercise, have not been included in the calculation, as their effect is antidilutive for the years presented.

d.             Property and Equipment

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

e.             Provision for Income Taxes

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

As of December 31, 2016, the Company had NOL carryforwards of approximately $12,451,000 that may be offset against future taxable income, if any, and expire through 2035.  If substantial changes in the Company’s ownership should occur, there would also be an annual limitation of the amount of the NOL carryforwards available for use.  No tax benefit has been reported in the consolidated financial statements as, in the opinion of management, it is more likely than not that all of the deferred income tax assets will not be realized and the NOL carryforwards will expire unused.  Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  If the Company were to determine that it would be able to realize its deferred income tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase net income or decrease net loss in the period such determination was made.

Interest and penalties associated with any underpayment of income taxes would be classified as income tax provision in the statements of comprehensive loss.  The Company has elected to present revenues net of any tax collected.

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

	2016			2015
Net operating loss carryforwards	$	4,959,900		$	4,408,800
Related-party accruals		1,564,700			1,165,900
Valuation allowance		(6,524,600	)		(5,574,700	)
	$	-		$	-

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

	2016			2015
Income tax benefit based on U.S. statutory rate of 34%	$	(909,100	)	$	(692,200	)
Stock issued for expenses		-			269,100
Other		(40,800	)		94,000
Change in valuation allowance		949,900			329,100
	$	-		$	-

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

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 examinations for years before 2013.

f.              Principles of Consolidation

The consolidated financial statements include the accounts of Medizone and the accounts of CFGH, a VIE. All material intercompany accounts and transactions have been eliminated.

g.             Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities as of the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

h.             Advertising

The Company expenses the costs of advertising as incurred. The Company did not incur any advertising expense for the years ended December 31, 2016 and 2015.

i.              Stock Options

The Company records compensation expense in connection with the granting of stock options and their vesting periods based on their fair values. The Company estimates the fair values of stock option awards issued to employees, consultants and others by using the Black-Scholes option-pricing model. For stock options with a service condition, the expense is measured at the grant date and expensed over the vesting period. For stock options with a performance condition, the expense is measured when it is probable that the performance condition will be met, subsequently re-measured at each reporting date, and trued up upon the final completion of the performance condition.

j.              Common Stock Warrant Liability

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

k.             Trademark and Patents

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

l.              Revenue Recognition Policy

The Company recognizes revenue when it ships its products, title and risk of loss passes to customers, payment from the customer is reasonably assured and the price is fixed or determinable. The Company records customer deposits received in advance of shipping products as a liability.

m.            Inventory

The Company’s inventory consists of its AsepticSure® product and is valued on a specific identification basis. The Company generally purchases its inventory as a finished product from unrelated manufacturing companies. The Company determined that there was no obsolete or excess inventory as of December 31, 2016, and 2015.

n.             Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, accounts payable, accrued expenses, notes payable and warrant liability. The carrying amounts of cash, accounts payable, and accrued expenses approximate their fair values because of the short-term nature of these instruments. The carrying amounts of the notes payable approximate fair values as the individual borrowings bear interest at rates that approximate market interest rates for similar debt instruments. The fair value of the warrant liability represents its estimated fair value using the Black-Scholes option pricing model.

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

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

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

· Level 3 measurements are unobservable inputs.

o.             Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under US GAAP.  The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.  ASU No. 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing US GAAP.  ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, and interim periods therein.  Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods therein.  The Company is assessing the impact, if any, of implementing this guidance on the Company’s financial position, results of operations and liquidity.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.   ASU No. 2014-15 sets forth management’s responsibility to evaluate, each reporting period, whether there is substantial doubt about the entity’s ability to continue as a going concern, and if so, to provide related footnote disclosures.   ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016.  The implementation of this guidance had no impact on the presentation of the Company’s financial statements.

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

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

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU No. 2016-09 is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification in the statement of cash flows, and forfeitures. ASU No. 2016-09 is effective for fiscal years, and interim periods within those years beginning after December 15, 2016. The Company is assessing the impact of ASU No. 2016-09 on its future financial position, results of operations and liquidity. 

In October 2016, the FASB issued ASU No. 2016-17, Interests held Through Related Parties That are Under Common Control. ASU No. 2016-17 clarifies the consolidation process for the primary beneficiary of a Variable Interest Entity (VIE) should that related party have indirect interests under common control with the reporting entity. ASU No. 2016-17 is effective for years ending after December 31, 2016, and the Company is assessing the impact that ASU No. 2016-17 may have on its consolidated financial statements. 

p.             Concentration of Credit Risk

The Company maintains its cash in bank deposit accounts which cash, at times, exceeds federally insured limits. As of December 31, 2016, the Company had approximately $229,000 of cash balances that exceeded U.S. federally insured limits. To date, the Company has not experienced a material loss or lack of access to its cash; however, no assurance can be provided that access to the Company’s cash will not be impacted by adverse conditions in the financial markets.

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NOTE 2 - PROPERTY AND EQUIPMENT

12 Months Ended

Dec. 31, 2016

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment Disclosure [Text Block]

NOTE 2 - PROPERTY AND EQUIPMENT

Property and equipment consist of the following as of December 31, 2016 and 2015:

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

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

XML

NOTE 3 - TRADEMARK AND PATENTS

12 Months Ended

Dec. 31, 2016

Disclosure Text Block [Abstract]

Intangible Assets Disclosure [Text Block]

NOTE 3 - TRADEMARK AND PATENTS

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

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

Amortization expense for the years ended December 31, 2016 and 2015 was $55,896 and $53,027, respectively. The future amortization as of December 31, 2016, is as follows: 2017-$51,331; 2018-$38,750; 2019-$25,086; 2020-$17,543; 2021-$10,297 and thereafter-$8,437.

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NOTE 4 - ACCOUNTS PAYABLE - RELATED PARTIES

12 Months Ended

Dec. 31, 2016

Disclosure Text Block Supplement [Abstract]

Accounts Payable, Accrued Liabilities, and Other Liabilities Disclosure, Current [Text Block]

NOTE 4 - ACCOUNTS PAYABLE – RELATED PARTIES

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

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NOTE 5 - ACCRUED EXPENSES

12 Months Ended

Dec. 31, 2016

Other Liabilities and Financial Instruments Subject to Mandatory Redemption [Abstract]

Other Liabilities Disclosure [Text Block]

NOTE 5 - ACCRUED EXPENSES

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

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

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NOTE 6 - ACCRUED EXPENSES - RELATED PARTIES

12 Months Ended

Dec. 31, 2016

Payables and Accruals [Abstract]

Accounts Payable and Accrued Liabilities Disclosure [Text Block]

NOTE 6 - ACCRUED EXPENSES – RELATED PARTIES

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

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

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

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NOTE 7 - NOTES PAYABLE

12 Months Ended

Dec. 31, 2016

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

NOTE 7 - NOTES PAYABLE

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

	2016			2015
Unsecured notes payable to former directors and a family member of a former director, due at various dates in 1995, 1996 and 1997, interest at 8%. The Company has the right to repay the loans with restricted stock at $0.10 per share if alternative financings do not occur. These notes payable are in default.	$	182,676		$	182,676
Unsecured notes payable to a third party in the amount of $50,000, due on September 8, 2018, interest at 12%. Accrued interest due semi-annually, January 5 and July 5 of each year. The note holder has the right to convert 20% of the then outstanding principal into common shares at $0.10 per share.		50,000			50,000
Unsecured notes payable to 10 stockholders, due on demand, interest at 10%. The Company is obligated to accept the principal at face value plus accrued interest as partial payment for shares the lenders may purchase from the Company upon exercise of the lenders’ option to acquire shares from the Company.		60,815			60,815
Unsecured notes payable to a third party in the amount of $25,000, due on September 17, 2018, interest at 12%. Accrued interest due semi-annually, January 5 and July 5 of each year. The note holder has the right to convert 20% of the then outstanding principal into common shares at $0.10 per share.		25,000			25,000
Unsecured notes payable to directors totaling $28,000 and a note payable to a third party in the amount of $9,000, due on April 22, 1995, interest at 8%. Each lender has the right to convert any portion of the principal and interest into common stock at a price per share equal to the price per share under a prior private placement transaction. These notes payable are in default.		37,000			37,000
Unsecured notes payable to a financing company, payable in nine monthly installments, interest ranging from 4.88% to 6.68%, mature in April, July and November 2017.		16,841			16,905
Total notes payable		372,332			372,396
Less notes payable current portion		(297,332	)		(297,396	)
Total notes payable long term, net of current portion	$	75,000		$	75,000

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NOTE 8 - NOTES PAYABLE - RELATED PARTIES

12 Months Ended

Dec. 31, 2016

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

NOTE 8 - NOTES PAYABLE – RELATED PARTIES

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

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NOTE 9 - WARRANT LIABILITY

12 Months Ended

Dec. 31, 2016

Disclosure Text Block [Abstract]

Derivatives and Fair Value [Text Block]

NOTE 9 - WARRANT LIABILITY

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

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

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

As of December 31, 2016, the Company recorded an increase of $47,212 in the warrant liability which resulted from an increase in the Company’s stock price at the end of the year, for a total liability of $985,163.

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NOTE 10 - COMMITMENTS AND CONTINGENCIES

12 Months Ended

Dec. 31, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE 10 - COMMITMENTS AND CONTINGENCIES

Litigation

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.

Rakas vs. Medizone International, Inc. - A former consultant brought this action against the Company claiming the Company had failed to pay consulting fees under a consulting agreement. In September 2001, the parties agreed to settle the matter for $25,000. The Company, however, did not have the funds to pay the settlement and the plaintiff moved the court to enter a default judgment in the amount of $143,000 in January 2002. On May 8, 2002, the court vacated the default judgment and requested that the Company post a bond of $25,000 to cover the settlement previously entered into by the parties. The Company has been unable to post the required bond amount as of the date of this report. Therefore, the Company has recorded in accounts payable, the original default judgment in the amount of $143,000, plus fees totaling $21,308, as of December 31, 2016 and 2015. The Company intends to contest the judgment if and when it is able to do so in the future.

Other Payables

As of December 31, 2016 and 2015, the Company has recorded other payables totaling $224,852 related to certain past due payables for which the Company has not received invoices or demands for over 10 years. Although management of the Company does not believe that the amounts will be paid, the amounts have been recorded as other payables until such time as the Company is certain that no liability exists.

Operating Leases

The Company operates a certified laboratory located at Innovation Park, Queen’s University in Kingston, Ontario, Canada, which provides a primary research and development platform. The lease term is June 30, 2016 through June 29, 2018 with a monthly lease payment of $3,550 Canadian dollars (“CD”) plus the applicable goods and services tax (“GST”).

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

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

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NOTE 11 - EQUITY TRANSACTIONS

12 Months Ended

Dec. 31, 2016

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

NOTE 11 - EQUITY TRANSACTIONS

Unless otherwise stated, the following equity transactions were with unrelated parties and the securities issued were restricted. There were no underwriters involved.

Common Stock for Cash – 2015

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

During February and March 2015, the Company sold an aggregate of 3,000,000 restricted shares of common stock to seven accredited investors for cash proceeds totaling $150,000, or $0.05 per share.

During April, May and June 2015, the Company sold an aggregate of 7,500,000 restricted shares of common stock to eight accredited investors for cash proceeds totaling $375,000, or $0.05 per share.

During August 2015, the Company sold an aggregate of 2,600,000 restricted shares of common stock to five accredited investors for cash proceeds totaling $130,000, or $0.05 per share.

During November 2015, the Company sold 10,000,000 restricted shares of common stock to an accredited investor for cash proceeds totaling $1,000,000, or $0.10 per share.

Common Stock for Cash or Services Provided – 2016

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

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

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

Recapitalization

The Company’s amended Articles of Incorporation include a class of preferred stock, par value $0.00001, with authorized shares of 50,000,000. To date, no shares of preferred stock have been issued. The rights and preferences of the authorized preferred shares will be determined by the Company’s Board of Directors.

On December 15, 2016, the Company’s stockholders approved the Board’s recommendation to increase the number of shares of common stock authorized from 395,000,000 shares to 500,000,000 shares in order to provide the Company with sufficient authorized shares to accomplish its objectives. The Company filed an amendment to modify its Articles of Incorporation with the State of Nevada on January 4, 2017, which was approved by the State on January 24, 2017.

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NOTE 12 - COMMON STOCK OPTIONS

12 Months Ended

Dec. 31, 2016

Disclosure Text Block Supplement [Abstract]

Shareholders' Equity and Share-based Payments [Text Block]

NOTE 12 - COMMON STOCK OPTIONS

In May 2012, the Company granted options for the purchase of 1,000,000 shares of common stock to a consultant for distribution channel related services to be performed. The options have vested as of December 31, 2015. The options have an exercise price of $0.17 per share, and are exercisable for up to five years. The Company recognized $69,300 of expense during the year ended December 31, 2015. 

In August 2013, the Company granted options for the purchase of 250,000 shares of common stock to a consultant. These options are exercisable at $0.10 per share for five years from the date of grant with 50,000 options vesting immediately and the other 200,000 options vesting upon the achievement of certain milestones, which were met in 2015. The Company recognized the remaining expense of $17,659 during the year ended December 31, 2015.

On February 26, 2014, the Company granted to a new director options for the purchase of 2,000,000 shares of common stock, with an exercise price of $0.1095 per share. Of these options, 1,000,000 vested February 26, 2015 and the remaining 1,000,000 options will vest upon the successful achievement of certain milestones. Unvested options vest immediately in the event of a change in control of the Company. The options are exercisable for five years. The Company recognized $16,017 during the year ended December 31, 2015 in connection with the options that vested on February 26, 2015. The Company will measure and begin recognizing the remaining expense when the achievement of the required milestones becomes probable.

On February 26, 2014, the Company granted options to six consultants and service providers for the purchase of a total of 250,000 shares of common stock at an exercise price of $0.1095 per share. Options for 200,000 shares vested immediately upon grant and options for the remaining 50,000 shares vested January 9, 2015. The options are exercisable for five years. The grant date fair value of these options was $24,023. The Company recognized expense of $800 during the year ended December 31, 2015.

On May 6, 2014, the Company granted options to a consultant for the purchase of 100,000 shares of common stock at an exercise price of $0.19 per share. Options for 50,000 shares vested immediately upon grant and options for the remaining 50,000 vested during 2015. The options are exercisable for five years. The Company recognized expense of $8,342 during the year ended December 31, 2015.

On October 7, 2014, the Company granted to a new board member options for the purchase of 1,000,000 shares of common stock, with an exercise price of $0.16 per share. These options vested October 7, 2015. The options are exercisable for five years. The grant date fair value of the options was $140,178. The Company recognized $105,133 during the year ended December 31, 2015.

On December 4, 2014, the Company granted options to four consultants for the purchase of 140,000 shares of common stock at an exercise price of $0.11 per share. The required milestones have been met and the shares are fully vested. The options are exercisable for five years. The total value of these options at the date of grant was $13,461, which the Company recognized as an expense during the year ended December 31, 2015.

In August 2015, the Company granted options for the purchase of a total of 7,150,000 shares of common stock for services rendered, as follows: 6,000,000 shares total to five directors of the Company, 650,000 shares total to four consultants, and 500,000 shares to an employee of the Company. All options vested upon grant, have an exercise price of $0.088 per share, and are exercisable for up to five years. The total value of these options at the date of grant was $541,687, which the Company recognized as an expense during the year ended December 31, 2015.

In August 2015, the Company granted options to a consultant for the purchase of a total of 250,000 shares of common stock at an exercise price of $0.085 per share. These options vested upon grant and are exercisable for up to five years. The total value of these options at the date of grant was $18,991, which the Company recognized as an expense during the year ended December 31, 2015.

The Company’s 2014 Equity Compensation Plan (the “2014 Plan”) was adopted on April 30, 2014 by the Board of Directors. The Company filed a registration statement on Form S-8 on July 17, 2014, to register 6,000,000 shares of common stock that may be issued under awards made pursuant to the 2014 Plan. As of December 31, 2016, the Company had no remaining options available for grant under the 2014 Plan and previously adopted plans.

The Company’s 2016 Equity Incentive Award Plan (the “2016 Plan”) was adopted on December 15, 2016 by the stockholders. The 2016 Plan replaces the Company’s 2008 Equity Compensation Plan (“2008 Plan”), 2009 Incentive Stock Plan (“2009 Plan”), 2012 Equity Incentive Award Plan (“2012 Plan”), and the 2014 Equity Incentive Plan (“2014 Plan” and, together with the 2008, 2009 and 2012 Plans, the “Prior Plans”). Options and awards previously granted under the Prior Plans that have not yet expired by their terms will remain outstanding until their expiration dates. The Company will no longer make any grants or awards under the Prior Plans. The 2016 Plan replaces all previous plans and reserves a total of 10,000,000 shares of common stock for awards granted under the 2016 Plan. As of December 31, 2016, no shares had been issued.

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 expected volatility of the Company’s stock price, the weighted average risk-free interest rate, and the weighted average expected life of the options. Because the Company does not pay dividends, the dividend rate variable in the Black-Scholes option-pricing model is zero. Expense of $0 and $791,390 was recorded for the years ended December 31, 2016 and 2015, respectively. Excluding options whose performance condition is not yet deemed probable as of December 31, 2016, the Company had various unvested outstanding options with related unrecognized expense of $104,647. The Company will recognize this expense when achievement of the required milestones become probable.

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

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

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

Risk-free interest rate		1.85	%
Expected life	5 years
Expected volatility		130.34	%
Dividend yield		0.00	%

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

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

As of December 31, 2016, the aggregate intrinsic value of the outstanding vested options was $1,597,426. No shares were exercised in 2016.

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NOTE 13 - GOING CONCERN

12 Months Ended

Dec. 31, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Substantial Doubt about Going Concern [Text Block]

NOTE 13 - GOING CONCERN

The Company’s consolidated financial statements are prepared in accordance with US GAAP which assumes an entity is a going concern and contemplates the realization of assets and the settlement of liabilities in the normal course of business. The Company has incurred significant recurring losses from its inception through December 31, 2016, which have resulted in an accumulated deficit of $38,072,182 as of December 31, 2016. The Company has minimal cash, has a working capital deficit of $4,126,861, and a total stockholders’ deficit of $4,046,145 as of December 31, 2016. The Company has relied almost exclusively on debt and equity financing to sustain its operations. Accordingly, there is substantial doubt about its ability to continue as a going concern.

Continuation of the Company as a going concern is dependent upon obtaining additional capital and ultimately, upon the Company attaining profitable operations. The Company will require substantial additional funds to continue to develop its products, product manufacturing, and to fund additional losses, until revenues are sufficient to cover the Company’s operating expenses. If the Company is unsuccessful in obtaining the necessary additional funding, it will most likely be forced to substantially reduce or cease operations.

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

During 2016, the Company raised a total of $160,000 through the sale of 4,000,000 shares of common stock at a price of $0.04 per share. Additionally, the Company received proceeds of $1,000,000 resulting from the exercise of warrants for 20,000,000 shares of common at $0.05 per share. The Company used the proceeds from these securities issuances to keep current in its reporting obligations under the Exchange Act and to pay certain other corporate obligations.

The ability of the Company to continue as a going concern is dependent on successfully accomplishing the plan described in the preceding paragraphs and eventually attaining profitable operations. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might result from the outcome of this uncertainty.

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NOTE 14 - SUBSEQUENT EVENTS

12 Months Ended

Dec. 31, 2016

Subsequent Events [Abstract]

Subsequent Events [Text Block]

NOTE 14 - SUBSEQUENT EVENTS

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

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

On February 28, 2017, the Company entered into separation and release agreements (Separation Agreements) with our former Chairman and CEO, Edwin Marshall, and our former Director of Operation, Dr. Jill Marshall. The Separation Agreements include principal payment schedules for promissory notes issued to these individuals and modify the terms of common stock option awards granted to them under the 2014 Equity Incentive Plan by increasing the exercise period of the grants from three weeks to three years following termination.

On March 1, 2017, the Company issued to its new chairman and interim CEO a stock award of 1,000,000 shares of common stock and is eligible to receive an additional 1,000,000 shares of common stock upon AsepticSure’s commercialization in the US market. Additionally, stock options granted to the Company’s new CEO Chairman and Interim CEO on February 26, 2014 shall vest as follows: 750,000 shares upon execution of this Agreement; and 250,000 shares upon completion of original commercial milestones as established in the original option grant agreement.

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Accounting Policies, by Policy (Policies)

12 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Basis of Accounting, Policy [Policy Text Block]

Organization

The consolidated financial statements presented are those of Medizone International, Inc. (Medizone) and the Canadian Foundation for Global Health (CFGH), a not-for-profit foundation based in Ottawa, Canada, considered to be a variable interest entity (VIE) as described below. Collectively, they are referred to herein as the “Company”. The Company is in the business of designing, manufacturing and selling a patented system using ozone in the disinfection of surgical and other medical treatment facilities and in other applications.

In late 2008, the Company assisted in the formation of CFGH, a not-for-profit foundation. The Company helped establish CFGH for two primary purposes: (1) to establish an independent not-for-profit foundation intended to have a continuing working relationship with the Company for research purposes that is best positioned to attract the finest scientific, medical and academic professionals possible to work on projects deemed to be of social benefit; and (2) to provide a means for the Company to use a tiered pricing structure for services and products in emerging economies and extend the reach of its technology to as many in need as possible. 

U.S. generally accepted accounting principles (US GAAP) require a VIE to be consolidated by a company if that company absorbs a majority of the VIE’s expected losses and/or receives a majority of the VIE’s expected residual returns as a result of holding variable interests (ownership, contractual, or other financial interests) in the VIE. In addition, a legal entity is considered to be a VIE, if it does not have sufficient equity at risk to finance its own activities without relying on financial support from other parties. If the legal entity is a VIE, then the reporting entity determined to be the primary beneficiary of the VIE must consolidate the financial results of the VIE with it. Accordingly, the financial position and results of operations of CFGH are consolidated with Medizone as of and for the years ended December 31, 2016 and 2015.

b.             Business Activities

The Company’s objective is to pursue an initiative in the field of hospital disinfection. The Company has developed an ozone-based technology, specifically for the purpose of decontaminating and disinfecting hospital surgical suites, emergency rooms, and intensive care units.

Earnings Per Share, Policy [Policy Text Block]

Basic and Diluted Net Loss Per Common Share

The computations of basic and diluted net loss per common share are based on the weighted average number of common shares outstanding during the years as follows:

	For the Years Ended December 31,
	2016				2015
Numerator (net loss)		$	(2,673,836	)		$	(2,035,922	)
Denominator (weighted average number of common shares outstanding)			375,118,494				355,464,753
Basic and diluted net loss per common share		$	(0.01	)		$	(0.01	)

Common stock equivalents, consisting of 20,715,000 options and warrants to purchase up to $1,000,000 of common stock with the number of shares determined based on a 20-day average stock price prior to the date of exercise, have not been included in the calculation, as their effect is antidilutive for the years presented.

Property, Plant and Equipment, Policy [Policy Text Block]

Property and Equipment

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

Income Tax, Policy [Policy Text Block]

Provision for Income Taxes

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

As of December 31, 2016, the Company had NOL carryforwards of approximately $12,451,000 that may be offset against future taxable income, if any, and expire through 2035.  If substantial changes in the Company’s ownership should occur, there would also be an annual limitation of the amount of the NOL carryforwards available for use.  No tax benefit has been reported in the consolidated financial statements as, in the opinion of management, it is more likely than not that all of the deferred income tax assets will not be realized and the NOL carryforwards will expire unused.  Deferred income tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.  If the Company were to determine that it would be able to realize its deferred income tax assets in the future in excess of the net recorded amount, an adjustment to reduce the valuation allowance would increase net income or decrease net loss in the period such determination was made.

Interest and penalties associated with any underpayment of income taxes would be classified as income tax provision in the statements of comprehensive loss.  The Company has elected to present revenues net of any tax collected.

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

	2016			2015
Net operating loss carryforwards	$	4,959,900		$	4,408,800
Related-party accruals		1,564,700			1,165,900
Valuation allowance		(6,524,600	)		(5,574,700	)
	$	-		$	-

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

	2016			2015
Income tax benefit based on U.S. statutory rate of 34%	$	(909,100	)	$	(692,200	)
Stock issued for expenses		-			269,100
Other		(40,800	)		94,000
Change in valuation allowance		949,900			329,100
	$	-		$	-

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

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 examinations for years before 2013

Consolidation, Policy [Policy Text Block]

Principles of Consolidation

The consolidated financial statements include the accounts of Medizone and the accounts of CFGH, a VIE. All material intercompany accounts and transactions have been eliminated.

Use of Estimates, Policy [Policy Text Block]

Estimates

The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of the contingent assets and liabilities as of the dates of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.

Advertising Costs, Policy [Policy Text Block]

Advertising

The Company expenses the costs of advertising as incurred.

Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block]

Stock Options

The Company records compensation expense in connection with the granting of stock options and their vesting periods based on their fair values. The Company estimates the fair values of stock option awards issued to employees, consultants and others by using the Black-Scholes option-pricing model. For stock options with a service condition, the expense is measured at the grant date and expensed over the vesting period. For stock options with a performance condition, the expense is measured when it is probable that the performance condition will be met, subsequently re-measured at each reporting date, and trued up upon the final completion of the performance condition.

Intangible Assets, Finite-Lived, Policy [Policy Text Block]

Trademark and Patents

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

Revenue Recognition, Policy [Policy Text Block]

Revenue Recognition Policy

The Company recognizes revenue when it ships its products, title and risk of loss passes to customers, payment from the customer is reasonably assured and the price is fixed or determinable. The Company records customer deposits received in advance of shipping products as a liability.

Inventory, Policy [Policy Text Block]

Inventory

The Company’s inventory consists of its AsepticSure® product and is valued on a specific identification basis. The Company generally purchases its inventory as a finished product from unrelated manufacturing companies. The Company determined that there was no obsolete or excess inventory as of December 31, 2016, and 2015.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash, accounts payable, accrued expenses, notes payable and warrant liability. The carrying amounts of cash, accounts payable, and accrued expenses approximate their fair values because of the short-term nature of these instruments. The carrying amounts of the notes payable approximate fair values as the individual borrowings bear interest at rates that approximate market interest rates for similar debt instruments. The fair value of the warrant liability represents its estimated fair value using the Black-Scholes option pricing model.

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

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

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

· Level 3 measurements are unobservable inputs.

New Accounting Pronouncements, Policy [Policy Text Block]

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers, which supersedes nearly all existing revenue recognition guidance under US GAAP.  The core principle of ASU No. 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services.  ASU No. 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing US GAAP.  ASU No. 2014-09 is effective for annual reporting periods beginning after December 15, 2017, and interim periods therein.  Early adoption is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods therein.  The Company is assessing the impact, if any, of implementing this guidance on the Company’s financial position, results of operations and liquidity.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.   ASU No. 2014-15 sets forth management’s responsibility to evaluate, each reporting period, whether there is substantial doubt about the entity’s ability to continue as a going concern, and if so, to provide related footnote disclosures.   ASU 2014-15 is effective for annual reporting periods ending after December 15, 2016.  The implementation of this guidance had no impact on the presentation of the Company’s financial statements.

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

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

In March 2016, the FASB issued ASU No. 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU No. 2016-09 is intended to simplify several areas of accounting for share-based compensation arrangements, including the income tax impact, classification in the statement of cash flows, and forfeitures. ASU No. 2016-09 is effective for fiscal years, and interim periods within those years beginning after December 15, 2016. The Company is assessing the impact of ASU No. 2016-09 on its future financial position, results of operations and liquidity. 

In October 2016, the FASB issued ASU No. 2016-17, Interests held Through Related Parties That are Under Common Control. ASU No. 2016-17 clarifies the consolidation process for the primary beneficiary of a Variable Interest Entity (VIE) should that related party have indirect interests under common control with the reporting entity. ASU No. 2016-17 is effective for years ending after December 31, 2016, and the Company is assessing the impact that ASU No. 2016-17 may have on its consolidated financial statements.

Concentration Risk, Credit Risk, Policy [Policy Text Block]

Concentration of Credit Risk

The Company maintains its cash in bank deposit accounts which cash, at times, exceeds federally insured limits. As of December 31, 2016, the Company had approximately $229,000 of cash balances that exceeded U.S. federally insured limits. To date, the Company has not experienced a material loss or lack of access to its cash; however, no assurance can be provided that access to the Company’s cash will not be impacted by adverse conditions in the financial markets.

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

12 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

The computations of basic and diluted net loss per common share are based on the weighted average number of common shares outstanding during the years as follows:

	For the Years Ended December 31,
	2016				2015
Numerator (net loss)		$	(2,673,836	)		$	(2,035,922	)
Denominator (weighted average number of common shares outstanding)			375,118,494				355,464,753
Basic and diluted net loss per common share		$	(0.01	)		$	(0.01	)

Schedule of Deferred Tax Assets and Liabilities [Table Text Block]

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

	2016			2015
Net operating loss carryforwards	$	4,959,900		$	4,408,800
Related-party accruals		1,564,700			1,165,900
Valuation allowance		(6,524,600	)		(5,574,700	)
	$	-		$	-

Schedule of Effective Income Tax Rate Reconciliation [Table Text Block]

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

	2016			2015
Income tax benefit based on U.S. statutory rate of 34%	$	(909,100	)	$	(692,200	)
Stock issued for expenses		-			269,100
Other		(40,800	)		94,000
Change in valuation allowance		949,900			329,100
	$	-		$	-

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NOTE 2 - PROPERTY AND EQUIPMENT (Tables)

12 Months Ended

Dec. 31, 2016

Property, Plant and Equipment [Abstract]

Property, Plant and Equipment [Table Text Block]

Property and equipment consist of the following as of December 31, 2016 and 2015:

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

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NOTE 3 - TRADEMARK AND PATENTS (Tables)

12 Months Ended

Dec. 31, 2016

Disclosure Text Block [Abstract]

Schedule of Finite-Lived Intangible Assets [Table Text Block]

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

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

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NOTE 5 - ACCRUED EXPENSES (Tables)

12 Months Ended

Dec. 31, 2016

Other Liabilities and Financial Instruments Subject to Mandatory Redemption [Abstract]

Other Current Liabilities [Table Text Block]

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

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

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NOTE 6 - ACCRUED EXPENSES - RELATED PARTIES (Tables)

12 Months Ended

Dec. 31, 2016

Payables and Accruals [Abstract]

Schedule of Accrued Liabilities [Table Text Block]

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

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

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NOTE 7 - NOTES PAYABLE (Tables)

12 Months Ended

Dec. 31, 2016

Debt Disclosure [Abstract]

Schedule of Debt [Table Text Block]

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

	2016			2015
Unsecured notes payable to former directors and a family member of a former director, due at various dates in 1995, 1996 and 1997, interest at 8%. The Company has the right to repay the loans with restricted stock at $0.10 per share if alternative financings do not occur. These notes payable are in default.	$	182,676		$	182,676
Unsecured notes payable to a third party in the amount of $50,000, due on September 8, 2018, interest at 12%. Accrued interest due semi-annually, January 5 and July 5 of each year. The note holder has the right to convert 20% of the then outstanding principal into common shares at $0.10 per share.		50,000			50,000
Unsecured notes payable to 10 stockholders, due on demand, interest at 10%. The Company is obligated to accept the principal at face value plus accrued interest as partial payment for shares the lenders may purchase from the Company upon exercise of the lenders’ option to acquire shares from the Company.		60,815			60,815
Unsecured notes payable to a third party in the amount of $25,000, due on September 17, 2018, interest at 12%. Accrued interest due semi-annually, January 5 and July 5 of each year. The note holder has the right to convert 20% of the then outstanding principal into common shares at $0.10 per share.		25,000			25,000
Unsecured notes payable to directors totaling $28,000 and a note payable to a third party in the amount of $9,000, due on April 22, 1995, interest at 8%. Each lender has the right to convert any portion of the principal and interest into common stock at a price per share equal to the price per share under a prior private placement transaction. These notes payable are in default.		37,000			37,000
Unsecured notes payable to a financing company, payable in nine monthly installments, interest ranging from 4.88% to 6.68%, mature in April, July and November 2017.		16,841			16,905
Total notes payable		372,332			372,396
Less notes payable current portion		(297,332	)		(297,396	)
Total notes payable long term, net of current portion	$	75,000		$	75,000

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NOTE 9 - WARRANT LIABILITY (Tables)

12 Months Ended

Dec. 31, 2016

Disclosure Text Block [Abstract]

Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Table Text Block]

The estimate was calculated using the following inputs:

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

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NOTE 12 - COMMON STOCK OPTIONS (Tables)

12 Months Ended

Dec. 31, 2016

Disclosure Text Block Supplement [Abstract]

Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block]

The Company estimated the fair value of the stock options for 2015 and 2016 at the date of the grant, based on the following weighted average assumptions:

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

Risk-free interest rate		1.85	%
Expected life	5 years
Expected volatility		130.34	%
Dividend yield		0.00	%

Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block]

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

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

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NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - USD ($)		12 Months Ended
	Oct. 21, 2016	Dec. 31, 2016	Dec. 31, 2015
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]
Common Stock Equivalents, Value	$ 1,000,000	$ 1,000,000
Operating Loss Carryforwards		$ 12,451,000
Operating Loss Carryforwards, Expiration Date		2035
Liability for Uncertainty in Income Taxes, Current		$ 0	$ 0
Cash, Uninsured Amount		$ 229,000
Employee Stock Option [Member]
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in Shares)		20,715,000
Computer Equipment [Member]
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]
Property, Plant and Equipment, Useful Life		3 years
Office Equipment [Member]
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]
Property, Plant and Equipment, Useful Life		5 years
Trademarks [Member]
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) [Line Items]
Finite-Lived Intangible Asset, Useful Life		7 years

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NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Schedule of Earnings Per Share, Basic and Diluted - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Schedule of Earnings Per Share, Basic and Diluted [Abstract]
Numerator (net loss)	$ (2,673,836)	$ (2,035,922)
Denominator (weighted average number of common shares outstanding)	375,118,494	355,464,753
Basic and diluted net loss per common share	$ (0.01)	$ (0.01)

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NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Schedule of Deferred Tax Assets and Liabilities - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Schedule of Deferred Tax Assets and Liabilities [Abstract]
Net operating loss carryforwards	$ 4,959,900	$ 4,408,800
Related-party accruals	1,564,700	1,165,900
Valuation allowance	(6,524,600)	(5,574,700)
	$ 0	$ 0

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NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Schedule of Effective Income Tax Rate Reconciliation - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Schedule of Effective Income Tax Rate Reconciliation [Abstract]
Income tax benefit based on U.S. statutory rate of 34%	$ (909,100)	$ (692,200)
Stock issued for expenses	0	269,100
Other	(40,800)	94,000
Change in valuation allowance	949,900	329,100
	$ 0	$ 0

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NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - Schedule of Effective Income Tax Rate Reconciliation (Parentheticals)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Schedule of Effective Income Tax Rate Reconciliation [Abstract]
Income tax benefit statutory rate	34.00%	34.00%

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NOTE 2 - PROPERTY AND EQUIPMENT (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Property, Plant and Equipment [Abstract]
Depreciation	$ 415	$ 415

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NOTE 2 - PROPERTY AND EQUIPMENT (Details) - Schedule of Property, Plant and Equipment - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	$ 5,013	$ 5,013
Accumulated depreciation	(5,013)	(4,598)
Property and equipment, net	0	415
Computer Equipment [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	2,938	2,938
Furniture and Fixtures [Member]
Property, Plant and Equipment [Line Items]
Property and Equipment, Gross	$ 2,075	$ 2,075

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NOTE 3 - TRADEMARK AND PATENTS (Details) - USD ($)	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
Disclosure Text Block [Abstract]
Amortization of Intangible Assets	$ 55,896	$ 53,027
Finite-Lived Intangible Assets, Amortization Expense, Next Twelve Months	51,331
Finite-Lived Intangible Assets, Amortization Expense, Year Two	38,750
Finite-Lived Intangible Assets, Amortization Expense, Year Three	25,086
Finite-Lived Intangible Assets, Amortization Expense, Year Four	17,543
Finite-Lived Intangible Assets, Amortization Expense, Year Five	10,297
Finite-Lived Intangible Assets, Amortization Expense, after Year Five	$ 8,437

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NOTE 3 - TRADEMARK AND PATENTS (Details) - Schedule of Finite-Lived Intangible Assets - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Intangible Assets, Gross	$ 416,021	$ 384,767
Accumulated amortization	(264,577)	(208,681)
Trademark and patents, net	151,444	176,086
Patents [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible Assets, Gross	415,251	383,997
Trademarks [Member]
Finite-Lived Intangible Assets [Line Items]
Intangible Assets, Gross	$ 770	$ 770

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NOTE 4 - ACCOUNTS PAYABLE - RELATED PARTIES (Details) - USD ($)	1 Months Ended
	Jul. 31, 2016	Dec. 31, 2016	Dec. 31, 2015
NOTE 4 - ACCOUNTS PAYABLE - RELATED PARTIES (Details) [Line Items]
Accounts Payable, Related Parties, Current		$ 0	$ 233,109
Accounts Payable [Member]
NOTE 4 - ACCOUNTS PAYABLE - RELATED PARTIES (Details) [Line Items]
Debt Conversion, Converted Instrument, Amount	$ 228,109

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NOTE 5 - ACCRUED EXPENSES (Details) - Schedule of Accrued Liabilities - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Schedule of Accrued Liabilities [Abstract]
Accrued interest	$ 549,909	$ 529,015
Other accruals	42,712	25,819
Total	$ 592,621	$ 554,834

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NOTE 6 - ACCRUED EXPENSES - RELATED PARTIES (Details)	1 Months Ended
	Jul. 31, 2016 USD ($)
Accounts Payable and Accrued Liabilities [Member]
NOTE 6 - ACCRUED EXPENSES - RELATED PARTIES (Details) [Line Items]
Debt Conversion, Converted Instrument, Amount	$ 1,389,772

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NOTE 6 - ACCRUED EXPENSES - RELATED PARTIES (Details) - Schedule of Accrued Liabilities - USD ($)	Dec. 31, 2016	Dec. 31, 2015
Schedule of Accrued Liabilities [Abstract]
Accrued payroll and consulting – related parties	$ 422,334	$ 1,812,106
Accrued payroll taxes – related parties	116,553	116,553
Total	$ 538,887	$ 1,928,659

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NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt - USD ($)	Dec. 31, 2016	Dec. 31, 2015
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt [Line Items]
Note Payable	$ 372,332	$ 372,396
Less notes payable current portion	(297,332)	(297,396)
Note Payable	75,000	75,000
Unsecured Note 1 [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt [Line Items]
Note Payable	182,676	182,676
Unsecured Note 2 [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt [Line Items]
Note Payable	50,000	50,000
Unsecured Note 3 [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt [Line Items]
Note Payable	60,815	60,815
Unsecured Note 4 [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt [Line Items]
Note Payable	25,000	25,000
Unsecured Note 5 [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt [Line Items]
Note Payable	37,000	37,000
Unsecured Note 6 [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt [Line Items]
Note Payable	$ 16,841	$ 16,905

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NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt (Parentheticals)	12 Months Ended
	Dec. 31, 2016 USD ($) $ / shares	Dec. 31, 2015 USD ($) $ / shares	Jul. 31, 2016 USD ($)
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt (Parentheticals) [Line Items]
Notes Payable, Amount			$ 1,617,881
Unsecured Note 1 [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt (Parentheticals) [Line Items]
Due	Various dates in 1995, 1996 and 1997	Various dates in 1995, 1996 and 1997
Interest	8.00%	8.00%
Note Repayment Term	The Company has the right to repay the loans with restricted stock at $0.10 per share if alternative financings do not occur.	The Company has the right to repay the loans with restricted stock at $0.10 per share if alternative financings do not occur.
Unsecured Note 2 [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt (Parentheticals) [Line Items]
Interest	12.00%	12.00%
Note Repayment Term	Accrued interest due semi-annually, January 5 and July 5 of each year.	Accrued interest due semi-annually, January 5 and July 5 of each year.
Due	Sep. 08, 2018	Sep. 08, 2018
Note Conversion	The note holder has the right to convert 20% of the then outstanding principal into common shares at $0.10 per share.	The note holder has the right to convert 20% of the then outstanding principal into common shares at $0.10 per share.
Note Conversion | $ / shares	$ 0.10	$ 0.10
Notes Payable, Amount	$ 50,000
Unsecured Note 3 [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt (Parentheticals) [Line Items]
Interest	10.00%	10.00%
Stockholders	10	10
Unsecured Note 4 [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt (Parentheticals) [Line Items]
Interest	12.00%	12.00%
Note Repayment Term	Accrued interest due semi-annually, January 5 and July 5 of each year.	Accrued interest due semi-annually, January 5 and July 5 of each year.
Due	Sep. 17, 2018	Sep. 17, 2018
Note Conversion	The note holder has the right to convert 20% of the then outstanding principal into common shares at $0.10 per share.	The note holder has the right to convert 20% of the then outstanding principal into common shares at $0.10 per share.
Note Conversion | $ / shares	$ 0.10	$ 0.10
Notes Payable, Amount	$ 25,000
Unsecured Note 5 [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt (Parentheticals) [Line Items]
Interest	8.00%	8.00%
Due	Apr. 22, 1995	Apr. 22, 1995
Note Conversion	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.	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.
Note Default	These notes payable are in default.	These notes payable are in default.
Unsecured Note 5 [Member] | Loans Payable [Member] | Third Party Debt [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt (Parentheticals) [Line Items]
Notes Payable, Amount	$ 9,000	$ 9,000
Unsecured Note 5 [Member] | Director [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt (Parentheticals) [Line Items]
Notes Payable, Amount	$ 28,000	$ 28,000
Unsecured Note 6 [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt (Parentheticals) [Line Items]
Due	April, July and November 2017	April, July and November 2017
Note Repayment Term	Nine monthly installments	Nine monthly installments
Unsecured Note 6 [Member] | Minimum [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt (Parentheticals) [Line Items]
Interest	4.88%	4.88%
Unsecured Note 6 [Member] | Maximum [Member] | Loans Payable [Member]
NOTE 7 - NOTES PAYABLE (Details) - Schedule of Debt (Parentheticals) [Line Items]
Interest	6.68%	6.68%

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NOTE 8 - NOTES PAYABLE - RELATED PARTIES (Details)	1 Months Ended
	Jul. 31, 2016 USD ($)
NOTE 8 - NOTES PAYABLE - RELATED PARTIES (Details) [Line Items]
Number of Notes	3
Debt Instrument, Face Amount	$ 1,617,881
Accounts Payable [Member]
NOTE 8 - NOTES PAYABLE - RELATED PARTIES (Details) [Line Items]
Debt Conversion, Converted Instrument, Amount	228,109
Accounts Payable and Accrued Liabilities [Member]
NOTE 8 - NOTES PAYABLE - RELATED PARTIES (Details) [Line Items]
Debt Conversion, Converted Instrument, Amount	$ 1,389,772
Officer [Member]
NOTE 8 - NOTES PAYABLE - RELATED PARTIES (Details) [Line Items]
Debt Instrument, Interest Rate, Stated Percentage	2.00%

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NOTE 9 - WARRANT LIABILITY (Details) - USD ($)		12 Months Ended
	Oct. 21, 2016	Dec. 31, 2016	Dec. 31, 2015
Disclosure Text Block [Abstract]
Warrant, Description	In October 2016, the Company issued warrants to purchase up to $1,000,000 in common stock with the number of shares determined based on a 20-day average stock price prior to the date of exercise with the exercise prices discounted 40%.
Common Stock Equivalents, Value	$ 1,000,000	$ 1,000,000
Derivative Liability, Current	$ 937,951	985,163	$ 0
Derivative, Gain (Loss) on Derivative, Net		$ (47,212)	$ 0

XML

NOTE 9 - WARRANT LIABILITY (Details) - Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques - $ / shares		12 Months Ended
	Oct. 21, 2016	Dec. 31, 2016
Fair Value Measurements, Recurring and Nonrecurring, Valuation Techniques [Abstract]
Risk-free interest rate	0.66%	85.00%
Expected life in years	1 year	1 year
Dividend yield	0.00%	0.00%
Volatility	108.20%	120.00%
Stock price (in Dollars per share)	$ 0.08	$ 0.11

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NOTE 10 - COMMITMENTS AND CONTINGENCIES (Details)	1 Months Ended	12 Months Ended
	Dec. 31, 2016 USD ($)	Dec. 31, 2016 USD ($)	Dec. 31, 2016 CAD	Dec. 31, 2002 USD ($)	Dec. 31, 2001 USD ($)	Dec. 31, 2015 USD ($)
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Details) [Line Items]
Accounts Payable, Current	$ 459,654	$ 459,654				$ 491,044
Accounts Payable, Other, Current	$ 224,852	224,852				224,852
Other Commitments, Description	the Company terminated a Distribution and License Agreement with a distributor due to lack of market development related to the Company’s product by the distributor. In connection with the termination agreement, the Company negotiated the return of five disinfection units on or before January 17, 2017 for $25,000 per unit
Default Judgement [Member] | Rakas Litigation [Member]
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Details) [Line Items]
Accounts Payable, Current	$ 143,000	143,000				$ 143,000
Litigation Fees [Member] | Rakas Litigation [Member]
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Details) [Line Items]
Accounts Payable, Current	$ 21,308	21,308
Certified Laboratory Space [Member]
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Details) [Line Items]
Operating Leases, Rent Expense, Minimum Rentals | CAD			CAD 3,550
Settlement Amount, September 2001 [Member] | Rakas Litigation [Member]
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Details) [Line Items]
Litigation Settlement, Amount					$ 25,000
Settlement Amount, January 2002 [Member] | Default Judgement [Member] | Rakas Litigation [Member]
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Details) [Line Items]
Loss Contingency, Damages Sought, Value				$ 143,000
Building [Member]
NOTE 10 - COMMITMENTS AND CONTINGENCIES (Details) [Line Items]
Operating Leases, Rent Expense, Minimum Rentals		$ 2,556
Lease Expiration Date		Apr. 30, 2017	Apr. 30, 2017

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NOTE 11 - EQUITY TRANSACTIONS (Details)	1 Months Ended						2 Months Ended	3 Months Ended	12 Months Ended
	Oct. 31, 2016 USD ($) $ / shares shares	Sep. 30, 2016 USD ($) $ / shares shares	Jan. 31, 2016 USD ($) $ / shares shares	Nov. 30, 2015 USD ($) $ / shares shares	Aug. 31, 2015 USD ($) $ / shares shares	Feb. 28, 2015 USD ($) $ / shares shares	Mar. 31, 2015 USD ($) $ / shares shares	Jun. 30, 2015 USD ($) $ / shares shares	Dec. 31, 2016 USD ($) $ / shares shares	Dec. 31, 2015 USD ($) $ / shares shares	Dec. 15, 2016 shares	Dec. 14, 2016 shares
NOTE 11 - EQUITY TRANSACTIONS (Details) [Line Items]
Stock Issued During Period, Shares, New Issues		4,000,000							4,000,000
Proceeds from Issuance or Sale of Equity (in Dollars) | $									$ 160,000
Sale of Stock, Price Per Share (in Dollars per share) | $ / shares		$ 0.04							$ 0.04
Number of Investors		3
Stock Issued During Period, Shares, Issued for Services			500,000
Stock Issued During Period, Value, Issued for Services (in Dollars) | $			$ 48,000						$ 48,000
Shares Issued, Price Per Share (in Dollars per share) | $ / shares	$ 0.05		$ 0.096						$ 0.05
Stock Issued During Period, Value, New Issues (in Dollars) | $		$ 160,000							$ 1,160,000	$ 1,676,000
Stock Issued During Period, Shares, Conversion of Convertible Securities	20,000,000								20,000,000
Proceeds from Warrant Exercises (in Dollars) | $	$ 1,000,000								$ 1,000,000
Preferred Stock, Par or Stated Value Per Share (in Dollars per share) | $ / shares									$ 0.00001	$ 0.00001
Preferred Stock, Shares Authorized									50,000,000	50,000,000
Preferred Stock, Shares Issued									0
Common Stock, Shares Authorized									395,000,000	395,000,000	500,000,000	395,000,000
Restricted Stock [Member]
NOTE 11 - EQUITY TRANSACTIONS (Details) [Line Items]
Stock Issued During Period, Shares, New Issues				10,000,000	2,600,000	300,000	3,000,000	7,500,000
Proceeds from Issuance or Sale of Equity (in Dollars) | $				$ 1,000,000	$ 130,000	$ 21,000	$ 150,000	$ 375,000
Sale of Stock, Price Per Share (in Dollars per share) | $ / shares				$ 0.10	$ 0.05	$ 0.07	$ 0.05	$ 0.05
Number of Investors					5		7	8

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NOTE 12 - COMMON STOCK OPTIONS (Details)							1 Months Ended			12 Months Ended
	Oct. 21, 2016	Dec. 04, 2014 $ / shares shares	Oct. 07, 2014 USD ($) $ / shares shares	Aug. 15, 2014	May 06, 2014 $ / shares shares	Feb. 26, 2014 USD ($) $ / shares shares	Aug. 31, 2015 $ / shares shares	Aug. 31, 2013 $ / shares shares	May 31, 2012 $ / shares shares	Dec. 31, 2016 USD ($) shares	Dec. 31, 2015 USD ($) shares
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross										150,000
Share-based Compensation (in Dollars) | $										$ 48,000	$ 791,390
Fair Value Assumptions, Expected Dividend Rate	0.00%									0.00%
Employee Service Share-based Compensation, Nonvested Awards, Compensation Not yet Recognized, Stock Options (in Dollars) | $											104,647
Employee Stock Option [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation (in Dollars) | $										$ 0	$ 791,390
2014 Equity Compensation Plan [Mmember]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Authorized											6,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant										0
2016 Equity Incentive Award Plan [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Number of Shares Available for Grant										10,000,000
May 2012 [Member] | Non-Employee Stock Option [Member] | Options Granted for Distribution Channel Related Services [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross									1,000,000
Share-based Compensation by Share-based Payment Award, Options, Exercise Price of Options (in Dollars per share) | $ / shares									$ 0.17
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period									5 years
Share-based Compensation (in Dollars) | $											$ 69,300
August 2013 [Member] | Non-Employee Stock Option [Member] | Consultant [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross								250,000
Share-based Compensation by Share-based Payment Award, Options, Exercise Price of Options (in Dollars per share) | $ / shares								$ 0.10
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period								5 years
August 2013 [Member] | Employee Stock Option [Member] | Consultant [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation (in Dollars) | $											17,659
August 2013 [Member] | Share-based Compensation Award, Tranche One [Member] | Non-Employee Stock Option [Member] | Consultant [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares								50,000
August 2013 [Member] | Share-based Compensation Award, Tranche Two [Member] | Non-Employee Stock Option [Member] | Consultant [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares								200,000
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights								vesting upon the achievement of certain milestones
February 2014 [Member] | Non-Employee Stock Option [Member] | Consultant [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross						250,000
Share-based Compensation by Share-based Payment Award, Options, Exercise Price of Options (in Dollars per share) | $ / shares						$ 0.1095
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period						5 years
Share-based Compensation (in Dollars) | $											800
Number of consultants and service providers issued options						6
Share-based Compensation Arrangement by Share-based Payment Award, Options, Fair Value Grants in Period (in Dollars) | $						$ 24,023
February 2014 [Member] | Employee Stock Option [Member] | Director [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross						2,000,000
Share-based Compensation by Share-based Payment Award, Options, Exercise Price of Options (in Dollars per share) | $ / shares						$ 0.1095
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period						5 years
Share-based Compensation (in Dollars) | $											16,017
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights						1,000,000 vested February 26, 2015 and the remaining 1,000,000 options will vest upon the successful achievement of certain milestones. Unvested options vest immediately in the event of a change in control of the Company
February 2014 [Member] | Share-based Compensation Award, Tranche One [Member] | Non-Employee Stock Option [Member] | Consultant [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares						200,000
February 2014 [Member] | Share-based Compensation Award, Tranche One [Member] | Employee Stock Option [Member] | Director [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares						1,000,000
February 2014 [Member] | Share-based Compensation Award, Tranche Two [Member] | Non-Employee Stock Option [Member] | Consultant [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares						50,000
May 6, 2014 [Member] | Non-Employee Stock Option [Member] | Consultant [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross					100,000
Share-based Compensation by Share-based Payment Award, Options, Exercise Price of Options (in Dollars per share) | $ / shares					$ 0.19
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period					5 years
Share-based Compensation (in Dollars) | $											8,342
May 6, 2014 [Member] | Share-based Compensation Award, Tranche One [Member] | Non-Employee Stock Option [Member] | Consultant [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares					50,000
May 6, 2014 [Member] | Share-based Compensation Award, Tranche Two [Member] | Non-Employee Stock Option [Member] | Consultant [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares					50,000
October 7, 2014 [Member] | Employee Stock Option [Member] | Director [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			1,000,000
Share-based Compensation by Share-based Payment Award, Options, Exercise Price of Options (in Dollars per share) | $ / shares			$ 0.16
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period			5 years
Share-based Compensation (in Dollars) | $											105,133
Share-based Compensation Arrangement by Share-based Payment Award, Options, Vested, Number of Shares			1,000,000
Share-based Compensation Arrangement by Share-based Payment Award, Options, Fair Value Grants in Period (in Dollars) | $			$ 140,178
August 15, 2014 [Member] | Non-Employee Stock Option [Member] | Consultant [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period				5 years
Share-based Compensation Arrangement by Share-based Payment Award, Award Vesting Rights				The required milestones have been met and the shares are fully vested.
August 15, 2014 [Member] | Employee Stock Option [Member] | Director [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Outstanding, Intrinsic Value (in Dollars) | $										$ 1,597,426
December 4, 2014 [Member] | Non-Employee Stock Option [Member] | Consultant [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross		140,000
Share-based Compensation by Share-based Payment Award, Options, Exercise Price of Options (in Dollars per share) | $ / shares		$ 0.11
Share-based Compensation (in Dollars) | $											13,461
Number of consultants and service providers issued options		4
August 2015 [Member] | Stock Options for Services [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross							7,150,000
Share-based Compensation by Share-based Payment Award, Options, Exercise Price of Options (in Dollars per share) | $ / shares							$ 0.088
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period							5 years
Share-based Compensation (in Dollars) | $											541,687
August 2015 [Member] | Stock Options for Services [Member] | Director [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross							6,000,000
Number of directors issued options							5
August 2015 [Member] | Stock Options for Services [Member] | Four Consultants [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross							650,000
Number of consultants and service providers issued options							4
August 2015 [Member] | Stock Options for Services [Member] | Employee [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross							500,000
August 2015 [Member] | Stock Options for Services [Member] | Consultant [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross							250,000
Share-based Compensation by Share-based Payment Award, Options, Exercise Price of Options (in Dollars per share) | $ / shares							$ 0.085
Share-based Compensation Arrangement by Share-based Payment Award, Expiration Period							5 years
Share-based Compensation (in Dollars) | $											$ 18,991

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NOTE 12 - COMMON STOCK OPTIONS (Details) - Schedule of Fair Value Assumptions of Stock Options	12 Months Ended
	Dec. 31, 2016	Dec. 31, 2015
NOTE 12 - COMMON STOCK OPTIONS (Details) - Schedule of Fair Value Assumptions of Stock Options [Line Items]
Risk-free interest rate	1.85%	1.60%
Expected life	5 years
Expected volatility	130.34%	136.34%
Dividend yield	0.00%	0.00%
Minimum [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) - Schedule of Fair Value Assumptions of Stock Options [Line Items]
Risk-free interest rate		1.52%
Expected volatility		131.33%
Maximum [Member]
NOTE 12 - COMMON STOCK OPTIONS (Details) - Schedule of Fair Value Assumptions of Stock Options [Line Items]
Expected life		5 years

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NOTE 12 - COMMON STOCK OPTIONS (Details) - Schedule of Share-Based Compensation, Stock Options, Activity	12 Months Ended
	Dec. 31, 2016 $ / shares shares
Schedule of Share-Based Compensation, Stock Options, Activity [Abstract]
Outstanding, January 1, 2016 | shares	20,965,000
Outstanding, January 1, 2016 | $ / shares	$ 0.18
Granted | shares	150,000
Granted | $ / shares	$ 0.00
Expired/Canceled | shares	(400,000)
Expired/Canceled | $ / shares	$ 0.10
Outstanding, December 31, 2016 | shares	20,715,000
Outstanding, December 31, 2016 | $ / shares	$ 0.14
Exercisable | shares	19,640,000
Exercisable | $ / shares	$ 0.14

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NOTE 13 - GOING CONCERN (Details) - USD ($)	1 Months Ended		12 Months Ended
	Oct. 31, 2016	Sep. 30, 2016	Dec. 31, 2016	Jan. 31, 2016	Dec. 31, 2015	Dec. 31, 2014
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Retained Earnings (Accumulated Deficit)			$ (38,072,182)		$ (35,398,346)
Working capital (deficit)			(4,126,861)
Stockholders' Equity Attributable to Parent			$ (4,046,145)		$ (2,569,234)	$ (3,021,832)
Substantial Doubt about Going Concern, Conditions or Events			The Company believes that it will need approximately $1,500,000 during the next 12 months for continued production manufacturing research, development, and marketing activities, as well as for general corporate purposes.
Proceeds from Issuance or Sale of Equity			$ 160,000
Stock Issued During Period, Shares, New Issues (in Shares)		4,000,000	4,000,000
Sale of Stock, Price Per Share (in Dollars per share)		$ 0.04	$ 0.04
Proceeds from Warrant Exercises	$ 1,000,000		$ 1,000,000
Stock Issued During Period, Shares, Conversion of Convertible Securities (in Shares)	20,000,000		20,000,000
Shares Issued, Price Per Share (in Dollars per share)	$ 0.05		$ 0.05	$ 0.096

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NOTE 14 - SUBSEQUENT EVENTS (Details) - USD ($)				12 Months Ended
	Mar. 01, 2017	Feb. 28, 2017	Feb. 02, 2017	Dec. 31, 2016
NOTE 14 - SUBSEQUENT EVENTS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross				150,000
Subsequent Event [Member]
NOTE 14 - SUBSEQUENT EVENTS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross			5,700,000
Subsequent Event, Description		On February 28, 2017, the Company entered into separation and release agreements (Separation Agreements) with our former Chairman and CEO, Edwin Marshall, and our former Director of Operation, Dr. Jill Marshall. The Separation Agreements include principal payment schedules for promissory notes issued to these individuals and modify the terms of common stock option awards granted to them under the 2014 Equity Incentive Plan by increasing the exercise period of the grants from three weeks to three years following termination.
Stock Issued During Period, Shares, Share-based Compensation, Gross	1,000,000
Chief Executive Officer [Member] | Subsequent Event [Member]
NOTE 14 - SUBSEQUENT EVENTS (Details) [Line Items]
Stock Granted, Value, Share-based Compensation, Gross (in Dollars)	$ 1,000,000
Chief Executive Officer [Member] | Share-based Compensation Award, Tranche One [Member] | Subsequent Event [Member]
NOTE 14 - SUBSEQUENT EVENTS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	750,000
Chief Executive Officer [Member] | Share-based Compensation Award, Tranche Two [Member] | Subsequent Event [Member]
NOTE 14 - SUBSEQUENT EVENTS (Details) [Line Items]
Share-based Compensation Arrangement by Share-based Payment Award, Options, Grants in Period, Gross	250,000